Legal Insights and Perspectives for the Healthcare Industry

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.

Read the Full LawFlash

US President Donald Trump signed the SUPPORT Act into law on October 24, 2018, in a culmination of a two-year bipartisan effort by lawmakers across multiple committees in both the House and Senate. Law360 published an article on October 25, 2018, by the Morgan Lewis healthcare team that takes a first look at the sweeping new opioid law.

In an article published by Managed Healthcare Executive, Morgan Lewis partners Joyce Cowan and Susan Feigin Harris, and associate Jacob Harper discuss three CMS regulatory actions that managed care organizations will want to watch. These include the final rule on short-term, limited duration health plans; expanded telehealth coverage under the Medicare program; and the CMS announcement that certain quality and patient safety indicators will no longer be reported by CMS to the Hospital Inpatient Quality Reporting Program. As the administration proceeds with its incremental dismantling of the Affordable Care Act, it is important that managed care organizations maintain a watchful eye on emerging CMS policy changes and their potential implications for the industry.

Read the Managed Healthcare Executive Article