DOJ Juggernaut Will Continue To Rack in $$$$

The Department of Justice (DOJ) announced this week that it collected another $4.7 billion during FY 2016 under the False Claims Act (FCA). This was the third largest haul in history, bringing total recoveries since FY 2009 up to $31.3 billion.

Although DOJ did not say it directly, there seems no end in sight to huge recoveries. The sleeping statistic is the number new matters initiated. Although given less prominence than the total of yearly collections, the number of new matters is the source of future recoveries because large verdicts or settlements often take years to achieve. That means part of this year’s recovery depended upon new matters filed in prior years. In that sense, the number of new matters takes on a kind of delayed fuse effect.

In its announcement, DOJ reported 702 qui tam matters were initiated in FY 2016 – an average of 13.5 every week. In addition, DOJ initiated 143 false claims investigations not based on qui tams — for a total of 845 new matters. Although only some actions produce a recovery, the sheer volume of new matters demonstrates the potential for future recoveries. This point becomes clearer when the number of number new matters is compared to prior years. The total of 845 in FY 2016 was the second highest in history, with FY 2013 taking first place at 856 new matters. Moreover, the qui tam total in 2016 is the third time in history that the number of qui tams has surpassed 700. Things certainly have come a long way from FY 1987 when only 30 qui tam matters were initiated.

All this means that compliance and vigilance against fraud remains crucial in the healthcare industry because, regardless of what happens to healthcare reform, aggressive enforcement against fraud will continue. After all, what stakeholder in the healthcare industry is in favor of fraud?

A couple of other points of interest from the announcement:

The majority of this year’s recovery, a total of $2.5 billion, came from the health care industry, including drug companies, medical device companies, hospitals, nursing homes, laboratories, and physicians. This was the seventh consecutive year of health care fraud recoveries exceeded $2 billion.

Consistent with the policy initiative announced in the Yates memorandum on individual accountability for corporate wrongdoing, DOJ announced the names of some individuals who were here held personally responsible for paying recoveries under the FCA and the amounts that they were required to pay.

In addition to federal recoveries, false claims actions often result in additional recoveries for states because of healthcare expenses paid under Medicaid.

Other areas of recovery under the FCA besides healthcare include the financial industry and government contracting.

Court Directs CMS to Clear Medicare Appeals Backlog

On December 6, 2016, the US District Court for the District of Columbia issued an order in American Hospital Association v. Burwell giving CMS a four-year runway to clear the enormous backlog of appeals at the administrative law judge (ALJ) level. The Medicare Act requires ALJs to hold a hearing and to render a decision within 90 days of a party’s filing of its appeal with the Office of Medicare Hearings and Appeals. However, CMS has been unable to comply with this statutory deadline, with a backlog of almost 1 million appeals at the ALJ level.

In his decision, US District Court Judge James E. Boasberg granted summary judgment for the American Hospital Association and required CMS to meet the following deadlines and mandatory percentage reductions:

  • A 30% reduction from the current backlog of cases pending at the ALJ level by December 31, 2017
  • A 60% reduction from the current backlog of cases pending at the ALJ level by December 31, 2018
  • A 90% reduction from the current backlog of cases pending at the ALJ level by December 31, 2019
  • A 100% reduction from the current backlog of cases pending at the ALJ level by December 31, 2020

The court also noted that if CMS fails to meet the above deadlines, claimants at the ALJ level may move for default judgment.

The DC court’s decision may put an end to a long-running controversy and should start bringing long-overdue relief to providers. All eyes are on CMS now as it proceeds with implementing the court’s order and providing status reports every 90 days. The possible raft of appeals being rapidly decided presents many issues, not the least of which is whether any interest penalties will be due under the Medicare Act.

CMS Releases Final Rule Implementing Site Neutral Payment Rule for Hospital Outpatient Departments

On November 1, CMS released final rules implementing Section 603 of the Bipartisan Balanced Budget Act of 2015 (the Final Rule).  Section 603 effectively reduces Medicare compensation paid to certain off-campus hospital outpatient departments (HOPDs) beginning January 1, 2017 by eliminating their eligibility for compensation under Medicare’s Hospital Outpatient Prospective Payment System (OPPS).  The Final Rule generally adopts most of the provisions contained in the proposed rule released earlier this year, with a few significant exceptions.  The Final Rule also includes an Interim Final Rule establishing a mechanism for HOPDs to continue to bill directly for services.

Some of the Final Rule’s significant provisions are as follows:

Grandfathered HOPDs –  Under the Final Rule, HOPDs that furnished and billed for covered services prior to November 2, 2015 (Grandfathered HOPDs) remain eligible for compensation under the OPPS after January 1, 2017 and are excepted from the “site neutral” payment limits implemented by Section 603.  The Final Rule clarifies that a HOPD which first provided covered services before November 2, 2015, but did not bill for such services until on or after November 2, 2015, will be considered a Grandfathered HOPD provided that the bills were submitted in accordance with timely filing limits.

Relocation of Grandfathered HOPDs – Relocating a Grandfathered HOPD will generally result in the loss of excepted status for the Grandfathered HOPD, precluding it from continuing to bill under the OPPS after the relocation.  However, the Final Rule  provides for limited exceptions to the prohibition for reasons such as natural disasters, seismic building code requirements, and safety issues.  Rather than provide clearly defined exceptions, the Final Rule provides that each claim for a relocation exception is to be evaluated on a case-by-case basis by the relevant CMS Regional Office.

Expansion of Services at Grandfathered HOPDs – CMS will not implement its proposed restriction on service line expansion at Grandfathered HOPDs, at least for the time being.  In the Proposed Rule, CMS discussed implementing a system of “clinical families” to determine whether new services provided at a Grandfathered HOPD would be eligible for reimbursement under the OPPS.  In the Final Rule, CMS did not finalize this provision, but cautioned that it will monitor service line growth at Grandfathered HOPDs, and may propose a limitation in the future, including limitations on increases in service volume.

Change of Ownership of a Grandfathered HOPD – The Final Rule adopts the Proposed Rule’s provisions regarding change of ownership (CHOW) transactions.  Specifically, a Grandfathered HOPD will retain its excepted status in a CHOW transaction only if (i) ownership in the main hospital location is also transferred to the new owner and (ii) the new owner accepts the hospital’s existing Medicare provider agreement under which the Grandfathered HOPD is paid.   A sale of the Grandfathered HOPD alone will result in the loss of the Grandfathered HOPD’s excepted status.

Payment for non-excepted items and services  – Under the Proposed Rule, CMS suggested that it would not have a system in place by 2017 for HOPDs to bill under the Medicare Physician Fee Schedule.  The Final Rule (through an Interim Final Rule) address this issue by implementing a payment system for HOPDs that will permit them to continue billing Medicare directly in 2017.  Under the Final Rule, non-excepted HOPDs will be able to bill for services directly, receiving payments at Medicare Physician Fee Schedule rates that are roughly half of the current OPPS rates for 2017.  CMS anticipates updating the rates for 2018, and will explore other payment methods for implementation in 2019.  Under this payment system, services provided at non-excepted HOPDs will continue to be reported on the hospital’s cost report, which should mitigate concerns regarding whether non-excepted HOPDs would still be considered “child sites” for 340B purposes.

Dedicated Emergency Departments  –  The Final Rule provides dedicated emergency departments a categorical exception from the site neutral payment limits implemented by Section 603.  All services provided at a dedicated emergency department, whether emergency or non-emergency, will continue to be eligible for payment under the OPPS.

HOPDs Under Development – The Final Rule does not contain any provision providing exceptions for HOPDs that were mid-build or under development (and thus not furnishing services) as of November 2, 2015.  Absent a legislative remedy, these HOPDs will not be eligible for reimbursement under the OPPS.

CMS is soliciting comments regarding the Final Rule concerning the payment system, limitations on increases service volume among Grandfathered HOPDs and other issues.  Parties interested in submitting comments to CMS regarding the Final Rule and Interim Final Rule  provisions have until December 31, 2016 to submit such comments for consideration.

FDA Working to Modernize Medical Device Reporting in Hospitals

Recent medical device adverse events prompted FDA to take a fresh look at the ways it collects data related to medical device adverse events from hospitals.  FDA examined some high-profile adverse events, such as the spread of uterine cancer from the use of morcellators and the spread of infections by contaminated duoendoscopes, and found it never received the corresponding adverse event reports from the hospitals themselves.  To this end, on October 24, FDA reported on its blog that it had issued 483s, or violations of FDA’s medical device regulations, to a number of hospitals after inspections in December 2015.  Additionally, on October 25, FDA announced it will hold a public workshop on the role of the hospital in reporting device-related adverse events in device surveillance.

Reporting Requirements

“User facilities” are required to report certain adverse events with respect to medical devices within ten days of becoming aware of the information.  Hospitals, ambulatory surgical facilities, and nursing homes are all considered to be “user facilities” according to the Food, Drug, and Cosmetic Act.  User facilities are also required to submit an annual summary of the adverse event reports it submitted to both the manufacturer and to FDA.

These requirements may be news to hospitals and other user facilities, as FDA reported that it had yet to enforce these provisions and accompanying regulations.  In addition, the Food and Drug Administration Modernization Act (FDAMA) requires that FDA replace the universal system to one that is limited to a subset of user facilities.  This requirement prompted the Medical Product Safety Network (MedSun) to be created.  There are currently about 300 hospitals that are voluntary reporters to MedSun.  Even with MedSun, however, FDA has yet to limit the requirement for universal reporting in regulation.

Public Workshop

Realizing that gathering more comprehensive surveillance data for medical devices would require a better approach for user facilities to report on adverse events, FDA will hold a public workshop on December 5, 2016.  The goal of this workshop is to foster dialogue between user facilities and FDA regarding the value, cost, and challenges of current hospital-based reporting and surveillance, and what the role of hospitals should and could be.  The topics for discussion at the public workshop include:

  • An overview of the role of hospitals and potential benefits from a national evaluation system;
  • The role of hospitals in evidence generation and how it fits within the national system;
  • Current hospital-based surveillance efforts including participation in registries, patient safety organizations, electronic health records-based surveillance projects, and other surveillance projects;
  • A review of the role of hospitals in medical device reporting activities and current challenges hospitals face in complying with these requirements;
  • An exploration of MedSun;
  • Future surveillance opportunities for hospitals in the national system, including use of non-traditional sources of hospital data and capabilities;
  • A review of the potential benefits to hospitals in the national system and UDI implementation to modernize hospital surveillance; and
  • A discussion of how all the stakeholders can work together to improve hospital-based medical device surveillance.

Registration for the workshop is free, and the deadline to register is November 28, 2016.  FDA is also soliciting electronic and written comments on all aspects of the workshop topics.  The deadline for submitting comments is January 6, 2017.  Comments should include Docket No. FDA-2016-N-1380.  Electronic comments may be submitted through, and written comments may be sent to Division of Dockets Management (HFA-305), Food and Drug Administration, 5630 Fishers Lane, Rm. 1061, Rockville, MD  20852.

CMS Publishes Final Rule Implementing MACRA

On Friday, October 14, 2016, the Centers for Medicare and Medicaid Services (CMS) issued its Final Rule with Comment, implementing the Quality Payment Program (QPP) delineated in the Medicare Access and Chip Reauthorization Act of 2015 (MACRA). The QPP is designed to reward delivery of high-quality patient care through two programs: Advanced Alternative Payment Methods (Advanced APM) and the Merit-based Incentive Payment System (MIPS). The Rule establishes incentives to participate in Advanced APMs, as well as requirements for Qualifying Advanced APM Participants (QP) to receive additional incentive payments for reaching efficiency and care thresholds. Additionally, the Rule establishes the MIPS program that will make forward-looking payment adjustments for certain clinicians based on performance in four areas: cost, quality, advancing care information and improvement activities.

This Rule represents a major change in the way Medicare service providers report to CMS and receive their payments. However, CMS recognizes that change could not happen overnight, and that an adjustment period may be necessary. To this end, CMS is also implementing a two-year transition period allowing clinicians to gradually familiarize themselves with the new reporting structures in order to help as many clinicians as possible realize the full potential of the new programs.

The Quality Payment Program

The QPP is the program MACRA created to facilitate MIPS and Advanced APMs. CMS’s focus in implementing the QPP is to drive significant change in how care is delivered to make it more responsive to patients and their families, and to use the QPP to support physicians in improving the health of their patients. The QPP’s main goals are to:

  • Improve care by focusing on outcomes for patients, decrease provider burden, while preserving independent clinical practice
  • Promote the Advanced APMs that bring together healthcare stakeholders in determining incentives
  • Advance existing efforts of delivery system reform

The QPP’s two avenues for achieving its goals, Advanced APMs and MIPS, were created in order to allow clinicians and physicians to deliver coordinated and high-quality care in a streamlined payment system and to improve the quality of patient care.

Advanced Alternative Payment Models (Advanced APM)

An Advanced APM is a payment approach designed to contribute to better care and smarter spending by CMS through providing added incentives to high-quality and cost-efficient care. The approaches used in Advanced APMs are developed in partnership with clinicians and physicians, and designed to evolve to ensure beneficiaries continuously receive the highest quality of care. CMS is currently developing the initial set of Advanced APM determinations to be released no later than January 1, 2017. One example of a current Advanced APM is an accountable care organization set up under the Medicare Shared Savings Program.[1]

Merit-Based Incentive Payment System (MIPS)

MIPS is a new program for Medicare-enrolled practitioners that requires that MIPS-eligible clinicians report data on specific measures each year to set performance standards and incentive payments. It is a combination of three existing programs: the Physician Quality Reporting System, the Physician Value-based Payment Modifier, and the Medicare Electronic Health Record Incentive Program for Eligible Professionals. Even though MACRA and the Rule will sunset these three programs, MIPS will keep the focus on quality, cost, and the use of CEHRT in a way that avoids redundancies.

The Rule finalizes the measures, activities, reporting and data submission standards that CMS uses to measure four performance categories. In these performance categories, clinicians must report on a specified number of measures to be eligible to receive the highest possible final scores and fully participate in MIPS.

Transition Period

CMS plans to phase in the reporting provisions in the Rule and provide continuing education and resources to helping clinicians understand the new programs and comply. During the 2017 transition year, CMS will allow clinicians to choose from one of three flexible reporting options to submit data to MIPS and a fourth option to join an Advanced APM. Clinicians may be eligible for upward adjustment payments even if the clinician does not fully participate during this transition year.

If the clinician is ready to start to fully participate in MIPS, clinicians use the MIPS reporting guidelines above. CMS recognizes that not all clinicians and practices will be eligible to participate in an Advanced APM or in MIPS because of the size of the practice or the volume of Medicare beneficiaries or payments it receives. CMS does anticipate, however, that small and rural practices will participate in MIPS at similar rates to larger practices, and that 90% of all MIPS-eligible clinicians will receive either a positive or neutral MIPS payment adjustment in the transition year. To this end, CMS will dedicate US$100 million in technical assistance to eligible clinicians in small and rural practices to help them participate and weather the changes in reporting that these new programs will bring.

[1] 42 U.S.C. § 1395l(z)(3)(C)(ii).

New Rule Prohibits “Pre-Dispute” Arbitration Agreements for LTC Facilities

Last week, CMS released its final rule updating the requirements that Long-Term Care (LTC) facilities must meet to participate in Medicare and Medicaid.  Among the requirements is a new regulation under 42 C.F.R. § 483.70(n) (the “Rule”) which prohibits LTC facilities from entering into “pre-dispute” binding arbitration agreements with any facility resident or such resident’s representative.  The Rule also prohibits an LTC facility from requiring a resident to sign an arbitration agreement as a condition of admission.  In justifying the rule’s implementation, CMS noted the unique relationship that exists between LTC facilities and residents as well as the increased burdens and costs arbitration arrangements may impose on residents in the event of a dispute.  Concluding that pre-dispute arbitration clauses are, by their very nature, “unconscionable,” CMS invoked its authority to protect the wellbeing of residents to effectively prohibit such arrangements for Medicare enrolled LTC facilities.

The Rule goes into effect November 28, 2016 and specifically the does the following:

  • Prohibits LTC facilities from entering into new pre-dispute binding arbitration agreements with any resident or resident’s representative, and prohibits the LTC facility from requiring a resident to sign an arbitration agreement as a condition of admission to the LTC facility.
  • Imposes requirements on binding arbitration agreements entered into between LTC facilities and residents after a dispute has arisen between the resident and the facility.
  • If a dispute is resolved through arbitration, requires the LTC facility to retain a copy of the signed binding arbitration agreement and the arbitrator’s final decision for 5 years, and the agreement and decision must be available for inspection upon CMS’s request.

Notably, the Rule does not invalidate pre-dispute binding arbitration agreements between LTC facilities and residents that were entered into before November 28, 2016.  These agreements continue to remain in effect, although the Rule is silent as to the consequences of any amendment or revision of a “grandfathered” agreement.  The Rule also does not prohibit an LTC facility and resident from entering into a binding arbitration agreement after a dispute has arisen, although the agreement will be subject to certain requirements (e.g. the resident’s right to remain in the facility must not be contingent on the resident entering into the agreement).  Finally, the Rule is silent as to mediation arrangements.

In commentary, CMS noted its concerns regarding the use pre-dispute binding arbitration agreements as a condition of receiving services “regardless of provider type,” but stated that LTC facilities are its “first priority” given the resident’s length of stay and the fact that the LTC facility often serves as a residence.  This suggests that CMS may in the future target other providers and suppliers that use such arrangements.

Given the widespread use of pre-dispute arbitration agreements in LTC facilities, the new Rule will likely require significant changes to LTC operations and litigation risk assessments.

MACRA and Medicare Payment Reform: CMS Plans Increased Flexibility on Provider Participation

On Thursday, CMS announced that it intends to allow providers to “pick their pace of participation” for the first compliance year of Medicare’s new payment reform model emphasizing quality patient care.  The start of the first compliance year is January 1, 2017.

Thursday’s announcement lays out four options that allow providers more flexibility to comply with MACRA’s new payment schemes through the Merit-based Incentive Payment System (MIPS) or an alternative payment model (APM).

As reported on in an earlier post, provider payments under MIPS will be based on an assortment of measures, organized into four categories: quality, resource use, clinical practice improvement activities, and meaningful use of certified EHR technology.  A MIPS composite performance score will be used to determine if provider payments are adjusted, either upwards or downwards.  Alternatively, providers can participate in APMs which involve increased provider reimbursement risk.

In the first option proposed by CMS, providers can report some data to avoid a negative payment adjustment, but will not result in an upward payment adjustment.  CMS believes this option will allow providers to prepare for broader participation in 2018 and 2019. In the second option, providers can participate for part of the calendar year, and potentially qualify for a small upward payment adjustment.  In the third option, providers can participate for the full calendar year, and potentially for a larger upward payment adjustment.  Lastly, in the fourth option, providers can participate in an advanced alternative payment model, such as a Medicare Shared Savings Program Track 2 or 3 or the Comprehensive Primary Care Plus (CPC+) program (if available).

CMS will release additional detail on these four options and other components of Medicare’s new payment reform model under MACRA in its final rule, which it expects to publish by November 1, 2016.

Rev. Proc. 2016-44 Greatly Expands Rev. Proc. 97-13 Safe Harbor for Management Contracts, Opening the Door for Long-Term Management Contracts (Repost)

On August 22, 2016, the IRS released new safe harbors from private business use of tax-exempt bond-financed facilities for management contracts that substantially change the prior safe harbors under Rev. Proc. 97-13. The new revenue procedure, Rev. Proc. 2016-44, provides more flexibility and appears to be more favorable than Rev. Proc 97-13.

The new safe harbors take effect immediately for management contracts entered into, or materially modified, on or after August 22, 2016. However, during an initial transition period running until February 18, 2017, issuers and borrowers may apply either the prior safe harbors or the new safe harbors to management contracts entered into, or materially modified, before February 18, 2017. In addition, issuers and borrowers may elect to apply the new safe harbors to management contracts entered into before August 22, 2016.

A full-length summary of Rev Proc 2016-44 authored by Alexios Hadji is available on Squire Patton Bogg’s Public Finance Tax Blog.

CMS Finalizes 2017 Medicare Payment Rates: What Hospitals Need To Know

On August 2, 2016, CMS released its final rule to update the fiscal year (FY) 2017 Medicare payment rates under the Inpatient Prospective Payment System (IPPS) and the Long-Term Care Hospital Prospective Payment System (Final Rule). By law, CMS is required to update payment rates for IPPS hospitals annually, and to account for changes in the costs of goods and services used by these hospitals in treating Medicare patients, as well as other factors (Market Baskets). For 2017, inpatient hospital payment rates will increase by 0.95% for those hospitals that successfully participate in the Hospital Inpatient Quality Reporting Program (IQR) and are meaningful electronic health record users (EHR).

While the Final Rule consists of more than 2,000 pages, the following is a summary of a few of the key points for hospitals to consider for FY 2017.

The Final Rule “permanently” removes the controversial -0.2% payment cut related to the “two-midnight” payment policy established in 2014, representing approximately US$220 million in payments, and makes various changes to quality initiatives. CMS also finalized an increase of about 0.8% for inpatient payment rates to offset the estimated costs of the two-midnight rule and its financial impact over the past three years. However, the Final Rule has garnered some negative feedback for nearly doubling the reduction in payments related to documentation and coding overpayments, from -0.8% to -1.5%, in an attempt to recoup US$11 billion by 2017 as required by the American Taxpayer Relief Act.

Under the Final Rule, hospitals choosing not to submit quality data will be subject to losing one quarter of the Market Basket update (2.7%), and hospitals that are not meaningful users of EHR can potentially lose three-fourths of the Market Basket update.

Starting in calendar year 2017, CMS will require hospitals to select and submit four quarters of data on eight of 15 electronic clinical quality measures (eCQM) as part of the IQR program, such as breast and cervical cancer screening statistics. CMS will begin to validate eCQM data reported during calendar year 2018, which will affect payment in FY 2020.

Additionally, CMS delayed the implementation of the Notice of Observation Treatment and Implication for Care Eligibility (NOTICE) Act such that it will not take effect until late October of 2016 at the earliest. As part of the NOTICE Act, CMS developed the Medicare Outpatient Observation Notice (MOON) requirement for hospitals to provide written notice to Medicare patients receiving observation services as an outpatient for more than 24 hours, no later than 36 hours after observation services are initiated. Hospitals must give patients a verbal explanation of the MOON and obtain a signature to acknowledge receipt and understanding of the notice.

The Final Rule also revises and rebases the Long-Term Care Hospital (LTCH) Prospective Payment System’s (PPS) market basket to 2.8%, along with a 0.3% cut for productivity and an additional 0.75% cut as mandated by the Affordable Care Act. CMS is also continuing to implement the two different types of LTCH PPS payment rates depending on whether the patient meets certain clinical criteria. Due to these changes, CMS estimates that LTCH PPS payments will decrease by 7.1%, or US$363 million, compared to FY 2016 payment levels. This overall impact includes a 0.7% net increase in payments for cases paid a standard LTCH PPS rate, and a 23% drop in payments for LTCH site-neutral cases.

CMS projects that total Medicare spending on inpatient hospital services, including capital, will increase by about US$746 million in FY 2017. Under the Final Rule, CMS will distribute almost US$6 billion in uncompensated care payments in FY 2017, reflecting a decrease of approximately US$400 million from the FY 2016 amount. CMS distributes a prospectively determined payment amount to Medicare disproportionate share hospitals based on their relative share of uncompensated care nationally.

The Final Rule was officially published in the Federal Register on August 22, 2016. The final rule will affect discharges occurring on or after October 1, 2016.

HHS and Cuba’s Ministry of Public Health Sign a Historic MOU

Last month, the U.S. Department of Health and Human Services (HHS) entered into a historic Memorandum of Understanding (MOU) with Cuba’s Ministry of Public Health.

The MOU establishes coordination across a broad spectrum of public health issues, including:

  • Healthcare systems and public health management;
  • Quality management and patient safety systems in hospitals and outpatient settings;
  • Health information technology;
  • Communicable and non-communicable diseases;
  • International health regulations; and
  • Biomedical research and development, clinical trials, and medical product regulation.

The MOU also provides that “[f]or each area of mutual cooperation identified,” the U.S. and Cuba intend to “identify an appropriate entity to lead the practical implementation of activities.”  As the two countries continue to finalize arrangements to strengthen their collaboration in these and other scientific and health areas, we expect significant opportunities to arise for international healthcare partnerships between U.S. providers and Cuba.

The execution of the MOU also coincides with the U.S. Department of Transportation’s announcement last week selecting eight U.S. airlines to begin scheduled flights between Atlanta, Charlotte, Fort Lauderdale, Houston, Los Angeles, Miami, Newark, New York City, Orlando, and Tampa and Havana as early as this fall.