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On January 9, 2018, The Centers for Medicare & Medicaid Services (CMS) announced a new voluntary bundled payment model program – Bundled Payment for Care Improvement Advanced (BPCI Advanced). The episode payment model, which is a second generation version of the BPCI program, will qualify as an Advanced Alternative Payment Model (APM) under the Quality Payment Program adopted as part of MACRA, which means that physicians, because they take on financial risk, may earn the Advanced APM incentive payments.
What is BCPI Advanced?
The BPCI Advanced program is a voluntary program that offers a single retrospective bundled payment covering services within a 90-day Clinical Episode. Participants may be involved in 29 inpatient Clinical Episodes and also, unlike the prior BPCI program, three outpatient clinical episodes – Percutaneous Coronary Intervention, Cardiac Defibrillator, and Back & Neck except Spinal Fusion. As with the prior BPCI model, target prices are provided in advance and are measured against the total Medicare fee for service spending and services during the selected Clinical Episodes. Participants who enter into the Participation Agreement with CMS will take on downside-financial risk from the outset of an episode.
Eligible Program Participants
BPCI Advanced will allow participation by Non-Convener Participants and Convener Participants. Convener Participants may or may not be Medicare enrolled entities and agree to take on risk for downstream entities. The Convener Participants facilitate coordination among episode initiators and bear the financial risk for the model. Non-Convener Participants are acute-care hospitals or Physician Group Practices, enrolled in Medicare, who are themselves episode initiators. They do not take risk for downstream entities.
Clinical Episodes are attributed at the episode initiator level with a CMS-defined hierarchy for attribution among different types of episode initiators. The Clinical Episode will begin with an inpatient admission for an inpatient procedure or the start of the outpatient procedure. Clinical Episodes continue for 90 days after the end of the inpatient stay or the outpatient procedure.
As with the prior BPCI program, payment under the BPCI Advanced program is tied to performance on specified quality measures.
Applications for participation in BPCI Advanced must be submitted by March 12, 2018. The Model starts on October 1, 2018 and continues through December 31, 2023.
The Future of Alternative Payment Programs
BPCI Advanced is the first Advanced APM announced by the Trump Administration. Although it is voluntary, it does reflect continuation of alternative payment programs under the Trump Administration. Some have questioned the new Administration’s commitment to alternative payment programs, although there have been suggestions that HHS Secretary Nominee Alex Azar has indicated enthusiasm for programs that pay providers based on quality, and Nominee Azar has suggested mandatory programs may be appropriate. Former Secretary Price was opposed to mandatory programs such as the Episode Payment Models (EPMs), the Cardiac Rehabilitation (CR) Incentive Payment Model, and the Comprehensive Joint Replacement (CJR) program. At the end of 2017, CMS terminated the EPMs and the CR Incentive Payment Model outright and terminated the mandatory nature of the CJR program.
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On Friday, December 29, 2017, the U.S. District Court for the District of Columbia dealt a blow to hospitals participating in the 340B Drug Pricing Program. By participating in the 340B program, eligible public and not-for-profit hospitals receive significant discounts on the cost of acquiring outpatient prescription drugs. The court ruled in favor of the government’s motion to dismiss the lawsuit filed on behalf of those hospitals, which paves the way for the Centers for Medicare and Medicaid Services (CMS) to implement a final rule that would reduce Medicare outpatient prospective payment system (OPPS) reimbursement for separately payable drugs purchased by 340B hospitals by approximately 28 percent. Medicare reimbursement for drugs purchased under the 340B program has generally been higher than hospitals’ acquisition costs, allowing 340B hospitals to use the surplus to provide additional health care services to vulnerable populations. The reduced payment rates took effect as of January 1, 2018.
The Court’s Decision
The court granted the government’s motion to dismiss the lawsuit filed by a group of plaintiffs, including the American Hospital Association, America’s Essential Hospitals, and the Association of American Medical Colleges (the hospitals), challenging the nearly 28 percent reimbursement rate reductions and at the same time dismissed the hospitals’ motion for preliminary injunction to halt the government’s action to proceed with the final rule. The court concluded that it lacked subject matter jurisdiction because the hospitals failed to first present any claim to the Department of Health and Human Services (HHS) for final decision as required by section 205(g) the Social Security Act (42 U.S.C. § 405(g)).
In the litigation, the hospitals had argued that the agency exceeded its authority because its method for calculating the reimbursement rate was at odds with the methods required by statute. The hospitals also argued, as did commenters on the proposed rule, that the new Medicare reimbursement rates targeting 340B hospitals would undermine the intent of the 340B program and harm patients served by 340B covered entities.
The court did not reach this theory or the parties’ other underlying arguments, but instead found that it did not have subject matter jurisdiction to hear the case because the hospitals’ challenge was substantively based on the Medicare Act. Challenges arising under the Medicare Act must be brought under 42 U.S.C. § 405(g), which allows judicial review only after a claim for benefits has been presented to the Secretary, and have all administrative remedies prescribed by the HHS Secretary are exhausted. The court noted that while ordinary administrative law doctrines might permit judicial review under various exceptions, the Medicare Act “demands the ‘channeling’ of virtually all legal attacks through the agency.”
The hospitals argued that their submission of “detailed comments during the notice-and-comment process for the 340B Provisions of the OPPS Rule” met the presentment requirement, but the court did not agree. The court found that comments during rulemaking are not “individualized, concrete claim[s] for reimbursement, as courts routinely require to satisfy presentment.” The court found that the hospitals could not meet the presentment requirement because “they have not yet presented any specific claim for reimbursement to the Secretary upon which the Secretary might make a final decision.”
The Road Ahead for 340B Hospitals
The December 28, 2017 decision represents a significant setback in 340B hospitals’ ability to challenge the Medicare payment reductions for 340B hospitals. The plaintiff hospitals may elect to appeal the decision in an attempt to reverse the conclusion that the court lacks subject matter jurisdiction to hear the claims. In addition, because the district court dismissed the case for lack of jurisdiction and did not reach the merits of the plaintiffs’ substantive arguments, 340B hospitals could submit a claim for Medicare OPPS payment under the new rules, and then petition for administrative review and relief. Any such claim would need to proceed through the administrative process before reaching a federal court. Lastly, 340B hospitals can continue to raise 340B policy issues with members of Congress. These efforts could result in changes to the Medicare OPPS reimbursement policy, potentially in combination with other changes to the 340B program.
In the meantime, 340B hospitals should be prepared to comply with the new Medicare OPPS requirements as soon as possible in order to avoid the submission of erroneous claims or delays in Medicare reimbursement. This includes compliance with new Medicare coding requirements for OPPS claims for separately payable drugs purchased under the 340B program with dates on or after January 1, 2018. To ensure that the appropriate modifiers are included on such claims, hospitals may need to work with their billing departments, pharmacy departments, and third party administrators involved with their 340B program to ensure that their claims can be timely processed and paid, even as they await potential future challenges to the Medicare payment rates.
We will continue to monitor any developments with the 340B program.
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In a striking blow to 340B hospitals, the Department of Health and Human Services, Centers for Medicare and Medicaid Services (CMS) released a final Medicare Outpatient Prospective Payment System (OPPS) rule adopting its earlier proposal to significantly reduce Medicare reimbursement for separately payable outpatient drugs purchased by hospitals under the 340B program. The final rule confirms that CMS will drop the reimbursement rate from the average sales price (ASP) plus 6 percent to ASP minus 22.5 percent. The payment changes are scheduled to take effect on January 1, 2018.
Citing the large growth in provider participation in the 340B Program and the increasing prices for drugs administered under Medicare Part B to hospital outpatients, CMS’ stated goal is to align Medicare payment with the amounts hospitals are actually spending to acquire the drugs. CMS relied on a May 2015 Medicare Payment Advisory Commission (MedPAC) Report to Congress to determine the new formula. While MedPAC estimated that the ASP minus 22.5 percent figure that CMS ultimately adopted was the “lower bound of the average discount” on drugs paid under the Medicare OPPS, MedPAC’s March 2016 Report to Congress recommended a reduction in payment to ASP minus 10%, which would have allowed 340B hospitals to realize, on average, a financial benefit for participating in the 340B program.
The Financial Impact of the Changes to 340B Hospitals
The OPPS changes will have a significant impact on 340B participating hospitals. CMS estimated that the change will result in a $1.6 billion reduction in OPPS payments to 340B hospitals for separately payable drugs—an additional estimated reduction of $700 million over the $900 million estimate from the proposed rule. While CMS had requested comments in the proposed rule on how to redistribute the savings to target hospitals that treat low-income patients, the final rule instead redistributes the amounts saved by the 340B payment reductions by increasing OPPS payments for non-drug services
CMS is exempting rural sole community hospitals, children’s hospitals, and PPS-exempt cancer hospitals from the new drug payment reductions for calendar year 2018; they will continue to be paid at ASP + 6%. The exempted hospitals will need to report 340B utilization to Medicare for information and tracking purposes.
Litigation is Expected
The changes to Medicare payment are likely to be challenged in court by one or more groups of stakeholders, including the American Hospital Association. In comments submitted on the proposed rule, multiple groups contended that CMS lacks authority to implement such large payment changes or to single out 340B hospitals for reductions, and may not otherwise contravene the intent and scope of the 340B Program without further Congressional action. These challenges will likely play out in courts as CMS implements the new rule and while Congress continues to debate the future of the 340B Program.
No Impact on Non-Excepted Hospital Outpatient Departments
The changes to Medicare’s reimbursement also create new incentives for off-campus hospital outpatient departments(HOPD). Since January 1, 2017, new off-campus hospital outpatient departments that do not fall within an exception (non-excepted HOPDs) are not eligible for payment under the OPPS, and instead receive a reduced reimbursement rate. CMS has confirmed in the final rule that the new payment reductions for 340B drugs will not be applied to non-excepted HOPDs, as their drugs are not reimbursed under OPPS. As a result, the use of 340B drugs by a non-excepted HOPD will not impact the HOPD’s Medicare reimbursement.
In light of the new rule, 340B hospitals should prepare to come into compliance, which will require the use of a new modifier on each drug billed to Medicare OPPS that was purchased under the 340B Program. In some cases, this will require greater coordination between the hospital’s billing and pharmacy divisions to ensure the modifier is accurately applied.
We will continue to monitor the 340B Program and will update you on any further changes that may arise.
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The Joint Commission has proposed changes to its accreditation standards to account for direct-to-patient telehealth services. The new standards will apply to Joint Commission-accredited hospitals and ambulatory health care organizations offering direct-to-patient telehealth services. Accredited hospitals and organizations, as well as entrepreneurial telemedicine companies that contract with such hospitals, should be mindful of these proposed rule changes and how they will affect their telehealth services and operations. The changes are not yet final, so interested providers may want to consider contacting the Joint Commission with comments or feedback.
What Are the Proposed Telehealth Accreditation Standards?
The Joint Commission’s proposed telehealth changes involve revisions to two existing Standards and creation of one new Standard.
Provision of Care (PC) Standard PC.01.01.01
The Joint Commission proposes a new Element of Performance #35 to this Standard, which states:
For hospitals providing direct-to-patient telehealth services: The hospital has a process to confirm the location of the patient in order to assign a provider in accordance with licensure requirements and law and regulation.
Rights and Responsibilities of the Individual (RI) Standard RI.01.03.01
The Joint Commission proposes a revised Element of Performance #7 to this Standard, which states:
The informed consent process includes a discussion about the patient’s proposed care, treatment, and services. Note: For hospitals providing direct-to-patient telehealth services: The discussion about the patient’s proposed care, treatment, and services includes the type of modality that will be used (for example, telephone, video, asynchronous communication).
New Standard RI.01.08.01
The Joint Commission proposes a new Standard, containing three Elements of Performance, which states:
For hospitals providing direct-to-patient telehealth services: The hospital informs the patient about his or her direct-to-patient telehealth services.
- The hospital informs the patient about the care, treatment, and services that the hospital provides either directly or by contractual arrangement.
- Patients receive information about charges for which they will be responsible prior to the provision of care, treatment, and services.
- Information provided to the patient prior to the provision of care, treatment, and services includes the following:
- Provider name
- Provider credentials
- Provider hospital’s contact information
What Do the New Standards Mean for Hospitals and Other Telehealth Providers?
The new Standards apply only to those providers accredited by the Joint Commission, in this case hospitals and ambulatory health care organizations (the two types of telehealth providers most commonly accredited by the Joint Commission). Moreover, the Standards only apply to those accredited providers that deliver direct-to-patient telehealth services. While the proposed changes do not define the term “direct-to-patient,” the Joint Commission most likely interprets it as any service offered by the accredited organization where the healthcare professional is directly delivering medical care to a patient. That is why the revised PC.01.01.01 standard centers around ensuring the healthcare professional is appropriately licensed to practice in the state where the patient is located “in accordance with licensure requirements and law and regulation.”
In this regard, the Joint Commission’s use of the term “direct to patient” is likely an effort to differ from, for example, physician to physician consultative telehealth services (also known as curbside consults) which can often be structured to meet the peer to peer consultation exception to physician licensure in most (but not all) states.
How Will the Proposed Telehealth Standards Affect Hospitals and Other Telehealth Providers?
The Joint Commission’s new Element of Performance #35 under PC.01.01.01 requiring appropriate licensure of the treating physician for direct to patient telehealth services is reasonable and consistent with state laws across the United States. However, the same cannot be said for the other proposed changes.
The new Element of Performance #7 under RI.01.03.01 would require the hospital to obtain patient informed consent to telehealth services for all patients, as well as require a discussion with the patient about the “type of modality that will be used” in the service. Telehealth informed consent is an issue of notable debate currently, and is not universally required across all states. Indeed, many states have deliberately elected not to impose a telehealth informed consent requirement. Other states, like Oklahoma, have eliminated their prior informed consent requirement, realizing it can be cumbersome and largely unnecessary, as most patients who choose to obtain a telemedicine service are fully capable of realizing the treating physician is, by definition, not physically in-person in the same room as the patient. Unfortunately, the new Element of Performance #7 would essentially require all Joint Commission-accredited bodies to obtain patient consent to telehealth services, a requirement more restrictive than many state laws.
The new Standard RI.01.08.01 might warrant the most serious consideration of the three proposed changes because it compels providers to take steps not required under many state laws or CMS Conditions of Participation. The Elements of Performance under RI.01.08.01 are not well-defined and therefore may generate potential confusion during surveys. For example, it is unclear if the Joint Commission expects a hospital to fully disclose to a patient the nature of the hospital’s contracted telehealth arrangements. While hospitals and healthcare providers should always provide their patients with information about financial responsibility, the current confusion and inconsistency regarding coverage of telehealth service (particularly among commercial health plans) can make it difficult for a hospital to readily predict a patient’s financial responsibility (to say nothing of assessing in-network vs. out-of-network benefits for telehealth services). Moreover, requiring a hospital to inform a patient about their financial responsibility before delivering telehealth services can directly conflict with federal Emergency Medical Treatment and Active Labor Act (EMTALA) requirements (under which a hospital must treat/stabilize the patient without regard to the patient’s ability to pay). Hospitals are allowed to utilize telehealth in their emergency department services, and it is unclear if the Joint Commission has reconciled these proposed Standards with other applicable federal laws such as EMTALA.
It may be better if Standard RI.01.08.01 were to simply defer to current laws, and instead require the accredited organization to adhere to all applicable state and federal laws regarding these issues. Otherwise, the Standard imposes a burden on hospitals and providers above and beyond what is required under state and federal laws.
The Joint Commission has previously issued telehealth accreditation Standards that are more restrictive than the law of the land. For example, CMS’ regulations on credentialing by proxy allow an acute care hospital and a critical access hospital to use the streamlined credentialing process for telemedicine services. Credentialing by proxy is a time- and cost-saving approach to reduce administrative burdens, particularly on small hospitals who serve as originating sites and purchase telehealth services from distant site organizations. CMS’ regulations do not require the originating and distant site organizations to be accredited by the Joint Commission as a prerequisite to using credentialing by proxy. However, under the Joint Commission’s Standard MS.13.01.01, if the originating site hospital is accredited by the Joint Commission, the only way the originating site hospital can use credentialing by proxy is if the distant site is also a Joint Commission-accredited organization.
We will continue to monitor for any changes to these proposed Joint Commission Standards.
For more information on telemedicine, telehealth, digital health, and virtual care innovations, including the team, publications, and other materials, visit Foley’s Telemedicine Industry Team.
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Also Changes Required Participation in the CJR Model
On August 15, 2017, the Centers for Medicare and Medicaid Services (CMS) issued a proposed rule (Proposed Rule) that, if finalized, would (1) reduce the number of Metropolitan Statistical Areas (MSAs) in which there is mandatory participation in the Comprehensive Care Joint Replacement model (CJR) from 67 to 34, and (2) cancel the mandatory Episode Payment Models and Cardiac Rehabilitation incentive payment program. The action reflects a change in course for CMS, de-emphasizing and significantly reducing mandatory participation in Alternative Payment Programs.
Reduced Mandatory Participation in CJR Model
The CJR model originally became effective on April 1, 2016 and mandated that hospitals in 67 specified MSAs must participate in an episode-based payment program for hip and knee joint replacements. The Proposed Rule, anticipated to be effective as of February 1, 2018, reduces the mandatory participation in the CJR essentially by one half to 34 MSAs (see Table 1 below taken from the proposed rule for the remaining MSAs).
The remaining MSAs have the highest average wage-adjusted historic episode payments, that is, the counties with the highest average expense cost for the episodes involved. Under the Proposed Rule, hospitals in the other 33 MSAs would no longer be required to participate in the CJR model, but they may elect voluntarily to participate in that program by submitting a participation election letter to CMS by January 31, 2018. In addition, within the 34 MSAs for which participation is mandatory, identified low volume or rural hospitals also would no longer be required to participate, but they may elect voluntarily to do so.
According to CMS, the remaining 34 MSAs for which participation is mandatory will provide sufficient information to evaluate the effects of the CJR model across a broad range of providers. The higher costs in these MSAs also allows the participating hospitals a greater opportunity for showing improvement through participation in the CJR model.
Cancellation of EPM and Cardiac Rehabilitation Incentive Program
The Proposed Rule also seeks to cancel the Episode Payment Model (EPM), that would have expanded mandatory participation in an episode-based payment to hospitals in a number of MSAs for acute myocardial infarctions, coronary artery bypass grafts and surgical hip/femur fracture treatment, and a Cardiac Rehabilitation Incentive payment model that was to be implemented simultaneously with the EPM. Regulations for both models were originally issued on July 25, 2016 and are described here.
What Does All This Mean?
The Proposed Rule shows CMS does not favor mandatory participation in Alternative Payment Programs. As CMS states in the commentary to the Proposed Rule “requiring hospitals to participate in episode payment models at this time is not in the best interests of the agency or affected providers.” CMS further explained that large mandatory episode-based payment models “may impede [the] ability to engage providers, such as hospitals, in future voluntary efforts.”
While CMS and the Center for Medicare and Medicaid Innovation have introduced many Alternative Payment Programs which move reimbursement to providers away from fee-for-service reimbursement toward reimbursement models focused on efficiency, delivery of value, and quality care, some have thought the pace of the transition to value-based care has been slower than anticipated. Since Alternative Payment Models are viewed as an effective way to restrain health care cost increases, some view that such slower pace will mean providers will not be required to take steps necessary to be more efficient and reduce costs. Cancellation of and reductions in mandatory programs will allow providers to avoid, at least for the near term, preparing themselves for such models given the lack of any requirement to do so.
At the same time, voluntary participation ensures participants in such models are committed to and engaged in the value-based models. The continued evaluation of such models with voluntary participants also helps ensure that access to care, quality, and favorable outcomes are not adversely affected by mandatory participation of providers not ready for such programs.
Commercial payor arrangements and market incentives aimed at helping providers to become more efficient are not directly affected by the Proposed Rule. Their presence may still encourage providers to voluntarily participate in Alternative Payment Models.
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Ninth Circuit Victory Opens the Door to Medicaid Reimbursement Challenges Based on Equal Access Requirement
The Ninth Circuit held August 7 that the Department of Health and Human Services Secretary erred in approving a Medicaid State Plan Amendment (SPA) that cut reimbursement for outpatient hospital services in California by 10% for eight months in 2008-2009. The Hoag Memorial decision sided with the 57 hospitals that challenged the SPA under the theory that the reimbursement cut violated the federal Medicaid requirement that payment rates be sufficient to provide Medicaid beneficiaries with equal access to care and services.
In Hoag Memorial, the Court Did Not Defer to the Secretary’s Interpretation of the Medicaid Statute
The decision is particularly significant because prior Ninth Circuit caselaw had largely deferred to the Secretary when considering how reimbursement cuts would impact the availability of Medicaid services. In 2013, the court rejected a hospital challenge in Managed Pharmacy Care v. Sebelius, in which plaintiffs had alleged that a reimbursement cut did not satisfy the Medicaid requirement under section 1902(a)(30)(A) of the Social Security Act (Section 1902(a)(30)(A)) to “assure that payments are consistent with efficiency, economy, and quality of care” because the Secretary did not consider provider costs.
Hoag Memorial distinguished Managed Pharmacy Care by relying on a different clause in section 1902(a)(30)(A). The court wrote that the requirement that payments “are sufficient to enlist enough providers so that care and services are available under the plan at least to the extent that such care and services are available to the general population in the geographic area,” unambiguously expressed Congress’ intent such that the court need not defer to the Secretary’s interpretation about whether the requirement was met. It said that the equal-access requirement is a “concrete standard, objectively measurable against the health care access afforded among the general population,” in contrast to the “broad and diffuse” requirement that payments be “consistent with efficiency, economy and quality of care.” Based on this analysis, the court held that the Secretary’s approval of the SPA was arbitrary and capricious under the Administrative Procedure Act (APA) because it failed to consider Medicaid beneficiaries’ access to care relative to that of the general (i.e., non-Medicaid) population.
The APA’s Role in Challenging Medicaid State Plan Amendments
About two years ago, in Armstrong v. Exceptional Child Center, the United States Supreme Court rejected a Section 1902(a)(30)(A) Medicaid reimbursement challenge brought against the state of Idaho for lack of a viable cause of action. In that case, the plaintiff providers had argued that they were entitled to challenge the sufficiency of Idaho’s Medicaid rates pursuant to the Supremacy Clause of the United States Constitution. The Courtheld that the Supremacy Clause “instructs courts what to do when state and federal law clash, but is silent regarding who may enforce federal laws in court, and in what circumstances they may do so.” The Court also asserted that “the Medicaid Act implicitly precludes private enforcement of §30(A)” and expressed skepticism of efforts to “circumvent Congress’s exclusion of private enforcement.” Notwithstanding the Supreme Court’s observation that the Medicaid Act precludes private enforcement, Hoag Memorial allowed a challenge to the sufficiency of Medicaid rates in federal court based on the express statutory cause of action in section 702 of the APA for persons who suffer legal wrong because of agency action.
CMS is Likely to React to the Decision by Considering Additional Evidence When Approving Medicaid Reimbursement SPAs
The holding in Hoag Memorial relied on what the court found to be the Secretary’s failure to consider any evidence regarding the general population’s access to care and services. In the court’s view, such oversight rendered it logically impossible for the Secretary to meet the statutory standard because there could be no way of proving that Medicaid beneficiaries had at least the same level of access to care and services as the general population if the Secretary did not know anything about the general population’s access. Without the ability to make the statutorily mandated comparison, it was not enough that the administrative record included evidence that Medi-Cal beneficiary utilization of hospital outpatient services had not decreased after the payment cut, nor that it included evidence that just as many hospitals provided outpatient services to Medi-Cal beneficiaries.
In 2015, the Centers for Medicare and Medicaid Services (CMS) issued a final rule requiring states considering reductions or restructuring of Medicaid reimbursement that could have an adverse impact on beneficiary access to care to conduct access reviews and submit those findings to CMS along with the request for approval of the reimbursement change. Although the rule references section 1902(a)(30)(A), it does not provide detailed instruction about the evidence that CMS needs from states to evaluate whether the equal-access-to-service component of section 1902(a)(30)(A) has been satisfied. CMS may propose modifications to the rule in response to the Ninth Circuit’s ruling, and begin directing states to submit the kind of evidence the court did not find in the administrative record in Hoag Memorial —either studies directly comparing access to care and services for Medicaid beneficiaries with access for the general population, or independent evidence of the level of access for both groups that CMS can compare when evaluating the SPA.
If CMS modifies the information it requires states to submit in an access review, or if states independently collect comparison data as part of their access reviews, the next round of litigation over equal access for Medicaid beneficiaries may focus not on the Secretary’s failure to consider any evidence at all, but on whether the Secretary considered the right kinds of evidence and drew reasonable conclusions from it. If so, the question of deference will again become paramount because plaintiffs will continue to face uphill battles challenging SPA approvals if courts defer to CMS’ evaluation and interpretation of the evidence. On the one hand, the complexity of the Medicaid program and CMS’ agency expertise in administering it may counsel in favor of deference to the agency. But on the other hand, plaintiffs are likely to argue that deference is not warranted based on the court’s statement in Hoag Memorial that a “straightforward comparison of data under the equal-access requirement would derive little benefit from the Secretary’s expertise.”
It is also possible that the federal government will appeal Hoag Memorial by requesting en banc review at the Ninth Circuit or by appealing to the Supreme Court. As of publication of this article, no petition for further review had been filed.
The Path for Future Medicaid Reimbursement Challenges
Ultimately, Hoag Memorial proves the continuing viability of section 1902(a)(30)(A) challenges to Medicaid reimbursement, even after the defeats for providers in the last few years in the Ninth Circuit and Supreme Court. While APA litigation over the federal approval of Medicaid SPAs is likely to remain challenging for plaintiffs, Hoag Memorial potentially lays the groundwork for future equal-access-to-care arguments and provides support for an argument that courts need not defer to CMS’ conclusions if they are convinced that the Medicaid statute is clear.
Copyright 2017, American Health Lawyers Association, Washington, DC. Reprint permission granted.
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The Centers for Medicare and Medicaid Services (CMS) has proposed reducing the Medicare payment rate to hospitals for most separately payable drugs purchased under the 340B program from average sales price (ASP) plus six percent to ASP minus 22.5%. This reimbursement cut — almost 30% in the aggregate— would significantly reduce the savings available to 340B participating providers. The eventual impact could be even greater if private insurers react by following Medicare’s example and reducing drug payments to 340B participating hospitals. No changes have been proposed for 340B covered entities that are not hospitals.
What Does the Proposed Rule Mean for Hospitals?
Currently, all hospitals other than critical access hospitals are paid the ASP-plus-six-percent rate for separately payable drugs under the Medicare hospital outpatient prospective payment system (OPPS). The rate does not vary based on participation in the 340B program. The proposed rule would require hospitals to identify, through a new modifier, when a drug was not purchased under the 340B program; in the absence of the modifier, CMS would presume that separately payable drugs had been acquired under 340B and pay ASP minus 22.5%. The payment reduction would not apply to drugs on pass-through status or vaccines.
What are the Broader Implications for the 340B Program?
The proposed Medicare change could spell trouble for 340B covered entities if it signifies support for further changes to limit the scope of the 340B program. In explaining the proposal, CMS stated its concern about “the growth in the number of providers participating in the 340B program and recent trends in high and growing prices of several separately payable drugs administered under Medicare Part B to hospital outpatients.” CMS also indicated dissatisfaction with high beneficiary copayments, which are set at 20% of the Medicare payment rate.
CMS determined the new rate based on the estimate in a 2015 MedPAC report to Congress that, on average, hospitals in the 340B program receive a minimum discount of 22.5% off the ASP for drugs paid under the OPPS. In the past, MedPAC has recommended to Congress more modest Part B drug payment cuts to hospitals for 340B drugs of 10 percent. CMS noted this previous MedPAC recommendation—as well as alternative proposals by the Office of Inspector General (OIG) to share 340B savings between Medicare and providers—without fully explaining why it was instead proposing a more aggressive payment cut.
Comment Period is Now Open
CMS has requested comments on the proposal by September 11, 2017. The agency has asked in particular for feedback on the analysis in the 2015 MedPAC report, whether the payment change should be phased in over time, whether exceptions should be established for certain hospitals or drugs, and whether CMS should apply all or part of the savings generated by the payment reduction to payment increases that target hospitals that treat a large share of indigent patients. Given the significant financial impact that this change would have on 340B participating hospitals, it would benefit participating providers to communicate to CMS how the change would impact their ability to deliver care to the low-income and underserved populations that the 340B program is designed to benefit.
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The Centers for Medicare and Medicaid Services (CMS) has demonstrated that it will not hesitate to use one of its most crippling administrative enforcement tools—the revocation of Medicare billing privileges—against one of its largest suppliers, as is evident in its case against Arriva Medical, LLC. Medicare billing privileges may be revoked for any one (or more) of several grounds laid out in the regulations at 42 C.F.R. § 424.535. In this case, CMS relied upon 42 C.F.R. § 424.535(a)(8), “abuse of billing privileges,” and specifically subsection (i)(A), regarding the submission of a claim for an item or service that could not have been furnished to a specific individual on the date of service because the beneficiary was deceased.
A revocation of billing privileges precludes payment for any claims submitted after the effective date of the revocation, and is accompanied by a ban on re-enrollment. A revocation has much the same impact as an exclusion imposed by the Department of Health and Human Services (HHS) Office of Inspector General (OIG), i.e., no Medicare payment, and in some cases revocations have been imposed after OIG declined to exclude an individual or entity.1 A Medicare revocation can also result in similar actions under Medicaid.
Arriva provides diabetic testing supplies under Medicare’s competitive bidding program, and describes itself as the nation’s largest supplier of home-delivered diabetic testing supplies.2 In October 2016, Arriva was notified by CMS that its billing privileges would be revoked, effective November 4, 2016, with a three year ban on reenrollment, due to the submission of Medicare claims for deceased beneficiaries. On December 6, 2016, Arriva was notified that its competitive bidding contract would be terminated effective January 20, 2017, based upon its lack of Medicare billing privileges.
Arriva filed for administrative review of the revocation of its billing privileges, an appeal that as of this writing is pending with the Departmental Appeals Board (DAB), and filed for a temporary restraining order and injunctive relief in light of the upcoming deadline for termination of its competitive bid contract. In its filing, Arriva alleged that the revocation was based upon 211 claims (0.003%) for supplies shipped to beneficiaries after they had died, out of approximately 5.8 million claims over a five-year period.3 Arriva further noted that CMS found concerns with the supporting claims documentation for 47 of those 211 beneficiaries. However, Arriva argued that any errors in billing for these claims after the beneficiary died were primarily the result of Medicare system flaws, and the revocation itself was related to the backlog of claims appeals before the Office of Medicare Hearings and Appeals.
Defendants (HHS) responded by filing an Opposition to Plaintiff’s First Application for Temporary Restraining Order (TRO) and Preliminary Injunction and Motion to Dismiss Plaintiff’s Complaint (Defendants’ Opposition), in which it was reported that CMS had advised Arriva that CMS was willing to defer the termination of the competitive bidding contract until such time as the DAB rendered the final agency decision on the revocation. Defendants’ Opposition notes that several courts have addressed revocation actions imposed by CMS, including allegations of imminent and irreparable harm, and have dismissed the complaints for lack of jurisdiction. Here, HHS again argued that administrative exhaustion is required before revocation disputes can be heard by a court. Moreover, HHS argued that a post-deprivation avenue for appeal did not violate the supplier’s due process rights, with a lengthy discussion of case law on this issue. Defendants’ Opposition also includes a lengthy discussion of Defendants’ view on the standard for granting a TRO, including arguments that the case law does not support a finding of “irreparable harm” for health care entities even against allegations that they might have to shut down as a result of the challenged action.
By minute order entered on January 4, 2017, the request for a TRO was denied, with the court setting a schedule for plaintiff to file a renewed motion for preliminary injunction and for defendant to file an opposition to that motion as well as a motion to dismiss. The hearing on both motions is currently scheduled for February 8, 2017.
This case should be closely watched for its evaluation of CMS’ revocation authorities.
Originally, this post was an alert sent to the American Health Lawyers Association’s (AHLA) Regulation, Accreditation, and Payment Practice Group Members. It appears here with permission. For more information, visit AHLA’s website.
1 For a discussion of the difference between exclusions and revocations, see Desfosses v. Noridian Healthcare Solutions, LLC, 2015 WL 1196018 (Mar. 16, 2015).
2 Complaint for Declaratory and Injunctive Relief, Arriva Medical, LLC v United States Department of Health and Human Services, Case No. 1:16-cv-02521-JEB (D.D.C.).
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