Triage | Health Care Insurance & Reform Lawyers

Highmark Buy Continues National Insurer Trend

By Lisa Han and David Kopans on June 17th, 2013 Posted in Managed Care

The June 2013 edition of Managed HealthCare Executive magazine includes an article authored by Squire Sanders partner Lisa Han and associate David Kopans entitled, “Highmark Buy Continues National Insurer Trend.” The article focuses on the trend of insurer and provider integration, which blurs the line between the two.

With the Highmark Inc. and West Penn Allegheny Health System affiliation as the backdrop example, Han and Kopans dig deeper into this continuing trend, as well as more significant legal issues that might cause problems with each such deal, including:

Antitrust scrutiny
Network and operational transparency
Provider oversight from insurance regulators

The article reprint appears courtesy of Managed Healthcare Executive.

Non-Medicare Patients Only? Not Necessarily an Excuse. New OIG Opinion Shows Government Skepticism of “Carve-Out” Arrangements

By Elizabeth Trende on June 14th, 2013 Posted in Fraud and Abuse, Hospitals, Physician Practice, Regulatory Compliance

Yesterday, the U.S. Dept. of Health and Human Services Office of Inspector General (“OIG”) clarified its stance on a growing practice – provider attempts to circumvent fraud and abuse laws by structuring financial arrangements to apply only to business concerning non-Federal program beneficiaries. The OIG reiterated its dim view of this practice, citing an underlying concern that ultimately, neither funds, nor provider motivations, can be adequately sequestered from one another in a universe where public and private pay patients mix.

In the brief but direct Advisory Opinion 13-03, the OIG recites the facts of an arrangement in which an independent clinical laboratory (named as “Parent Laboratory” for purposes of the Opinion) proposed to contract with physician groups (“Physician Groups”). The Physician Groups would set up their own clinical laboratories, to be managed by Management Company (a new legal entity established by Parent Company). Management Company would provide Physician Groups with space, management services, support, in addition to other items offered for lease. The Physician Groups, meanwhile, would pay Management Company a license fee, and would operate their laboratories for purposes of CLIA compliance. Parent Laboratory certified to the OIG that the individual contracted physician laboratories would commit to provide testing only for patients who are not beneficiaries of Federal health care programs. Specimens from Federal program beneficiaries would be routed to other laboratories, including, potentially, Parent Laboratory. Parent Company avowed that it would not engage in any behavior to induce referrals, and supplied the OIG with mechanisms Physician Groups would utilize in order to sequester Federal program patient specimens.

But these efforts, the OIG concluded, would not be sufficient to assuage Anti-Kickback statute (See 42 U.S.C. § 1320a-7b) compliance concerns. The Opinion rationalized that arrangements that attempt to “carve-out” Federal program beneficiaries may, in fact, perform little more than compliance slight-of-hand, “disguising remuneration for Federal health care program business through the payment of amounts purportedly related to non-Federal health care program business.” Specifically, the government noted:

Although the Physician Group Laboratories would bill only for services for non-Federal health care program patients, participation in the Proposed Arrangement may increase the likelihood that physicians will order services from the Parent Laboratory for Federal health care program beneficiaries. This may occur for reasons of convenience, to demonstrate commitment to the Parent Laboratory and potentially secure more favorable pricing on private pay services, or simply because the Physician Groups fail to make a distinction between the Parent Laboratory and the laboratories operated with support from the Parent Laboratory-owned Management Company.

In other words, OIG seemed to conclude that physicians would simply be too human to comply –that factors such as “convenience” would ultimately trump even the best compliance safeguards. The government stated that it “cannot conclude that there would be no nexus between the potential profits the Physician Groups may generate from the private pay clinical laboratory business, on the one hand, and orders of the Parent Laboratory’s services for Federally insured patients, on the other.”

And that was not all. The OIG also cited concerns that the financial incentives offered by the private pay arrangement with the Parent Laboratory would affect a physician’s decision-making rationale with respect to all the physician’s patients, and ultimately lead to overutilization of laboratory services by Federal program beneficiaries.

In sum, OIG refused to offer the proposed arrangement the protections of a favorable advisory opinion, basically because the arrangement did not offer physicians enough protections from themselves.

Could Your Arrangement Have Too Much Room For Human Error?

OIG Advisory Opinion 13-03 makes clear that the margin for compliance error must be practically zero in arrangements that risk overutilization and may impact physician decision-making. Health care providers should heed its warnings, and consider whether any of their arrangements allow for too much human risk:

Does your arrangement specifically carve out Federal program beneficiaries? If so, expect scrutiny. The Opinion makes clear that OIG is on to the fact that carve-outs are utilized in an effort to protect “otherwise questionable financial arrangements.” The OIG has not gone so far as to say that a carve-out is never workable, only that the government views such arrangements with suspicion.
Does your arrangement really offer no potential remuneration? (If you are convinced it does not, look again, and ask yourself why anyone would want to enter into it.) In the Opinion, the OIG found that the proposed arrangement offered physicians remuneration in the form of opportunity – a chance to expand into the laboratory business with little or no business risk. The “potential” upside, and the seeming lack of any downside, was a sufficient motivator for non-compliance, in the government’s view.
Will your arrangement still be compliant, absent any human decision-making? Arrangements with the best chance of compliance are those that require practically no human thought or action to be lawful, once implemented (for example, physician employment arrangements, via written contract, with self-implementing terms). The arrangement proposed in the Opinion required daily, repeated efforts on behalf of physicians to appropriately sequester lab samples and follow specific protocols.
Does the arrangement allow for independent qualify checks and safeguards? An arrangement where physicians monitor only themselves, and where there is really no effective way to independently evaluate internal motives (such as why a specimen was routed to a particular lab at a particular time), may be too risky for the government to approve. Providers should note that the government has given more favorable review, of late, to arrangements where independent third parties were brought in to perform quality checks (see, for example, OIG Advisory Opinion 12-22).

The Healthcare Team at Squire Sanders (US), LLP brings decades of experience to compliance conundrums, from every day technical queries to sweeping contracting and compensation projects. If you have a question regarding a current payment arrangement, or are thinking of implementing a new one, please contact us.

DC District Court Grants CMS’ Motion to Dismiss Challenge to Regulations Expanding Limitations on Physician-Hospital Joint Venture Under Arrangements

By Kevin A. McGill on June 10th, 2013 Posted in Fraud and Abuse, Physician Practice

On May 24, in Council for Urological Interests v. Sebelius et al., the United States District Court for the District of Columbia granted CMS’ motion to dismiss a challenge to 2008 regulations promulgated by CMS that:

expanded the definition of an entity furnishing designated health services (“DHS”) to mean not only the billing organization but also the organization that performed the DHS, and
prohibited “per-click” rental payments to physician-hospital joint ventures for DHS provided under arrangements to patients referred to the joint venture by a physician-owner.

The challenge was made by the Council for Urological Interests, a not-for-profit trade group representing providers of urology equipment and technical personnel and was made under the Administrative Procedure Act (“APA”) and the Regulatory Flexibility Act (“RFA”), two statutes governing the process for federal administrative rulemaking. In accordance with the standard for summary judgment, the Court held that there was no genuine dispute as to a material fact such that CMS was entitled to a judgment as a matter of law with respect to the legality of its rulemaking process. In short, the Court found that (i) CMS’ rulemaking was lawful under the APA standard of judicial review of agency rulemaking set forth in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., the seminal case on the matter, and (ii) the required regulatory flexibility analysis for the RFA was provided by CMS as part of the entire Inpatient Prospective Payment System final rule and was not required to be provided separately with respect to the challenged 2008 regulations, which were promulgated as a part thereof.

The impact of the Court’s decision is to validate the 2008 regulations, which made it impossible for non-rural physicians to use a Stark Law exception to protect physician owners of joint ventures providing DHS under arrangements by prohibiting such physicians from (i) referring patients to the joint venture to receive DHS made under arrangements and (ii) receiving per-click rental payments for the use of the joint venture’s equipment and technical personnel relating to DHS performed on patients referred to the joint venture by the physician owner.

These changes represent a complete departure from regulations previously promulgated by CMS in 2001, which permitted such under arrangements. Under the 2001 regulations, because the joint ventures were not billing Medicare in under arrangements, they were not considered to be furnishing DHS, and, therefore, the physician owners were free to refer Medicare patients to the joint venture for DHS. Further, the 2001 regulations specifically interpreted the lease exception to the Stark Law as allowing these per-click rental charges.

Because these changes were effective October 1, 2009, physician-hospital joint ventures have already changed their business models and modified arrangements to account for the changes; however, the Court’s ruling reemphasizes the importance of analyzing CMS’ ever-changing interpretations of the Stark Law to consider the impact of such changes on physician-hospital joint ventures and leasing arrangements.

In Case You Were Wondering, CMS Takes Compliance Seriously: Lessons from a Medicare Part D Plan Sponsor’s Contract Termination for all Medicare Contractors and Providers

By David Kopans on May 29th, 2013 Posted in 9th Circuit, Compliance, Fraud and Abuse, Medicare Part D

The Centers for Medicare and Medicaid Services (“CMS”) has historically used its authority to immediately terminate Part D plan sponsors only sparingly. In fact, it has done so only once. However, when it chooses to exercise this authority, plan sponsors should not count on courts to come to their aid. In Fox Insurance Co., Inc. v. Centers for Medicare and Medicaid Services, the Ninth Circuit displayed a strong deference to CMS in its first ever exercise of its authority to terminate immediately its contract with a Part D plan sponsor and set a high bar for a challenge to a termination to be successful.

Fox’s Multitude of Mistakes

Fox Insurance Company, Inc. (“Fox”) entered into a contract with CMS to operate a Medicare Part D prescription drug plan beginning on January 1, 2006. By early 2010, CMS began receiving complaints from Fox’s enrollees and network providers. Through a subsequent on-site audit, CMS identified a long list of deficiencies in Fox’s operations, including:

Implementing unapproved utilization management criteria (e.g., prior authorization and step therapy) for protected class drugs and part D drugs covered on Fox’s formulary, resulting in the improper denial of coverage of critical HIV, cancer and seizure medications.
Failing to make coverage determinations for expedited requests within the required 24-hour timeframe (e.g., in one instance, taking over 120 hours to approve a needed HIV therapy) and failing to forward the request to an independent review entity upon failing to meet the deadline.
Failing to provide transition coverage of drugs that enrollees had been on in the prior year and requested prior authorization for such coverage in violation of CMS’ transition policy.

In addition to the foregoing deficiencies, during its on-site audit of Fox, Fox’s compliance officer admitted that Fox “had no compliance plan or structure in effect and no internal auditing or monitoring of Fox’s business operations is conducted, including no processes to oversee their first tier, downstream or related entities compliance with CMS program requirements.” The deficiencies in Fox’s compliance program were themselves many, such as:

Not having an independent compliance officer, but instead Fox’s general counsel served as the compliance officer, reported to three senior managers and had no position description specific to the role of a compliance officer.
Not developing written compliance policies or procedures and standards of conduct.
Not having a compliance committee or board compliance oversight committee.
Not offering compliance education and training program for its employees and/or first tier, downstream or related entities (“FDRs”).
Not establishing lines of communication for employees and FDRs to report suspect compliance violations.
Not establishing any disciplinary guidelines for its employees and FDRs.
Not monitoring or auditing activity to test and confirm compliance.

The compliance officer further admitted that Fox’s fraud, waste and abuse plan was provided merely to satisfy regulatory requirements. It had neither been presented to or approved by Fox’s board of directors nor implemented.

In its notice of termination , CMS concluded harshly, “CMS has no confidence that Fox has the necessary administrative capabilities and infrastructure to redress the severe deficiencies that CMS has uncovered.” CMS proceeded, for the first and to date only time, to terminate immediately its contract with Fox on the basis that a delay in terminating the contract would pose an imminent and serious risk to the health of Fox’s enrollees.

Ninth Circuit’s Unconditional Approval of CMS’ Termination

When Fox’s challenge reached the Ninth Circuit, Fox found no sympathy. The court dismissed multiple arguments from Fox, including problems with then-existing regulations that appear to have exceeded the scope of CMS’ statutory authority and, in Fox’s opinion, the unique treatment of Fox, given that CMS had never immediately terminated any other plan sponsor for alleged deficiencies. Having dismissed all of Fox’s arguments, the court found, “The government’s actions were more than justified, as Fox had risked permanent damage to its enrollees by, inter alia, improperly denying coverage of critical HIV, cancer, and seizure medications, and having no compliance structure in place.”

“What It Did Was Too Little, Too Late”

Among all of the mistakes that led to the termination of Fox’s contract with CMS, nothing appears more remarkable than its actions (or inaction) after receiving CMS’ first notification of problems, including CMS’ suspension of Fox’s ability to enroll or market. As noted by the Ninth Circuit, “CMS found that Fox imposed unauthorized prior-authorization and step-therapy as conditions on various drugs up through the audit that took place March 2-4.” (emphasis added) In other words, even after CMS warned Fox of its deficiencies and set a time for an audit, Fox continued the improper conduct even during the CMS audit. As put by the Ninth Circuit, “There is no indication that Fox could have become compliant in the foreseeable future. What it did was too little, too late.”

The Unspoken Issue at the Heart of It All

The Ninth Circuit opinion walks us through the factual background of the case and the applicable regulatory scheme in quite a bit of detail. So, its silence on one critical element of the case serves to emphasize how irrelevant that same element is to winning a challenge to a termination decision. Fox had delegated its claims processing systems to a subcontractor, ProCare Pharmacy Benefit Manager Inc (“ProCare”). Given the list of deficiencies, and as alleged by Fox in its breach of contract and negligence suit against ProCare, it appears that ProCare may have been operationally responsible for the coverage deficiencies. However, ProCare is not mentioned a single time in the Ninth Circuit opinion. Regardless of any liabilities that ProCare has incurred or may incur with respect to its services provided on behalf of Fox, the court’s silence emphasizes the fact that CMS and the courts will hold the plan sponsor (here, Fox) solely responsible for its FDRs’ failures.

Important Lessons Learned

The lessons to be learned from Fox’s mistakes are many. These lessons extend well beyond Part D plan sponsors and the realm of Part D. All Medicare contractors and providers should pay attention.

Do not use in-house counsel as your compliance officer and ensure the compliance officer’s independence.
Prepare and implement a compliance plan, as well as policies and procedures, not only for fraud, waste and abuse prevention but also for compliance with the plethora of Medicare regulations.
Take compliance training seriously, and do not forget to train your FDRs.
Monitor, Monitor, Monitor; Audit, Audit, Audit.
Discipline bad behavior.
Be open to reports of noncompliance.
Establish a culture of compliance, beyond mere rhetoric.
Actively involve your board of directors and senior management in compliance activities.
If you use a subcontractor, know that the buck will always stop with you.

Lastly, in all cases, even if CMS appears to be the only agency involved, remember that the Department of Justice, the Office of Inspector General, and perhaps various state agencies are just around the corner. So, here’s lesson Number 10:

10. When you receive a deficiency notice from CMS, take it seriously, act promptly, and know when to seek expert counsel.

President’s Budget Proposes Limits on Physician Self-Referral for Certain Services

By Robert Nauman on May 10th, 2013 Posted in Fraud and Abuse, Physician Practice

On April 10, 2013, President Obama released his proposed federal budget for fiscal year 2014. Buried within the budget is a proposal to limit physician self-referrals for certain ancillary services. Specifically, the budget proposes to encourage what it calls “more appropriate” use of ancillary services by limiting those providers who may self-refer for radiation therapy, therapy services and advanced imaging services to those providers who meet certain “accountability standards”. The budget does not define what these “accountability standards” may be, but if this provision is adopted, standards would likely be developed by CMS.

Through the use of the In-Office Ancillary Services Exception, many physician practices have successfully developed radiation therapy and advance imaging services, and, in many cases, such services have been very profitable. Because of this profitability, use of the In-Office Ancillary Services Exception for radiation therapy, outpatient therapy and advance imaging services has, from time-to-time, come under scrutiny. For example, in a 2010 report MEDPAC proposed excluding outpatient therapy and radiation therapy services from the In-Office Ancillary Services Exception on the basis that such services are not truly connected with a related office visit and were imposing a significant burden on Medicare finances. The budget proposal also comes on the heels of the Affordable Care Act’s amendment to the In-Office Ancillary Services Exception, which now requires physicians that rely on the Exception for radiology and other advanced imaging services to provide certain disclosures to patients.

This is not the first time such limitations have been proposed, and it remains to be seen whether the proposed provisions contained in the budget will be adopted. Furthermore, even if adopted, the scope of the restrictions will likely depend on how CMS interprets the applicable “accountability standards.” Nevertheless, radiation therapy, outpatient therapy and advanced imaging services have become important components of many physician practices, and physicians should be prepared to respond in the event the proposed limitations are adopted.

FDA Shows Plans to Enforce Food Facility Registration by Issuing Draft Compliance Guidance

By Andrew Jack on May 2nd, 2013 Posted in FDA

The U.S. Food and Drug Administration (“FDA”) recently announced the availability of draft Compliance Policy Guide Sec. 100.250 Food Facility Registration—Human and Animal Food (the “Draft CPG”). The Draft CPG is intended to provide FDA staff with guidance on issues related to food facility registration, including the requirement that certain food facilities register with FDA, the requirement that registered facilities biennially renew their registrations with FDA, and the authority of FDA to suspend a food facility’s registration.

The Food, Drug & Cosmetic Act (the “Act”), as amended by the Public Health Security and Bioterrorism Preparedness and Response Act of 2002, requires the owner, operator, or agent in charge of a domestic or foreign food facility that manufactures, processes, packs, or stores foods intended for marketing and sale in the United States to register with FDA. FDA relies on facility registration for purposes of identifying food manufacturers, packers, handlers and distributors for inspection purposes. Registration also allows FDA to quickly identify the source of a food product in the event of potential or actual contamination, food-related bioterrorism, or outbreaks of food-borne illness, and take appropriate action when necessary to prevent the spread of such contamination or outbreak. A facility must be registered prior to the start of manufacturing, processing, packing, or storing. Registration can be completed electronically—and quickly—via FDA’s website, or by mailing or faxing FDA Form 3537 to FDA. There is no fee for registering a food facility with FDA. Electronic registration is strongly encouraged by FDA.

The recently published Draft CPG is important for those involved in the U.S. food industry because it outlines FDA’s proposed regulatory approach for enforcing food facility registration and describes FDA’s current thinking on registration, renewal, and suspension. First, FDA will enforce the registration requirements, and for regulatory compliance purposes, FDA will consider a facility to be in violation of such registration requirements if (1) it has failed to register; (2) the facility’s registration is incomplete; or (3) the facility’s registration is expired by failing to renew the registration.

For foreign food facilities shipping food products into the United States, such as manufacturers in China, Japan or France, FDA intends to use its “prior notice” requirements to ensure compliance with facility registration. Under the Act, a foreign food company is required to provide FDA with prior notice of a shipment no less than four hours before the product arrives at the port of arrival (by air) and no less than eight hours before the product arrives at the port of arrival (by water). Prior notice may be submitted via FDA’s Prior Notice System Interface up to fifteen days before the anticipated date of arrival. Upon arrival in the United States, FDA inspectors review incoming shipments for regulatory compliance, including proper facility registration and food labeling requirements. If FDA determines that a foreign food facility is not registered, FDA will hold the food being imported at the port of entry.

Second, the Draft CPG states that FDA intends to closely monitor the biennial facility registration renewal requirement. If a registered food facility fails to renew such registration during the mandated time period (i.e., from October 1st through December 31st of each even-numbered year), FDA will consider the registration expired and will take appropriate regulatory enforcement action.

Finally, FDA has the authority to suspend a facility’s registration if it obtains evidence that the facility has a reasonable probability of causing serious adverse health consequences or death to humans or animals, and the facility either created, caused, or was otherwise responsible for such reasonable probability or knew or had reason to know of such reasonable probability and packed, received, or held food regardless of such knowledge. If a domestic facility that is subject to suspension introduces food into interstate or intrastate commerce, FDA may pursue enforcement action, including administration detention, seizure, injunction, mandatory recall, prosecution, or a combination thereof.

FDA is accepting public comments on the Draft CGP through May 6, 2013. You may submit comments electronically or via the mail to the Division of Dockets Management (HFA-305), Food and Drug Administration, 5630 Fishers Lane, rm. 1061, Rockville, MD 20852.

Squire Sanders attorneys have experience in advising both domestic and foreign food facilities on the facility registration requirements, completing facility registration applications, and assisting in the drafting and submission of comments to proposed FDA guidance. Please contact the author of this blog post or your principal Squire Sanders attorney for more information.

Certification for Electronic Health Record Products Revoked

By John Wyand on May 1st, 2013 Posted in Electronic Health Records, Regulatory Compliance, Uncategorized

Following the revocation of two previously certified electronic health record products to be used as part of the Medicare and Medicaid Electronic Health Record (EHR) Incentive Programs, Farzad Mostashari, M.D., the national coordinator for health information technology, announced that the products do not meet standards and providers cannot use these products to meet the requirements of the Medicare and Medicaid EHR Incentive programs.

According to a U.S. Department of Health and Human Services news release, EHRMagic-Ambulatory and EHRMagic-Inpatient, both developed by EHRMagic Inc. of Santa Fe Springs, Calif., no longer meet the EHR certification requirements. The EHRs must be certified by a certification body authorized by the Office of the National Coordinator for Health IT (ONC) before regaining certification.

“We and our certification bodies take complaints and our follow-up seriously. By revoking the certification of these EHR products, we are making sure that certified electronic health record products meet the requirements to protect patients and providers,” said Dr. Mostashari. “Because EHRMagic was unable to show that their EHR products met ONC’s certification requirements, their EHRs will no longer be certified under the ONC HIT Certification Program.”

Is CMS Having Second Thoughts About Preferred Pharmacy Networks?

By David Kopans on April 19th, 2013 Posted in Pharmaceutical, Regulatory Compliance

In January of 2005, the Centers for Medicare and Medicaid Services (“CMS”) finalized its regulation permitting Medicare Part D plans to establish networks of “preferred” and “non-preferred pharmacies,” meaning that the plans may offer lower cost-sharing to enrolled Medicare beneficiaries who receive items or services from a preferred pharmacy. 70 Fed. Reg. 4194 (Jan. 28, 2005). This rule was highly contested by pharmacies and their associations leading up to the final rule and has remained so, spawning a couple of legal challenges in 2011 and 2012. These legal challenges argued that a preferred pharmacy network is inconsistent with another rule that requires a Part D plan to permit any pharmacy to participate in its network if the pharmacy is willing to agree to the plan’s standard terms and conditions. This other rule is commonly referred to as the “Any Willing Pharmacy Requirement.”

Until CMS issued its annual Final Call Letter on April 1, 2013, CMS had not appeared interested in challenging preferred pharmacy network arrangements. In the case of the Any Willing Pharmacy Requirement, CMS stated in Chapter 5 of its Prescription Drug Benefit (“PDB”) Manual that whether a Part D sponsor has permitted a pharmacy an opportunity to participate in its network, or whether a pharmacy can meet or has met contract terms in compliance with the law and CMS’ regulations at 42 CFR 423.120(a)(8)(i) are fact-specific questions that are generally best left between the parties.

CMS has stated elsewhere, “Ultimately, however, it is at Part D plans’ discretion how they will establish pharmacy networks – including …the establishment of preferred pharmacies provided they meet our pharmacy access standards, non-discrimination provisions and other applicable requirements under Part D.” 70 Fed. Reg. at 4250. CMS explained its preference not to interfere with “private negotiations between Part D plans and pharmacies” as being consistent with Congressional intent. Id. This preference has seemed unshakeable, particularly as CMS has been able to shake off the legal challenges to the preferred pharmacy rule.

However, as announced in the Final Call Letter, CMS warned, “We have begun to scrutinize Part D drug costs in PDPs [i.e., Prescription Drug Plans] with preferred networks, and comparing these to costs in the non-preferred networks, as well as to costs in PDPs without preferred networks.” CMS further revealed that it has begun contacting plan sponsors identified in its analysis to validate its findings that suggest certain preferred pharmacy network arrangements are improperly increasing costs to Medicare.

This review by CMS alone is not much of a surprise. Even at the time CMS published the final preferred pharmacy rule, CMS was adamant in the rule that “such tiered cost-sharing arrangements [must] in no way increase [CMS’] payments to Part D sponsors. 70 Fed. Reg. at 4254. CMS has been equally adamant in the PDB Manual. So, it is no surprise that CMS would at some point review whether preferred pharmacy networks have been designed in such a way as to increase costs to the Medicare Program.

What is a bit more surprising is another statement by CMS in its Final Call Letter. In response to complaints from pharmacies regarding barriers to participation in preferred networks, CMS stated, “We strongly believe that including any pharmacy that can meet the terms and conditions of the preferred arrangements in the sponsor’s preferred network is the best way to encourage price competition and lower costs in the Part D program.” CMS concluded that “mandating this policy is beyond the scope of this call letter.” Therefore, rather than reaffirm its long-standing position that Congressional intent supports its policy of non-interference in the establishment of preferred pharmacy networks, CMS appears to be suggesting that it is considering means other than its annual call letter guidance to lower barriers for pharmacies to participate in preferred pharmacy networks.

While CMS is silent on when or if it intends to mandate such a policy, it appears to be attacking one of the primary means by which plans have avoided increasing costs to CMS, through “post point-of-sale per claim administrative fees.” As described by CMS, these fees are “levied by Part D sponsors or their intermediaries on pharmacies” by charging a pharmacy $1.00 per claim to participate in the sponsor’s preferred pharmacy network or chargeback of the dispensing fee. CMS confirmed that current law permits this practice which allows plans to exclude these fees from their reported negotiated prices with pharmacies. However, in CMS’ view, these arrangements are inconsistent with the intent of the regulations and result in the reported prices being overstated. CMS believes that “notice and comment rulemaking would be necessary in order to require sponsors to consider these fees as part of the negotiated price” and will consider “revising the definition of negotiated price” so as to require the inclusion of these fees in the reporting of such prices.

If CMS revises the preferred pharmacy rule to lower participation barriers for all pharmacies while eliminating the post point-of-sale per claim administrative fees that make many preferred pharmacy network arrangements feasible, CMS would appear to be undermining its own long-standing support for preferred pharmacy networks and its policy of non-interference in the private contract negotiations between plans and their network pharmacies.

Sixth Circuit Overturns $11.1 Million Judgment Against MedQuest for FCA Violations

By India Brim on April 11th, 2013 Posted in 6th Circuit, False Claims Act, Fraud and Abuse, Regulatory Compliance

On April 1, 2013, the United States Court of Appeals for the Sixth Circuit overturned the $11.1 million judgment against MedQuest for its submission of claims to Medicare for tests in diagnostic testing facilities that were not supervised by approved physicians. The whistleblower action was initiated by a former MedQuest employee, alleging that MedQuest, a leading diagnostic testing firm, and three of its independent diagnostic testing facilities (IDTFs) – the Charlotte Center, the Cool Springs Center and the Harding Center – submitted claims to Medicare for tests that were performed without the required level of physician supervision or were performed by physicians who lacked the required proficiency and certification to perform the tests. Additionally, the government alleged that from January 2004 to July 2005, MedQuest submitted claims to Medicare using the physician billing number of the former owner of the Charlotte IDTF. The U.S. District Court for the Middle District of Tennessee held that the claims submitted by MedQuest for diagnostic tests that were performed without the appropriate level of supervision or without the supervision of an approved Medicare physician, constituted an appropriate basis for an award of penalties under the False Claims Act. The U.S. District Court ultimately awarded $11.1 million in treble damages and civil penalties to the Government.

On appeal, the Sixth Circuit overturned the District Court’s ruling stating that MedQuest’s use of non-approved supervising physicians for contrast procedures did not constitute an adequate basis for False Claims Act (“FCA”) liability. The Court noted that MedQuest’s use of a billing number belonging to a physician’s practice also did not trigger the excessive fines under the FCA. Despite dismissing the Government’s FCA claims, the Sixth Circuit had little sympathy for MedQuest and encouraged the Government to seek administrative remedies against MedQuest with the Centers for Medicare and Medicaid Services, such as suspension and expulsion from the Medicare program.

Proposed Rules Issued Extending Protections of Electronic Health Record Donations

By John Wyand on April 10th, 2013 Posted in Accountable Care Organizations, Department of Health and Human Services, Electronic Health Records, Fraud and Abuse, Hospitals, Physician Practice, Regulatory Compliance

Proposed Rules Issued Extending Protections of Electronic Health Record Donations

On April 10, 2013, the Department of Health and Human Services (DHHS), Office of Inspector General (OIG) and the DHHS, Centers for Medicare & Medicaid Services (CMS) each issued a proposed rule relating to the donation of interoperable electronic health records software or information technology and training services (EHR). The rules propose to:

Extend by three years the protections of the Stark law exception (42 C.F.R. § 411.357(w)) and the Anti-Kickback safe harbor (42 C.F.R. § 1001.952(y)) to December 31, 2016 (the “sunset” provisions);
Eliminate the requirements that a donated EHR include electronic prescribing capability; and
Update the provisions that qualify an EHR for protection under the exception and safe harbor (the “deeming” provisions).

In addition to the proposed rules, the OIG and CMS are requesting public comment on other changes the agencies are considering, including:

Limiting the scope of protected donors;
Adding or modifying conditions to limit the risk of data and referral lock-in; and
Clarifying the items and services that fall within the scope of the exception and safe harbor.

Comments must be received no later than 5:00 p.m. on June 10, 2013 and may be submitted as follows:

OIG Proposed Rule:Medicare and State Health Care Programs: Fraud and Abuse; Electronic Health Records Safe Harbor under the Anti-Kickback Statute	CMS Proposed Rule:Medicare Program; Physicians’ Referrals to Health Care Entities With Which They Have Financial Relationships: Exception for Certain Electronic Health Records Arrangements
1. Electronically to regulations.gov.	1. Electronically to regulations.gov.
2. By regular, express, or overnight mail: Patrice Drew Office of Inspector General Department of Health and Human Services Attention: OIG-404-P, Room 5541C Cohen Building 330 Independence Avenue, SW Washington, DC 20201	2. By regular mail: Centers for Medicare & Medicaid Services Department of Health and Human Services Attention: CMS-1454-P P.O. Box 8013 Baltimore, MD 21244-8013
3. By hand or courier to: Patrice Drew Office of Inspector General Department of Health and Human Services Cohen Building, Room 5541C 330 Independence Avenue, SW Washington, DC 20201	3. By express or overnight mail: Centers for Medicare & Medicaid Services Department of Health and Human Services Attention: CMS-1454-P Mail Stop C4-26-05 7500 Security Boulevard Baltimore, MD 21244-1850.4. By hand or courier.For delivery in Washington, DC: Centers for Medicare & Medicaid Services Department of Health and Human Services Room 445-G Hubert H. Humphrey Building 200 Independence Avenue, SW. Washington, DC 20201 (Leave comments in the CMS drop slots in the main lobby.) For delivery in Baltimore, MD: Centers for Medicare & Medicaid Services Department of Health and Human Services 7500 Security Boulevard Baltimore, MD 21244-1850.