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Four Ways Medicare and Medicaid Have Changed the Health Care Industry

It’s a bizarre program that is absolutely essential to American healthcare.

That is the opinion of Theodore Marmor, professor of public policy at Yale and author of the book, The Politics of Medicare. Whether you agree with him or not, it is difficult to deny the influence of Medicare and Medicaid on the health care industry. To mark the 50^th anniversary of Medicare and Medicaid, signed into law by President Lyndon Johnson on July 30, 1965, we have identified four ways these programs have shaped the health care industry.

There is no stopping the health care juggernaut. In a March 2014 presentation during the conference of National Health Care Journalists, Rosemary Gibson (senior advisor with The Hastings Center) brought the point home with this statistic: In 1965, there were no health care companies listed in the Fortune 100. By 2013, there were 15.
The federal government is now the largest purchaser of health care in the United States. In its Primer on Medicare, The Kaiser Family Foundation estimates that 14% of the $3.5 trillion spent by the federal government in 2014 was spent on Medicare (approximately $505 billion total), making it the largest purchaser of health care in the United States. Its spending power means CMS and Medicare will continue to hold sway in the industry.
Medicare and Medicaid is driving innovation, but have they run out of gas? US News & World Report estimates that today, one in three Americans is covered by Medicare or Medicaid, and it is that extension of coverage to a larger population that is driving innovation. In the article, “America’s Health Care Elixir,” Kimberly Leonard states, “Because the government covered more people, and eventually extended that coverage to include drugs and medical devices, industries knew they could invest in research because they would eventually recoup the costs of their work through sales of new products.” However, innovation is beginning to outstrip the programs’ ability to keep pace. For example, Leonard states, “Pharmaceuticals also are moving toward developing more expensive biologic drugs, which could be a challenge for Medicare and Medicaid to afford.” More important, the programs’ outdated structure, developed during a different business environment, serving a different population, is making it difficult for them to keep pace with technology.
Medicare and Medicaid helped end segregation in health care facilities. One lesser-known positive effect on the industry is that these programs helped end segregation, at least at health care facilities. The programs required that health care facilities could not be racially segregated if they wanted to receive Medicare and Medicaid payments, which meant facilities had to start accepting African-American patients.

With the changes introduced with the Affordable Care Act, it is clear that the government is keen on keeping these programs going for another 50 years or more, and their legacy of influence in the health care industry continues to evolve. Where they will be in 50 years remains to be seen.

ARTICLE BY Health Care Practice Group of Foley & Lardner LLP

Over a Decade in the Making: CMS Releases Long-Awaited Medicaid Managed Care Rule

On May 27, 2015, the Centers for Medicare and Medicaid Services (“CMS”) published a 653-page proposed rule affecting the thirty-nine states (plus the District of Columbia) that use managed care organizations (“MCOs”) to administer their Medicaid benefits. This represents the first major overhaul of the Medicaid managed care system since the rules were established in 2002, now covering approximately seventy percent of all Medicaid enrollees.

Public comments are due July 27, 2015, which gives health plans, providers, consumer groups, and even state Medicaid directors a narrow window to identify potential areas of concern and to propose solutions for formal CMS consideration. While some issues will align important stakeholder groups, others are likely to remain contested during the comment period and up to publication of the final rule.

As a backdrop leading to the publication of the proposed rules, the managed care landscape has become much more complex and variable among the states that have adopted this approach in their Medicaid programs. Because of this, CMS has been contemplating ways to ensure more consistent rules that promote adequate access to health services while also creating more synergy between Medicaid, Medicare, and even the commercial sector via delivery system reforms that improve quality and lower costs.

The proposed rule also addresses some areas of perceived inequity in the Medicaid program that range from behavioral and substance-abuse treatment to long-term care and insurance reforms akin to those in the Affordable Care Act (“ACA”), which was mostly targeted at commercial health plans.

But CMS’s ambitions in proposing the rules need to be tempered by the reality that state Medicaid programs are administered by the individual states: through federal regulations CMS can establish minimal standards for the state Medicaid managed care systems but states may enact state regulations or impose managed care contract terms that go farther than the federal requirements. The managed care community must view federal regulations as a starting, not an end, point.

CMS categorizes the massive Medicaid managed care proposed rule into several issue areas in its Fact Sheet:

Beneficiary Experience

Requires states to improve access to care through regular assessment and certification of a health plan’s provider network and time/distance standards to providers including behavioral health, pediatric dental, and pharmacy.

Updates communication rules directed towards Medicaid/CHIP beneficiaries to include electronic methods, non-English language options, and additional information in provider/drug formulary directories,

Sets standards for care coordination, assessments and treatment plans that include care transition services, initial health risk assessments within 90 days of enrollment, and regularly updated assessments and treatment plans for beneficiaries with special health care needs or long-term services and supports.

Creates a new enrollment selection period of 14 days to allow beneficiaries to research and select managed care plan options.

State Delivery System Reform

Encourages participation in Medicare-led alternative payment models and initiatives.

Establishes minimum reimbursement standards or fee schedules for providers that deliver a particular covered service.

Clarifies “short-term stay” rule that managed care plans are able to receive capitated payments for beneficiaries who are admitted to an institution for mental disease (“IMD”) for no more than 15 days so long as the facility is an inpatient hospital or sub-acute short-term crises residential service.

Quality Improvement

Creates a public notice and comment period to determine a core set of performance measures and improvement projects for states related to managed care plans.

Establishes a Medicaid managed care quality rating system in each state that would report performance information on all health plans, akin to the Medicare Advantage (“MA”) and marketplace ratings.

Program and Fiscal Integrity

Requires certain types of data to be used for rate setting purposes and the level of documentation and detail about the development of the capitation rates such as trend factors, adjustments and the development of non-benefit costs.

Establishes a medical loss ratio (“MLR”) for both Medicaid and CHIP plans using standards similar to Medicare Advantage and the commercial market.

Adds several components to fraud prevention efforts by implementing procedures for internal monitoring, auditing, and prompt referral of potential compliance issues, etc.

Managed Long-Term Services and Supports (“MLTSS”) Programs

Affirms recent updates such as Olmstead, stakeholder engagement requirements, and provider credentialing in the development and implementation of MLTSS programs.

Requires MLTSS-specific elements to be included in a state’s quality improvement strategy and reporting systems to protect MLTSS enrollees.

Children’s Health Insurance Program (“CHIP”)

CMS proposes to align the CHIP managed care regulations, where appropriate.

Alignment with Medicare Advantage and Private Coverage Plans

Importantly, CMS proposed where appropriate and possible, to align the Medicaid managed care regulations with those governing MA and private health insurance plans including the MLR, appeals and grievances, and marketing rules.

Finally, other highlights from the proposed rule include a requirement that Medicaid managed care entities offering outpatient drug coverage must now collect the necessary information for the states to include those managed care drugs in rebate invoices to drug manufacturers pursuant to the Medicaid Drug Rebate Program (“MDRP”) as well as modifications to the rules governing plan appeals and grievance procedures to increase uniformity with the procedures that apply to MA and commercial plans.

Discussion

Alignment with Medicare Advantage and Private Coverage Plans

CMS proposes numerous changes aimed at aligning Medicaid managed care with other health care programs… click here to continue reading…

ARTICLE BY Susan W. Berson, Andrew J. Shin, Ellyn L. Sternfield, Pamela Kramer, Lauren M. Moldawer & Bridgette A. Wiley of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

DaVita Agree to $495 Million Settlement in Alleged Medicare Fraud Lawsuit Filed by Qui Tam Whistleblowers

On Monday, May 4, 2015, DaVita Kidney Care, a division of DaVita Healthcare Partners, Inc. (DaVita), and one of the leading dialysis services providers in the United States, agreed to pay the U.S. Government $450 million for allegedly violating the False Claims Act (FCA) when it continuously discarded good medicine and then billed Medicare and Medicaid for it. DaVita also agreed to pay $45 million for legal fees.

According to the lawsuit filed in 2011 by two former employees of DaVita, between 2003 and 2010, when DaVita administered iron and vitamin supplements such as Zemplar, Vitamin D, and Venofer, vials containing more than what the patients needed were used and the rest was thrown away. For example, if a patient only needed 25 milligrams of medicine, DaVita allegedly used a 100 milligram vial, administered only 25 mg, and tossed the rest in the trash. Although before 2001, this practice was condoned by the National Centers for Disease Control and Prevention (CDC) in order to prevent infectious outbreaks caused by the re-entry of the same vial of medicine, the CDC subsequently changed it policies to outlaw this practice.

This FCA lawsuit alleging that DaVita misused and mishandled of medicine, and overbilled Medicare and Medicaid is not the first such allegation against DaVita, which is not a stranger to FCA lawsuits. In fact, DaVita previously settled two other lawsuits in which it allegedly violated the FCA. In October 2014, DaVita agreed to pay the U.S. Government $350 million for allegedly persuading physicians or physician groups to refer their dialysis patients to DaVita by offering kickbacks for each patient referred. And in 2012, DaVita agreed to pay $55 million to the federal government for overbilling the government for Epogen, an anemia drug. These lawsuits were filed by former employees who decided to come forward as whistleblowers and to help to uncover what they considered to be illegal practices by DaVita. Under the FCA, such whistleblowers can bring what is known as a “qui tam” lawsuit, which is brought by a private citizen to recover money obtained by fraud on the government. As an incentive to bring qui tam lawsuits, the FCA provides that qui whistleblowers receive between 15 and 30 percent of the amount of funds recovered for the government.

Provisions of the FCA make it unlawful for a person or company to defraud governmental programs, such as Medicare or Medicaid.

Posted by the Whistleblower Practice Group at Tycko & Zavareei LLP

Supreme Court Holds Providers Cannot Sue States to Challenge Low Medicaid Rates

The Supreme Court ruled, on March 31, in a 5-4 decision, that hospitals and all other providers cannot sue to force a state to pay higher Medicaid rates. The name of the case is Armstrong v. Exception Child Center. In Armstrong, the plaintiffs were a group of Idaho providers that furnish “habilitation services.” These are in-home care services, and the providers contended that but for the provision of such services, the Medicaid recipients would require care provided in a hospital or a nursing facility or intermediate care facility for the mentally retarded.

The providers asked the Federal district court to issue an injunction to require the Idaho Medicaid agency to increase the rates for habilitation services. The district court issued the injunction, and on appeal the Ninth Circuit Court of Appeals affirmed. The Supreme Court reversed, however. Although the Medicaid statute says that each State’s Medicaid plan must set rates that are “sufficient to enlist enough providers so that care and services are available,” the Supreme Court held that providers cannot sue to enforce this provision, but rather only the Secretary of HHS can enforce this provision by withholding Federal funds from the State.

The Supreme Court majority (Scalia, Roberts, Breyer, Thomas, Alito) found that the Supremacy Clause in the Constitution while giving Federal courts the power to declare State action invalid in light of contrary Federal law, does not provide private citizens a right to bring suit to enforce Federal laws. Nor could the providers invoke the court’s power to do equity because in providing the Secretary with the authority to cut off federal funding to States that do not pay sufficient Medicaid rates, Congress impliedly foreclosed all other relief. Also, the fact that Congress used broad and subjective language in the Medicaid statute provision at issue (“consistent with efficiency, economy, and quality of care”) indicates that Congress meant to leave it to the Secretary to come up with standards and enforce them rather than give the courts the power to decide when Medicaid rates are too low.

The four dissenters (Kennedy, Kagan, Ginsburg, Sotomayor) agreed with part of the majority’s reasoning. However, the dissent believed that it should be presumed that Congress intended to give the federal courts the equitable power to set aside rate determinations by agencies, including State Medicaid agencies, unless Congress affirmatively manifests a contrary intent.

ARTICLE BY

Donald H. Romano

Foley & Lardner LLP

Full Speed Ahead for Meaningful Use re: Medicare and Medicaid Electronic Health Records

On Friday, March 20, 2015, the Centers for Medicare and Medicaid Services (“CMS”) issued a proposed rule which would make significant changes to the federal Medicare and Medicaid Electronic Health Records (“EHR”)Incentive Programs (collectively the “Meaningful Use Program”).

The Meaningful Use Program operates in 3 stages, with providers required to demonstrate increasing use/metrics at each stage to continue to receive payments. Under the Meaningful Use Program, eligible professionals, eligible hospitals and critical access hospitals can receive incentive payments for demonstrating Meaningful Use of certified EHR technology. Furthermore, starting in 2015, health care providers who are eligible to participate in the program, but choose not to participate or are not able to demonstrate Meaningful Use, may see downward payment adjustments to the amounts reimbursed by Medicare. Thus, the Meaningful Use Program has been a source of additional income to some providers, but for many others it has been a serious concern due to the significant capital outlays required to demonstrate Meaningful Use of certified EHR and potential penalties that may be forthcoming. The proposed rule from last Friday has some providers even more concerned about the feasibility of meeting Meaningful Use standards and the push to achieve Meaningful Use when so many are struggling.

Under the proposed rule, CMS will make several changes to the Meaningful Use Program. The following are descriptions of some of CMS’ important proposals:

Stage 3 Meaningful Use will have an optional year in 2017 and starting in 2018, all providers will report on the same definition of Meaningful Use at Stage 3, regardless of prior participation. CMS intends this requirement to respond to stakeholder input re the complexity of the program, success to date and to set a long-term sustainable foundation for the Meaningful Use Program.
In order to align the Meaningful Use Program with other CMS incentives, such as the Physician Quality Reporting System or PQRS, CMS will require all providers to report on a calendar year EHR reporting period beginning in 2017.
CMS desires to promote improved patient outcomes and health information exchange in Stage 3 and thus the rule focuses on patient engagement. For example, providers must meet two of the following three requirements for patient engagement: (i) patients view, download or transmit their health information; (ii) secure messaging between providers and patients; and (iii) patient generated health data from a non-clinical setting is incorporated into a certified EHR.

While CMS sets forth many goals in support of its proposed rulemaking (e.g., the triple aim), one message comes through clearly, CMS is pushing forward with EHR and is not slowing down due to sluggish adoption by health care practitioners. Accordingly, providers and their industry groups have been lamenting the onerous burdens of the Meaningful Use Program and the fact that less than 35% of hospitals and only a small fraction of physicians have met Stage 2 requirements. Furthermore, providers who fail to meet the minimum use thresholds could be subject to hundreds of millions of dollars in penalties.

Contrary to providers, those in the health information technology or digital health industry should be quite pleased with the rule as it may provide them with additional customers and markets as providers try to interface with and collect data from patients’ health wearables (e.g., smart watches with heart rate sensors).

In sum, the proposed rule clearly signifies that CMS is planning to take a stringent approach to ensure that providers are meaningfully compliant by 2018. Providers can take steps to mitigate their exposure to penalties by investing in certified EHR, perhaps in conjunction with applying for hardship exemptions from the Meaningful Use Program’s requirements, to delay the date where they must comply or be subject to penalties. Health information technology vendors generally and EHR vendors specifically should plan to modify and ensure that their technology is compliant and sufficiently differentiated to provide value to health care providers that must comply with the Meaningful Use Program’s requirements.

ARTICLE BY

Eric A. Klein

Vinay Bhupathy

Sheppard, Mullin, Richter & Hampton LLP

Kickback-Tainted Medicare/Medicaid Claims for Reimbursement Actionable Under FCA, New York Federal Judge Holds

The U.S. District Court for the Southern District of New York (“SDNY”) recently issued an opinion making clear that liability now arises under theFalse Claims Act (“FCA”) whenever claims for reimbursement of prescription drugs are submitted under Medicare Part B, Medicare Part D, or state Medicaid programs in connection with which a provider has received a kickback (referred to herein as a kickback-tainted claim). The SDNY’s decision was based on an interpretation of an amendment to the Anti-Kickback Statute made by the Patient Protection and Affordable Care Act (“PPACA”) in 2010, which implicates claims arising under the False Claims Act (“FCA”).

The FCA allows a private citizen whistleblower (referred to as a relator) with knowledge of fraud against the federal government to file a qui tam lawsuit on behalf of himself and the United States. Because the FCA provides for treble damages and significant civil penalties, as well as attorneys’ fees and costs, recoveries are often in the multi millions of dollars, providing a strong deterrent to companies and individuals against committing fraud on the government. In addition, whistleblowers are entitled to an award of between 15% and 30% of any amount recovered, providing an equally strong incentive for those with knowledge of such fraud to come forward. Health care fraud is particularly rampant, having given rise to over 70 percent of all FCA recoveries over the past decade.

U.S. ex rel. Kester v. Novartis, involved a common form of health care fraud involving kickbacks, where monetary payments or other financial incentives are unlawfully provided to doctors, hospitals, or pharmacies in exchange for referrals or for the prescription of pharmaceutical drugs or supplies. Specifically, in this case, the government alleged that Novartis had paid kickbacks to certain pharmacies for promoting two Novartis pharmaceuticals (Myfortic and Exjade) in violation of the Anti-Kickback Statute (“AKS”), which prohibits pharmacies from accepting kickbacks in exchange for purchasing or recommending a drug covered by a federal health care program, such as Medicare and Medicaid.

In 2010, the PPACA amended the AKS with the intention of assigning liability under the FCA for violations of the kickback statute. The FCA prohibits making a fraudulent claim for payment to the Government or submitting false information material to such a claim. The AKS amendment expressly provided that a “claim that includes items or services resulting from a violation of [the AKS] constitutes a false or fraudulent claim for purposes of [the FCA].” 42 U.S.C. § 1320a-7b(g). Novartis argued, however, that the “resulting from” language in the amendment limited, rather than expanded, the reach of the FCA, asserting that liability could not be established without showing that the claims for reimbursement were actually caused by the receipt of a kickback―”i.e. where a pharmacy convinced a physician . . . to prescribe a drug that he would not have otherwise prescribed, or convinced a patient . . . to order a refill that he would not otherwise have ordered.” Such a strict “but-for” causation requirement not only would have made it difficult to show liability, it would have significantly reduced any recovery to only those situations where “the decision to provide medical treatment is caused by a kickback scheme.”

The SDNY rejected this unduly narrow interpretation, relying on the legislative history of the PPACA, which it reasoned was aimed at expanding the reach of the FCA, and the Second Circuit’s framework for analyzing false claims set forth in Mikes v. Straus, 274 F.3d 687 (2d Cir. 2001). In Mikes, the Second Circuit held that a party violates the FCA when it falsely certifies compliance with a statute, regulation, or contract that is a precondition to payment. Mikes also held that false certifications did not need to take the form of express statements certifying compliance, but rather could be implied when the underlying statute or regulation expressly requires a party to comply in order to be paid. Under such circumstances, knowingly submitting a noncompliant claim for payment will constitute a violation of the FCA. To this end, the SDNY held in Novartis that the PPACA expressly made compliance with the AKS a precondition to payment under Federal health care programs. Consequently, any kickback-tainted claim for reimbursement submitted to the government is a violation of the FCA under this reasoning. Thus, whereas previously, a whistleblower had to have evidence of an express certification of compliance with the law, now, in order to establish an FCA violation involving kickbacks, a whistleblower need only show that a claim for reimbursement was submitted to the Government in connection with which kickbacks were received.

ARTICLE BY

Anna C. Haac

Tycko & Zavareei LLP

Centers for Medicare and Medicaid Services (CMS) Issues Data Listing Medicare Payments To Individual Physicians

As it had promised to do, the Medicare program issued data listing the amounts paid to individual physicians for services rendered by those physicians to Medicare beneficiaries for calendar year 2012. CMS indicated that the data was issued “in order to make our healthcare system more transparent, affordable, and accountable.” The Wall Street Journal has created a tool which allows users to search the CMS data set by name, specialty and location. The Medicare announcement and data set link can be found here: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trend….

Article By:

Beth Christian

Of:

Giordano, Halleran & Ciesla, P.C.

A Look Ahead: Top 5 Health Law Issues for 2014

From Affordable Care Act implementation to the continued transition to quality and evidence-based medicine, we expect to see a host of new regulatory and industry changes in 2014. Moreover, federal and state governments will continue to ramp up detection and enforcement of fraud, abuse, and other laws. These changes provide ample opportunities for lawyers to represent and counsel health care industry clients.

In addition to health lawyers, these changes and new opportunities will also affect lawyers who practice in other areas, including business, antitrust, technology, employee benefits, and elder law. Below is an overview of five hot issues in health care law that practitioners – new and seasoned – should monitor in 2014.

1. Affordable Care Act Implementation

Exchanges and the Individual Market. As millions of Americans obtain insurance on the individual market through Exchanges (a.k.a. the “Marketplace”), the ACA individual mandate and the individual insurance market will create a host of issues for health lawyers in 2014. Beginning early in the year, health lawyers will be called on to address coverage, enrollment, and compliance issues. Attorneys and firms looking to expand their ACA practice should consider employee benefits regulations and related legal issues as ACA implementation continues and employers look for help understanding and complying with coverage requirements and pay or play rules.

Medicaid. The ACA’s expansion of Medicaid will also bring increased attention to the Medicaid program in 2014. Attorneys should be prepared to see increased scrutiny of program integrity in the coming year, including inspector general attention at the state and federal levels (e.g., program audits). Attorneys may be called upon to address these and other Medicaid issues in 2014, including issues with eligibility, covered benefits, and movement between Exchanges and Medicaid.

Tax Exemption. Section 501(r) of the Internal Revenue Code, introduced as part of the ACA, requires, among other things, that tax-exempt hospitals conduct a community health needs assessment and adopt a written financial assistance policy. Hospitals that do not meet the 501(r) requirements risk an excise tax, taxing of hospital revenue, and revocation of exempt status. Proposed regulations outlining the 501(r) requirements were released in 2013, and final rules are expected in 2014.

2. Health Information Privacy and Security

This year is shaping up to be another big year for health information privacy and security and the Health Insurance Portability and Accountability Act (HIPAA), as providers, payers, and businesses that support the health care industry (including lawyers) adapt to new compliance requirements and increased liability under the Omnibus Rule regulatory scheme.

This is an area that will be important for health lawyers, as the Omnibus Rule outlines clear compliance requirements for lawyers providing legal services to providers and payers. (For more information on lawyers as business associates, see “Casting a Wider Net: Health Information Privacy is Not Just For Health Lawyers” in the September 2013 Wisconsin Lawyer).

Health lawyers are also awaiting the 2014 release of another major HIPAA rule – expected to outline requirements for tracking uses and disclosures of health information – as well as legislative changes in Wisconsin dealing with confidentiality of mental health records (an in-depth Wisconsin Lawyer article on this is forthcoming).

Lawyers that deal with health information should be familiar with HIPAA and other federal and state laws protecting the confidentiality of health information to address an increased emphasis on HIPAA audits, security, and technology issues in 2014.

3. Provider Reimbursement and Emphasis on Quality Care

Medicare Billing and Payment. As of this writing, Congress is still debating options for repealing the sustainable growth rate (SGR), which is part of a reimbursement formula used to calculate Medicare physician payments. For years, the SGR has resulted in cuts to physician payments. However, Congress has always used SGR “doc fixes” to extend and delay the cuts (most recently, on Dec. 18, 2013, a 23.7 percent cut set to take effect Jan. 1, 2014, was delayed until March).

However, bipartisan efforts in Congress may make 2014 the year of the SGR repeal. Health care attorneys should take note because the SGR repeal will mean significant changes in how Medicare physician reimbursement is calculated, and the wide-spread effect will touch any number of contractual arrangements that use Medicare reimbursement to set compensation terms.

Quality-based Reimbursement. We have seen a steady change from productivity-based compensation models, which pay for volume, to quality-based reimbursement models, and 2014 will continue this progression. Attorneys that represent physicians and physician practices should be prepared for the introduction (or addition) of quality metrics in physician compensation arrangements, as well as an increase in co-management arrangements and opportunities, which engage physicians in hospital management to better align physicians and hospitals.

Narrow Networks. With additional products available in the individual insurance market in 2014 and an increased focus on performance-based contracting, payers are tying rate increases to quality metrics and tightening provider networks. Attorneys representing physician groups may see an increase in narrow network products and, as a result, their clients’ exclusion from networks.

Changing reimbursement concepts are not new but some methodologies will affect physician behavior, require more patient engagement, and influence efficiency as the industry demands accountable care and continues to introduce quality-based incentives.

4. Increased Joint Venture Activity and Market Consolidation

We expect to see increased joint venture activity and market consolidation in 2014. Increasing market share and patient population allows providers and payers to introduce and monitor their quality care initiatives to a broader base of patients and standardize care with the hope of better outcomes and efficiency. Attorneys representing parties in these transactions should be mindful of fair market value and other fraud and abuse requirements, leasing and construction considerations, and potential antitrust implications.

5. Government Enforcement

The health care industry has seen increased government scrutiny, including emphasis on payment, program integrity, and compliance. From Medicare and Medicaid compliance audits, Strike Teams, increased HIPAA penalties, overpayment recoupment, to fraud and abuse self-disclosures and intervening in whistleblower suits, the federal government is improving its enforcement mechanisms used against hospitals and providers. The federal agencies and their contractors have increased their damages and penalty recoveries over the last few years, and we expect this to continue in 2014.

The primary goal of the U.S. Department of Health and Human Services Office of Inspector General’s (OIG) strategic plan for 2014 to 2018 is fighting fraud, waste, and abuse. In order to achieve its goal, the OIG intends to build upon existing enforcement models, refine self-disclosure protocols, and use all appropriate means (including exclusions and debarments) to maximize recovery.

If you are new to health care, or if you want to expand your practice into health law, these areas of strict liability and increased enforcement will be fundamental to your practice in 2014. Understanding the complex regulations and strict liability statutes is fundamental to providing sound legal and business advice to health care clients.

Honorable Mentions

Retail health clinics and on-site health services, changes in medical malpractice standards, increased emphasis on post-acute care, non-physician health care professionals, and the corporate practice of medicine will also be hot topics in 2014.

This article was first published in WisBar Inside Track, Vol. 6, No. 1, a State Bar of Wisconsin publication.

Article by:

Meghan C. O’Connor

Of:

von Briesen & Roper, S.C.

340B Drug Pricing Program Notices on Group Purchasing Organizations and Medicaid Exclusion File

Emily J. Cook and David S. Ivill with McDermott Will & Emery recently had an article, 340B Drug Pricing Program Notices on Group Purchasing Organizations and Medicaid Exclusion File, published in The National Law Review:

Following the recent release of new Program Notices regarding the Group Purchase Organization (GPO) prohibition and Medicaid Exclusion File, 340B participating entities should review their 340B program policies and procedures to ensure compliance with new and clarified guidance regarding GPO purchasing and dispensing of 340B drugs to Medicaid patients.

On February 7, 2013, the Health Resources and Services Administration Office of Pharmacy Affairs (OPA) issued new Program Notices related to the Group Purchasing Organization (GPO) prohibition and the Medicaid Exclusion File (the Program Notice).

GPO Prohibition

Disproportionate Share Hospitals, children’s hospitals and freestanding cancer hospitals that participate in the 340B program are prohibited from purchasing “covered outpatient drugs” through a GPO or other group purchasing arrangement. Covered outpatient drugs include most outpatient drugs obtained by written prescription, with the exception of vaccines and certain drugs classified as devices by the U.S. Food and Drug Administration.

Prior to the release of the new Program Notice, OPA had provided little guidance regarding the scope and enforcement of the GPO prohibition. The Program Notice appears to have resulted from OPA concern that certain hospitals may have been routinely using outpatient GPO accounts when unable to purchase drugs at 340B prices. With the Program Notice, OPA has now formally established policies regarding the application of the GPO prohibition to drug shortages, outpatient clinics and virtual inventory/replenishment purchasing models.

With the new Program Notice, and accompanying FAQs released subsequent to the publication of the Program Notice, OPA advises that the GPO prohibition applies even when a covered outpatient drug is not available at the 340B price due to a manufacturer shortage. In such cases, hospitals are instructed to notify OPA of the issue, but may not obtain the drug through a GPO.

The Program Notice also provides that the GPO prohibition does not extend to certain off‑site outpatient clinics. A hospital may use a GPO to purchase covered outpatient drugs for an off-site outpatient clinic if all of the following requirements are met:

Further, OPA establishes that a hospital may not use a GPO to purchase covered outpatient drugs for dispensing to patients through a contract pharmacy. This guidance does not prohibit a contract pharmacy that is not owned by a hospital (which is the entity that would be subject to the GPO prohibition) from accessing GPO pricing through its own account, so long as the hospital is not involved in the pharmacy-GPO arrangement and does not benefit from the pharmacy’s GPO pricing.

The off-site outpatient clinic is located at a different physical address than the hospital
The off-site outpatient clinic is not registered in the OPA 340B database as participating in the 340B program
Covered outpatient drugs for the off-site outpatient clinic are purchased through a separate pharmacy wholesaler account than the hospital
The hospital maintains records demonstrating that drugs purchased through a GPO for the off-site outpatient clinic are not utilized by or transferred to the hospital or any off-site outpatient location registered in the OPA 340B database

Hospitals, including their outpatient sites, subject to the GPO prohibition must discontinue GPO purchasing of covered outpatient drugs before the first day of their respective 340B program eligibility, although each may continue to dispense previously purchased GPO inventory. Those hospitals that maintain pharmacy inventory through a virtual inventory/replenishment model, in which 340B drugs are purchased based on prior dispensing to 340B-eligible patients, are also prohibited from using a GPO to purchase covered outpatient drugs. OPA has advised that hospitals utilizing a replenishment model in “mixed use” (inpatient and outpatient) pharmacies must now account for (“accumulate”) dispensed drugs for inventory replenishment as either inpatient, 340B-eligible or outpatient non-340B. Drugs accumulated for outpatient non-340B replenishment may only be purchased through a non-340B, non-GPO account. In addition, a hospital may not purchase drugs on a 340B account until the 340B-eligible accumulator reaches a full package size and/or minimum order quantity. The result is that such drugs typically must be purchased at wholesale acquisition cost (WAC) or prices individually negotiated between the hospital and manufacturer.

The new Program Notice advises that hospitals subject to the GPO prohibition that are found in violation of the prohibition may be immediately removed from the 340B program and subject to repayment to manufacturers for the period of non-compliance. However, in a separate FAQ on the OPA website, OPA advises that it will not enforce the GPO prohibition until after April 7, 2013. Those hospitals that are unable to meet the compliance deadline are advised to either notify OPA of non-compliance and submit a corrective action plan (such submissions will be handled on a case-by-case basis) or disenroll either the entire hospital or, if applicable, non-compliant off-campus locations, from the 340B program.

Medicaid Exclusion File

Drug manufacturers are not required to provide a 340B discount and Medicaid rebate on the same drug. In order to prevent these “duplicate discounts,” OPA maintains the Medicaid Exclusion File. This database lists all 340B participating entities (covered entities) and indicates whether the covered entity has elected to dispense 340B drugs to Medicaid patients (carve-in) or obtain drugs for Medicaid patients at non-340B pricing (carve-out). Covered entities that have elected to carve-in are listed in the Medicaid Exclusion File by Medicaid billing number.

State Medicaid programs are instructed to access the Medicaid Exclusion File to ensure they do not seek manufacturer rebates from those covered entities that are listed in the database. In the Program Notice, OPA reminds states to use the Medicaid Exclusion File to prevent duplicate discounts and to report any discrepancies between provider billing practices and the information in the database to OPA.

The Program Notice advises covered entities of a change in OPA policy regarding the timing of changes to a covered entity’s decision to carve-in or carve-out. While changes previously could be made at any time, OPA will now only permit changes on a quarterly basis. OPA also clarifies that a covered entity may choose to carve-in or carve-out for a subset of 340B enrolled locations, but if it does so, must obtain a separate Medicaid provider number for any eligible locations that carve-in. Covered entities are also reminded that they must ensure their information is accurately reflected in the Medicaid Exclusion File and that they may be subject to manufacturer repayment if the database reflects that the covered entity opted to carve-out, but the covered entity has been dispensing 340B drugs to Medicaid patients.

Next Steps

340B participating hospitals subject to the GPO exclusion should review their current operations and policies and procedures to evaluate compliance with the guidance released in the new Program Notice and FAQs, with particular attention to use of GPO purchasing to obtain covered outpatient drugs that are not available at 340B pricing and for replenishment inventory. As necessary, hospitals should cease purchasing covered outpatient drugs through a GPO and begin revising purchasing procedures to ensure compliance by April 8, 2013.

Hospitals should also evaluate current policies regarding use of GPOs at off-site outpatient clinics not registered in the OPA 340B database to determine whether such locations may be eligible to purchase covered outpatient drugs through a GPO. Previously, many such off-site outpatient clinics were restricted to only purchasing at WAC pricing due to the GPO exclusion. The new Program Notice makes clear that, so long as purchasing is conducted through a separate pharmacy wholesaler account (not the hospital’s), hospitals subject to the GPO exclusion can use a GPO to purchase drugs for off-campus outpatient clinics that are not registered in the OPA 340B database. Therefore, outpatient sites now have the flexibility to purchase drugs through a GPO for those clinics that are not yet eligible for 340B enrollment (e.g., they have not yet appeared on a filed Medicare cost report) and to opt-out of enrolling off-site outpatient clinic sites if certain locations would see greater benefit from GPO purchasing than from 340B participation. Further, hospitals may wish to explore opportunities for selective enrollment of off-site outpatient locations to ensure patient access to certain drugs, such as intravenous immunoglobulin, that have historically been difficult to obtain at 340B pricing and cost-prohibitive to obtain at WAC.

All covered entities should review their information in the Medicaid Exclusion File to ensure the database reflects current Medicaid billing practices and be aware that any changes will only be effective as of the next quarter beginning January 1, April 1, July 1 or October 1. Covered entities should also use this opportunity to review state Medicaid program requirements regarding carve-in or carve-out restrictions and billing rules related to 340B drugs.

The Wrap-Around Slap-Around for Primary Care Centers

Molly Nicole Lewis with McBrayer, McGinnis, Leslie and Kirkland, PLLC recently had an article, The Wrap-Around Slap-Around for Primary Care Centers, published in The National Law Review:

For Kentucky Primary Care Centers (“PCCs”), Rural Health Centers (“RHCs”), and Federally Qualified Health Centers (“FQHCs”), getting the run-around from Medicaid on wrap-around payments is not so unusual. Frequently, these providers complain that supplemental payments distributed by the Kentucky Department for Medicaid Services’ (“Medicaid”) are too low, too late or both.

Last week the situation got worse for PCCs who received a slap in the face from Medicaid in the form of a letter declaring that PCCs who do not carry a federal designation as a rural health care provider, will no longer receive Medicaid wrap-around payments as of February 1, 2013.

The History

The establishment of FQHCs and RHCs was precipitated by the need for primary health care services in rural areas. In addition to other requirements, these providers must be located in an area that has been designated as medically underserved (“MUA”) or having a shortage of health care professionals (“HPSA”). To encourage providers to serve patients in these areas, federal law provides that these services are reimbursed using a prospective payment system (“PPS”), which is determined separately for each individual FQHC or RHC, calculated on a per-visit cost basis, and does not include any adjustment factors other than a growth rate to account for inflation and a change in the scope of services furnished during that fiscal year.

Years ago, Kentucky established an additional type of licensed health provider, the PCC, which often looks like a RHC in its service delivery model but is not located in a MUA or HPSA and therefore not eligible for certification as a RHC or FQHC. For payment purposes, Medicaid has always treated PCCs like RHCs and FQHCs—using a PPS rate. State Plan Amendments filed by Medicaid and approved by CMS clearly document Kentucky’s decision to reimburse PCCs using the same methodology that is used for FQHCs and RHCs. Importantly, PCCs have always been a creature of Kentucky, not federal, law.

The Wrap-Around

In November 2011, Medicaid began contracting with Managed Care Organizations (“MCOs”) to provide coverage to Kentucky’s Medicaid population. These MCOs reimburse FQHCs and RHCs for their services not on a PPS rate basis but in accordance with their individual fee schedules. The wrap-around payment was introduced by The Balanced Budget Act of 1997 when the law: (1) relieved MCOs of the responsibility to pay FQHCs and RHCs their cost-based rate and instead required the MCOs to pay these providers “not less” than they would pay non-PPS reimbursed providers for the same medical services, and (2) required that PPS-reimbursed providers were compensated by Medicaid the difference between the amount paid by the MCO and the facility’s PPS rate. As a result, State Medicaid Programs are required to make “wrap-around payments” at least every four months.

Because Medicaid pays wrap-around payments for PPS reimbursed providers, and PCCs are paid using the same PPS methodology as FQHCs and RHCs, Medicaid distributes wrap-around payments to FQHCs, RHCs, and PCCs.

The Slap-Around

Medicaid is funded with state and federal dollars and apparently, as stated in last week’s letter to providers, which can be accessed via this link (20130109152243687), CMS has drawn a line and is requiring the Kentucky’s Medicaid cut-off wrap-around payments for Kentucky PCCs. This means that unless a PPS-reimbursed primary care provider has a federal designation as a MUA or HPSA and is certified as a RHC or FQHC, it will only receive reimbursement from the MCOs. In other words, as of February 1, 2013, PPCs’ PPS rates will no longer be recognized as a basis for supplemental payments from Medicaid.

What Next?

This blow leaves the owner/operators of PCCs shaking their heads—especially in light of the astounding costs expended to establish and defend a viable PPS rate that is soon to be meaningless. What’s more, Medicaid’s helping hand is nowhere to be found.

This conundrum requires fast and creative action which could include: seeking an injunction in Franklin Circuit Court to stop Medicaid from acting in violation of Kentucky law and basic due process; collaborating with another provider that is located in an area designated as a MUA or HPSA or is already certified as a RHC; or corporate restructuring to become a non-profit with a community-board that is eligible to become a FQHC, to name a few. There is no simple solution. For PCCs, this is much more than the usual wrap-around run-around.

Tag: medicaid

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