Tag: Medicare

Pay for Delay – Big Pharma’s Dirty Secret

Mahany Law Firm

For most Americans, generic drugs are a godsend. Prescription drug prices have become so high that many folks simply can’t afford to purchase needed medications.  It’s not uncommon for some cancer and hepatitis medications to cost $1000 or more per dose. Generics, however, can cut prescription bills by 90% or more.

As much as consumers love generic drugs, big pharma hates them. Once a branded drug goes “off patent,” sales usually plummet. Most health plans, insurance companies and Medicare require physicians to dispense less costly generics.

The loss of profits can be so great when a drug goes generic that many pharmaceutical companies are now engaging in “pay for delay” tactics.

What is “pay for delay”? It is the payment by a pharmaceutical company to would be competitors to not copy a certain medication.  The results are more profits for big pharma and therefore an extension of their monopoly on pricing. The Federal Trade Commission says pay for delay costs taxpayers, insurance companies and consumers almost $4 billion per year.

Is this legal? Probably not.

Congress wanted to encourage generic manufacturers to quickly enter the marketplace and lower drug costs. In 1984, Congress passed the Hatch Waxman Act. That law encourages generic manufacturers to challenge pharmaceutical companies.  The first company that seeks to make a generic of a branded drug is given an expedited review by the FDA.

Unfortunately, what started out as a law with good intentions soon turned horribly bad. Big pharma began suing the generic manufacturers for patent infringement. The pharmaceutical companies would then settle the suits and pay the generic company not to compete for a period of time, often 5 years.

A few court victories later, the pay for delay industry was in full swing.

Thankfully the Federal Trade Commission has stepped in and appears to be gaining traction. The government says that many of these pay for delay schemes violate federal anti-trust laws. In 2013, the United States Supreme Court ruled that pay for delay does automatically violate antitrust laws but still must be carefully scrutinized. (FTC v. Actavis). Georgetown University Professor Lawrence Gostin, writing for the Journal of the American Medical Association, hailed the decision and says it will save consumers and taxpayers billions of dollars.

Some may be wondering why the generic manufacturers go along with these payments.  Obviously big pharma likes these settlements because they can extend their monopolies for years. Generic manufacturers find these settlements economically worthwhile too. Because the profits made on branded drugs are so large, big pharma can pay millions to the generic manufacturers and still make a profit.  The smaller generic companies make just as much profit from the settlements and don’t have to produce a single pill.

The Motley Fool investigated one branded drug, Provigil, manufactured by Cephalon. The drug was due to come off patent in 2005 but Cephalon paid four generic companies $200 million to delay manufacturer of generic equivalents until 2012. The cost of a three-month supply of Provigil? $3600. The cost after generics were finally introduced? About $5 per month according to fool.com.

With the courts and regulators finally looking hard at these arrangements, we hope more whistleblowers come forward. Under the federal False Claims Act, whistleblowers with inside information about fraud involving a government program can receive up to 30% of whatever is recovered from drug companies. To qualify for an award, whistleblowers need inside, “original source” information about the fraud.

The FTC’s Bureau of Competition concluded that of the 145 final patent dispute settlements in 2013, 29 represent potential pay for delay schemes.  Recently the agency launched a hotline to help people report illegal pay for delay schemes.

Whistleblowers using the hotline should know, however, that calling the hotline does not make them eligible for a whistleblower award. To claim an award, one must first file a lawsuit in federal court.

As a law firm that has helped clients receive over $100,000,000.00 in whistleblower award payments, we want to see whistleblowers properly awarded for coming forward and reporting illegal behavior.

ARTICLE BY

Brian Mahany
Mahany Law

Important Recommendations from the MedPAC March Report to Congress, Part Two

McBrayer, McGinnis, Leslie and Kirkland, PLLC

Earlier we have discussed the recommendations of the Medicare Payment Advisory Commission (“MedPAC” or the “Commission”) with regard to fee-for-service (“FFS”) payment systems. Today’s post will discuss the Commission’s recommendations with regard to making FFS payments site-neutral, as well as its status reports on Medicare Advantage (“MA”) and the Medicare prescription drug program (“Part D”).

Similar Services in Different Settings

Inpatient and outpatient hospital rates for 2016 would receive an update of 3.25% per the Commission, provided that changes would be made to equalize payments for similar services provided in different care settings, making them site-neutral. Certain conditions treated both in skilled nursing facilities and in inpatient rehabilitation facilities would receive site-neutral payments, for example. Payments under the long-term care hospital payment system would also be reduced for patients who are not characterized as chronically critically ill, so that the payment rate would then be similar to what acute care hospitals receive.

Medicare Advantage

The Commission made some of the same recommendations in 2015 about MA as it did in March 2014, namely that hospice care should be integrated into the MA benefit package and bidding rules should be improved. According to MedPAC, Hospice inclusion in MA would increase coordination of care as well as innovation in end-of-life care, in addition to promoting accountability. The Commission also believes that employer group MA plans should be more consistent with comparable nonemployer plans in terms of payment, and the application of the national average bid-to-benchmark ratio for nonemployer plans to employer plans could achieve this goal. The Commission also recommended a decrease in benchmarks to equalize the payment system between MA and the FFS program enough to where neither is favored.

As for access to MA, MedPAC found that 99 percent of all Medicare beneficiaries have access to an MA plan. The report also found that data from a quality bonus program shows that plans are responding favorably to the measure by paying closer attention to quality measures that form the basis of these payments.

Medicare Part D

MedPAC made no recommendations as to Part D. It found high participation in the plan, with premiums remaining stable over the past year. The Commission did note an increase in spending between 2007 and 2013, which it attributed to two trends: (1) an overall shift towards the use of generic drugs, which affects the benefit spending that plan sponsors base premiums on, and (2) reinsurance payments have grown every year at an average rate of 16 percent.

ARTICLE BY

Christopher J. Shaughnessy
McBrayer, McGinnis, Leslie and Kirkland, PLLC

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

Sheppard, Mullin, Richter & Hampton LLP

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

Improving Medicare Post-Acute Care Transformation (IMPACT) Act to be Signed into Law

Drinker Biddle Law Firm

The Improving Medicare Post-Acute Care Transformation Act of 2014, known as the IMPACT Act, passed the House on September 16th. It was introduced in the House by Ways and Means Chairman Dave Camp (R-MI) and in the Senate by Finance Committee Chairman Ron Wyden (D-OR) on June 26, 2014. The Senate voted to approve the legislation on Thursday, September 18, meaning it will now be sent to President Obama for his signature.

The IMPACT Act establishes requirements for post-acute care (PAC) providers to report and share standardized assessment data, including patient assessments, quality measures, and information about resource use. The bill gives various facilities between two and just over four years to implement processes that allow them to report different kinds of data. The legislation also directs the Medicare Payment Advisory Commission (MedPAC) to evaluate payment systems that consider individual characteristics rather than just the type of facility at which a patient is treated. The new data to be reported will help illustrate facility performance and could help determine if a payment system that takes patient outcomes into account is preferable.

Additionally, the bill directs the Secretary of Health and Human Services (HHS) to conduct two studies using additional data to determine what effect, if any, socioeconomic and other factors have on quality and resource use measures.  To learn more, read the District Policy Group bill summary, written by Legislative Assistant Sarah Williams here.

Read a summary from the Library of Congress here.

ARTICLE BY

Ilisa Halpern Paul
OF
Drinker Biddle & Reath LLP

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

tz logo 2

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
 
OF 
Tycko & Zavareei LLP

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

Giordano Logo

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.

Center Medicare and Medicaid Services (CMS), Office of Inspector General (OIG) Extend Electronic Health Records (EHR) Stark Law Exception, Anti-Kickback Safe Harbor Through 2021

DrinkerBiddle

On December 27, 2013, the Centers for Medicare and Medicaid Services (CMS) and the Office of Inspector General (OIG) of the Department of Health and Human Services (HHS) will publish final rules that extend through December 31, 2021 the existing Stark Law Exception (42 CFR 411.357(w)) and Anti-Kickback Statute Safe Harbor (42 CFR 1001.952(y)) applicable to the donation of electronic health records (EHR) items and services.   December 31, 2021 is the last year of the Medicaid Meaningful Use incentive payments.

In the Final Rule, CMS and OIG also:

  • Update the provisions under which EHR software is deemed interoperable;
  • Remove the requirement relating to e-prescribing from the Exception and Safe Harbor
  • Limit the scope of protected donors to exclude laboratory companies; and
  • Clarify the condition that prohibits a donor from limiting or restricting the use, compatibility or interoperability of donated EMR items and services.

Interoperability

The final rules require the donated EHR technology to be “interoperable” as of the date it is donated.  Such technology will be deemed to be interoperable if it has been certified by a certification body authorized by the Office of the National Coordinator for Health Information Technology (ONC) to an edition of the EHR certification criteria identified in the then-applicable 45 CFR part 170 (i.e., the HITECH Act’s definition of “Certified EHR”).  This will require donated software to be “as interoperable as feasible given the prevailing state of technology at the time they are provided to the recipient.”  For example, in 2013, the HITECH Act’s definition of “Certified EHR” permits certification pursuant to either the 2011 or 2014 editions of the EHR certification requirements; in 2014, the HITECH Act requires certification pursuant to the 2014 edition only.

E-prescribing

CMS and OIG have concluded that there are sufficient alternative policies driving the adoption of electronic prescribing such that it need not be included in the Exception and Safe Harbor.  Thus, under the final rules, an EHR is no longer required to have electronic prescribing capability in order to be subsidized.

Permissible Donors

In the proposed rules, CMS and OIG identified concerns of potentially abusive practices stemming from the donation of EHR software that seemed to provide for the interoperable exchange of information, but instead led to data and referral “lock-in” between the donor and the referral source.  OIG and CMS specifically referred to EHR items and services donated by ancillary service providers and suppliers, i.e., those do not have a direct primary patient care relationship, as subject to this concern. In the proposed rules, CMS and OIG sought comments on whether to limit the list of permissible donors of EHR items and services to hospitals, group practices, Prescription Drug Plan sponsors and Medicare Advantage organizations – or others with front-line patient care responsibilities.  In light of the comments received, in the final rules, CMS and OIG specifically exclude laboratories from the list of permissible donors.  Otherwise, the universe of protected donors remains the same.

Restrictions

In the proposed rules, CMS and OIG also requested comments on “new and modified conditions” that would prevent EHR donations from becoming a method for locking-in referrals (generally, to the donor), and instead encourage the free exchange of data.  CMS and OIG do not adopt any such additional conditions in the final rules, but clarify that neither a donor “nor any person on the donor’s behalf may take any action to limit or restrict the use, compatibility or interoperability of the donated items or services with other electronic prescribing or other EHR systems, including but not limited to health information technology applications, products or services.”  This expanded language is meant to clarify that neither donors nor recipients may limit interoperability and that donated EHRs must be interoperable both with other EHRs and with health information exchanges and other forms of technology.

To view the CMS final rule, click here. To view the OIG final rule, click here.

Article by:

Jennifer R. Breuer

Of:

Drinker Biddle & Reath LLP

Medicare Physician Fee Schedule Final Rule Issued for Calendar Year 2014

McBrayer NEW logo 1-10-13

The Calendar Year 2014 Medicare Physician Fee Schedule (“PFS”) final rule has been issued. The rule, over 1,000 pages in length, determines physician reimbursement for services provided to Medicare beneficiaries. Let’s take a look at just a few of the changes contained therein.

Payment Rates

Physicians will see a substantial decline in reimbursement – 20.1% – based on a statutory requirement which limits the amount of annual growth in physician payments. This requirement is known as the Sustainable Growth Rate (“SGR”). The President’s budget calls for averting these steep cuts, and since 2003, Congress has enacted legislation to prevent them. Congress is currently trying to create an alternative payment method which would include the permanent repeal of the SGR formula.

Primary Care and Chronic Care Management

CMS has stressed its support for advanced primary care physicians to address the needs of Medicare beneficiaries who have two or more significant chronic conditions. In 2015, Medicare will begin making separate additional payments to physicians for chronic care management services. Care management services include care plan development and implementation, patient and caregiver communication, and medication management. Medicare beneficiaries will be able to choose a physician or another eligible practitioner from a qualified practice to furnish chronic care management over 30-day periods.

Telehealth Services

Regulations describing eligible telehealth originating sites will now include health professional shortage areas (HPSAs) located in rural census tracts of urban areas as determined by the Office of Rural Health Policy. This change will result in more qualifying originating sites, which will improve access to telehealth services in shortage areas.

CMS is also developing a policy to determine geographic eligibility for originating sites on an annual basis in order to avoid mid-year changes to geographic designations, which often result in unexpected disruptions in telethealth services. In addition, CMS is updating the list of eligible Medicare telehealth services to include transitional care management services.

Application of Therapy Caps to Critical Access Hospitals

Prior to the passage of the American Taxpayers Relief Act of 2012, therapy caps were not applied to therapy services furnished in Critical Access Hospitals (“CAH”). The final rule, however, in conjunction with the American Taxpayers Relief Act, does subject CAH to therapy caps (currently set at $1,920 for 2014).

Physician Quality Reporting System (“PQRS”)

Eligible professionals will be able to submit quality measure data for the PQRS through qualified clinical data registries. These quality measures will be aligned across all reporting programs so that a physician need only report a measure once for all programs.

Most changes established by the PFS will take effect on January 1, 2014. CMS, however, will accept comments on the final rule until January 27, 2014.

 

Article by:

Anne-Tyler Morgan

Of:

McBrayer, McGinnis, Leslie and Kirkland, PLLC

Late Action to Avert “Fiscal Cliff” Includes Several Health Policy Changes

MintzLogo2010_BlackAs was widely expected over the month of December, the Obama Administration and Congress scrambled in the late hours of 2012 and on New Year’s Day devising a legislative package to prevent the United States from going over the “Fiscal Cliff,” a series of across-the-board tax increases and spending cuts that would have automatically implemented without intervening legislative action. Although the compromise they reached was far from the “Grand Bargain” that President Obama and many members of Congress were seeking, Vice President Biden and Senate leadership came to an agreement to avoid the cliff for the early part of 2013. The Senate approved the package, the American Taxpayer Relief Act (H.R. 8), by an overwhelmingly bipartisan vote of 89-8 in the early morning hours of New Year’s Day. Later that day, shortly before midnight, the House voted to approve the Senate package by a vote of 257-167, with 85 Republicans joining 172 Democrats in support.

The legislation contains some significant health policy changes, described in more detail below, although its primary purpose is to prevent steep tax increases for 99% of Americans and to delay the automatic “sequestration” spending cuts that were scheduled to go into effect due to an earlier agreement to raise the debt ceiling. In H.R. 8, which the Congressional Budget Office (CBO) estimates will cost around $4 trillion, the sequester is turned off for two months, allowing Congress more time to focus on a comprehensive deficit reduction solution. In addition, current tax rates are permanently extended for all Americans earning up to $400,000 for individuals and $450,000 for married couples. Several other major tax modifications, including some related to the estate tax and capital gains, were also included. Discussion about other aspects of the legislation, including changes to renewable energy programs, may be found here.

The health policy provisions included in the bill fall into two main categories: (1) extension of various health care programs and reimbursement streams under Medicare and other government initiatives, and (2) “offsets” and changes in other programs and payment methodologies to glean savings to cover the costs of the package. A summary of the major health care provisions are as follows.

Summary of Extensions of Health Care Programs/Reimbursement

The most sought-after extender provision in the Act is the so-called “Doc Fix” or physician payment adjustment for Medicare providers. If Congress had failed to act, as of January 1, 2013, reimbursement rates for physicians under the Medicare program would have dropped by about 26.5% based off of the application of the sustainable growth rate (SGR) formula that adjusts Medicare physician reimbursement annually. The effect of the SGR formula, if it is actually implemented, is to decrease, not increase, physician reimbursement. Although there is widespread support for a “permanent fix” to the SGR, the steep costs of not implementing its cumulative reductions leads Congress every year to seek a short-term solution. H.R. 8 freezes the Medicare physician reimbursement rate at its 2012 level until December 31, 2013 with a price tag of about $25 billion over ten years. (A more permanent, albeit expensive, solution for the Doc Fix may be considered in Congress as part of the upcoming debates starting this spring over the debt ceiling increase and continuing resolution.)

In addition to the Doc Fix, several other payment and program extensions were part of the legislative agreement. Some of the more notable provisions include:

  • Ambulance Add-On Payments: This provision continues the base rate payment add-ons for ground ambulance transports through December 31, 2013. Ambulance transports will receive a 2% add-on in urban areas, a 3% add-on for rural areas, and a 22.6% add-on for super-rural areas (a “super-rural area” is defined as a rural county that is among the lowest quartile of all rural counties by population density).
  • Payments for Outpatient Therapy Services: Payments for these services will be capped at $1,880 for any therapy services provided by non-hospital providers. The Act continues to use this limit, but also extends the “exceptions case process” by which providers can receive additional reimbursements if more therapy services are deemed to be medically necessary. The extension lasts until December 31, 2013.
  • Medicare-Dependent Hospital (MDH) Program: H.R. 8 extends the MDH program, which delivers increased reimbursements to small rural hospitals that depend on Medicare payments for a large share of their revenue. The MDH program also supports the development of rural health infrastructure. The extension lasts through the beginning of the next federal fiscal year on October 1, 2013. The Act also extends a payment add-on for low-volume hospitals, which are defined as having fewer than 1,600 Medicare discharges and being at least 15 miles away from the nearest “like-hospital.”
  • Work Geographic Adjustment: Under this provision the existing 1.0 floor on the “physician work” index continues through December 31, 2013, to reflect the geographic differences in cost of resources to provide physician services to Medicare beneficiaries.
  • Medicare Advantage Plans for Special Needs Beneficiaries: The Act extends through 2014 the authority of specialized Medicare Advantage plans to target the enrollment of special needs individuals.
  • Medicare Reasonable Cost Contracts: H.R. 8 allows Medicare Reasonable Cost Contracts to exist through 2014 in areas in which at least two Medicare Advantage coordinated care plans currently operate.
  • Performance Improvement under Medicare: The Act extends funding through 2013 for the Medicare Improvements and Providers Act of 2008 and for outreach and assistance for low-income programs.

Outside of the Medicare program, the Act also has a number of other extensions, including: extending the Qualifying Individual Program, which allows Medicaid to pay Medicare Part B premiums for beneficiaries with incomes between 120% and 135% of the poverty line, until December 31, 2013; extending the Transitional Medical Assistance program, which allows low-income residents to maintain their Medicaid coverage when they start new employment, through December 31, 2013; continuing the Medicaid and CHIP Express Lane option through September 30, 2014; and extending funding for Family-to-Family Health Information Centers and diabetes research, treatment, and prevention programs for American Indians and Alaska Natives.

Summary of Health Care Offsets

In order to offset the projected costs of the extender provisions in the bill, the Act implements cost reductions in Medicare and other government health programs. Most significantly, a provision adjusting the Documentation and Coding of Medicare payments will allow CMS to recoup overpayments that it determines had been made to hospitals, and not yet recovered, as a result of the transition to Medicare Severity Diagnosis Related Groups (DRGs). CMS had been concerned that providers were “over-coding” (providing better documentation and coding of medical records to achieve a higher-weighted DRG) to increase their reimbursements and had instituted a prospective recoupment program covering certain years. This program is now extended. Congress estimates savings of $10.5 billion over ten years. In a separate provision, the Act increases the statute of limitations for recovering overpayments from 3 to 5 years.

Some of the other more notable offsets include the following:

  • End Stage Renal Disease (ESRD) Payments: H.R. 8 makes several changes related to payments for ESRD. It is projected to save $4.9 billion by altering the bundled payment to account for behavioral and utilization changes of dialysis drugs. It also is projected to save $300 million by reducing reimbursement rates by 10% for ambulance services to ESRD individuals receiving non-emergency basic life support services.
  • Medicare Disproportionate Share Hospitals: To save an estimated $4.2 billion, the Act maintains the 75% reduction in the reimbursement rate for Medicare Disproportionate Share Hospitals contained in the Affordable Care Act, and will determine future allotments from this rebased level.
  • Coding Intensity Adjustment: Under current law, Medicare Advantage plans receive a coding intensity adjustment of 3.41%, which reduces those plans’ reimbursement rates so that they more closely match the reimbursement to Medicare fee-for-service plans. This rate factor, determined by the CMS, will be increased to save an estimated $2 billion.
  • Consumer Operated and Oriented Plans (CO-OPs): The Act rescinds all unobligated funds for the CO-OP Program and its plans, which are nonprofit health insurance providers, established by section 1332(g) of the Affordable Care Act. The provision does not take away any obligated CO-OP funds, but it does create a contingency fund consisting of 10% of the current unobligated funds. The contingency fund will be used to help currently approved and created co-ops and will result in an estimated savings of $2.3 billion.
  • CLASS Repeal: The Act repeals the Community Living Assistance Services and Supports (CLASS) program established by the ACA and championed by the late Sen. Ted Kennedy (D-MA). Although in October 2011 the Obama administration suspended the long-term care insurance program in which workers would have paid monthly premiums during their careers to create a cash-bank in case of disability later in life, many Democrats had hoped to revive the program someday. H.R. 8 repeals the CLASS Act, although doing so provided no savings. In its place, the Act creates a Commission on Long-Term Care to develop a plant for the establishment, implementation and financing of a system to make long-term care services and support available for individuals. The Commission has no scoring effect.
  • Medicare Improvement Fund: The Act eliminates the Medicare Improvement Fund for an estimated savings of $1.7 billion.
  • Multiple Therapy Procedure Payment Reduction: The Act reduces payments for physical and other therapy services when they are provided in the same day for an estimated savings of $1.8 billion.
  • Advanced Imaging Services Adjustment: The Act increases the utilization factor used in the setting of payment for imaging services in Medicare from 75% to 90%, which is projected to save $800 million.
  • Competitive Bidding Rates Applicable for all Diabetic Supplies: The Act applies competitive bidding payment rates to diabetic test strips purchased at retail pharmacies for an estimated savings of $600 million.
  • Radiology Services Adjustment: The Act reduces payments for stereotactic radiosurgery services paid for under the Medicare hospital outpatient system, which is expected to save $300 million.

Although the American Taxpayer Relief Act has prevented the country from going over the “fiscal cliff,” the 113thCongress will almost certainly continue to focus on health care cost containment and entitlement reform in the coming weeks and months. Mintz Levin and ML Strategies will continue to closely monitor the effect of fiscal policy on health care.

©1994-2012 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

New 3.8% Medicare Tax Impacts Pass-Through Entities

Hunter J. Brownlee of Fowler White Boggs P.A. recently wrote an article regarding the Medicare Tax Increase that was published in The National Law Review:

Effective for 2013, the Internal Revenue Code will impose a 3.8% tax on investment income and other unearned income. The purpose of the tax is to partially pay for the cost of health care reform.

This new 3.8% Medicare tax applies to individuals who have investment or unearned income and who have modified adjusted gross income above certain thresholds ($200,000 for single individuals or $250,000 for married individuals filing jointly).

Investment or unearned income includes:

  • Income from interest, dividends, annuities, royalties and rents, less allocable expenses, unless the income is earned in an active business.
  • Business income earned in a passive activity (for example, business income earned by a partnership or S corporation in which an individual invests, if the individual does not materially participate in the business activity).
  • Net taxable gains attributable to the sale of non-business property.

With respect to shareholders who are active in an S-corporation’s business, the 3.8% Medicare tax will have no effect because their share of the corporation’s active income will not be subject to the new tax. However, if a shareholder is not active in the business, the new tax will apply to pass-through income from the S-corporation.

The new 3.8% Medicare tax also affects limited liability companies (“LLC”) taxed as partnerships. Generally, if a member of an LLC takes the position that his distributive share of the LLC’s income is not subject to self-employment tax on the grounds that he is a limited partner and not active in the business, this income is likely subject to the 3.8% Medicare tax. However, if the member treats a portion of his distributive share of the LLC’s income as income from self-employment on the grounds that he is an active member, the 3.8% Medicare tax would not apply.

Gain from the sale of interests in pass-through entities, such as LLCs, partnerships and S-corporations, can be subject to the 3.8% Medicare tax, to the extent attributable to the entity’s non-business property. For example, if an individual owns an interest in a pass-through entity and sells that interest at a gain, the portion of the gain attributable to the entity’s passive portfolio investments and to business property used in the business in which the individual does not actively participate is subject to the 3.8% Medicare tax.

Finally, with respect to capital gains, the capital gains tax rate will be 20% in 2013 and the 3.8% Medicare tax may apply to certain high income individuals as discussed above.

©2002-2012 Fowler White Boggs P.A.