Legal Insights and Perspectives for the Healthcare Industry

The Open Payments program established by the Physician Payments Sunshine Act (Sunshine Act) requires manufacturers of covered drugs, medical devices, biologicals, and medical supplies (applicable manufacturers) to report annually to the Centers for Medicare and Medicaid Services (CMS) certain payments and other transfers of value made in the previous calendar year to “covered recipients,” which currently are defined as US-licensed physicians and teaching hospitals. Applicable manufacturers and Group Purchasing Organizations also must report any ownership or investment interests held by physicians or members of their immediate family. CMS makes this information available to the public on the agency’s Open Payments webpage and refreshes it annually.

Please join us for our August 22 webinar, Fast Break: Physician Fee Schedule Update. The 2020 Medicare Physician Fee Schedule proposed rule includes a number of significant proposals that would incorporate several coding changes, implement new statutory requirements related to the treatment of substance abuse disorders, and further reduce administrative burden on practitioners. Eric Knickrehm will lead us through a discussion of these issues and more.

Register for the webinar now.

The Fast Break series, hosted by Jake-Harper, features 45-minute healthcare-focused webinars that explore important developments, trends, and hot topics in the healthcare industry in an easy-to-digest format.

We address more than a dozen key proposals from the CMS outpatient prospective payment system (OPPS) and ambulatory surgical center payment systems proposed rule in a recent LawFlash. Chief among them is the agency’s bold new proposal for a broad price transparency program. Other notable proposals include continuing payment reductions for 340B drugs and grandfathered off-campus provider-based departments, both the subject of pending litigation in federal court. CMS is soliciting public input on a multitude of proposals from this rule, and comments are due September 27, 2019. Hospitals will want to carefully assess these changes and consider submitting comments before these proposals become final rules.

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The CMS draft guidance for state survey agency directors on hospital co-location arrangements offers insight into how CMS will evaluate hospitals that partner with other providers under the Medicare conditions of participation, or CoPs. Co-location occurs when two hospitals or a hospital and another healthcare entity are located on the same campus or in the same building and share space, staff, or services. Areas that CMS will review when surveying co-located facilities include staffing, contracted services, distinct and shared spaces, and emergency services.

In an unanticipated but welcome move, CMS is soliciting comments on the draft guidance by July 2. Stakeholders should be sure to use this opportunity to raise their compliance concerns associated with the proposed rules governing shared space and staffing arrangements under the Medicare program.

Read the full LawFlash for more details on the draft guidance.

In CMS’s continuing effort to take “a strategic approach to protecting taxpayer dollars and reducing regulation to put patients over paperwork,” Administrator Seema Verma recently highlighted changes to the Recovery Audit Program that are intended to make the program more provider friendly. Recovery Audit Contractors (RACs) review payments made to healthcare providers under Medicare Fee-for-Service plans. RACs have been controversial among providers due to concerns about their accuracy. In addition, although they are charged with identifying both overpayments and underpayments, unlike UPICs and MACs, RACs receive a percentage of the overpayments they recover, which historically has caused some disgruntled providers to characterize RACs as “bounty hunters” that are less concerned with program integrity than with their own bottom lines. Administrator Verma acknowledges that CMS has received many complaints in the past from providers that have found the audits to be time consuming and expensive.

In an opinion of significant importance to the administration of the Medicare program, the US Supreme Court issued a 7–1 decision requiring the Centers for Medicare & Medicaid Services (CMS) to follow notice and comment rulemaking when adopting a “statement of policy” that establishes or changes a “substantive legal standard.” The near unanimous Court[1] upheld the DC Circuit Court’s decision in Allina Health Services v. Price, 863 F.3d 937, 939 (DC Cir. 2017), which highlighted an important distinction between Medicare Act and Administrative Procedure Act (APA) rulemaking requirements.

The APA establishes a statutory exemption from notice and comment rulemaking procedures in the case of “interpretive rules, general statements of policy . . . or agency . . . practice.” 5 USC § 553(b)(A) (emphasis added). CMS relied on an assumption that this “interpretive rule exception” applied to the policy it adopted in order to include Medicare Part C patient days in the Medicare fraction of the payment formula used to calculate the qualification for, and amount of, the Medicare disproportionate share hospital (DSH) payment adjustment. The policy resulted in the reduction of Medicare DSH payments for hospitals until 2013, when the agency furnished notice and comment. Like the DC Circuit, the Supreme Court rejected the government’s argument that the Medicare Act rulemaking requirement in 42 USC § 1395hh(a)(2) implicitly incorporated a similar interpretive rule exception permitting such a policy.

Healthcare partners Al Shay and Howard Young and associate Jake Harper recently contributed to the Health Care Compliance Legal Issues Manual, a publication by the American Health Lawyers Association (AHLA).

The latest edition of AHLA’s Health Care Compliance Legal Issues Manual gives readers an up-to-date look at issues critical to healthcare compliance, including tips for conducting internal investigations; audit basics; overviews of the False Claims Act, Stark Law, and Anti-Kickback Statute; healthcare privacy; and more.

Daniel Levinson, the HHS Inspector General (IG), tendered his resignation to President Donald Trump on April 2, effective May 31. Mr. Levinson was the longest serving HHS-IG and under his leadership, the watchdog managed a wide array of oversight, including checks on the implementation of the Affordable Care Act. The HHS-OIG is the largest inspector general office among federal agencies helping to police over 200 HHS programs as well as the massive Medicare and Medicaid programs. The current Principal Deputy Inspector General Joanne Chiedi will become the acting IG on June 1.

Undoubtedly the next HHS-IG appointee will be a staunch advocate of fraud and abuse enforcement, and likely will have years of government audit or enforcement experience, as was the case with previous HHS IGs. It remains to be seen, however, if the appointee will also have private industry experience and will bring to bear deep knowledge of an evolving healthcare delivery system.

The healthcare industry awaits the US Supreme Court’s decision in Azar v. Allina Health Services with nervous anticipation. The high court stepped in to settle the dispute and the broader legal question developing among the circuit courts relating to the Centers for Medicare & Medicaid Services’ (CMS) authority to adopt so-called “interpretive rules” affecting significant Medicare program policies. CMS asserts that it possesses such authority under the Medicare Act based on an analogous exception in the more general Administrative Procedures Act (APA), which permits agencies to adopt interpretive rules, and CMS has used this presumed authority to sidestep the formalities of notice and comment rulemaking in certain Medicare policy changes. In the instant case, CMS was defending its ability to change, without notice and comment, its construction of the statutory phrase “entitled to Medicare Part A” in the Medicare disproportionate share (DSH) payment formula, a change that ultimately worked to dilute the amount of Medicare DSH payments for hundreds of hospitals. The US Court of Appeals for the DC Circuit rejected CMS’s argument.

A longstanding source of frustration among providers facing overpayment determinations is the inconsistent application of statistical sampling and extrapolation by Medicare contractors. This, coupled with the contractor’s unfettered discretion to determine when extrapolation will be used and what constitutes a sustained or high level of payment error, can result in enormous negative financial consequences for providers. In a recent update to the Medicare Program Integrity Manual, the Centers for Medicare and Medicaid Services sets out clarifying guidance and accountability mechanisms for Medicare contractors to follow when performing statistical sampling, including when extrapolation of overpayment determinations is permitted. It also affords providers with greater opportunities for confirming the appropriateness of the extrapolation methodology including compliance by Medicare contractors with the updated guidance. An exception for CMS and the Medicare contractors—that failure to follow one or more requirements contained in the guidance may not necessarily be viewed as affecting the validity of the extrapolation—raises questions over how CMS will enforce the updated guidance and the potential for success when challenging poorly performed extrapolations.

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