Category: Health Care

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HHS to Collect Data From the EMS System: Good Time to Examine Accounting, Cost, Billing, and Collection Systems

While recent legislation impacting the Emergency Medical Services (EMS)/ambulance industry drew attention inside the industry for its reduction in Health and Human Services’ (HHS) spend on non-emergent dialysis transports and the five-year extension of the Medicare add-ons for the EMS industry, the legislation created a new forward-looking reporting obligation. Specifically, as part of the Continuing Resolution enacted into law on February 8, 2018, Congress authorized HHS to develop a “data collection system … to collect cost, revenue, utilization” and other information “determined appropriate by” HHS from EMS systems. Public Law 115-123, §50203 (b)(17)(A) (emphasis added). Congress provided HHS until December 31, 2019, to create the data collection system, the ambulance suppliers that will need to provide the data, and the type of representative samples that they will need to supply to HHS. If selected, a company will need to provide HHS with the requested data – including data about, for example, revenue, costs, vehicles, and ambulance utilization rates – once a year, with the suppliers that need to report to HHS rotating on a regular basis.

What Does this Legislation Mean to Ambulance Suppliers

This legislation means that some ambulance suppliers, including private companies, will need to provide revenue figures, ambulance utilization data, cost data, vehicle usage, and likely other data to HHS so that HHS can mine this data to see trends, spot hot spots in the country where costs are higher, and generally seek to reduce the money spent on particular segments of the EMS industry.

Preparing for the Change in Reporting Obligations – Examine Your Systems

To prepare for this coming change in the reporting obligations, EMS suppliers should consider reviewing in 2018 their accounting, transport, and billings systems (including third party vendor systems) and conducting audits of these systems, including audits of third party vendors, to square away any issues or problems ahead of the 2019 roll-out date. Some companies may want to work with counsel to do this in order to obtain legal advice for issues that arise; use of an attorney in the audit process can protect the audit from production later in an investigation or litigation because of the attorney client privilege if it is done at the request of an attorney who is providing legal advice to the company in conjunction with the audit.

HHS will be collecting data through the year 2024 pursuant to this new legislation. It will be interesting to understand what HHS observes once the agency is able to mine it for trends and perceived abuses.

For more information on legislation impacting the EMS industry, including the team, publications, and other materials, visit Foley’s Government Enforcement Defense and Investigations Group.

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New Funding Legislation’s Impact on Health Care Programs

Congress passed a funding bill early this morning just after the February 8th deadline. The new legislation will make several changes to the Medicare program, delay cuts to disproportionate share hospitals, provide two years of funding for community health centers, and renew certain expired or expiring health care programs. The legislation increases government funding caps by about $300 billion over two years, extends government funding through March 23rd, and provides for a one year suspension on the debt ceiling.

The legislation includes several Medicare extenders (legislation that extends Medicare programs that were set to expire or have expired) that have developed out of the House and the Senate along with extensions for other health care programs discussed below.

Medicare Cap for Therapy Services

The new legislation removes Medicare caps for therapy services. Currently, Medicare beneficiaries receive assistance paying for outpatient physical and occupational therapy, and speech-language pathology services.  When a beneficiary receives those services from an outpatient provider, there is a cap on how much Medicare will cover unless an exception applies. This cap will be removed.

Special Needs Plans

Special Needs Plans (SNPs) were set  to expire at the end of 2018 and the legislation makes SNPs permanent. SNPs are Medicaid managed care plans that enroll beneficiaries with low income, chronic conditions, or who reside in a nursing home. The most well-known SNP is the D-SNP that is available to individuals that are eligible for both Medicare and Medicaid. Other SNPs are available to patients who are institutionalized, I-SNPs, or have chronic conditions, C-SNPs.  Several plans have expressed concerns about the temporary nature of SNPs and have lobbied for a permanent solution.

Health Care Program Extensions

The legislation grants a five-year extension for the home health rural add-on payment, a 3% payment increase that expired on January 1. Ambulance providers will receive increased payments for services provided in rural  and underserved areas and will also be required to provide cost reporting for ambulance services and Health and Human Services (HHS) could impose penalties for incomplete reports.

Along with the five-year extensions, the legislation tacks on a two-year extension for health programs such as the National Health Service Corps, the Medicare Dependent Hospital Program, and the low-volume hospital payment adjustment for hospitals that discharge fewer than 1,600 Medicare patients each year.

Medicare Expansion

Several measures in the legislation address expanding Medicare coverage for individuals with chronic conditions. Telehealth services would expand for end-stage renal disease treatments, stroke evaluations, accountable care organizations, and Medicare Advantage plans. The legislation also allows Medicare Advantage plans to offer supplemental benefits to those with chronic conditions and modify Affordable Care Organizations to incentivize primary care programs.

The legislation creates a Medicare payment program for in-home infusion drug services to fill in the gap before the 21st Century Cures Act payment program takes effect and will codify certain Centers for Medicare and Medicaid Service (CMS) changes to the Stark law.

Home Health

The legislation also impacts home health providers. The home health services eligibility determination process documentation review now includes medical records of home health providers. The legislation also directs Health and Human Services (HHS) to modify payments for home health services beginning in 2020.

Funding of the Legislation

The legislation is funded through a variety of fiscal offsets including Medicare payment modifications and shifting money from other funds. The legislation reduces certain Medicare payments such as hospital payments made when a patient is transferred to a hospice after a short stay. Funding in the Medicare and Medicaid Improvement Funds will be withdrawn and the Affordable Care Act’s Prevention and Public Health Fund payment structure will be modified. The proposal also modifies the Medicaid Disproportionate Share Hospital reductions, adding $6 billion to FY21-FY23 to offset the elimination of reductions scheduled for FY18 and FY19. Payment for biosimilars will be included in the Medicare Coverage Gap Discount Program, a program that gives Medicare Part D beneficiaries a discount when out-of-pocket spending meets a certain threshold amount.  And the legislation closes the gap in Medicare prescription drug coverage, known as the “donut hole,” by shifting more of the cost onto drug companies.

We will continue to monitor the changes introduced in the legislation.

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DOJ Issues New Memo Limiting Use of Agency Guidance Documents in Civil Enforcement Cases: What It Means for Health Care Enforcement

On January 25, 2018, the U.S. Department of Justice (DOJ) issued a memorandum limiting the use of agency guidance documents in affirmative civil enforcement (ACE) cases.  Stating that “[g]uidance documents cannot create binding requirements that do not already exist by statute or regulation,” the memorandum strongly discourages DOJ litigators from using noncompliance with agency guidance documents as a basis for suit or as evidentiary proof in ongoing litigation.

Specifically, for future ACE cases, ACE attorneys may only use guidance documents to explain legal mandates or provide evidence that a party had knowledge of a legal requirement. (For pending cases, application of this memo is discretionary.)  The memo also prevents guidance documents from creating additional legal requirements.  Lastly, the memo states that noncompliance with guidance may not be used as conclusive evidence of a legal violation.

DOJ’s Position on Agency Guidance Documents

This January 25 memo is consistent with DOJ’s recently announced position that guidance documents issued by DOJ may not be used to implement new legal standards.  In a memorandum dated November 17, 2017, the Attorney General prohibited DOJ from implementing guidance documents that change the law or impose additional standards.  Because guidance documents do not result from the notice-and-comment rulemaking process required by the Administrative Procedure Act, the memorandum explained, any guidance documents released by DOJ must be instructional only, and must clearly state they have no legally binding effect on persons or entities outside the federal government. The January 25 memo expands upon this principle, prohibiting DOJ litigators from relying upon guidance documents issued by other agencies.

The Effect on Health Care Enforcement Actions

This change significantly impacts enforcement actions in the highly-regulated health care industry, which is replete with non-binding sub-regulatory guidance issued by the Centers for Medicare & Medicaid Services (CMS) and the Health and Human Services Office of Inspector General (OIG). Such guidance is often relied upon by qui tam relators and government attorneys in False Claims Act (FCA) cases to allege non-compliance should net them treble damages.  In particular, DOJ enforcement actions that turn on establishing noncompliance with three often-used categories of health care guidance—Local Coverage Determinations (LCDs), Medicare billing manuals, and fraud alerts and advisory opinions—will face serious hurdles in light of the January 25 memo.

Local Coverage Determinations
LCDs are determinations by Medicare Administrative Contractors (MACs)—private health care insurers that contract with CMS to administer Medicare claims—regarding whether items and services are covered by Medicare.  Specifically, LCDs contain information about standards for “reasonable and necessary” items and services, general coding information, and documentation requirements.  A network of MACs administer claims on a regional basis throughout the United States.[1]  Because LCDs are issued by individual MACs, they provide coverage requirements only for that region, meaning that coverage requirements may differ from region to region.

To date, LCDs have factored into FCA cases in two prominent ways: (i) as a standard for demonstrating claims were not medically necessary; and, (ii) as a means for arguing the documentation supporting the disputed claims was insufficient.

The January 25 memo is additional support for health care providers to defend against these claims, since only statutes and regulations legally establish the standards for medical necessity and documentation.  We note, however, that some pre-memo courts have held LCDs are interpretive, rather than substantive, and therefore are not subject to the Administrative Procedure Act’s notice and comment requirements, which would take them out of the documents identified in the January 25 memo.  Nonetheless, if a defense attorney can demonstrate LCDs do more than explain existing legal mandates, they add standards not otherwise required under applicable law, and should not be relied upon by DOJ ACE attorneys.

Medicare Billing Guidance
CMS maintains many manuals, policies and procedures, and other guidance that specify the parameters of Medicare benefits and establish requirements for Medicare claims. This guidance is often relied upon in FCA cases claiming health care providers failed to meet claims requirements, typically arguing documentation is insufficient, claims were improperly coded, or the services did not meet the requirements to establish medical necessity.

As one example, when enforcing documentation requirements for evaluation and management (E/M) visits, CMS and DOJ attorneys rely on CMS’ “Evaluation and Management Services Guidelines” and the Medicare Claims Processing Manual to determine the standards for documentation and the appropriate E/M “level” to bill. Providers bill a higher level for more complex visits. Because Medicare reimbursement increases as the E/M level increases, many government enforcement actions have been premised on allegations that providers fraudulently “upcoded” the E/M level. Although CMS may still rely on its guidance for straightforward administrative overpayment cases, the DOJ will face a significant hurdle when trying to rely on the same guidance as a basis for establishing noncompliance in FCA cases.

Fraud Alerts and Advisory Opinions
A third source of agency guidance frequently relied upon in FCA cases is guidance issued by the OIG, often in the form of advisory opinions, special fraud alerts, bulletins, and other guidance.  These documents range from providing fraud and abuse analyses of individual arrangement or transactions, to highlighting patterns of arrangements that may present substantial risk under the federal Anti-Kickback Statute (AKS), to establishing and defining enforcement initiatives.  Often, these documents are used in support of the government’s position in FCA cases, particularly when the position relies on a complex analysis under the AKS.

While such documents may still be used for explanatory purposes per the January 25 memo, to the extent the guidance defines the legal standard differently or more onerously than set forth in the applicable statutes or regulations, reliance on the guidance will not be permitted.

The Impact of the Memo on Health Care Enforcement Actions

In the highly-regulated health care industry, the January 25 memo may offer a valuable defense tool in health care enforcement actions. Given the complexity of Medicare reimbursement and health care fraud and abuse laws, qui tam relators and ACE litigators have often relied upon the volumes of sub-regulatory guidance when arguing health care providers were not compliant with applicable law. The January 25 memo eliminates this practice, to the extent noncompliance with guidance was used to establish that a party violated applicable law.

For more information on health care enforcement actions, including the team, publications, and other materials, visit Foley’s Government Enforcement Defense and Investigations Group.

[1] Currently, there are twelve MAC regions for Medicare Parts A and B, four MAC regions for home health and hospice, and four DME MAC regions.

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CMS Announces an Advanced Alternative Payment Model – BPCI Advanced

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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Massachusetts Proposed Legislation to Curb Health Care Costs by Regulating Hospital Reimbursement Rates

Massachusetts State Sign

In a previous blog post, we began to dissect the new Massachusetts State Senate bill, “An Act Furthering Health Empowerment and Affordability by Leveraging Transformative Health Care,” and focused on a provision that would ban hospitals from billing payors for many common outpatient hospital services.  In this second of a multipart series, we review how this bill proposes to improve the affordability of health care in the Commonwealth.

During the debate before the Massachusetts Senate Working Group on Health Care Costs and Containment Reform, the Senate Working Group stated that this proposal will curb costs associated with health care and predicted a savings of $425 million by 2020 to achieve goals including slowing the rate of premium increases.

Setting a Target Hospital Rate Distribution to Help Moderate Costs

One of the primary ways the bill proposes to moderate costs is by establishing a hospital alignment and review council which will set a “target hospital rate distribution,” the minimum floor payment that an insurance carrier must reimburse a hospital for services. The Senate Working Group hopes that setting a floor payment for carriers will address the price variation across hospitals in the Commonwealth and subsequently stabilize the market. During the hearing, Senators requested industry feedback on setting the rate at 0.9%. Some argue that setting a floor will help hospitals that currently receive lower reimbursement rates to “thrive and survive.” Others assert that setting a floor is not sufficient, rather, a cap on reimbursement rates should be implemented as well to compress rates and control spending.

To make sure that the target hospital rate distributions are met, Section 111 tasks insurance carriers with submitting annual certifications to the review council. If a certification uncovers that any hospital received an increase in reimbursement, all other hospitals contracting with that carrier must have received a similar increase.

Other Items to Achieve a Slower Growth Rate

The proposed bill provides the review council with other tools to achieve a slower growth rate. One such measure is that the council will set a “target growth in hospital spending.” In the event that hospital spending is greater than the target rate, the council may penalize the top three hospitals that contributed to above target spending. Each of these three hospitals will be required to pay its proportional share of the difference between the actual growth in hospital spending and the council’s target growth in hospital spending. Some view this penalty as needed government intervention to correct price variation in the market. In contrast, others argue this is penalty unfairly attacks three hospitals and will create perverse incentives for hospital spending just below the top three.

Setting a target hospital rate distribution will be one mechanism for addressing price variation, but the Working Group is still collecting industry feedback to determine the ultimate amount of governmental control needed in the Commonwealth’s health care market.

This bill is currently open for comments.  Any interested parties should strongly consider commenting on the State Senate bill.

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CMS Finalizes Reimbursement Cuts for 340B Hospitals

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.

Implementation Challenges

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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Tax Reform and Tax-Exempt Bonds: Risks Presented by the Tax Cuts and Jobs Act

On November 2, 2017, the “Tax Cuts and Jobs Act” was introduced in the House of Representatives. This act has immediate and far-reaching implications for tax-exempt finance.

Among other things, the Tax Cuts and Jobs Act would:

  • Repeal the authority to issue “qualified private activity bonds” after December 31, 2017. These bonds generally include all tax-exempt bonds that are not “governmental bonds,” and include tax-exempt bonds issued for the benefit of 501(c)(3) organizations and many other types of tax-exempt bonds.
  • Repeal the authority to issue advance refunding bonds after December 31, 2017. The repeal applies to advance refundings of governmental bonds as well as bonds issued for the benefit of 501(c)(3) organizations.
  • Repeal the authority to issue tax-exempt bonds for professional sports stadiums after November 2, 2017.
  • Repeal the authority to issue “tax credit bonds” after December 31, 2017. This repeal concerns a much more limited type of special tax-advantaged bonds.

Summary of Key Points

  • The legislation would not adversely affect “governmental” bonds issued for the benefit of state and local governments, except for advance refunding bonds and bonds issued for the professional sports stadiums.
  • Certain categories of tax-exempt bonds are at more risk for repeal or restriction than others. The proposed legislation indicates that categories at most risk for repeal or restriction are: all categories of tax-exempt bonds issued for the benefit of borrowers other than state or local governments (that is, “qualified private activity bonds”); advance refunding bonds; and tax-exempt bonds for professional sports stadiums. It is important to note, however, that qualified private activity bonds include a wide range of different types of tax-exempt bonds for different purposes, and that the authority to issue certain types of tax-exempt qualified private activity bonds might be at greater risk than others.
  • A “rush to market” is a distinct possibility. The proposed repeal of the authority to issue tax-exempt qualified private activity bonds and advance refunding bonds may result in a much increased volume of tax-exempt bonds for those purposes before the end of 2017.
  • “Grandfathering” of bonds issued before tax law change. The tax-exempt status of bonds issued before the relevant effective dates would not be adversely affected by the proposed legislation.
  • Transition rules for current refundings of bonds issued before the effective dates will be critically important and are much less certain than in the past. The Tax Cuts and Jobs Act as proposed contains no “transition rules” that permit tax-exempt bond current refundings of qualified private activity bonds issued before the effective date. Whether enacted legislation contains any such transition rules will be of critical importance to many borrowers. In the past, Congress has in many, but not all, instances of enactment of new restrictions on tax-exempt bonds permitted tax-exempt refundings of “grandfathered” bonds issued before the effective date. For a number of reasons, transition rules permitting future tax-exempt bond current refundings are much less certain than in the past.
  • Certain types of outstanding tax-exempt financing structures are exposed to risks of tax law changes that are not readily apparent. Examples of types of financing structures that may have “hidden” change of law tax risks include particularly “direct purchases” by banks, tax-exempt commercial paper, and tax-exempt draw-down loans.
  • Issuers and borrowers should separately consider the risks for outstanding bonds and the risks for future financing plans. The risks for outstanding bonds are not the same as the risks for future financing plans. Assessing these risks separately can help to focus an action plan.
  • It may be prudent for issuers to evaluate future financing plans and to consider an action plan to accelerate the timing of some financings.
  • It may be prudent for issuers and borrowers to evaluate, and take steps to manage, the tax risk of their outstanding bonds.
  • It may be prudent for issuers and borrowers to start to evaluate the capital raising tools that would replace tax-exempt financing. A variety of capital raising structures in addition to the issuance of taxable bonds is likely to emerge to replace tax-exempt financing if certain types of tax-exempt financing are repealed or further restricted.

A Description of Relevant Provisions of the Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act was introduced on November 2, 2017, in the U.S. House of Representatives by House Ways and Means Committee Chair Brady. Although the enactment of significant tax reform legislation is of course uncertain, this proposed legislation has very large implications for tax-exempt finance. Developments over the next several weeks, including particularly the expected introduction of tax reform legislation in the U.S. Senate, will further inform the risks presented by the introduction of the Tax Cuts and Jobs Act.

Repeal of authority to issue “qualified private activity bonds.” The proposed legislation would repeal the authority to issue all “qualified private activity bonds” after December 31, 2017. ”Qualified private activity bonds” include a large number of different types of tax-exempt bonds that are issued for the benefit of borrowers other than state and local governments. The tax-exempt bonds subject to repeal include all “exempt facility bonds” under Section 142 of the Internal Revenue Code (the “Code”) (such as bonds for airports and docks and wharves and multifamily housing when financed projects are treated as privately used), “single family housing” bonds issued under Section 143 of the Code, qualified small issue bonds for manufacturing issued under Section 144 of the Code, and “qualified 501(c)(3) bonds” issued under Section 145 of the Code (such as bonds issued for the benefit of nonprofit hospitals and universities). The repeal does not apply to traditional “governmental” bonds, which generally do not finance projects treated as privately used, except for advance refunding bonds and bonds for professional sports stadiums. Some types of tax-exempt “governmental” bonds are issued for the benefit of private persons, but are not technically treated as “private activity bonds” (for example, some general obligation bonds used to make grants to private persons); the authority to issue those types of bonds would not be repealed.

The proposed legislation would make a number of revisions to the Code which appear to be intended to purge references and provisions relating to “qualified private activity bonds.”

Repeal of authority to issue “advance refunding bonds.” The proposed legislation would repeal the authority to issue all tax-exempt “advance refunding” bonds after December 31, 2017. Advance refunding bonds are bonds issued more than 90 days before refunded bonds are actually retired. This repeal would apply to advance refunding “governmental” bonds as well as advance refunding “qualified 501(c)(3) bonds.” This is the provision in the Tax Cuts and Jobs Act that would most significantly adversely affect issuers of tax-exempt governmental bonds.

Repeal of authority to issue bonds for professional sports stadiums. The proposed legislation would repeal the authority to issue tax-exempt bonds to finance or refinance capital expenditures for a facility which, during at least five days during any calendar year, is used as a stadium or arena for professional sports exhibitions, games, or training. The repeal would apply immediately, to any bonds issued after November 2, 2017. Although this repeal would apply only to bonds financing professional sports stadiums, the prohibition is written in a manner that is strict.  For example, the prohibition contains no “de minimis” relief, so that it appears that a bond issue would fail to be tax-exempt if even $1 is spent on a professional sports stadium.  Also, because of the proposed immediate effective date, this proposed prohibition may immediately require special review of tax-exempt bonds that have not yet been issued.  Bonds issued after November 2, 2017 for professional sports stadiums may require, at a minimum, special disclosures to investors.

Repeal of authority to issue tax credit bonds. The proposed legislation would repeal the authority to issue tax credit bonds after December 31, 2017. Although many types of tax credit bonds were authorized to be issued under prior legislation, the Code currently permits only a relatively small volume of tax credit bonds to be issued. For example, the authority to issue Qualified Zone Academy Bonds would be repealed. Accordingly, this provision has much less important and far-reaching effects than the provisions concerning tax-exempt bonds.

The Tax-Exempt Bond Markets Could Be Significantly Disrupted Well in Advance of the Actual Enactment of Tax Legislation

In assessing the risks presented by federal tax reform, one particularly important point is that issuers and borrowers could be significantly adversely affected by merely by the credible possibility of specific tax legislation well in advance of enactment. Over the years, members of Congress have on many occasions introduced legislation containing immediate effective dates that would restrict the authority to issue different types of tax-exempt bonds. For example, in June 1996, Senator Moynihan introduced the Stop Tax-Exempt Arena Debt Issuance Act with an immediate effective date, which would have prohibited issuance of tax-exempt bonds for sports stadiums. Because investors generally require a high degree of certainty in tax position, introduction of this type of legislation could have the immediate practical effect of restricting issuance of certain types of tax-exempt bonds, particularly if the legislation is introduced by a prominent member of Congress, or if legislation is introduced with bipartisan support.

Similarly, the mere introduction of credible legislation restricting the issuance of tax-exempt bonds, such as the Tax Cuts and Jobs Act, could result in a “rush to market,” even if the legislation is never in fact enacted.

For these reasons, there is a substantial risk that issuers and borrowers will be immediately affected by the Tax Cuts and Jobs Act and the prospect of enactment of tax reform.

Prior Legislation May Inform an Assessment of the Likelihood of Tax Law Changes Adverse to Tax-Exempt Financing

It is of course not possible to predict with confidence the exact form that enacted tax legislation may take, or even whether fundamental tax reform legislation will be enacted in the near future. An assessment of the risks presented by the Tax Cuts and Jobs Act, however, can be informed by the prior history of legislation and prior legislative proposals. At a minimum, it is reasonable to expect that drafters of any final legislation will at least consider the effectiveness of past legislation.

In broad sweep, the history of federal tax legislation concerning tax-exempt bonds since 1968 has been to place increasing limitations on issuance of tax-exempt bonds, including in particular the permitted uses of tax-exempt bond proceeds.

A general historical trend has been the imposition of increasing limits on the issuance of tax-exempt bonds for the benefit persons other than state and local governments. Most notably in 1968, 1982, 1984 and 1986, by placing restrictions on the issuance of these bonds (now called “qualified private activity bonds”) by, among other things, limiting the types of projects that qualify and, in most instances, by imposing limits on the volume of such bonds and in 1986 Congress placed restrictions on advance refunding bonds.

Accordingly, the provisions adverse to qualified private activity bonds and advance refunding bonds are consistent with a long history of actual tax law changes and proposed legislation.  As one example, at a House Ways and Means Committee hearing on tax-exempt bonds on March 19, 2013, both Republican and Democratic members of the Committee raised particular questions about the policy justifications for the authority to issue tax-exempt qualified private activity bonds. Thus, the history of actual tax law changes and prior proposed legislation leads to an objective assessment that the authority to issue tax-exempt qualified private activity bonds and advance refunding bonds faces significant risk of repeal.

Assessing the Risks for Different Categories of Tax-Exempt Bonds

Based on proposed provisions of the Tax Cuts and Jobs Act and the history of past legislation, it is evident that some types of tax-exempt bonds are more at risk for repeal or restriction than others, although all types of tax-exempt bonds may be at some risk.

As is discussed above, the Tax Cuts and Jobs Act would repeal the authority to issue qualified private activity bonds, advance refunding bonds and professional sports stadium bonds; accordingly, the authority to issue those types of tax-exempt bonds is clearly at risk.

It is important to note, however, that “qualified private activity bonds” include a large number of different types of tax-exempt bonds that can be issued for different purposes. It is entirely possible that enacted legislation would repeal the authority to issue some types, but not all types, of qualified private activity bonds.

For example, a reasonable guess may be that qualified private activity bonds issued to finance for government-owned public infrastructure may be at lower risk for repeal than other types of qualified private activity bonds. For example, many tax-exempt bonds issued for government-owned airports and docks and wharves are issued as qualified private activity bonds. The policy arguments that it is appropriate to subsidize borrowing for this type of public infrastructure may be particularly compelling.

On the other hand, a number of provisions in the Tax Cuts and Jobs Act suggest that the authority to issue qualified 501(c)(3) bonds may be at greater risk. One theme in this proposed legislation appears to be a willingness to enact stricter rules for 501(c)(3) organizations to raise federal revenue. For example, the Tax Cuts and Jobs Act would impose a new excise tax on certain investment income of private colleges and universities. In that light, there appears to be no reason to assume that 501(c)(3) organizations will necessarily be afforded favorable treatment in enacted legislation.

Type of Bond Issue Examples Least Risk Intermediate Risk Greatest Risk
New Money Governmental Bonds
Current Refunding of Governmental Bonds
All Advance Refunding Bonds Governmental and 501(c)(3) Bonds
New Money Private Activity Bonds for Government-Owned Infrastructure Government Owned but Privately Used Airports, Water Systems, Docks and Wharves
Private Activity Bonds for 501(c)(3) Organizations Nonprofit Hospital, Educational and Cultural Institution Bonds
Private Activity Bonds for Projects Not Government- Owned Multifamily Housing, “Small Issue” Bonds for Manufacturing, Solid Waste Disposal
Private Activity Bonds to Make Loans to the Public Single Family Housing, Veterans’ Housing and Student Loan Bonds

Grandfathering of Outstanding Tax-Exempt Bonds

The provisions in the Tax Cuts and Jobs Act would not adversely affect the tax-exempt status of tax-exempt bonds issued before the relevant effective date of repeal. This approach is consistent with prior legislation.

In most prior legislation, Congress has taken care to avoid retroactive imposition of limitations on tax-exempt bonds, in large part to avoid disruption of the financial markets. The model for “grandfathering” outstanding bonds generally has been to provide that new restrictions apply only to bonds issued after an effective date. For example, this model was followed in the effective date provisions to the Tax Reform Act of 1986.

This “grandfathering” approach has the weight of history and fairness to the financial markets, but it must be acknowledged that it has a considerable cost to the United States Treasury. Under this approach, the tax expenditure of tax-exempt bonds has a long “tail.” Indeed, many tax-exempt bonds the financed purposes that were prohibited decades ago continue to remain outstanding. Even if repeal of the authority to issue certain types of tax-exempt bonds is enacted in new legislation, tax-exempt bonds issued before the relevant effective date may similarly continue to be outstanding for decades.

This large “tail” on the tax-exempt bond expenditure likely means that effective date provisions will receive close scrutiny in an environment where tax expenditure reduction is of paramount concern. In light of the historical approach of Congress, retroactive legislative repeal appears to continue to be unlikely, but that favorable approach is not absolutely certain.

Grandfathering of Current Refundings of Outstanding Tax-Exempt Bonds?

The Tax Cuts and Jobs Act contains no “transition rules” that would permit tax-exempt current refunding of tax-exempt bonds issued prior to the effective date. We expect that such transition rules will be a particularly important question for the public finance industry as legislation proceeds.

A question that is related to, but different from, the “grandfathering” of bonds issued before new legislation is whether, or how, refinancings of such “grandfathered” bonds may continue to be “grandfathered.” A review of the Tax Cuts and Jobs Act and prior legislation leads to the conclusion that there is considerable risk that final legislation will not necessary “grandfather” refinancings issued after the effective date of the new legislation.

Because of the tax expenditure relating to the tax-exempt bond “tail,” the approach to “grandfathering” of refundings can be expected to have a large revenue effect, and will likely attract the scrutiny of writers of legislation.

Prior legislation restricting tax-exempt bonds has often provided favorable grandfathering to subsequent refinancings, but the approach of Congress has been inconsistent and checkered. Perhaps most notably, the Tax Reform Act of 1986 contained detailed transition rules that permitted favorable grandfathering of refundings. Indeed, such transition rules remain relevant in the municipal market, even 31 years later, as many types of tax-exempt bonds prohibited in 1986 (for example, for privately-owned pollution control facilities and sports facilities) continue to be refunded with new tax-exempt bonds.

Not all new legislation, however, has included favorable transition rules. Most notably, the American Recovery and Reinvestment Act of 2009 permitted the issuance of Build America Bonds in 2009 and 2010, but does not permit the issuance of refunding Build America Bonds.

In the past, many tax-exempt bond issuers and borrowers have drawn comfort from the argument that Congress is likely to be favorably disposed to permitting tax-exempt bond refundings of “grandfathered” bonds, because such treatment has been viewed as a “win/win” situation. That is, if a current refunding reduces interest costs to the borrower, the amount of revenue to the federal government in foregone income tax may also be reduced.

A closer consideration of this “win/win” argument, however, casts doubt on whether it will continue to carry the day for tax-exempt bond issuers. A more refined analysis of the revenue effects to the federal government of “grandfathering” current refundings could be quite complex; the important point, however, is that it is entirely possible that Congress could take the view that such favorable grandfathering for refundings will entail a significant additional federal expenditure.

Accordingly, the risk of losing the ability to refund outstanding tax-exempt bonds on a tax-exempt basis in the future should be viewed as one of the most important considerations for issuers and borrowers.

Although transition rules for tax-exempt refinancings have great practical importance for issuers and borrowers (and to the tax expenditure of the federal government), transition rules have commonly been treated as an afterthought in prior tax legislation. Accordingly, assessing this risk will require a particularly close review of legislation as it is developed.

Assessing Refunding and “Reissuance” Risk

The real possibility that Congress will prospectively repeal the authority to issue certain types of tax-exempt bonds and not provide transition rules for tax-exempt refinancings of outstanding bonds makes an assessment of effective date risk particularly important.

Some of these risks are more obvious than others. For example, if enacted legislation contains no transition rules for refundings, “reissuance” questions will have vastly heightened importance. Reissuance questions commonly are raised for “multi-modal” tax-exempt bonds that permit conversions to different interest rates. In certain situations, the conversion of tax-exempt bonds to a new interest rate after the effective date of repeal might result in loss of tax-exempt status. Particular reissuance questions have been raised with respect to “direct purchase” bonds. Accordingly, one reasonable approach may be to consider whether any tax-exempt bonds held by “direct purchasers” raise particular reissuance risks.

Particular Risks for “Draw-Down” Bonds, Commercial Paper and Similar Tax-Exempt Financing Structures

The relevant effective dates of the Tax Cuts and Jobs Act are based on when “bonds” are issued. This is consistent with prior legislation affecting tax-exempt bonds, but presents particular risks for draw-down bonds, commercial paper, and similar tax-exempt financing structures.

The IRS has issued guidance that generally treats a “bond” as issued when money is actually paid for the bond. This guidance also makes a distinction between the date of issuance of a “bond” and the date of issuance of an “issue” of bonds. For example, consider a “draw-down” tax-exempt financing that permits an issuer to draw down $100 million of tax-exempt bonds over a two-year period; the issuer actually draws down the first $10 million on December 1, 2017, and expects to draw down the remaining $190 million after December 31, 2017. Under existing guidance, only the $10 million actually drawn down in 2017 would be treated as “issued” in 2017. The remaining portion would be subject to any change of law that occurred after 2017.

This means that draw-down bonds, commercial paper, and similar tax-exempt bond structures are subject to particular change of law risks that may not be immediately obvious.

“Rush to Market” Strategies and Limitations

The last enactment of fundamental reform (that is, the enactment of the Tax Reform Act of 1986) was immediately preceded by an enormous “rush to market” issuance of tax-exempt bonds. This “rush to market” included the issuance of a high volume of pooled financing bonds and bonds issued earlier than customary before the effective date of new restrictive rules. The IRS challenged a limited number of these “rush to market” bonds as abusive, which underscores the need for careful structuring and review in such circumstances. For example, in a landmark court decision, the IRS successfully asserted that multifamily housing bonds issued by the Housing Authority of Riverside County were not properly treated as issued before the relevant effective date. The overwhelming majority of such bond issues, however, were not challenged.

The imposition of new restrictive rules in the Tax Cuts and Jobs Act could result in a similar rush to market.

Because of tax law changes since 1986, many of the strategies and approaches used in 1985 will no longer be available. To the extent that an issuer or borrower may seek to issue bonds earlier than is customary before an effective date of new legislation, the “hedge bond” limitations of section 149(g) of the Code will be an important consideration. Although a number of provisions of the tax regulations restrict early issuance of tax-exempt bonds, the most important restriction is set forth in the hedge bond rules. These rules require that, in all instances, an issuer must reasonably expect that it will spend the “spendable proceeds” of the bond issue within certain time periods. One way to meet the “hedge bond” rules is if the issuer reasonably expects that it will spend at least 85% of the spendable proceeds within three years of the date of issuance and the issuer does not invest more than 50% of the proceeds in an investment having a substantially guaranteed yield for four years or more. The other way for an issuer to meet the “hedge bond” rules is for the issuer to reasonably expect that it will spend the proceeds no later than the following schedule:

“Hedge Bond” Requirements

Period After Date of Issuance Reasonable Expectation Spending Requirement
1 year 10%
2 years 30%
3 years 60%
5 years 85%

For issuers seeking to maximize the issuance of bonds before a restrictive date, the foregoing schedule sets forth the outside limits, and can be expected to be an important consideration in any “rush to market” situation. For planning purposes, it may be prudent for issuers to assess the amount of financeable projects that could fit within these time periods.

Pooled financing bonds may also be an important strategy to issue bonds before the effective date of restrictive new rules. This strategy will be constrained by the restrictions on “pooled financing bonds” set forth in section 149(f) of the Code, but could still be viable in some circumstances.

“Pooled Financing Bond” Requirements

Period After Date of Issuance Reasonable Expectation Loan Origination Requirement/Basis of Redemption Requirement for Some Issues
1 year 30%
3 years 95%

The Risks for Outstanding Bonds and Future Bonds are Not Necessarily the Same and Need to Be Separately Considered

Just as the tax risks to issuers are different than the tax risks to holders, the risks for outstanding tax-exempt bonds are different than the risks for future tax-exempt financings. For example, as is discussed above, if Congress repeals the authority to issue tax-exempt bonds after the date of enactment of new legislation, an issuer possibly would gain a benefit with respect to its outstanding bond issues, particularly if the outstanding bond issues have variable interest rates. If the volume of tax-exempt bonds were so restricted going forward, it is reasonable to assume that the pricing of the remaining tax-exempt bonds on the market would benefit. Such legislation, however, would plainly disadvantage issuers for future financings.

For these reasons, the best approach to assessing the possible effects of tax reform is to separately consider possible effects on outstanding bond issues and future financing plans.

The Current Market Pricing of Tax-Exempt Bonds is Not Necessarily a Good Indicator of the Risks to Issuers

Will the risk of tax reform adverse to tax-exempt bond issuers and borrowers be reflected in the bond markets? A large part of the answer to that question is that the risks to holders of outstanding tax-exempt bonds are not the same as the risks to issuers and borrowers of tax-exempt bonds. Also, the analysis of how different proposed changes to the Code would affect holders of outstanding tax-exempt bonds is complex, because some changes might be favorable, and some unfavorable, to holders of outstanding tax-exempt bonds.

In the most straightforward example, suppose that Congress repeals the authority to issue certain types of tax-exempt bonds after the date of enactment of new legislation, but “grandfathers” the tax-exempt status of interest on bonds issued before the date of enactment. That change would plainly be unfavorable to issuers and borrowers of tax-exempt bonds, but would likely be favorable to holders of outstanding tax-exempt bonds, at least with respect to that change considered in isolation.

The analysis of how tax law changes may affect holders of tax-exempt bonds is necessarily complex, and requires a consideration of the effects of changes in tax rates, the effects on the permitted supply of tax-exempt bonds going forward, the extent to which other tax-advantaged investments are permitted, and other factors. The important point is that many of these factors are not directly relevant to assessing the risks that an issuer’s authority to issue tax-exempt bonds will be repealed or restricted. Because of these complex factors, market interest rates may provide no meaningful information about the risks of prospective repeal.

Effect on Tax-Exempt Financing of Other Tax Law Changes

The Tax Cuts and Jobs Act would make a number of other changes to the Code that would not expressly refer to tax-exempt bonds, but which could have a fundamental effect on certain types of tax-exempt financing. For example, the Tax Cuts and Jobs Act would reduce the maximum federal corporate income tax rate from 35% to 20%. Among other things, this reduction might have the effect of significantly reducing the role of banks and other financial institutions and direct purchasers of tax-exempt bonds, because such purchasers would receive a lesser tax benefit.

Such a rate reduction would also trigger interest rate increases for many issuers and borrowers of “direct purchase” bonds, because many “direct purchase” bonds include provisions providing for an increase in interest rate if the tax benefit to the holder is reduced.

Anticipating Capital Raising Structures that May Replace Tax-Exempt Financing – Not Just Taxable Bonds

A final point is that, if the authority to issue certain types of tax-exempt bonds is repealed, taxable bonds may not be the only replacement financing vehicle. Particularly for 501(c)(3) organizations, the future unavailability of tax-exempt financing likely will lead to a reconsideration of a number of different types of possible financing structures, including possible greater use of joint ventures and similar structures. One view is that the use of such structures may have been impeded in the past because of the relative benefits of tax-exempt financing.

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Foley Named ACC Outstanding Committee Sponsor of the Year

For the second year in a row, Foley & Lardner LLP was named the Outstanding Committee Sponsor of the Year Award by the Association of Corporate Counsel (ACC) for Foley’s work on behalf of the ACC’s national Health Law Committee. Attorneys Alan Einhorn and Jana Anderson, Foley’s liaisons to the Health Law Committee, were presented with the Award on October 15th at the ACC’s Annual Meeting in Washington, D.C. The award recognizes a firm that has provided exceptional support to an ACC committee, including assistance with the committee’s quality of programs and development, and assistance in helping the committee achieve its goals.

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Will the Massachusetts Proposed Legislation on Hospital Outpatient Facility Fees Have a Nationwide Impact?

In some states, including the Commonwealth of Massachusetts, “site neutrality” for outpatient hospital reimbursement is factoring into state-specific health reform and cost containment initiatives. This potentially goes well-beyond Medicare’s limitation of reimbursement at new off-campus outpatient hospital departments under Section 603 of the Bi-partisan Budget Act of 2015. Since Massachusetts’ state health reform law was the model on which the Affordable Care Act was based, many other jurisdictions look to Massachusetts to see how the state is addressing the “cost” component of the equation, especially now that the “access” component is addressed by the ACA and state initiatives.  Massachusetts has taken several swings at the cost conundrum, including the latest legislation introduced in October of 2017. This recent legislation includes a provision that would essentially eliminate a large number of hospital outpatient costs, both on-and off-campus.

Treatment of “Facility Fees” Under the New State Senate Bill

On October 17, 2017, the Massachusetts State Senate released a proposed bill entitled “An Act Furthering Health Empowerment and Affordability by Leveraging Transformative Health Care.” This bill was discussed on October 23, 2017 in a packed hearing room before a Special Senate Committee on Health Care Cost Containment & Reform where representatives from teaching and community hospitals, health plans, and patient/citizen groups were present.

This bill also includes several far-reaching provisions, which we will address in future posts, including the provider price variation and out-of-network payment issues; as these provisions are also of great interest to the hospital industry. But, a major concern in the bill, from a hospital operations consideration, is a prohibition on hospitals charging facility fees for many common outpatient services, as a condition of licensure.

The contours of this prohibition are not entirely clear, but it would appear to be targeting so-called outpatient evaluation & management (E&M) services within any department of a hospital that submits a claim to any insurer (public and commercial) as an outpatient service. The bill permits the Department of Public Health (DPH) to add additional services to the ban beyond outpatient E&M. In addition to the billing ban, the proposed legislation serves up several other dishes designed to restrict or burden hospital billing for outpatient services, including limitations on payment for state employees under the Group Insurance Commission (GIC), and several sections requiring notices to patients by hospitals and other providers referring patients for hospital services. At least one of these notices is required before delivery of services in the emergency room (ER), “if practical.”

What is Included in the Massachusetts State Senate Bill?

Presumably, more will be known about the intentions of the drafters in the coming days and weeks, as well as what the House of Representatives will make of this. In the meantime, here are a few observations on the bill as written:

  • If passed, Massachusetts hospitals (and, once the insurance provisions kick in, likely hospitals throughout New England and other states treating Massachusetts-covered beneficiaries), will not be able to charge facility fees for many common procedures, but must continue to incur the costs of those services, including nurses, other staff, medical supplies, facilities, overhead, power, electronic medical records, patient safety, infection control, )
  • There is serious ambiguity regarding what services are subject to the ban. Is it just outpatient E&M or are other services where a physician performs some E&M service, like an emergency department or observation services impacted? Given the wording of the bill, it would appear to be extremely broad in scope, encompassing many different locations, including on-campus outpatient departments. Indeed, the accompanying Senate Report suggests that a more sweeping set of services would be subject to the payment ban.
  • It is unclear which payors are covered. Since the prohibition is incorporated not in the insurance laws but, rather, as part of the hospital licensing requirements, it would appear that it should apply to all payors, including Medicare and employer-sponsored health plans covered by ERISA. This raises serious preemption and other questions. Perhaps it was intended only to apply to commercial payors and the GIC by including similar language in those statutory provisions, but clarification as to the extent of the application of this bill will be needed especially given the placement in multiple statutory provisions.
  • Unlike the Medicare site-neutrality law, which permits payment to hospitals at a reduced rate for outpatient services at non-exempt site, Massachusetts is proposing a zero reimbursement rule, not a payment reduction, and with no “grandfathering” of existing locations. If the law is passed, only physicians will be able to charge for impacted services at all sites.
  • Also, unlike the Medicare rule, the Senate bill appears to apply to both on-campus as well as off-campus services. Because the accompanying Senate Report suggested recommendation is that only off-campus services be targeted, we wonder if the Senate intended such broad geographic coverage.
  • If only physicians can bill for these services, will physicians be required to share their fees back with the hospitals to cover the hospital’s overhead? You may recall that this was a feature of the initial CMS proposal under Medicare site neutrality. If not, is there a “Stark” (physician self-referral) Law implication on the theory that the physician is receiving “free” use of hospital space?  If so, will physicians be able to charge a full physician fee schedule payment, without reduction for the “site of service differential?  And if physicians cannot bill the full professional fee, does that mean that both hospitals and physicians will be provide these services for free or at a massive discount to all payors?
  • Does the bill require hospitals to provide a notice of fees to emergency room patients prior to the delivery of services, and, “if practical”, does it put hospitals on a collision course with the federal government and its implementation of the Emergency Medical Treatment and Labor Act (EMTALA, also known as the patient anti-dumping law)? CMS has long been concerned that talking to patients about costs and charges before receiving emergency services may cause patients to leave a hospital ER in an unsafe medical condition and violate EMTALA.

The Impact of this Proposal May Reach Beyond Massachusetts

While we are asking a number of questions about this initial proposal on hospital costs, it appears that the Commonwealth is heading in a direction that could have a material impact on hospital reimbursements, budget, and operations if passed in any form.  Hospital administrators in Massachusetts will be watching this closely.  Hospital and health system leaders nationally should also be concerned that this type of state strategy may be considered in other jurisdictions too.

Interested parties should consider commenting on the State Senate bill.

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Graham-Cassidy Proposal Falls Short on Votes While Other Deadlines Loom

Efforts to replace the Affordable Care Act (ACA) with the Graham-Cassidy legislation were unsuccessful as lawmakers rushed to meet the September 30th deadline when the Senate would have lost its current reconciliation vehicle.  Changes to the bill were incorporated in order to gain Republican support from a number of holdouts, but with Senator Susan Collins (R-ME) announcing she will not vote for the current proposal, Senate Republicans conceded today since they were short of the 50 votes required to pass the measure.  Senate Republicans are currently discussing potential paths forward, including future reconciliation vehicles that would allow for ongoing efforts to repeal and replace the ACA. Efforts to stabilize the insurance exchanges were  thwarted by Senator Mitch McConnell (R-KY) in order to advance Graham-Cassidy.

Status of CHIP Program

While all eyes have been on the Graham-Cassidy legislation, funding for the Children’s Health Insurance Program (CHIP) is set to expire on September 30, 2017. Last week, Senators Orrin Hatch(R-UT)) and Ron Wyden (D-OR) of the Finance Committee agreed to a five year reauthorization of CHIP.  However, there is no guarantee that the House will support their proposal. CHIP has been introduced as a part of the “Keep Kids Insurance Dependable and Secure Act of 2017” and, if passed, would fund the CHIP Program through federal fiscal year 2022.

We will continue to monitor all efforts this week as the September 30th deadline looms.

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