CMS Releases its 2012 ACO Application; Pioneer ACOs Advance

by J. Peter Rich and Lesley DeRenzo

Medicare MSSP ACOs

Pursuant to the Medicare Shared Savings Program (MSSP) final rule released on October 20, 2011, the Centers for Medicare and Medicaid Services (CMS) has released its 2012 Accountable Care Organization (ACO) application.  Organizations interested in participating as an ACO in the MSSP created under the Patient Protection & Affordable Care Act may now move forward with the application process. 

Organizations must submit a brief Notice of Intent (NOI) to CMS by 5:00 p.m. EST on January 6, 2012.  A link to the NOI is accessible here.

Once CMS receives and processes an applicant’s NOI, the applicant will receive an acknowledgement letter from CMS that contains the applicant’s ACO ID.  Additionally, CMS will provide the applicant with detailed information on how to obtain a CMS user ID (which is necessary to apply for the MSSP). 

After an applicant has obtained an ACO ID and CMS user ID, the applicant should submit the MSSP application to CMS by no later than 5:00 pm EST on January 20, 2011, for the April 1, 2012 contract start date.  Applicants wishing to participate starting July 1, 2012, should submit the MSSP application to CMS by no later than 5:00 pm EST on March 30, 2012.  

For more information about the MSSP application process click here

Separate ACO Development - Pioneer ACOs Advance

In a separate ACO development, CMS has recently pursued partnerships with ACOs through its Pioneer ACO model, led by the Center for Medicare & Medicaid Innovation (CMI) within CMS.  The Pioneer ACO program has been designed for health care providers that have relatively more experience with an integrated delivery system model, and thus, greater readiness to contract with CMI as an ACO.  Approximately 40-50 of the Pioneer ACO applicants were offered contracts, and approximately 25-30 Pioneer ACOs are expected to enter into contracts with CMI.  CMI’s collaborations with Pioneer ACOs are aimed at achieving better care for individuals, better health for populations, and reduced expenditures for Medicare, Medicaid, and CHIP beneficiaries.

For more information about CMI click here.

Webcast: Strategies to Deal with the Patient Protection & Affordable Care Act

Live Knowledge Congress Webcast
Strategies to Deal with the Patient Protection & Affordable Care Act
September 13, 2011, Noon to 2 pm (EST)

Panel includes Susan Nash, Co-Chair of McDermott Will & Emery’s Health and Welfare Benefits Group.

The Patient Protection & Affordable Care Act (PPACA or “Health Reform Bill”) has been the subject of significant legal and policy debate since it was enacted in April 2010.  The legislation has been both hailed as an important victory in the battle to improve the quality and accessibility of healthcare in the United States, and challenged as unconstitutional and ineffective in reducing medical costs and otherwise incenting choice and value in medical care and services.

Amidst this debate, legal and business strategies for dealing with the aspects of Health Reform that have been, or soon will be, implemented are often left in the background.  These strategies are critical for ensuring compliance and optimizing business performance as PPACA rolls out. No matter how the broader policy or legal debate resolves, entities affected by PPACA must consider the Act’s impact on reimbursement, cost protection, and other day-to-day operational issues.

Strategies to Deal with the Patient Protection & Afford Care Act  LIVE Webcast is a must-attend for healthcare professionals, health policy directors, health executives, pharmaceutical and medical device manufacturers and others who are interested in developing practical strategies to deal with healthcare reform.  The Knowledge Group has assembled a panel of key thought leaders and regulators to discuss the fundamentals and updates regarding this topic.

Click here to register for the event.

To receive a discount courtesy of McDermott Will & Emery, please enter this code: will8992.

Supreme Court Receives New Request to Consider Constitutionality of Health Reform Law

by Webb Millsaps and J. Peter Rich

The Supreme Court of the United States received a new request today that it consider the question of whether the “individual mandate” under the Affordable Care Act (the ACA) is constitutional or not. The petition of certiorari was filed by the Thomas More Law Center, one of several plaintiffs challenging the ACA on constitutional grounds in various litigation now working through the federal courts. The filing today requesting Supreme Court review took less than a month after the Sixth Circuit Court of Appeals handed down a 2-1 decision that rejected the Thomas More Law Center’s challenge to the ACA and declared that the individual mandate was constitutional. After losing the Sixth Circuit decision before the three-judge panel, the Thomas More Law Center could have made a request that the Sixth Circuit rehear the case en banc, meaning that all of the Sixth Circuit judges (as many as 26 judges, depending on factors such as current vacancies) would rehear the case and issue a decision. En banc hearings are somewhat rare and are usually reserved for especially complex cases or ones of considerable public importance.

The July 27, 2011 filing is not the first time one of the litigants challenging the ACA has requested that the Supreme Court take up the matter. In April of this year, the Supreme Court refused a request from the State of Virginia that its challenge to the individual mandate and the ACA be heard by the high court on an accelerated basis. Virginia’s request was different in an important respect from the July 27 petition by the Thomas More Law Center because Virginia sought to leap frog the intermediate step of going before a U.S. Circuit Court of Appeals, preferring instead to ask for the extraordinary step of immediately proceeding to the Supreme Court. Accordingly, Virginia’s request represented a departure from the normal course of review and at the time no one was surprised that the Supreme Court preferred that the Virginia matter first be heard by the Fourth Circuit Court of Appeals.   It is also worth noting that Virginia’s request was different from the July 27 request by the Thomas More Legal Center in the sense that Virginia won in its original petition (at least in large part) because the original federal district court had sided with Virginia in its position that the individual mandate was unconstitutional, whereas the Thomas More Law Center has now lost before a federal district court and the Sixth Circuit. 

Throughout the legal battle, the Obama Administration has taken the position that the legal process should play out methodically and go through the appropriate stages of appeal. This may be a political preference and a legal strategy that the Administration views as beneficial to it. Regardless, the Supreme Court itself has a strong, historical preference that, absent extraordinary urgency, it only consider matters after a complete review has taken place in applicable lower courts. 

It is highly unlikely that the Supreme Court will consider taking up the challenges to the ACA until both the Fourth Circuit Court of Appeals and the Eleventh Circuit Court of Appeals have rendered decisions on the ACA cases currently before them. As we have stated previously, if either of those circuit courts strike down the individual mandate or, possibly even the ACA entirely, that would establish a circuit split given that the Sixth Circuit ruled in support of the individual mandate. And if there is a circuit split after decisions are rendered in the other pending cases, it is likely that the Supreme Court will take up the matter more quickly.  In that event, if the high court takes the case this fall, it will likely decide the constitutionality of health care reform just months before the 2012 election.

Split Decision: U.S. Appellate Court Finds Health Reform Law is Constitutional

by J. Peter Rich and Webb Millsaps

The Obama Administration enthusiastically embraced a legal victory yesterday when, in a 2-1 split decision, a federal appeals court panel upheld a lower federal court decision finding that the federal Health Reform Law is constitutional.  Some observers quickly seized on the fact that one of the two votes upholding the Health Reform Law was a conservative Republican judge, Jeffrey Sutton, who once clerked for Supreme Court Justice Antonin Scalia.  The third judge, a Reagan appointee, dissented on the substantive issue, arguing that the Health Reform Law is unconstitutional.

The core question remains an extremely close one.  The three judges on the panel were not unanimous and the opinion itself gives some further indications that the matter could go either way when it is finally decided by the Supreme Court.   For example, Judge Sutton, who concurred in part and wrote the majority opinion in part, indicated that his opinion is just one step in the process – at one point he essentially refers to the appeals court as a “middle management judge” and then later goes on to observe that he is “[m]indful that we at the court of appeals are not just fallible but utterly non-final in this case…” 

Whether today's decision has any ultimate impact will turn on its persuasive power and, in particular, whether the logic of the opinion is deemed compelling by the Supreme Court of the United States.  Even before this case approaches the high court, several additional steps will occur. First, the challengers could request the Sixth Circuit Court of Appeals to re-hear the case en banc, although information posted on the lead challenger’s website indicates that this option will not be pursued and that the challengers prefer that the case proceed directly to the Supreme Court.  In any event, the Sixth Circuit decision is just the first of the three appellate court reviews; two other federal appeals courts are currently considering similar challenges to the Health Reform Law.  In contrast to the Sixth Circuit’s decision in which the lower court had already found the Health Reform Law to be constitutional, the other two circuits, the Fourth and the Eleventh, would have to reverse lower courts that have previously rejected the Health Reform Law as being unconstitutional.   If either of those circuit courts decides the opposite way of today’s decision, the odds will increase that the Supreme Court will take up the matter more quickly.   If the high court takes the case this fall, it could decide the constitutionality of health care reform just months before the 2012 election.

Schedule H's PPACA Questions Optional for Tax-Exempt Hospital

by Michael N. Fine

Yesterday, the Internal Revenue Service (IRS) announced that tax-exempt hospitals need not answer certain questions related to the Patient Protection and Affordable Care Act's (PPACA) requirements for their continued tax exemption. 

As you may recall, the PPACA added exemption requirements for tax-exempt hospitals through new Section 501(r) to the Internal Revenue Code.  Earlier this year, the IRS released a redesigned Schedule H, Hospitals,to the Form 990 that included Section 501(r)-related questions focusing on each facility's (i) community health needs assessment practices, (ii) financial assistance policies, (iii) billing and collection practices, and (iv) charges for medical care. 

Today's announcement makes answering these questions optional for the 2010 reporting year.  This gives tax-exempt hospitals more time to analyze the schedule's new questions and better prepare for future disclosures.  No penalties will be assessed against tax-exempt hospitals that choose to leave blank this Schedule H subpart.

Key Takeaways

  • Tax-exempt hospitals must still wait until at least July 1, 2011, to file their 2010 returns.  In February, the IRS directed tax-exempt hospitals to delay filing their Forms 990.  The stated purpose for this unusual delay was to give the IRS additional time to implement changes to the IRS forms and systems to accommodate the additional requirements for charitable hospitals.  Today's announcement does not effect the July 1st delay.
  • While the new Schedule H questions are optional, tax-exempt hospitals must still demonstrate that they comply with Section 501(r)'s requirements or else risk losing their exempt status.  The announcement does not alter Section 501(r)'s effectiveness, just the reporting disclosure timeframe.
  • A tax-exempt hospital must still attach a copy of its most recent audited financial statements to its 2010 Form 990 if its reporting period began after March 23, 2010.  This requirement reflects another Affordable Care Act requirement.
  • The announcement encourages the tax-exempt hospital community to provide comments on how to improve the clarity and reduce the reporting burden of the Form 990 and Schedule H.

A copy of IRS Announcement 2011-37 is attached and available at:

Florida Federal Court Rules Health Reform Law Unconstitutional; Implementation Continues; Challenges Inevitably Headed for Supreme Court Resolution

On Monday, January 17, 2011, a U.S. District Court in Florida found the Patient Protection and Affordable Care Act (PPACA) to be unconstitutional, virtually assuring that the Supreme Court will resolve the question of PPACA’s constitutionality.  The opinion, written by Reagan appointee Judge Roger Vinson, states that the federal government does not have the constitutional authority to impose the “individual mandate” (IM) on citizens.  Vinson also concludes that the IM, found in Section 1501 of PPACA, is not severable from the rest of PPACA and that consequently PPACA is unconstitutional as a whole. 

On December 14, 2010, a federal judge in Virginia reached the same conclusion as the Florida federal court regarding the unconstitutionality of the IM. In that opinion, however, Judge Henry Hudson ruled that the IM was severable from PPACA’s other provisions, except for provisions which were “directly dependent” on the IM and which make specific reference to Section 1501 of PPACA.  Prior to the Virginia and Florida decisions striking down the IM, two other federal district court judges (a decision in Virginia and a decision in Michigan) had reached the opposite conclusion and determined that the federal government does, in fact, have the constitutional power to impose the IM.

The Florida opinion states that the case is “not really about the health care system at all,” but rather “principally about the federalist system” and the role of the federal government.  It is established that individual states generally have the authority to pass laws compelling people to purchase insurance (depending on state constitutional provisions), as is the case in Massachusetts. 

The federal government has a relatively short list of “enumerated powers” under the U.S. Constitution, many of which grant particularized authority under the Constitution for the federal government to enact laws in those specific areas (e.g. the power to coin money, establish an army and navy, establish a post office, or declare war).  As is the case with most federal laws, there is no specific, enumerated power authorizing Congress to enact the IM and so the authority for Congress to legitimately enact the IM only exists if the IM is deemed grounded in one of Congress’s broader constitutional powers, such as the power to tax and spend or to regulate interstate commerce.

All four federal courts that have issued an opinion to date have reached the conclusion that the IM is not a tax and therefore would not be constitutionally justified under the federal government’s taxation authority.  Both Judge Vinson in Florida and Judge Hudson in Virginia found that the IM could also not be justified under the commerce clause (i.e. the grant of authority to regulate interstate commerce). 

Noting that for the first century of the country’s history the commerce clause was “seldom invoked by Congress” as a basis for law-making authority, Judge Vinson writes that “everything changed in 1937” beginning with three significant new deal cases in which the Supreme Court took a more expansive view of the power granted to the federal government under the commerce clause.  Despite the generally expanded view of the commerce clause over the past 70 years, Vinson found that it would be “a radical departure from existing case law to hold that Congress can regulate inactivity [i.e. an individual’s decision to not purchase health insurance] under the commerce clause.”  In concluding that that the IM could not be severed from health reform as a whole, Judge Vinson noted that the IM is “indisputably necessary to [the health reform law’s] insurance market reforms, which are in turn, indisputably necessary to the purposes of the [health reform law].”

The Justice Department is expected to appeal the ruling.  Meanwhile, CMS and HHS will continue the process of promulgating regulations in keeping with the implementation timelines under PPACA.  Initial reaction from the states is mixed, with some states indicating they will proceed with implementation and other states indicating they plan to scale back or discontinue their implementation efforts.  Virginia’s Attorney General, Ken Cucinelli, issued a press release January 26, saying that at present “there is a great deal of uncertainty for states, individuals, and businesses” and expressing concern that “decisions are already being made and money is already being spent to comply with a law that may not be around two years from now.” 

In other court action, in late January, the Fourth Circuit Court of Appeals granted a motion to expedite a review of Judge Hudson’s decision and will likely schedule a hearing in May 2011, but Cuccinelli announced today, February 3, that Virginia will request that the Supreme Court take the case directly and skip the Circuit Court review entirely.  Cuccinelli said “we need this suit resolved as quickly as possible, for the good of our citizens and our economy.”  The issues of the constitutionality of the IM and whether or not the IM is severable from PPACA’s numerous other provisions will likely ultimately be settled by the Supreme Court. 

Meanwhile, on February 2,  the Senate defeated a procedural motion 47-51 on a Republican effort to repeal PPACA thus blocking Republican efforts led by Senate Minority Leader Mitch McConnell (R-KY) to repeal the health reform law.  It is clear that during the lead-up to the November 2012 elections, we will see continued efforts to thwart implementation of the health reform law. 

CMS Proposes Rule to Pay Hospitals For Delivering Quality Care to Inpatients

Today, January 13, 2011, the Centers for Medicare & Medicaid Services (CMS) published a proposed rule that would reward hospitals for providing safe and high quality patient care.  The proposed rule, required under Section 3001 of the Patient Protection and Affordable Care Act, would provide higher payments to hospitals that perform well on certain quality measures relating to both clinical process and patient experience of care.  The head of CMS, Donald Berwick, says the proposed rule would constitute “a huge leap forward in improving the quality and safety of America’s hospitals for both Medicare beneficiaries and all Americans.”

This program, known as the hospital inpatient value-based purchasing program, would apply to Medicare payments under the Inpatient Prospective Payment System (IPPS) for inpatient stays in more than 3,000 acute care hospitals beginning in FY 2013 and applicable to payments for discharges occurring on or after October 1, 2012.  The incentive payments to acute care hospitals would be based either on how well a hospital performs on certain quality measures or, alternatively, how much a hospital’s performance improves on certain quality measures from their performance during a baseline period.  The higher a hospital’s performance or improvement during the performance period for a fiscal year, the higher the hospital’s value-based incentive payment for the fiscal year would be.

Since 2004, CMS has collected quality and patient experience data from acute care hospitals on a voluntary basis under the Hospital Inpatient Quality Reporting (IQR) Program.  The vast majority of hospitals now choose to participate in the IQR program in order to be eligible for the full annual percentage increase in reimbursements each year, as a result of legislation requiring Medicare to reduce the annual percentage increase for hospitals that did not participate in the reporting program.  Data regarding hospital performance can be found on the Hospital Compare website.

The hospital value-based purchasing program goes further than the IQR program by offering incentives to hospitals not just for reporting data, but also based on positive quality performance as demonstrated by the data.  According to Berwick, “Value-based purchasing repositions Medicare from an observer of nationwide hospital quality to a formidable force in shaping quality going forward.”

CMS will accept comments on the proposed rule until March 8, 2011, and will respond to them in a final rule to be issued next year. In commenting, stakeholders should reference file code CMS–3239–P.  Comments to CMS may be provided electronically here.  Alternatively, comments may be provided by mail, overnight delivery or by hand/courier at the addresses set forth in the proposed rule.

To read the CMS Fact Sheet on hospital inpatient value-based purchasing program, click here.

To read the hospital inpatient value-based purchasing program in the Federal Register, click here.

NAIC approves "Model Act" for State Insurance Exchanges

On Friday, December 17, 2010, the National Association of Insurance Commissioners (NAIC) approved a model law for state insurance exchanges. Each state is required under Patient Protection and Affordable Care Act (PPACA) to establish an “American Health Benefit Exchange” by January 1, 2014. 

The NAIC’s American Health Benefit Exchange Model Act provides a basic statutory framework designed to comply with PPACA’s mandates. PPACA has two basic categories of requirements for these state exchanges: (1) minimum functions that the exchanges must undertake, and (2) oversight responsibilities that exchanges must exercise in certifying and monitoring the performance of “quality health plans” (QHPs).

The exchanges are supposed to help individuals obtain QHPs and help small group employers to obtain coverage for employees. According to the Model Act, the “intent of the Exchange is to reduce the number of uninsured, provide a transparent marketplace and consumer education and assist individuals with access to programs, premium assistance tax credits and cost-sharing reductions.”

It is widely understood that states will need plenty of lead time to properly plan and implement exchanges.  Further, PPACA provides that the Secretary can set up and operate an exchange in any state if “the Secretary determines on or before January 1, 2013” that a state will not be able to meet the 2014 deadline.  The U.S. Department of Health and Human Services (HHS) published its first guidance on state insurance exchanges on November 18, 2010.  The first Notice of Proposed Rulemaking for federal regulation governing the state exchanges will be published in early 2011. 

Even states that have joined in court challenges to PPACA have indicated they are moving forward to plan for the insurance exchanges.  In September 2010, forty-eight states and the District of Columbia were awarded their first grants from the federal government under PPACA to be used for planning the implementation of exchanges.  Additional grants to states are available in 2011, but states will have to meet certain milestones in order to be awarded more grants. 

Virginia Federal Judge Rules on Constitutionality of U.S. Health Care Reform Law

On December 13, 2010, Judge Henry E. Hudson of the U.S. District Court for the Eastern District of Virginia declared portions of the Patient Protection and Affordable Care Act (PPACA) unconstitutional.  The lawsuit challenging PPACA’s “individual mandate,” which, starting in 2014, requires citizens to pay a penalty if they do not purchase health insurance, was brought by Virginia’s Attorney General, Ken Cuccinelli.

Cuccinelli argued the federal government does not have the constitutional authority to impose the individual mandate.  This marks the first decision by a judge striking down any portion of PPACA.  Final resolution on the “individual mandate” will not be immediate.  Two other federal courts recently rendered decisions upholding PPACA and observers unanimously agree the Supreme Court eventually will determine PPACA’s constitutionality.  Many commentators have suggested for months that, regardless of how the legal issues play out, the relatively modest penalties imposed by the individual mandate would prove insufficient to cause uninsured people to buy health insurance (particularly younger and healthier people) and that Congress might well delay the implementation of the mandate for political reasons.

The December 13 decision needs to be studied carefully, and in relationship to all of the components of the recently enacted U.S. health care reform law.  How and to what extent this ruling affects other aspects of the health reform bill, either directly through legal susceptibility or indirectly due to the practical interdependence of the parts, is yet to be seen.  What is critical, however, and should not be lost in the headlines, is that the result of the PPACA legislation is a transformation of how employers, consumers, insurance companies and providers work together to meet the demand for health care services that can be delivered at lower cost, with higher quality and with outcomes that can be measured that will then serve as a basis for payment.

Regardless of the constitutionality of the insurance mandate, hospitals, physicians and public and private insurers are being pushed and pulled by the market, as well as new government programs, to develop alternatives to fee-for-service payment models.  Patients, employers and public and private insurers will continue to demand that providers focus on outcomes, cost reduction and quality of care.  The underlying market reality will continue to demand that the quality curve bend up and the cost curve down.

IRS Releases New Guidance on W-2 Reporting Requirement

The Patient Protection and Affordable Care Act of 2010 mandated that employers report the aggregate cost of applicable employer-sponsored coverage on Form W-2, Wage and Tax Statement, beginning January 1, 2011. On October 12, 2010, the Internal Revenue Service (IRS) released Notice 2010-69, which provides interim relief to employers with respect to this reporting requirement. Thus this notice makes such reporting for 2011 voluntary versus mandatory. Employers who choose not to report the aggregate cost of applicable employer-sponsored coverage on Form W-2, Wage and Tax Statement, beginning January 1, 2011, will not be subject to any penalties for failure to meet such requirements. The U.S. Treasury Department and the IRS anticipate issuing guidance on the new Form W-2 reporting requirement before the end of the 2010 calendar year. If an employer does decide to report applicable employer-sponsored coverage on Form W-2, the IRS has also released a draft Form W-2 with some instructions.

Health Care Reform: An Implementation Checklist for Hospitals

In the months since the Patient Protection and Affordable Care Act (PPACA) was enacted, organizations have been inundated with law and consulting firm client advisories, articles and seminars—all focused on summarizing the new health care reform law.  But to what extent have those articles and seminars provided a clear plan of action and said clearly, "Do this"?

This checklist provides that action plan and will help hospital and health system executives make sense of the new health care reform law, and translate it into specific action steps for their institution.

The checklist provides hospital and health system executive leadership with concise implementation recommendations to address each of the key themes of the health care reform law including:

  • fraud and abuse enforcement
  • insurance reforms
  • reimbursement
  • employment matters
  • tax-exempt status
  • information technology
  • corporate governance
  • strategic alliances

The checklist is intended to serve as a “yardstick” by which hospital and health system executives can measure their progress in responding to health system reform changes.

Click here to receive a copy of this checklist.

Additional resources on each of the topics covered and lawyers who specialize in these areas can be found here.

Guidance on Claims and Appeals Rules

Recently issued rules clarify internal claims and appeals procedures and external review processes, and provide details on external review requirements under the Patient Protection and Affordable Care Act.

Click here to read the full article.

Elimination of Retiree Drug Subsidy Deduction

Employers that currently receive a federal subsidy for providing retiree prescription drug coverage will no longer be able to take a deduction for those retiree drug expenses with respect to that subsidy as of 2013 under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010. 

Click here to view the full article.

New Deduction Limit on Compensation Paid by Certain Health Insurers

The recently enacted health care reform laws create a new broad-based $500,000 annual deduction limit on all compensation paid by certain health insurers and their related companies to all employees and other individual service providers.  There are no special exceptions for certain types of deferred compensation, performance-based compensation or commissions.  The new limit generally applies to compensation paid in 2013 and later tax years.

Click here to view the full article. 

PPACA Interim Final Regulations on Pre-existing Condition Exclusions, Lifetime and Annual Limits, Rescissions and Patient Protections

The U.S. Departments of Health and Human Services, Labor and the Treasury have issued interim final rules on pre-existing condition exclusions, lifetime and annual limits, rescission of coverage and patient protections.  Employers and insurers should review their current health plan designs to ensure compliance with these interim final rules.

Click here to view the full article.

Early Retiree Reinsurance Program Draft Application Released

On May 6, 2010, McDermott Will & Emery reported on the Patient Protection and Affordable Care Act’s new Early Retiree Reinsurance Program (the Program) interim final regulations.  The Program went into effect on June 1, 2010.  A prerequisite for participation in the Program is for a plan sponsor to submit a timely application for certification to the Secretary, or the Secretary’s designee. 

On June 1, 2010, a draft application and set of instructions for the Program was posted to the website of the Office of Management and Budget.  A final application will be available at a later date in June, prior to the date on which the U.S. Department of Health and Human Services (HHS) will begin accepting applications, and will be posted on the HHS Office of Consumer Information and Insurance Oversight’s website.  McDermott will keep you informed when this final application is posted.

In the meantime, if you have any written comments on the interim final regulations, the Firm can forward your input to HHS on an anonymous basis.  The comment deadline is June 4, 2010. 

Implementation of FY 2011 Hospital Payment Provisions

Health care providers should review the Proposed Rule on hospital payment policies posted by the Centers for Medicare and Medicaid Services (CMS) and consider submitting comments on the effects of the suggested provisions.

Click here to view the full article. 

Comparative Effectiveness Research

The recently enacted Patient Protection and Affordable Care Act built on federal efforts to support and direct research comparing patient treatments.  Drug manufacturers, diagnostics companies, medical device manufacturers and health services providers should carefully monitor and selectively engage in the formal and informal processes that will shape the development of the Patient Centered Outcomes Research Institute, conduct of research and communication of research findings.  

Click here to view the full article.

IRS Guidance on Health Coverage for Children Under Age 27


Health Reform Provisions

The Internal Revenue Service (IRS) issued Notice 2010-38, which provides guidance under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, (collectively, the Act) on the tax treatment of health coverage and medical reimbursements for children under age 27.  Taxpayers may rely on Notice 2010-38, pending the issuance of amended U.S. Treasury regulations.

Section 105(b) of the Internal Revenue Code generally excludes from an employee’s gross income employer-provided reimbursements made to an employee for the medical care of the employee, the employee’s spouse or the employee’s dependents.  Coverage under an employer-provided accident or health plan is excluded from an employee’s gross income under Code Section 106.  Effective March 30, 2010, the Act extended these exclusions to coverage under an employer-provided plan and to expenses incurred for the medical care of an employee’s child who has not attained age 27 as of the end of the taxable year.

Notice 2010-38 also clarifies the tax treatment of these dependent benefits under cafeteria plans, VEBAs and Section 401(h) accounts.

Your Next Moves

Cafeteria plans must be amended by December 31, 2010, in order to cover children under age 27 for the 2010 plan year.  Amendments for the 2011 and subsequent plan years should be made prospectively.  Employer sponsors of group health plans should analyze their current benefit plan design to determine whether they will extend health coverage to children under age 27 in the 2010 plan year or wait until 2011 to implement this change.

Click here to view the full article.


Navigating the Principal "Immediate" Health Insurance Reforms

Among the more popular reforms included in the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, are the “immediate health insurance reforms.”  These provisions, which affect group health plans and insurers offering group or individual health insurance, become effective for plan years beginning on or after September 23, 2010.  This summary addresses the principal immediate health insurance reforms, namely expansion of dependent coverage, prohibition on excluding children based on pre-existing conditions, coverage of preventive health services, limitations on rescission practices, and regulation of annual and lifetime limits on essential health benefits.

Click here to view the full article.

Law Imposes Requirement to Report and Return Medicare and Medicaid Overpayments Within 60 Days

New requirements contained in the health care reform legislation increase the pressure on health care providers, suppliers, Medicare Advantage and Part D Plan sponsors, and others to return identified Medicare and Medicaid overpayments in a timely fashion, at risk of being alleged to have violated the False Claims Act. 

Click here to read the full article.

The Impact of Health Reform on Skilled Nursing Facilities

The recently enacted federal Patient Protection and Affordable Care Act (PPACA) includes significant fraud fighting and program integrity initiatives, in addition to the more widely publicized provisions dealing with health insurance coverage.  Some of these provisions apply to all providers and suppliers under federal health care programs, while others are aimed at specific health industry sectors.  By far the most extensive provider-specific terms are aimed at skilled nursing facilities and nursing facilities.  These provisions have created greater transparency with respect to complex ownership structures as well as enhanced data available to consumers and regulators on quality of care, staffing profiles and training issues. 

Click here to read the full article.

Patient Protection and Affordable Care Act Expands Hospital Eligibility for 340B Program

The 340B drug discount program allows certain hospitals and federal-grant-funded clinics to purchase covered outpatient drugs at prices substantially lower than available to other facilities.  The Patient Protection and Affordable Care Act expanded the types of hospitals eligible to participate in the program and instituted new programs for ensuring that both pharmaceutical manufacturers and covered entities comply with 340B program requirements.

Click here to read the full article.

ACOs and Developments in Coordinated Care Delivery, Shared Savings and Bundled Payments

The recently enacted Patient Protection and Affordable Care Act has generated significant interest in a new form of integrated delivery system known as an accountable care organization (ACO).  The Act specifically creates a separate ACO demonstration project within the Medicare Program, and provides for the implementation of several other coordinated care demonstration programs and the creation of a new entity within the Centers for Medicare and Medicaid Services that has the authority to test proposed methods of coordinated care delivery.  All health systems, community hospitals and physician groups should swiftly consider and carefully analyze forming or otherwise participating in an ACO or similar organization in order to respond effectively to the emerging changes in U.S. health care flowing from the new federal health care reform law and related initiatives sponsored by commercial payors.

Click here to read the full article.

Legislation Requires Development of Standards and Protocols for Electronic Enrollment, and Eligibility Notification and Verification

On March 23, 2010, President Obama signed into law H.R. 3590, the Patient Protection and Affordable Care Act (the Act).  This sweeping health reform legislation requires the U.S. Department of Health & Human Services to develop interoperable and secure standards and protocols to facilitate the enrollment of individuals in federal and state health and human services programs, and authorizes grants to state and local governments to promote the implementation of health information technology to facilitate enrollment in the programs.  All stakeholders affected by the federal government’s development of standards and protocols under the Act should closely monitor and, where possible, provide input on their development. 

Click here to read full article.

New Requirements for Tax-Exempt Hospitals

The Facts

The Patient Protection and Affordable Care Act (Pub. L. No. 111-148) includes four primary adjustments to the federal income tax exemption requirements for nonprofit hospitals.  Under the act, tax-exempt hospitals must take the following actions:

  • Conduct a community health needs analysis at least once every three years, soliciting input from the communities that they serve
  • Make widely available their financial assistance policies, which must specify eligibility criteria and, for discounted care, how they determine amounts that are billed to patients
  • Notify patients of financial assistance policies through “reasonable efforts” before initiating various collection actions or reporting accounts to a credit rating agency
  • Restrict charges of uninsured, indigent patients to those amounts generally charged to insured patients

The act imposes penalties on hospitals that fail to timely conduct their community health needs assessments.  Under the act, the Internal Revenue Service must review the exempt status of hospitals every three years.  In addition, the act requires the U.S. Department of the Treasury, in consultation with the U.S. Department of Health and Human Services (HHS), to prepare an annual report for the U.S. Congress on charity care, bad debt expenses, certain unreimbursed costs and costs incurred for community benefit activities.  In five years, Treasury and HHS must also provide Congress with a report on community benefit-related trends.

What’s at Stake

In light of a recent Illinois Supreme Court decision denying property tax exemption to a nonprofit hospital, these new standards contribute to the ongoing dialogue with respect to whether and to what extent nonprofit hospitals are distinguishable from for-profit hospitals and deserve federal income tax exemption.  These provisions can be viewed as requirements that will differentiate tax-exempt hospitals and improve transparency of how they fulfill their charitable, patient-care missions.

Steps to Consider

Tax-exempt hospitals should quickly consider how to comply with the act’s new requirements for federal income tax exemption.  While most of the act’s provisions have postponed effective dates, the tax-exempt specific requirements for hospitals will be effective very soon, perhaps as soon as tax years beginning April 1, 2010.

Enacted Health Care Legislation: Effect on Employers

The Facts

The Patient Protection and Affordable Care Act was enacted on March 23, 2010, and the Health Care and Education Affordability Reconciliation Act is expected to be enacted shortly.  This health care legislation contains provisions that will strongly impact employers.  These provisions include the requirement that employers with 50 or more employees offer qualifying health coverage or pay a penalty of $2,000 per uncovered employee, elimination of the Medicare Part D subsidy tax exemption and imposition of a 40 percent excise tax on health coverage that exceeds certain thresholds.  In addition, the legislation limits health care reimbursement account contributions to $2,500 per year and no longer allows over-the-counter drugs to be reimbursed through health reimbursement accounts or health savings accounts unless prescribed by a physician. 

The legislation also requires group health plans that cover dependent children to extend coverage to such dependents until age 26.  Beginning in 2014, this coverage must be extended regardless of whether the dependent has access to other employer-provided coverage.  Further, group health plans can no longer impose lifetime or restrictive annual limits on plan benefits or impose pre-existing condition exclusions on children under age 19, and no pre-existing condition exclusions are allowed beginning in 2014.

What’s at Stake

These provisions will cost employers monetarily and increase employers’ administrative burdens.  Employers have many more compliance issues to monitor as a result of this legislation.  Failing to comply with these requirements could result in additional expenses by way of substantial penalties. 

These provisions also have the potential to decrease employer-provided benefits.  For example, employers will find it much more expensive to provide retiree benefits without the prescription drug coverage subsidy tax exemption and active medical benefits, with the threat of a 40 percent excise tax on health coverage beyond the stated threshold and with the new restrictions on plan terms, such as no lifetime limits or pre-existing condition exclusions.  This extra cost may serve as a deterrent to providing some benefits.   

Steps to Consider

  • Take steps to ensure all requirements are met to avoid penalties. 
  • Review effective dates for requirements pertaining to benefits and take action as necessary.
  • Evaluate the impact of future requirements on benefits and take preemptive action.
  • Modify open enrollment materials, summary plan descriptions and plan documents as necessary.

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Health Insurance Exchanges - National Versus State-Level Marketplace

The Facts 

Both the House health reform bill, H.R. 3962 (Affordable Health Care for America Act), and the Senate health reform bill, H.R. 3590 (Patient Protection and Affordable Care Act), include provisions establishing one or more health insurance marketplaces (exchanges). The exchanges would serve as an organized and transparent marketplace designed to facilitate access to, evaluation of and purchase of qualified health insurance plans by individuals and small businesses. Premium subsidies would be available through the exchange, and benefit packages would be structured in standardized tiers. An exchange would seek to create a large enough risk pool so that competition among insurers would increase not only with respect to pricing but on quality and service aspects as well. Insurance market reforms in both bills would disallow preexisting condition exclusions and impose medical loss ratio requirements. 

There are key differences between the House and Senate proposals. The House bill would create one national exchange overseen by a new federal agency, the Health Choices Administration (HCA), with an opt-out provision for states under certain circumstances. The HCA would oversee the health plans and premiums charged for policies available through the exchange. Under the House bill, the exchange would be the exclusive marketplace for all individual (non-group) policies, other than grandfathered policies. Insurers would be required to bid to participate in the exchange, with the HCA able to negotiate terms before allowing a plan to participate in the exchange. By contrast, the Senate bill provides for each state to establish and administer its own exchange, subject to compliance with minimum federal standards, with federal intervention if a state does not provide an exchange. 

What’s at Stake

The exchanges will be at the crux of revamping the individual and small business markets. Whether there is a single national exchange or separate state exchanges will have significant implications for providers, payors and consumers. The House proposal could offer greater economies of scale and potential efficiencies for products offered across state lines, but would represent a significant shift from how insurance is currently regulated at the state level. The Senate proposal would retain the benefit of the local market knowledge of the states and would preclude an additional layer of federal regulation. 

Steps to Consider

Understand the impact of the exchanges on structure and oversight of the insurance market, evaluate current plans and prepare for refinements needed to transition to new exchanges.

Political Leaders Reach Agreement with Unions on Excise Tax for Cadillac Plans

The Facts

On January 14, 2010, congressional leaders and the White House announced that they had reached a compromise with labor unions to proceed with the excise tax on so-called Cadillac, or high-cost, health plans. The excise tax was included in the Patient Protection and Affordable Care Act (H.R. 3590) passed by the Senate. The provisions of that bill called for a 40 percent excise tax on insurance companies and plan administrators for any employer-sponsored health coverage whose value exceeded $8,500 per year for individuals and $23,000 for families. The tax was to take effect in 2013.

The compromise reached last week with the labor unions dictates that the thresholds for the tax will be slightly higher than in the Senate bill—$8,900 for individuals and $24,000 for families. These threshold levels would be increased based upon age, gender and geography to prevent the tax from disproportionately affecting people in high-cost groups. Additionally, starting in 2015, dental and vision coverage will not contribute to the thresholds. Most importantly for the labor unions and their employers, the new compromise exempts collectively bargained health plans and state and local government employees from the tax until 2018. This exception was made to accommodate for the fact that many unions negotiated better health benefits for their members at the expense of wage increases.

The tax is expected to raise $90 billion in revenue over the next 10 years. By contrast, the original Senate bill would have raised $149 billion over 10 years.

What’s at Stake

Businesses with high-cost health care plans hiring non-union employees would feel the effects as early as 2013 under this compromise proposal. Businesses with collectively bargained health care plans are likely to benefit from the exemption from the excise tax until 2018, which gives unions time to renegotiate their agreements with employers.

Steps to Consider

Businesses should evaluate their health care plans to determine to what extent they will be affected by this tax. Insurers should assess the impact of the tax on the coverage they offer.

Senate Bill Proposes Patient-Centered Outcomes Research Institute

The Facts

The Senate health care bill, the Patient Protection and Affordable Care Act, includes provisions (detailed in Sections 6301 and 6302) establishing a nonprofit corporation, the Patient-Centered Outcomes Research Institute (PCORI). The PCORI will conduct research and disseminate findings with respect to “the relative health outcomes, clinical effectiveness, and appropriateness” of medical treatments, services and items. The PCORI will not be permitted “to mandate coverage, reimbursement, or other policies for any public or private payer.” However, the government may use comparative clinical effectiveness research in coverage decisions “if such use [of the research] is through an iterative and transparent process which includes public comment and considers the effect on subpopulations” and under other constraints.

What’s at Stake

Regardless of whether this particular bill is passed, comparative effectiveness research is likely to become an ever greater part of how government determines whether and what it will choose to reimburse. Companies with a stake in governmental reimbursement will need to be aware of the direction of comparative effectiveness research and be prepared to justify services and products on that basis.

Steps to Consider

  • Evaluate whether the products and services you offer have a comparative advantage over other products or services promising the same outcome. 
  • Evaluate what the clinical basis is for your comparative advantage, including any effect on subpopulations.
  • Keep informed about the direction of the PCORI’s research agenda and initiatives to decide whether your area is under review.
  • Be prepared to establish comparative clinical effectiveness if the PCORI’s research does not agree with the results of your own research on your products or services.
  • Be prepared to participate in the public comment and review process if the government chooses to use comparative effectiveness in its coverage decisions, as allowed.

Accountable Care Organizations: These Are Not PHOs Version 2.0

The Facts

Both the House health reform bill, H.R. 3962 (Affordable Health Care for America Act), and the Senate version (Patient Protection and Affordable Care Act), include provisions (House Section 1301 and Senate Section 3022) establishing Accountable Care Organizations (ACOs).  ACOs are provider-centric organizations focused on the costs and quality of care received by a designated population of patients over time.  ACOs can consist of vertically and horizontally positioned providers, including physician groups and hospitals.  In its most basic concept, although paid on a fee-for-service basis, ACOs that meet quality-of-care targets and reduce the aggregate costs of care rendered to their patient population relative to a spending benchmark are rewarded with a share of the savings they achieve for the Medicare program.

What’s at Stake

Regardless of whether health reform legislation is passed, providers will be increasingly challenged to adopt operating models through which they are responsible and accountable for the quality, cost and overall care of a defined population of patients.  Emphasis will be placed on clinical processes and outcomes, the patient care experience and utilization.

Steps to Consider

  • Evaluate why and assess those actions necessary to migrate from a financially driven model to a clinically integrated driven model if you previously operated a Physician Hospital Organization (PHO) that did not succeed. 
  • Evaluate investments in infrastructure and redesigned care processes for high quality and efficient service delivery.
  • Establish appropriate committees to explore and evaluate adoption of clinical best practices.
  • Bolster capabilities to capture and report on quality measures.
  • Coordinate with other providers to facilitate the sharing of effective strategies on quality improvement, care coordination and efficiency.
  • Assess hospital-physician relationships and your ability to promote and sustain quality based initiatives.

Senate Majority Leader Reid Unveils Democrats' Health Reform Plan

The Facts

On November 18, 2009, Senate Majority Leader Harry Reid of Nevada put forth the Democrats’ health reform plan, the Patient Protection and Affordable Care Act.  The more than 2,000 page bill was crafted by merging, tweaking and augmenting health reform legislation approved by the Senate Finance Committee in October and the Senate Committee on Health, Education, Labor and Pensions in July.  Set forth below are some of the bill’s principal provisions. 

  • Requires most legal residents to obtain health insurance or pay a penalty of $95 in 2014, $350 in 2015 and $750 in 2016
  • Imposes a $750 per employee penalty on firms with more than 50 workers that do not offer coverage if any of the firm’s employees obtain subsidized coverage through the new health insurance exchange 
  • Requires coverage of prevention and wellness benefits and exempts these benefits from deductibles and other cost-sharing requirements
  • Implements insurance market reforms including disallowing lifetime and annual limits and prohibiting preexisting condition exclusions
  • Substantially reduces the growth of Medicare payment rates for many services (as compared to growth rates under current law)
  • Creates a new independent Medicare advisory board, which could recommend payment reductions
  • Seeks to promote the quality and efficiency of health care by linking payment to better quality outcomes
  • Imposes a 40 percent excise tax on employer-sponsored health insurance with annual premiums above $8,500 for single coverage and $23,000 for family coverage 
  • Imposes annual flat fees of $2.3 billion on the pharmaceutical manufacturing sector, $2 billion on the medical device manufacturing sector and $6.7 billion on the health insurance sector
  • Imposes a 5 percent excise tax on voluntary cosmetic surgical and medical procedures
  • Increases the Medicare payroll tax rate from 1.45 percent to 1.95 percent on individuals earning over $200,000 and couples earning more than $250,000
  • Sets up health insurance exchanges through which approximately 25 million people are estimated to purchase health insurance coverage
  • Creates a new public plan – the Community Health Insurance Option (states could opt out, and the government would negotiate payment rates with providers)

What’s at Stake

Given the sweeping nature of the bill, every aspect of health care in the United States would be affected.

Steps to Consider

  • Carefully evaluate the impact of the provisions. 
  • Assess the cost of compliance with the new provisions. 
  • Examine ongoing business decisions in light of the direction health reform is taking.
  • Consider working to impact the shape of health reform legislation.

Medicare Advantage Plan Payments Remain a Target for Cuts

The Facts

The Senate’s Patient Protection and Affordable Care Act mirrors the Senate Finance Committee’s proposal to modify local Medicare Advantage (MA) Plan payments by moving to an enrollment-weighted average competitive bidding system.

Currently, local benchmarks reflect Adjusted Community Rate for each county, as updated annually over the past several years.  To calculate Plan payments, MA Organizations annually submit bids for their plan benefit packages that are compared to the benchmark for the county/counties in the Plan’s service area. 

Under the Senate bill, by CY 2015, benchmarks would equal enrollment-weighted averages of local MA Plan bids for the service area.  A ceiling would be established in each area so that local benchmarks could not exceed the levels that would have existed under current law.

What’s at Stake

The Senate proposal is markedly different from H.R. 3962, which would phase in benchmarks equal to the adjusted average per capita cost estimate payable under traditional Fee-For-Service Medicare.  Importantly, the House bill would initiate the transition beginning with the 2011 benefit year, as compared to the Senate proposal, which would initiate the transition with the 2012 benefit year.

Steps to Consider

The Senate bill is estimated to reduce MA Plan payments by $118 billion between 2010 and 2019, the traditional 10-year cost estimate period.  The Congressional Budget Office estimates that H.R. 3962 would reduce MA Plan payments by $170 billion in the same period.

In anticipation of these reforms, MA Organizations should begin to analyze their plan benefit packages, provider payment arrangements and member populations, and to discern the extent to which they can modify operations and/or develop and implement new initiatives.