Billions at Stake for Providers in Argument Before US Supreme Court

This week, the United States Supreme Court heard oral arguments in Universal Health Services v. United States ex rel. Escobar, a case destined to influence the scope of False Claims Act (FCA) liability for anyone who receives payments from Medicare, Medicaid or any other federal government-funded health care program. As Justice Breyer acknowledged during oral argument, “billions of dollars” are “at issue.”

During oral argument, the Justices seemed likely to accept the implied certification theory of liability under the FCA, at least in some form. The decision is likely by the end of June. Watch this space for details and analysis of its precise contours. Below are more details about the case.

Escobar concerns “implied certification” liability — a theory that requires a provider to comply with underlying statutory, regulatory or contractual obligations associated with a service even though those obligations are not specified when the service is provided. If the provider fails to comply with those obligations but submits a claim for payment, it has breached the implicit promise, thus potentially giving rise to liability under the FCA.

Universal Health and others want the theory abolished, while relator Escobar wants it upheld.  The Justices appeared to ponder—in the words of counsel for Universal Health Services—the “jot” from the “tittle” on how to distinguish underlying obligations that are sufficiently important to implicate the FCA from those that are not. Although both sides and the United States Solicitor General’s office (participating as an amicus in support of Escobar) posited several principles upon which to resolve the case, none seemed to elicit a consensus among the Court’s eight members.

The FCA is a Civil War-era law designed to protect government coffers by prohibiting individuals from “knowingly” submitting (or causing the submission of) a “false or fraudulent claim” for payment. In order to further protect the government’s coffers, the FCA authorizes private plaintiffs (known as “relators”) to bring suit on the government’s behalf and share in its recovery.

With New Primary Care Compensation Model, CMS Continues Efforts to Promote Value-Based Payments

Beginning in January 2017, primary care physicians and their practices (PCPs)  will be able to participate in a multi-payer payment reform and care delivery transformation aimed at strengthening primary care. Dubbed the Comprehensive Primary Care Plus (CPC+) initiative, the recently unveiled primary care medical home model is CMS’s latest effort to encourage value-based payment methodology, with an aim towards promoting health and reducing overall health care costs.

In an effort to encourage PCP participation in the voluntary initiative, the two-track CPC+ model revises existing Medicare payment structures and introduces the concept of a Medicare Care Management Fee (MCMF). In track one, PCPs will receive traditional Medicare fee-for-service payments for services rendered, as well as an MCMF of $15 per Medicare beneficiary per month. Additionally, track one participants will be eligible for a performance-based incentive payment of up to $2.50 per beneficiary per month, which is tied to clinical quality/patient experience and utilization measures that drive total cost of care.

In track two, PCPs will be reimbursed under a hybrid model that combines the traditional Medicare fee-for-service with a percentage of the PCP’s expected evaluation and management reimbursements, which will be paid upfront in the form of a Comprehensive Primary Care Payment (CPCP). In addition to payment under this hybrid model, track two PCPs will receive an MCMF of $28 per Medicare beneficiary per month, including an additional $100 for each beneficiary with certain “complex needs.” Like track one participants, track two participants are eligible for a performance-based incentive payment, but at the slightly higher rate of $4.00 per beneficiary per month.  More details on the two tracks can be located here.

CMS believes that the new model makes a “persuasive business case[] for practices to participate in the CPC+ model and choose the track that best meets their needs.” To support this contention, CMS calculates the average payments that a PCP participating in CPC+ can expect to receive (assuming a practice beneficiary pool of 700 people, which CMS explains was the average size of participating practices in a previous version of the CPC model).

With respect to track one, CMS’s calculations reveal that a participating PCP will receive $10,500 monthly ($126,000 annually) in MCMF fees. CMS predicts that PCPs will be “guided by the care delivery expectations to invest these funds into practice transformation” efforts. These practice transformation efforts will “support the sort of care and management that will increase [the] likelihood of practice eligibility for incentives that could reach $21,000 annually.”

With respect to track two, again assuming a practice size of 700 beneficiaries, CMS’s calculations reveal that a participating PCP will receive $19,600 monthly ($235,200 annually) in MCMF fees and performance-based incentives that could reach $33,600 annually. Also, because of the partially capitated, partially fee-for-service nature of the track two model, CMS anticipates that PCPs will be more willing to furnish services “in a way that best meets the needs of the patient, whether that be by email, phone, patient portal, etc.,” since the cost of such services is essentially built into the capitated quarterly payment. CMS indicates that it will test several different percentage breakdowns in order to determine the best mix of capitated and fee-for-service payments.

Whether the CPC+ initiative will draw widespread interest from PCPs remains to be seen. In a statement on its website, the American Academy of Family Physicians (AAFP) sounded at least open to considering the initiative, referencing CMS’s claim that the new model was “designed to provide physicians the freedom to care for their patients in a way they think will deliver the best outcomes and to pay them for achieving results and improving care.” Nonetheless, the AAFP stopped short of endorsing the measure, writing that it is “working now to understand this new CPC+ model and will share more information soon.” In any event, CMS’s business case for the CPC+ initiative is likely to draw interest from at least some PCPs, particularly those with sophisticated telemedicine and electronic health record (EHR) platforms.

While CMS’s development of the CPC+ initiative would be noteworthy on its own, the participation of private payors should draw the attention of providers interested in maximizing reimbursement for services rendered to patients. On April 15, 2016 CMS began accepting applications for private payors to join the CPC+ initiative, and the geographic mix of chosen private payors will help inform the 20 regions ultimately selected to participate in the CPC+ model. Applications for interested PCPs will be accepted beginning July 15, 2016, with CMS encouraging PCPs that are further along in the delivery of value-based care to apply for participation under track two.

The CPC+ initiative is simply the latest example of the federal government’s efforts to drive quality, cost-effective health care by utilizing value-based payment methodologies. As with all reimbursement models, physicians should assess whether their practice organizations are in a position to avail themselves of the benefits of—and navigate the challenges associated with—the CPC+ reimbursement model for PCPs.



Two-Midnight Rule Update: CMS Proposes to Eliminate .2% Payment Reduction By Increasing FY 2017 IPPS Rates

Today, CMS submitted to the Federal Register (for publication on April 27th) its annual notice of proposed IPPS rates and policy changes for federal fiscal year (“FY”) 2017.  Today’s notice contains a proposal to eliminate permanently the .2% payment reduction that CMS had implemented in FY 2014 to offset a projected net increase in IPPS cases occasioned by CMS’s “Two Midnight” rule.

Today’s proposed action is in response to the remand order issued by the U.S. District Court for the District of Columbia in Shands Jacksonville Medical Center v. Burwell (“Shands”).  As we have previously reported, the court in Shands ruled that CMS had violated mandatory notice and comment requirements regarding key information the agency had used to rationalize its .2% payment reduction – specifically, the data and details underlying CMS’s actuarial assumptions that the Two Midnight rule would yield a net increase in IPPS cases.  The court ordered CMS to provide notice of such data and details and an opportunity to comment thereon.  The judge warned that the .2% reduction might be vacated if the agency failed to give “meaningful consideration” to the comments and also reserved consideration of various challenges that the reduction was substantively invalid.

On December 1, 2015, CMS published the notice as directed by the Shands court, soliciting comments by February 2, 2016.  The major hospital associations submitted comments presenting robust critiques of CMS’s modeling and illustrating further grounds for challenge to CMS’s .2% reduction.  When properly considered, the data shows an anticipated net decrease in IPPS cases and – contrary to CMS’s offsetting IPPS rate decrease – arguably justifies raising IPPS rates.  CMS has until April 27, 2016, to publish a final notice addressing the comments.

Though defending its decision as “reasonable at the time” it was made, CMS has now proposed “to permanently remove” the .2% payment reduction, starting in FY 2017.  In addition, “given the unique nature of this situation in which the court has ordered [CMS] to further explain the assumptions underlying an adjustment applicable to past years,” CMS also proposed to correct for the .2% reduction in each of FYs 2014-2016 by increasing the FY 2017 rates by an additional 0.6 percent.  CMS stated:  “We take this action in the specific context of this unique situation, in which we have been ordered by a Federal court to further explain the basis of an adjustment we have imposed for past years.”

Following the official publication of today’s notice in the Federal Register (on April 27th), the court in Shands will determine whether CMS has satisfied the terms of its remand order and whether to award any further relief to the plaintiff hospitals in that action.

Given that the Shands case has yet to be decided – and that CMS has emphasized that its correction will be prospective only – hospitals should include the .2% payment reduction and related policies as protest items on each of their FYs 2015 and 2016 cost reports.

We will provide updates and analysis of further developments in the Shands case on remand and on CMS’s rulemaking action.

340B Drug Pricing Program: HRSA Reopens Comment Period for 2015 Proposed Rule

The Health Resources and Services Administration (“HRSA”) and the Department of Health and Human Services (“HHS”) issued a notice and reopening of comment period for their June 17, 2015 notice of proposed rulemaking, “340B Drug Pricing Program Ceiling Price and Manufacturer Civil Monetary Penalties Regulation.”  In light of comments received, HHS is reopening the comment period for 30 days to invite public comments on three areas of rulemaking: the ceiling price for a covered outpatient drug exception, new drug price estimation, and the definition of “knowing and intentional.”

Specifically, HHS is considering alternatives to its penny pricing proposal as a limited ceiling price.  HHS is also seeking comments on the specific methodology for estimating new covered outpatient drug pricing and the application of manufacturer-supported refunds and credits.  Lastly, HHS is seeking input on whether and how to further define the “knowing and intentional” standard for purposes of civil monetary penalties.

The notice was published in the Federal Register on April 19, 2016.  A full-text copy of the notice is available here.  Comments must be received by HHS on or before May 18, 2016.  HHS believes that a 30-day period is a sufficient period to encourage additional public consideration and comment about its proposed rulemaking.  If you would like additional information about the proposed rule or are interested in submitting a comment, please contact the Squire Patton Boggs’ Healthcare team.

Task Forces in 10 States Target Providers of Services to Elderly

On March 30, 2016, the US Department of Justice (DOJ) announced that healthcare providers who serve the elderly in the following 10 states will have task forces looking over their shoulders: California, Georgia, Kansas, Kentucky, Iowa, Maryland, Ohio, Pennsylvania, Tennessee and Washington. Known as the Elder Justice Task Forces (Task Forces), these partnerships combine the resources of “federal, state and local prosecutors, law enforcement, and agencies that provide services to the elderly,” with an eye toward “coordinat[ing] and enhanc[ing] efforts to pursue nursing homes that provide grossly substandard care to their residents.” DOJ indicated that the Task Forces “reflect the department’s larger strategy and commitment to protecting our nation’s seniors, spearheaded by the department’s Elder Justice Initiative.”

What Practices and Providers Will the Task Forces Target?

As mentioned above, the Task Forces will focus on nursing home violations. However, in a subsequent interview, a DOJ spokeswoman indicated that nursing homes could be just the beginning, explaining it was “certainly possible that [the Task Forces] may look into concerns or allegations involving other types of long-term care providers if they fall within the team’s region or jurisdiction.” The spokeswoman made clear that “[r]egardless of the provider type, the [T]ask [F]orces will take appropriate action if violations of law are identified.”

Providers should prepare to face increased scrutiny whenever they serve elderly patients because of (1) the Task Forces’ placement within the DOJ’s broader Elder Justice Initiative, (2) the combination of federal and state laws that the Task Forces’ various members are empowered to enforce and (3) DOJ’s post-announcement statement that the Task Forces will proceed “regardless of provider type.” Bases of liability will likely include the False Claims Act (when a provider bills Medicare or Medicaid for services that are either so defective as to be effectively worthless or medically unreasonable and unnecessary), HIPAA (for disseminating certain patient information such as via social media) and state criminal law (for sexual abuse, assault and failure to report other criminal acts perpetrated against elderly patients).

Every Provider Needs to be Concerned

The 10 districts were not chosen at random, as several – including the Southern District of Ohio and Eastern District of Pennsylvania – have previously been involved in DOJ-led efforts to pursue elder care providers who seek to defraud their patients and federal programs. In addition to criminal penalties and civil fines, other sanctions are available. In previous elder abuse cases, HHS’s Office of Inspector General (OIG) required onerous, multi-year Corporate Integrity Agreements and mandatory, independent quality monitors. Given the success of DOJ-led task forces such as the Health Care Fraud Prevention and Enforcement Action (HEAT) Task Force, providers of healthcare services to the elderly should be especially mindful of the importance of strict compliance with federal and state law, including those mentioned above.

Ransomware Scandals Rock Hospital Systems; HHS’ Proposed Rule May Help

Hospital systems are on notice for ransomware attacking their health IT systems after three hospital systems are reported to be victims of computer viruses.   In response, one hospital system paid almost $17,000 in Bitcoin to retrieve their EHR, while the other two hospital systems worked off paper records and backup systems for a few days while their main IT systems were taken down to flush out the virus.  Coincidentally, the Department of Health and Human Services (HHS) and the Office of the National Coordinator for Health Information Technology (ONC) recently proposed a new rule designed to enhance the safety and security for health IT users.  While certified health IT does not necessarily protect against the newest computer viruses, HHS’ proposed rulemaking may ensure that health IT products continue to meet the needs of the health care system.

What is Certified Health IT?

Health IT is technology, like software, that stores, shares, and analyzes health information.  It is used by patients and doctors to communicate and share information about the patients’ health.  Health IT takes many forms, one of which is an electronic health record (EHR), or the patient’s electronic medical record.  E-prescriptions, in which the doctor communicates directly with the pharmacy to fill a patient’s prescription, is another form of health IT.

Certified health IT is health IT that is tested and reviewed by accredited certification and testing bodies against specific IT security standards.  Some of the goals of certification are to ensure that the patient’s EHR remains secure and protected, improving health care quality by reducing medical errors, and reducing health care costs resulting from incomplete information.

Proposed Rule

The proposed rule makes changes to ONC’s current certification program and its oversight over the third party bodies that currently perform the certification and testing.  The proposed rule focuses on three key areas:

  • ONC Direct Review of Certified Health IT: The proposed rule allows ONC to directly review certified health IT for which it has evidence that the certified health IT may not conform to the certification requirements. ONC could require corrective actions for these nonconformities from a health IT manufacturer.
  • Enhanced Oversight of ONC-Authorized Testing Laboratories: The proposed rule gives ONC direct oversight over the accredited testing labs by requiring the labs apply for ONC authorization.
  • Surveillance Transparency and Accountability: Certified health IT surveillance results would be publicly accessible to provide customers and users with performance information, including continued compliance. The certification and testing bodies would make such information available on their websites on a quarterly basis.

Comments are accepted until May 2, 2016.  Interested parties can comment electronically on, or send their written comments to HHS ONC at the Mary E. Switzer Building, Mail Stop: 7033A, 330 C St. NW, Washington, DC 20201.  When commenting, make sure to reference RIN 0955-AA00 when sending written comments.


Hospital Medicare Reimbursement: CMS Delays Publication of Notice Justifying .2% IPPS Payment Reduction for “Two Midnight” Policy

In August 2014 IPPS, CMS implemented a .2% reduction in IPPS rates for federal fiscal year (“FY”) 2014, and has carried that .2% reduction forward in FYs 2015 and 2016.  CMS claimed that this .2% reduction was necessary to offset a projected net increase in IPPS cases occasioned by CMS’s “Two Midnight” rule, also adopted in the FY 2014 IPPS rulemaking.

Hundreds of hospitals have sued CMS over the .2% reduction, and their cases have been consolidated before one federal district court judge in Shands Jacksonville Medical Center v. Burwell (“Shands”).  Recently, the court in Shands ruled that CMS had failed to provide mandatory notice of, and an opportunity to comment on, the key information the agency had used to rationalize its assumption of a net increase in IPPS cases – specifically, the data and details underlying the CMS’s actuarial assumptions.  The court ordered CMS to provide notice of such data and details and an opportunity to comment thereon.  The judge warned that the .2% reduction might be vacated if the agency failed to give “meaningful consideration” to the comments and also reserved consideration of various challenges that the reduction was substantively invalid.

On December 1, 2015, CMS published the notice as directed by the Shands court, soliciting comments by February 2, 2016.  The major hospital associations submitted comments presenting robust critiques of CMS’s modeling and illustrating further grounds for challenge to CMS’s .2% reduction.  When properly considered, the data shows an anticipated net decrease in IPPS cases and – contrary to CMS’s offsetting IPPS rate decrease – arguably justifies raising IPPS rates.  The court gave CMS until March 18, 2016, to publish a final notice addressing the comments.

Today, March 18, HHS published a notice in the Federal Register stating that it has requested an extension of the deadline until April 27, 2016, to publish its final notice responding to the comments:  We will provide further updates and analysis when the publication is made.

Ohio’s Attempt to Uncloak Health Care Pricing – The Yellow Brick Road to Cost Transparency


Last legislative session, the Ohio General Assembly passed a measure in House Bill 52 requiring health care cost transparency for non-emergency services.  The new measure requires that most medical service providers provide in writing, prior to a service being rendered, “a good-faith estimate” of (1) the amount the provider will charge the patient’s health plan, (2) the amount the health plan intends to pay, and (3) the difference, if any, that the patient will be required to pay.

The new measure charges the Ohio’s Medical Director to adopt rules, based on the recommendations of the Health Services Price Disclosure Study Committee (“Committee”), to carry out cost transparency requirement by no later than July 1, 2016.  The state’s legislature established the Committee to study the impact and feasibility of the legislature’s vision of health care cost transparency, and prepare a report and separate recommendations by December 31, 2015.   Regardless of the Committee’s recommendations regarding feasibility, the Medicaid Director is required promulgate rules to implement the requirement absent an act of the state’s legislature.

Although cost transparency has been historically treated as taboo in the U.S. health care system, a number of recent trends have normalized the concept. The stunning acceleration of health care expenditures, as compared against the nation’s gross domestic product, has increased scrutiny on the marketplace for health care services.  Moreover, the growth of modern high-deductible health plans has financially incentivized patients to be more cognizant of their health care spending.  Patients have long been exposed to cost transparency in their prescription drug transactions, including choosing between cheaper generic and pricier brand drugs.   Furthermore, cost transparency is a core element of the burgeoning retail medicine space emphasizing a more transactional health care experience.  For better or worse, cost transparency has slowly taken root in the U.S. health care space and in the public’s expectations.

Ohio’s cost transparency measure will test whether the concept can be applied to health care providers at large.  Following the Committee’s report at the end of last year, health care providers and other stakeholders in Ohio are eagerly waiting for the Medicaid Director to propose rules to implement the legislature’s vision of the cost transparency measure, on or before July 1, 2016.  Ohio’s experience implementing the measure is likely to be closely watched in other states, where similar conversations about the lack of cost transparency in the health care system are taking place.

FDA Considers Regulating Refurbishers and Other Third Parties

The Food and Drug Administration (FDA) requested comments on March 4 regarding definitions and possible regulations governing medical device refurbishers, reprocessors, and other third parties.

Medical device manufacturers have the duty, under 21 C.F.R. Part 820, to provide instructions to third parties that may service or install their products.  However, manufacturers may not be able to maintain control over their device after it leaves their hands, which can be a problem especially if the device is not repaired correctly or a third party changes the product.  Stakeholders expressed concerns regarding the safety and effectiveness of medical devices that undergo one or more activities by a third party.  FDA proposed adding seven definitions for third parties and the activities they perform on already-manufactured medical devices:

  • Recondition: Restores and/or refurbishes a medical device to the OEM’s original specifications. Under limited circumstances the medical device may be restored and/or refurbished to current specifications.
  • Service: Maintenance or repair of a finished device after distribution to return it to the safety and performance specifications established by the OEM and to meet its original intended use. Servicing cannot change the intended use(s) of the device from its original purpose(s).
  • Repair: Return the device or component to original specifications including replacing non-working components or parts outside of routine or periodic upkeep for the current owner of the device.
  • Refurbish: Restore device to a condition of safety and effectiveness that is comparable to when new. This includes reconditioning, repair, installation of certain software/hardware updates that do not change the intended use of the original device, and replacement of worn parts.
  • Remanufacture: Process, condition, renovate, repackage, restore, or any other act done to a finished device that significantly changes the finished device’s performance, safety, specifications, or intended use.
  • Remarket: The act of facilitating the transfer of a previously owned device from one party to another by sale, donation, gift, or lease.

The FDA also invites interested parties to comment on the benefits and risks related to the definitions and on the following:

  • Who are the different stakeholders involved with the medical device activities listed previously? What are their respective roles?
  • What evidence exists regarding actual problems with the safety and/or performance of devices that result from these activities? Specific examples should be submitted.
  • What are the potential risks (patients/users) and failure modes (devices) introduced as a result of performing the previously defined activities on medical devices? Please speak to issues common to all devices as well as specific risks with specific devices.
  • These activities are performed by OEMs and various third-party entities, including hospitals and humanitarian organizations. Are the risks different depending on who performs the previously mentioned activities?
  • We [FDA] are interested in knowing if these activities are more difficult or riskier to perform on certain devices versus others. Please cite specific examples in your response, along with an explanation of the source of this particular complexity.
  • What information do third-party entities need in order to perform these activities in a way that results in safe and effective operation of the medical device? Please provide specific examples.
  • What additional challenges to stakeholders encounter with devices that result from these activities?

Comments are accepted until May 3, 2016.  Interested parties can comment electronically on, or send their written comments to FDA at: Division of Dockets Management (HFA-305), Food and Drug Administration, 5630 Fishers Lane, Rm. 1061, Rockville, MD 20852.  Make sure to cite Docket Number FDA-2016-N-0436 when sending written comments.  Interested parties can also contact the authors of this post to discuss how they may be affected by potential regulations.


International Note on Third Parties’ Regulatory Responsibilities: The New Legislative Framework in the EU, the principles of which guide the proposed EU Medical Device and IVD Regulations, also includes regulatory responsibilities for third parties in the medical device and IVD distribution chains.  For more information, contact us.

CMS Creates Standardized Plans for Health Insurance Exchanges

On February 29th, CMS published its final rule regarding the 2017 benefit and payment parameters for the Federally-facilitated health insurance exchanges.  As part of the final rule, CMS creates standardized health care plans that insurers can offer on the exchanges.

CMS created the standardized plans in order to simplify health insurance shopping for consumers.  According to the final rule, a standardized health care plan is a qualified health care plan with a cost-sharing structure defined by HHS.  Each standardized plan has a fixed deductible, limit on annual out-of-pocket maximums, and copayment or coinsurance for the services in the plan.  By standardizing certain plans, it should make it easier for consumers to compare the different issuers and their prices since the plans would otherwise be identical across all issuers that offer them.

The standardized plans exempt some services from deductible requirement, such as primary care physician visits and specialist visits.  CMS determined that it would exempt these services in order to guarantee access to care, and not simply access to coverage.  This would mean that a patient is only financially responsible for their copay as opposed to first exhausting their deductible.  In addition, the plans would be offered to all beneficiaries across the country, regardless of any state-specific rules in place.

While optional for insurers to offer, CMS built the standardized plans using the items covered by the most popular plans at each “metal” level, except the Platinum level.  Insurers are not required to offer any standardized plans and are still able to offer an unlimited number of non-standardized plans.  Because of this, it is unclear how broadly issuance of standardized plans will be accepted.

The final rule goes into effect in May 2016, and will apply to the plans offered on the federally-facilitated health insurance exchanges for 2017.

Below is a summary of the primary features of each standardized plan level:

Plans and Selected Covered Services (* = Not subject to deductible)

  Bronze Silver Silver Silver Silver Gold
Deductible $6,650 $3,500 $3,000 $700 $250 $1,250


ER Services 50% $400 copay $300 copay $150 copay $100 copay $250 copay


Inpatient Services 50% 20% 20% 20% 5% 20%


Urgent Care 50% $75 copay* $75 copay* $40 copay* $25 copay* $65 copay*


PCP Visit $45 copay* $30 copay* $30 copay* $10 copay* $5 copay* $20 copay*


Specialists 50% $30 copay* $30 copay* $10 copay* $5 copay* $20 copay*


Imaging 50% 20% 20% 20% 5% 20%


Lab Services 50% 20% 20% 20% 5% 20%


X-Rays 50% 20% 20% 20% 5% 20%


Generic Drugs $35 copay* $15 copay* $10 copay* $5 copay* $3 copay* $10 copay*


Preferred-Brand drugs 35% $50 copay* $50 copay* $25 copay* $5 copay* $30 copay*


Non-Preferred Brand drugs 40% $100 copay* $100 copay* $50 copay* $10 copay* $75 copay*


Specialty Drugs 45% 40%* 40%* 30%* 25%* 30%*