Category: Health Care

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The Ball is in the SEC’s Court: What Health Care Borrowers Can Do While Waiting on Changes to Rule 15c2-12

On March 1, 2017, the Securities and Exchange Commission (SEC) issued Release No. 34-80130 (the Release) proposing several amendments to its Rule 15c2-12 (the Rule) that would add two new events to the list of events that must be included in the continuing disclosure undertakings of municipal issuers or obligors (Borrowers) of municipal bonds. These 2 new events are:

  1. The incurrence of “financial obligations, if material, or agreeing to covenants or other provisions that affect security holders, if material,” and
  2. The occurrence of one or more of the following events under the terms of such a financial obligation: “default, event of acceleration, termination event, modification of terms or other similar events under the terms of a financial obligation of the obligated person,” if the event reflects financial difficulties.

The SEC has yet to respond to the comments received on the proposed changes to the Rule and has a variety of alternatives from taking no action on the rule change, implementing the rule as proposed, or adopting the rule with various modifications. Given the increasing call for greater transparency in the municipal securities industry, but without firm guidance on the “materiality question” discussed below, the best action during this waiting period is simply to prepare for change. Following are some strategies for participants in the municipal market to address the challenges posed by the proposed amendments.

A Review of the Proposed Amendments

Scope of “financial obligations” that must be disclosed. The clear focus of the Release and the proposed amendments to the Rule is provision of continuing disclosure relating to direct placements of debt obligations, but the scope of the proposed financial obligations that would have to be disclosed is significantly broader than that. The term “financial obligation” is defined in the Release to include a “(i) debt obligation, (ii) lease, (iii) guarantee, (iv) derivative instrument, or (v) monetary obligation resulting from a judicial, administrative, or arbitration proceeding.”  These terms are interpreted broadly in the Release.

For example, the Release provides that the term “lease” is intended to include an operating lease or a capital lease, while a “guarantee” is intended to capture a contingent financial obligation of the issuer or obligor to secure the obligations of a third party or of the issuer or obligor itself. Thus, an extremely wide range of obligations, if material, would need to be disclosed on the Municipal Securities Rulemaking Board’s (MSRB) Electronic Municipal Market Access (EMMA) website by Borrowers if the amendments are adopted, as proposed.

Impact of “materiality” qualifier. A second area of concern is the use of materiality to qualify those events that must be disclosed. This qualification ideally would limit the amount of disclosure that must be provided only to events where there is a substantial likelihood that a reasonable investor would consider such information important in making an investment decision, based on the Basic v. Levinson standard of materiality. However, as was evidenced by the SEC’s recent Municipal Securities Disclosure Cooperation (MCDC) initiative, there is a lack of clear guidance regarding what is material to an investor in the municipal market, leading to a conservative view of materiality and what one market participant has termed “hyper disclosure.”

Determining which events are “material” to a reasonable investor could be difficult and, if the SEC does not later concur with the Borrower’s analysis, the consequences can be severe. Use of the materiality standard (without further guidance) to qualify the events that must be disclosed gives rise to the concern that Borrowers will be required to provide detailed summaries of their direct placements, leases, swaps, for example, or to post in full redacted copies of the underlying documentation, in order to comply with the amended Rule.

Preparing for Change

As described above, the amendments to the Rule as they are currently proposed could have a significant impact on the municipal market, especially upon Borrowers, but also on broker-dealers. Below are several actions that Borrowers and broker-dealers may wish to consider undertaking in response to the Release and Rule.

  • Review Current Arrangements and Disclosure Policies. If the proposed amendments to the Rule are adopted, Borrowers will need to be prepared to gather and disseminate a considerably wider scope of information regarding their financial obligations than is currently the case. We recommend that Borrowers review their existing disclosure undertakings and policies and consider what modifications may be necessary to comply with the Rule as amended.
  • Review Processes and Procedures for Event Notifications. Because of the potentially broad scope, the person responsible for filing event notices with EMMA will need to develop processes and procedures for becoming aware of these additional events in a timely manner, evaluating whether they are material or reflect financial difficulties, and preparing and filing the required notices, generally within 10 business days of the occurrence of the event. It seems likely that the most important and difficult element of this new, wider inquiry will be setting up processes to ensure that the designated person receives timely notice of the new events that must be disclosed.
  • Revise Due Diligence Processes. Similarly, broker-dealers will need to revise their due diligence processes to devise methods of determining whether any of the new listed events have occurred and, if so, whether they were material or reflect financial difficulties and, if so, were adequately and timely reported to EMMA.
  • Consider Disclosure Standards Under Federal Securities Laws and What Must Be Included in an Events Notice. Another critical element that must be borne in mind by Borrowers is that the requirements of Rule 10b-5, which requires that disclosure be accurate and complete, will apply to each of the event filings. Simply filing a notice with EMMA that a certain event has occurred may not be sufficient, even if such a notice meets the requirements of the applicable continuing disclosure undertaking. Because many of the new proposed events require a certain degree of analysis and context to determine whether they are material or reflect financial difficulties, additional disclosure necessary to provide the context of such a determination is likely to be necessary. Disclosure filed with EMMA is subject to the 10b-5 standard and therefore cannot contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which it was made, misleading.

What Resources Are Available to Learn More?

The SEC’s proposed amendments to the Rule are substantial and could have wide-ranging implications for Borrowers’ disclosure practices. We recommend that Borrowers examine their current disclosure practices and procedures to ensure that they are ready and able to comply with the Rule if and when it is amended. Additional information on the Release and the Rule, is available in the March 2017 client alert and the May 2017 webinar recording. Or contact Heidi Jeffery or David Bannard directly.

For more information on Foley’s healthcare finance practice, including the team, publications, and other materials, visit Foley’s Healthcare Finance Practice.

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OIG to Audit Medicare Telehealth Services: What You Need to Know

medicare telehealth

For what may be the first time, the Office of Inspector General (OIG) at the Department of Health & Human Services (HHS) recently announced a new project to review Medicare payments for telehealth services. Accordingly, providers who bill the Medicare program for telehealth services may expect to have those claims reviewed to confirm the patient was at an eligible originating site and that the statutory conditions for coverage were met. The audit is a new project added as a supplement to the OIG’s 2017 Work Plan.

OIG Work Plan

Historically, at the beginning of each new fiscal year, the OIG issued its Work Plan, setting forth the compliance and enforcement projects and priorities OIG intends to pursue in the coming year. Beginning in June 2017, OIG will update the annual Work Plan on a monthly basis.  The Work Plan contains dozens of projects affecting Medicare and Medicaid providers, suppliers and payors, as well as public health reviews and Department-specific reviews.

The Work Plan reflects (in large part) two aspects of the work of OIG:

1) Projects originating within the Office of Audit Services (OAS), which conducts financial, billing, and performance audits of HHS programs; and

2) Projects originating within the Office of Evaluations and Inspections (OEI), which provides management reviews and evaluations of HHS program operations.

Except by providing general statistics, the Work Plan itself does not detail the work of the Office of Investigations or the Office of Counsel to the Inspector General in investigating and enforcing matters involving specific individual providers and suppliers.  The new telehealth project will be run by the OAS.

Review of Medicare Payments for Telehealth Services

OIG describes its new telehealth review project as follows:

“Medicare Part B covers expenses for telehealth services on the telehealth list when those services are delivered via an interactive telecommunications system, provided certain conditions are met (42 CFR § 410.78(b)). To support rural access to care, Medicare pays for telehealth services provided through live, interactive videoconferencing between a beneficiary located at a rural originating site and a practitioner located at a distant site. An eligible originating site must be the practitioner’s office or a specified medical facility, not a beneficiary’s home or office. We will review Medicare claims paid for telehealth services provided at distant sites that do not have corresponding claims from originating sites to determine whether those services met Medicare requirements.”

The expected issue date of the OIG report is 2017, so presumably the review will commence shortly (although OIG Work Plan projects are sometimes continued or extended from year-to-year).

Medicare 2014 Telehealth Claims Data

The new OIG project is not the first time Medicare claims data has identified a potential mismatch regarding the conditions for coverage for telehealth services. A July 2016, Medicare Payment Advisory Commission (MEDPAC) Report to Congress: Medicare and the Health Care Delivery System contained a detailed chapter on telehealth services and the Medicare program.  In it, MEDPAC analyzed Medicare claims data from 2014 for preliminary qualitative assessments on the state of telehealth services under Medicare. The report included a paragraph on telehealth distant site claims without a corresponding originating site claim, stating:

“Among the 175,000 telehealth claims from distant sites, 95,000 (55 percent) were without an originating site claim.  This discrepancy could be due to providers not bothering to bill for the $25 facility fee, or it could be that some services inappropriately originated from a patient’s home, as other research has suggested (Gilman and Stensland 2013).  Among the distant site telehealth claims without an originating site claim, 56 percent (53,000 visits) were associated with rural beneficiaries and 44 percent (41,000 visits) were associated with urban beneficiaries.  Both claims groups suggest that beneficiaries could be inappropriately receiving telehealth services from home or another unapproved location that did not file an originating site claim.  The urban claims are also potentially problematic because they could be occurring in urban originating sites, which is inconsistent with Medicare statute.”

Medicare Coverage of Telehealth Services

Current coverage of telehealth services under Medicare is limited, with the coverage restrictions established via statute under the Social Security Act.  Any notable expansion of telehealth coverage under Medicare would require legislation by Congress.  There are several bills pending in Congress to remove these limitations, but until such time, there are five main conditions for coverage for telehealth services under Medicare.

  1. The beneficiary is located in a qualifying rural area (providers can check if the originating site is in a qualifying rural area by using the Medicare Telehealth Payment Eligibility Analyzer);
  2. The beneficiary is located at one of eight qualifying originating sites (i.e., the offices of physicians or practitioners; Hospitals; Critical Access Hospitals; Rural Health Clinics; Federally Qualified Health Centers; Hospital-based or CAH-based Renal Dialysis Centers (including satellites); Skilled Nursing Facilities; and Community Mental Health Centers);
  3. The services are provided by one of ten distant site practitioners eligible to furnish and receive Medicare payment for telehealth services (i.e., physicians; nurse practitioners;™physician assistants;™nurse-midwives;™ clinical nurse specialists;™ certified registered nurse anesthetists; clinical psychologists; clinical social workers; registered dietitians; and nutrition professionals);
  4. The beneficiary and distant site practitioner communicate via an interactive audio and video telecommunications system that permits real-time communication between them (store and forward is covered in Alaska and Hawaii under demonstration programs); and
  5. The CPT/HCPCS (Current Procedural Terminology/Healthcare Common Procedure Coding System) code for the service itself is named on the CY 2017 (or current year) list of covered Medicare telehealth services.

In order to bill Medicare for telehealth services, the distant site practitioner must fully comply with each of these requirements. If the service does not meet each of these above requirements, the Medicare program will not pay for the service.  If, however, the conditions of coverage are met, the use of an interactive telecommunications system substitutes for an in-person encounter (i.e., it satisfies the “face-to-face” element of a service).

Providers ought not fear the new OIG project, or see it as a reason not to offer telehealth services to their patients. Indeed, the project and its eventual report can help shed light on those areas of compliance which the OIG believes important. In the interim, providers should continue to ensure their telehealth programs and claims comply with Medicare requirements, including coverage, coding, and documentation rules.

For more information on telemedicine, telehealth, and virtual care innovations, including the team, publications, and other materials, visit Foley’s Telemedicine Practice.

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The Office of the National Coordinator Releases Guidance on Recent International Ransomware Campaign

With the news of the newest international ransomware campaign that is currently affecting some organizations within the Health Care sector, it is important to not only educate staff on necessary precautions, but also be aware of steps to take in the instance you are infected by a ransomware attack.

The following information was distributed  today by the Office of the National Coordinator (ONC).  Please take a moment to review the information and prepare your organization in the event that an attack occurs.

Be sure to review our preparedness recommendations and contact us with any questions.

Health and Human Services/Assistant Secretary of Preparedness and Response Critical Infrastructure Protection Program

If you are the victim of a ransomware attack

If your organization is the victim of a ransomware attack, HHS recommends the following steps:

  1. Please contact your FBI Field Office Cyber Task Force or US Secret Service Electronic Crimes Task Force immediately to report a ransomware event and request assistance. These professionals work with state and local law enforcement and other federal and international partners to pursue cyber criminals globally and to assist victims of cyber-crime.
  2. Please report cyber incidents to the US-CERT and FBI’s Internet Crime Complaint Center.
  3. **NEW**If your facility experiences a suspected cyberattack affecting medical devices, you may contact FDA’s 24/7 emergency line at 1-866-300-4374. Reports of impact on multiple devices should be aggregated on a system/facility level.
  4. For further analysis and healthcare-specific indicator sharing, please also share these indicators with HHS’ Healthcare Cybersecurity and Communications Integration Center (HCCIC) at HCCIC@hhs.gov

Mitigating against this threat

  • Educate users on common phishing tactics to entice users to open malicious attachments or to click links to malicious sites.
  • Patch vulnerable systems with the latest Microsoft security patches available here.
  • Verify perimeter tools are blocking Tor .Onion sites
  • Use a reputable anti-virus (AV) product whose definitions are up-to-date to scan all devices in your environment in order to determine if any of them have malware on them that has not yet been identified. Many AV products will automatically clean up infections or potential infections when they are identified.
  • Monitor US-CERT for the latest updates from the U.S. government. See below for current reporting.
  • Utilize HPH Sector ISAC and ISAO resources. See below for further information.

US-CERT Resources

Multiple Petya Ransomware Infections Reported

06/27/2017 12:56 PM EDT

Original release date: June 27, 2017 US-CERT has received multiple reports of Petya ransomware infections occurring in networks in many countries around the world. Ransomware is a type of malicious software that infects a computer and restricts users’ access to the infected machine until a ransom is paid to unlock it. Individuals and organizations are discouraged from paying the ransom, as this does not guarantee that access will be restored. Using unpatched and unsupported software may increase the risk of proliferation of cybersecurity threats, such as ransomware.

Petya ransomware encrypts the master boot records of infected Windows computers, making affected machines unusable. Open-source reports indicate that the ransomware exploits vulnerabilities in Server Message Block (SMB). US-CERT encourages users and administrators to review the US-CERT article on the Microsoft SMBv1 Vulnerability and the Microsoft Security Bulletin MS17-010. For general advice on how to best protect against ransomware infections, review US-CERT Alert TA16-091A. Please report any ransomware incidents to the Internet Crime Complaint Center (IC3).

Sector ISAO and ISAC resources

National Health Information-Sharing and Analysis Center has shared the following TLP-White Message and will continue to share information at nhisac.org.

HITRUST has shared the following Threat Bulletin for distribution.

ONC and OCR resources

  • ONC provides many helpful resources about Health IT Security to include cybersecurity guidance materials and training at here and here.
  • OCR provides cybersecurity guidance materials including a cybersecurity checklist, ransomware guidance and cyber awareness newsletters at here.

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Opioid Crisis Initiating New State Gift Ban Laws

opioid

The Maine legislature passed with broad bipartisan approval L.D. 911, An Act to Prohibit Certain Gifts to Health Care Practitioners. The legislation prohibits gifts to practitioners who are licensed to prescribe and administer drugs by manufacturers, wholesalers, or agents of manufacturers or wholesalers of prescription drugs.

What’s Excluded?

  • Free samples of prescription drugs for patients
  • Items less than $50 over a calendar year
  • Payments to sponsors of educational programs
  • Honoraria for educational conferences
  • Compensation for research
  • Publications or educational materials
  • Salaries to employees

At the Heart of the Bill is the State’s Opioid Crisis

While similar in substance to what already exists in Massachusetts, Vermont, and other states as a law designed to curtail conflicts of interest in physician prescribing practices, the purported impetus here is the state’s opioid crisis. Representative Scott Hamann, the sponsor for the bill, said that the goal is to ensure doctors do not have conflicts of interest when prescribing drugs, especially opioids. According to Hamann’s testimony before the legislature, “People are dying, and the addiction often starts in the doctor’s offices.” The bill intends to curb any influence on the prescribing of opioids given the perspective that there is a correlation between payments and prescribing behavior. Maine has seen a forty percent increase in drug overdose deaths in the last year, and spending on physicians nearly doubled from 2014 to 2015.

The “gift ban” law is now awaiting the Maine Governor’s signature. It will be interesting to see if other states impacted heavily by heroin and opioid abuse will follow suit with increased surveillance or banning of industry gifts to physicians.

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Senate Releases Repeal and Replace Legislation on ACA: The Better Care Reconciliation Act of 2017

After weeks of secrecy, the Senate has released a discussion draft of legislation that is the counterpart of the American Health Care Act (AHCA) previously passed by the House.  The Senate legislation, entitled the Better Care Reconciliation Act of 2017 or BCRA, closely tracks the language in AHCA.

Foley Attorneys are continually monitoring and analyzing the impact of the bill and will provide additional coverage as changes are announced.  Below is a summary of the differences between the BCRA and AHCA.

Changes to the ACA Insurance Markets and Subsidies

Like the AHCA, the BCRA would make several immediate or near term changes to the health insurance markets originally established by the ACA including:

  • Reduction in Tax Penalties. The tax penalties associated with the employer and individual mandates will be reduced to $0 effective January 1, 2016, essentially repealing the employer and individual mandates with retroactive effect.
  • Reforms for Age and Pre-existing Conditions Remain. Several major market reforms implemented by the ACA are retained, including the ability for children to remain on their parents’ coverage until age 26, the requirement that individual health insurance be guaranteed issue and guaranteed renewable, and the prohibition on pre-existing condition exclusions.
  • Application for Waivers. States may apply for certain waivers of ACA market reforms, including the requirement that health insurance provide coverage of ten “Essential Health Benefits” (EHBs), requirements for credentialing plans on the health insurance marketplaces (exchanges), and limits on deductibles or cost sharing for exchange plans. BCRA would direct the federal government to approve state applications for such modifications, unless the alternative proposal would increase the federal deficit.
  • Increase of Premiums for Older Enrollees. Allowing states to increase premiums for older enrollees up to five times more than younger enrollees, increased from ACA’s maximum ratio of 3 to 1. Unlike the AHCA, the BCRA does not permit waivers of the ACA’s prohibition on determining premium amounts based on an individual’s health status.
  • Addition of a Six-month Waiting Period. Under the updated draft of the BCRA released on June 26, 2017, insurers in the individual market may impose a six-month waiting period on any individual who cannot demonstrate 12 months of continuous coverage. Under the AHCA, health insurance companies in the individual market would assess a 30% premium surcharge if an applicant has gone longer than 63 days without continuous health insurance coverage during a 12-month lookback period.
  • Cost-sharing reduction (CSR) Changes. CSR payment provisions in the ACA are repealed effective starting in 2020. However, the BCRA appropriates funds to make CSR payments through December 31, 2019. The AHCA did not appropriate any funds for CSR payments.

Additional Insurance Market Reforms

Like the AHCA, the BCRA would promote greater use of alternative approaches by states or by individuals to manage insurance costs, including use of high-risk pools and health savings accounts (HSAs).

  • Expanded Tax Benefits Associated with HSAs. Effective January 1, 2018, the BCRA would expand the tax benefits associated with HSAs, and allow consumers to contribute substantially more pre-tax money to an HSA regardless of whether they have individual or employer-sponsored health coverage.  HSA contributions would be allowed up to the limits on out-of-pocket expenses permitted for high deductible health plans (for 2018, $6,650 for self-only coverage and $13,300 for family coverage) (same as the AHCA).
  • Changes in Flexible Spending Account Contributions. Effective January 1, 2018, ACA’s limit on the amount an employee may contribute to a health flexible spending account (health FSA) per year (for 2017, $2,600) would be repealed (same as the AHCA but the BCRA’s effective date is a year later).
  • Ability to Purchase Over-the-counter Medications using FSA or HSA. Effective January 1, 2017, employees would again be able use health FSA and HSA funds to purchase over-the-counter medications without a prescription, as was the case before ACA was adopted (same as AHCA).
  • Changes to the Effective Date of the Cadillac Tax. While many of the taxes included in the ACA would be repealed, the BCRA retains but delays the “Cadillac Tax” until 2026 (same as the AHCA).  The Cadillac Tax is a 40% excise tax on high-cost health coverage provided by employers.

Significant Modifications to the Medicaid Program

The BCRA’s most significant impact may be felt on the Medicaid program, which would be slated for substantial reductions in funding along with new authority for states to modify the scope of their programs.

Incentives to Roll-Back the ACA’s Medicaid Expansion. BCRA would provide significant financial incentives for states to reverse or roll back the expansion of Medicaid under the ACA to cover low-income adults who do not have dependents or serious disabilities.

  • Reduction in Federal Financial Support for the Expansion. The Senate bill would gradually reduce the level of enhanced federal funding available for the expansion population each year until 2023, when funding would be available at a state’s normal Medicaid matching rate.  The reductions are certain to create enormous budgetary problems for states that expanded Medicaid, potentially forcing modifications or reductions in benefits or the roll-back of the expanded coverage.  The Senate bill also prevents states that elect to expand Medicaid on or after March 1, 2017 from receiving the enhanced funding.
  • Disparate Treatment of Expansion and Non-expansion States.  Medicaid expansion states would also face scheduled reductions in their disproportionate share hospital (DSH) payments, while BCRA would remove the reductions for non-expansion states.  In addition, non-expansion states would have their DSH allotments increased between 2020 and 2024 if the state has a per capita DSH allotment below the national average. These increases would not apply to expansion states.
  • New Authority for $2 Billion in Funds for Non-expansion States.  Similar to the House legislation, BCRA would create new authority for $2 billion in funds for non-expansion states that can be used to increase Medicaid payments to providers up to the provider’s uncompensated costs of treating Medicaid and uninsured patients.  A state would be disqualified from these payments if it elects to expand Medicaid coverage.

Changes to Limit Federal Support for Medicaid beginning in 2020.  BRCA also makes significant changes to the financial structure of the Medicaid program that are unrelated to the ACA’s Medicaid expansion.

  • Hard Caps on Federal Medicaid Funding through a Per Capita Calculation.  The formula for this calculation closely follows the approach in the House legislation.  However, the Senate version utilizes a different inflation adjuster beginning in 2025 that, if implemented, would limit the growth in federal Medicaid expenditures (on a per capita basis) to the general consumer price index for urban consumers. In recent years, Medicaid expenditures have risen much faster than this inflation measure. The per capita caps would apply beginning in 2020.
  • Budget Neutral Adjustments to the Per Capita Caps for Low- and High-Cost States.  New authority to adjust the per capita caps for specific enrollment categories for states that are 25% above or below the  mean per capita cap for all states.  Under this provision, states that spend more on a per capita basis for a specific enrollment category (e.g., for Medicaid-enrolled children, or seniors, or the disabled) would have their per capita caps reduced, and states that pay less than the mean would have their per capita cap increased. This authority does not apply to low-density states.
  • Reduction to the Per Capita Cap for New York State.  BCRA includes the language previously included in the House legislation that would reduce the per capita cap for New York state, unless New York state stops requiring local governments (other than New York City) to contribute to the Medicaid program.
  • New Authority for States to Apply for and Receive Federal Block Grants.  New authority for states, beginning with fiscal year 2020, to receive federal block grants for the operation of approved “Medicaid flexibility programs” for qualifying Medicaid beneficiaries.  The legislation provides that the Medicaid flexibility programs would not be available for children, seniors, the disabled, or individuals in the expansion population, meaning interested states would apply them to low-income adults with dependent children. The Medicaid flexibility programs would be in lieu of the operation of the state’s normal Medicaid benefit, and would allow the state to modify conditions of eligibility, benefit package, and cost sharing.  The amount of the block grant would be based on the per capita cap amount otherwise available to the state.  States would be required to meet a maintenance of effort requirement that is lower than what they would otherwise need to expend to draw down the same amount of Medicaid funds.
  • Phases Down the Cap on Health Care Provider Taxes.  BCRA would phase down provider taxes that will be considered permissible without meeting alternate, more burdensome criteria from 6% to 5%, beginning in 2021.  As a result of these changes, the provider taxes or fees in many states that help support Medicaid payments to hospitals and other providers may need to be reduced or modified.

Restrictions on Medicaid Eligibility.  BCRA also implements new oversight and restrictions on beneficiaries accessing Medicaid coverage.

  • Ability to Condition Medicaid Coverage on Satisfaction of a Work Requirement. States would be allowed to condition Medicaid coverage on the beneficiary’s satisfaction of a work requirement, which would be defined by federal law.  This requirement could not be applied against pregnant, disabled, elderly, or minor (under age 19) beneficiaries, or against individuals who is the only parent or caretaker in the family of a child with disabilities or under age 6.
  • Option to Require Re-enrollment for Expansion Enrollees.  States would have the option to require individuals in the Medicaid expansion population to re-enroll at least every 6 months to maintain their coverage.
  • Limits on Retroactive Medicaid Coverage.  Current law requires Medicaid programs to cover services provided to an individual within the 3 months prior to the completed application.  BCRA would reduce this to one month, effective October 1, 2017.
  • Sunset Hospital Presumptive Eligibility. Hospital authority to make presumptive eligibility determinations will end January 1, 2020.

Medicaid Benefit Changes. New limitations or options for state Medicaid coverage.

  • Access to Essential Health Benefits.  BCRA removes the requirement for Medicaid expansion beneficiaries to receive a package including EHBs.  The inclusion of this requirement in the ACA led to a significant expansion of Medicaid mental health and substance abuse disorder treatment services.
  • Limited Exception to Medicaid IMD Exclusion.  Medicaid currently does not cover services for adults who are residents in an institution for mental diseases (“IMD”).  The BCRA would expand state’s options to cover adult psychiatric hospital services, regardless of whether the IMD designation applies, when an individual has a stay of up to 30 consecutive days (and up to 90 days in a calendar year).  State would not be eligible to cover these services if the state reduces the number of licensed beds at psychiatric hospitals owned, operated, or contracted by the state, or reduces the non-Medicaid funding expended by the state and political subdivisions for inpatient and outpatient psychiatric treatment.

Other Notable Changes

  • Medicare Program Remains Intact – Like the AHCA, the Senate bill does not seek changes to the benefits or coverage under the Medicare program, although it does remove taxes imposed by the ACA that help finance the Medicare trust fund.
  • Substance Use Grants – An additional $2 billion would be available as grants for states to support substance use disorder treatment and recovery support services for individuals with mental or substance use disorders.
  • Additional Funding to Federally Qualified Health Centers– An additional $422 million in funding will be provided to Federally Qualified Health Centers through the Community Health Center Fund in 2017.
  • Planned Parenthood Funding – The BCRA would prevent any Medicaid, CHIP, and certain federal block grant payments from being made to Planned Parenthood for one year.

The Question Remains as to Whether the BCRA Will Pass the Senate

Yesterday, the Congressional Budget Office (CBO) released its estimate that 22 million people will lose coverage by 2026 if the Senate bill were to become law. The CBO also projected the measure would reduce the deficit by $321 billion between 2017 and 2026, roughly $200 billion more savings than in the House’s AHCA.

Senate Republican Leader Mitch McConnell (R-KY) intends to bring the bill to the Senate floor for a vote later this week under a process known as reconciliation, which means the measure can move forward with only 51 votes.  Should he be successful, the House could pass the Senate bill at the end of the week and send the measure to President Trump for his signature.  However, thus far five Republican Senators have stated they oppose the bill as currently written:  conservative Senators Rand Paul (R-KY), Mike Lee (R-UT), Ted Cruz (R-TX) and Ron Johnson (R-WI) and moderate Senator Dean Heller (D-NV).  Several other Senators have expressed concerns over a multitude of issues with the bill, including the 22 million individuals that are projected to lose coverage, lack of funding for Planned Parenthood for one year, and the lack of sufficient time to review and understand the likely impacts of the legislation.  McConnell can only lose votes from two Senators or the measure will fail.  Democrats have repeated their willingness to work with the Republicans to improve upon the Affordable Care Act, but oppose the BCRA or the “repeal and replace” bill in its current state.

Negotiations are underway as Senator McConnell tries to secure of the votes in order to move the bill this week.  He has significant flexibility to negotiate on Medicaid, funding to combat opioids, and other aspects of the measure because the $321 billion in projected savings far exceeds the amount required.  Senators are scheduled to be in their home states next week for the July 4th recess.  If the measure does not pass before they leave Washington, D.C., history tells us the path could become even more difficult once they return.  President Trump has reportedly contacted many Senators to hear their concerns and Vice President Pence, who is expected to expected to deliver the 51st vote to get the bill over the finish line, is scheduled to attend today’s regularly scheduled meeting of the Senate Republicans.

We will continue to monitor the Senate Legislation and will provide updates on any changes that happen in an effort to gain support of the existing bill.

Senate Vote Delayed

Editors note: This section was added at 2:30pm CDT on Tuesday, June 27th.

Senator McConnell announced this afternoon (Tuesday, June 27th) the Senate will not vote on BCRA this week, due to concerns raised by multiple Republican Senators who want more time to understand the bill’s impact on their respective states.  The earliest the Senate could take up the bill is the week of July 10th, following a scheduled recess the previous week.  The Senate is in session for three weeks during the month of July and then adjourns for five weeks beginning July 31st.  If the bill has not passed before the August recess its prospects are greatly diminished.

We expect negotiations to continue as McConnell works to address Senators’ concerns and secure the votes necessary for passage.

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Senate Sets Timeline to Take up Repeal and Replace Legislation on ACA

With Congress returning to Washington, D.C. from its Memorial Day work period, Senators are focusing heavily on the timeline and details of legislation that would significantly alter the Affordable Care Act (ACA). Over the last week, many senior Senators have expressed skepticism regarding whether they can pass a bill, but Senate Republican Leader Mitch McConnell (R-KY) has laid out an aggressive timeline. Specifically, he would like the chamber to vote on a bill before the July 4th recess and use the rest of July to reconcile the House and Senate versions, leading to a final vote before the August recess. Congressional Republicans are eager to move beyond health care in order to take up tax reform and FY2018 federal government funding.

The Great Medicaid Expansion Divide

Senate Republicans are in agreement that their bill will be significantly different from what the House passed earlier this year, but that is where consensus ends. The main sticking point is how to appease Senators on both sides of the expansion – states that expanded and those that did not – in order to cobble together 50 votes (with Vice President Pence delivering the 51st). Those that did expand their Medicaid population don’t want to see their expansion population lose coverage, and those that did not expand, believe they are entitled to an additional financial benefit so they are not at a disadvantage as compared to the expansion states.

Achieving the required savings under reconciliation, while appeasing both factions, is proving extremely difficult. At this point, Democrats are not expected to vote for any Senate bill that significantly modifies the ACA so Republicans must rely entirely on their own Conference. Senators are also concerned about the alarming number of Americans projected to lose coverage under the House passed bill, and are developing a plan that would provide more generous tax subsidies for purchasing coverage. At this point, there is very little interest in including changes to the Essential Health Benefits package as was done in the House bill.

Still Awaiting the House-Passed Bill

In an interesting twist, the Senate parliamentarian is still in the process of reviewing the House-passed bill to make sure it does not violate Senate rules. Therefore, the legislative vehicle has still not officially been delivered to the Senate from the House. A ruling is expected this week.

Stay tuned for further updates as we eagerly await the first draft of the Senate bill, which could come as early as this week.

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New FDA Commissioner Hits the Ground Running

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Fresh off his noticeably smooth confirmation, the new Commissioner of Food and Drugs, Dr. Scott Gottlieb, appeared before Congress last Thursday and unveiled his strategic initiatives and priorities for the Trump Food and Drug Administration (“FDA”).  These run the gamut from improving regulatory science and policies to streamlining clinical trials to spurring innovation on behalf of patients.  Two initiatives, in particular, merit closer attention and discussion: combating opioid abuse and addressing drug price increases through more, accelerated generic competition.

Opioid Regulation

In his first post to the FDA Voice blog, Dr. Gottlieb wrote:

As Commissioner, my highest initial priority is to take immediate steps to reduce the scope of the epidemic of opioid addiction. . . .  I believe it is within the scope of FDA’s regulatory tools – and our societal obligations – to take whatever steps we can, under our existing legal authorities, to ensure that exposure to opioids is occurring under only appropriate clinical circumstances, and for appropriate patients.

First among these steps, the Commissioner is establishing an Opioid Policy Steering Committee, comprised of “some of the agency’s most senior career leaders, to explore and develop additional tools or strategies FDA can use to confront this epidemic.”  The strategies under consideration include (1) mandatory education for health care professionals about (i) appropriate prescribing recommendations; (ii) how to identify the risk of abuse in individual patients; and (iii) how to get addicted patients into treatment; and (2) working more closely with provider groups to develop standards for prescribing opioids in different clinical settings, so that “the number of opioid doses that an individual patient can be prescribed is more closely tailored to the medical indication.”

Limiting the availability of prescription pain medication is a dicey proposition, however.  As Dr. Gottlieb acknowledged, certain situations “require a 30-day supply” and, “[i]n those cases, we want to make sure patients have what they need.  But there are plenty of situations where the best prescription is a two- or three-day course of treatment.”  The individualized medical judgments and circumstances that drive opioid prescribing likely mean that no single approach is likely to strike the proper balance between over-prescribing and ensuring sufficient access to adequate pain management.  Interestingly, the variability between opioid prescribers and patients did not stop the Centers for Medicare and Medicaid Services from proposing hard limits on opioid dosing for non-cancer pain or palliative/end-of-life care (i.e., chronic pain) for Medicare Advantage Organizations and Prescription Drug Plan Sponsors.

In fact, pain patients already have struggled under bright-line limitations on opioids.  As we previously reported, the State of Massachusetts enacted a new law in March 2016 that prohibits “a practitioner [from] issu[ing] a prescription for more than a 7-day supply . . . [w]hen issuing a prescription for an opiate to an adult patient for outpatient use for the first time [or] to a minor,” the first such limitation legislatively imposed by any state.”  Mass. Gen. Laws ch. 94C, § 19D (2016).  Massachusetts physicians surveyed following the law’s enactment complained that “the pendulum has swung too far, depriving pain patients of needed relief,” and that “regulations won’t solve the addiction problem . . . .  Instead, they make doctors reluctant to prescribe opioids.”

Broadly targeting opioids as a class of drugs also may cast too wide a net.  A recent article in the journal Substance Abuse reported “[t]he US opioid epidemic has changed profoundly in the last 3 years” in that “[h]eroin and fentanyl have come to dominate an escalating epidemic of lethal opioid overdose, whereas opioids commonly obtained by prescription play a minor role, accounting for no more than 15% of reported deaths in 2015.”  The article urged that the changing etiology of opioid overdose “require[s] substantial recalibration of the US policy response.”

What is clear—and what Dr. Gottlieb seems to recognize—is that opioid abuse and addiction are dynamic issues that differ from prescriber to prescriber and from one patient to another.  Those variables may make a one-size-fits-all strategy unviable.

Drug Prices

During a budget hearing before the House Committee on Appropriations, Dr. Gottlieb testified that, “while the FDA does not have a direct role in drug pricing, we can take steps to facilitate entry of lower-cost alternatives to the market.”  He identified policy challenges that the last Congress had attempted to address through legislation designed to expedite access to affordable drugs.  Such legislation included the CREATES Act, which we previously analyzed.  The proposed law sought to prevent brand-name drug companies from using FDA safety rules (i.e., Risk Evaluation and Mitigation Strategies (REMS) and requirements thereunder, e.g., Elements to Assure Safe Use (ETASU)) for medicines with higher risk potential to block or delay generic entry.  “FDA has an important role to play in making sure that its statutory and regulatory processes are working as intended,” Gottlieb told Congress, “not being manipulated in ways that FDA and Congress did not intend.”

In response to growing political pressure in Washington to expedite drug reviews, Dr. Gottlieb assured lawmakers that biomarkers, new technologies, and more efficient clinical trial designs would make it possible to shorten the regulatory process.  But accelerated approval of expensive, investigational (albeit life-saving) therapies has raised concerns among health policy experts.

A recent op-ed published by the New England Journal of Medicine (NEJM) cautioned that

accelerated approval can lead to situations in which private payers may choose not to cover a drug because of high cost and lack of evidence of clinical efficacy, thereby thwarting the pathway’s goal of getting potentially important therapies to patients earlier, while major government payers are forced to cover the product, directing substantial tax dollars to drugs not yet shown to have clinical benefit.

The NEJM article’s authors argue that any biopharma company granted an accelerated approval should be subject to certain price restrictions until the confirmatory trials are completed, reasoning that “the price paid by taxpayers should reflect the strength of the available evidence about the drug’s clinical impact.”  Additionally, they proposed that all drugs moving through an accelerated-approval pathway should be subject to formal economic impact analyses after one to two years on the market, possibly funded by an increase in the user fees for manufacturers that use this pathway.

Dr. Gottlieb is also evaluating the generic drug and biosimilar review and approval process.  More specifically, Dr. Gottlieb is looking at measures to facilitate communication between the industry and FDA, address complex molecules, and to speed up the approval of biosimilar products.

These recommendations are not without some appeal.  Despite seeking to deliver more “bang” for the taxpayer’s “buck,” however, prospectively capping the federal reimbursement for a high-cost drug product still subject to additional clinical trials and/or other R&D may create a financial disincentive to pharmaceutical manufacturers to foot the expense of developing breakthrough drugs to fill an unmet medical need.

Stay Tuned

To deliver on the promises of reducing the incidence of opioid abuse and lowering drug prices, Dr. Gottlieb’s FDA must navigate the competing interests and thorny health policy issues highlighted above.  Foley & Lardner will report further as the agency’s redefined mission unfolds.

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17 Measures Every Health Care Organization Should Consider to Reduce the Risk of Cyber-Intrusions

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The importance of privacy in the health care industry starts at the most basic level between a patient, a doctor, and the doctor’s laptop computer. The levels of importance and complexity increase exponentially when you look at entire networks of payers and providers. The amount of data produced and stored in these organizations is staggering and keeping it secure is of the utmost importance. We have identified misconceptions about cybersecurity. We’ve covered some of the legal obligations the c-suite is under to secure its organization’s data. With the rise cyber-intrusions like ransomware, we know it’s important to effectively train employees and follow the guidelines provided by the Federal Department of Health and Human Services.

With the developments expected in this space under the Trump Administration, it is vital that every health care organization is prepared on the cybersecurity front.

Below is our list of 17 measures every health care organization should consider to reduce the risk of cyber-intrusions.

  1. Conduct internal compliance and risk assessments, to determine your organization’s vulnerability to cyber-attacks. This includes, but is not limited to, the security risk analysis required under the HIPAA Security Rule for covered entities and their business associates.
  2. Develop and implement corporate policies and procedures required for compliance with federal and state privacy and security laws.
  3. Develop quick-response teams to handle potential cyber-attacks, using pre-formulated decision trees and procedures so that you don’t have to develop them while under the fire of an ongoing attack.
  4. Establish secure data backup protocols to ensure that, even if your company is under attack, important company records are secure and available.
  5. Establish protocols to deal with common forms of cyber-attacks (denial of service, etc.).
  6. Line up outside experts, if necessary based upon the risk profile of your company, to swing into action if company processes are overwhelmed by a cyber-attack.
  7. Perform periodic audits of cybersecurity practices against industry norms, accepted best practices, and the risk profile of your organization.
  8. Implement information security best practices, reflect them in information security policies, records retention and management policies, and in internal controls/standard operating procedures.
  9. Make certain the CEO and executive leadership are properly informed about the cyber risks to your company and that they’re involved in oversight and the decision-making process related both to cyber-attacks and proactive cybersecurity measures.
  10. Review funding of all electronic security measures to ensure they are adequate to cover not only routine compliance measures but also to allow for proactive testing and probing of systems in light of increasingly sophisticated measures being used by hackers.
  11. Collect only that protected health information and personally identifiable information from clients, customers, or company personnel that is needed for identified business needs, with the retention of such information being only for as long as it serves those business needs, with storage being accomplished in a way that minimizes the chance of it being of any use outside the organization (encryption, etc.).
  12. Obtain cyber insurance and understand the coverage, including the legal counsel and other experts the company is permitted to engage under the policy.
  13. Coordinate cyber incident response planning across the entire company.
  14. Store sensitive information securely (encrypting where appropriate) and away from other data that does not require the same level of protection. Use a layered defense approach to protect “crown jewel” information.
  15. Conduct appropriate data security due diligence on third-party service providers with access to protected health information, personal identifiable information, and/or sensitive business information, and require them to enter into agreements that they are implementing robust data security procedures, following up to ensure these requirements are in fact implemented.
  16. Assess ways in which your company’s access vulnerabilities (website, VPNs, remote access, and so forth) are configured to minimize potential intrusion risk, with regular testing and probing to update and address identified risks.
  17. Perform companywide training, tailored to the personnel at issue, to ensure personnel understand the importance of following all security policies and procedures and reporting any suspected violations.

This list was generated as part of a Legal News: Cybersecurity newsletter by Greg Husisian, Chanley Howell and Jacob Heller titled, “Cybersecurity and the New Trump Administration: Your Top Ten Questions Answered.” Click here for the original publication.

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Republican Health Care Bill Moves Forward to the Senate

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In a surprising reversal, last week the U.S. House of Representatives passed legislation that would significantly modify the Affordable Care Act. The legislation, known as the American Health Care Act (the “AHCA”, H.R. 1628), passed on Thursday with a 217-213 party line vote.  After cancelling an expected vote on AHCA in March, the House Republicans developed additional amendments to the AHCA which ultimately led enough House Republicans to support the bill.

While the AHCA would not fully repeal the Affordable Care Act, it does make significant changes to the insurance markets developed under the Affordable Care Act, and also includes numerous tax provisions and significant modifications to the Medicaid program. A summary of the initial AHCA legislation from early March is available here. The version of the legislation approved by the House of Representatives last week also includes key amendments that were introduced to help secure the votes to move the bill forward:

Amendments that Impact the Insurance Markets

  • Beginning January 1, 2018, would allow states to waive the ACA’s “community rating” (or medical underwriting) prohibitions, thereby permitting insurance companies to charge higher premiums for more complex health conditions.
  • Beginning January 1, 2020, would allow states to modify the ACA’s essential health benefits for plans offered in the state on the individual or group market, allowing such plans to offer more limited benefits, and potentially allowing all plans (including employer-sponsored insurance) to impose lifetime caps on benefits that are not essential health benefits.
  • Modifies the AHCA’s required premium increases for individuals who do not maintain continuous health insurance coverage (defined as all but 63 days in the last twelve months) to allow plans to instead consider the health status of such individuals when setting premiums for one year, but only if the state establishes a high-risk pool or other program to stabilize individual health market insurance premiums.
  • Additional funding for the Patient and State Stability Fund, including $8 billion per year from 2018 to 2023 to states who have applied for and been granted a waiver from the ACA’s community rating requirements. These funds must be used to provide assistance to reduce premiums or other out-of-pocket costs to individuals that:
    • reside in states with an approved waiver,
    • have a pre-existing condition,
    • are uninsured due to not maintaining continuous coverage, and
    • have purchased health care in the individual market.

Medicaid Amendments

  • New option for states to be paid a block grant for adult beneficiaries with dependents and child beneficiaries. The block grant would allow states to draw down the federal block grant funds at an enhanced rate, and would allow the state increased flexibility to reduce eligibility standards, benefits, and other Medicaid requirements.
  • New options for states to condition availability of Medicaid beneficiaries on satisfaction of a work requirement.
  • In addition to phasing out the enhanced federal matching funds for the Medicaid expansion for all states beginning in 2020, would include language prohibiting states that elect to expand after January 1, 2017 from receiving the enhanced matching funds.

Looking Forward

Now that the House has passed the AHCA attention turns to the U.S. Senate. Early Senate reactions indicate they will take some time to decide the best path forward and will write their own bill, rather than work off of the House bill.  While the House and Senate Republicans were working closely together on legislative language when the earlier version of the AHCA was released, that effort was abandoned in recent weeks once the House began to include changes to the ACA’s essential health benefits package and provisions related to coverage for people with pre-existing conditions. Those provisions have been met with opposition from some Republican Senators and are unlikely to be included in a Senate bill, in part because they do not have a federal budgetary impact, which is required when moving a bill under the chamber’s reconciliation rules. Moreover, Republican Senators have publicly stated their opposition to the AHCA’s changes to the Medicaid program and repealing funding for Planned Parenthood. To complicate matters further, Congress loses the ability to use the FY17 reconciliation vehicle once they pass a conferenced FY18 budget resolution. Just this week they have turned their attention to the FY18 budget so the clock is ticking.

Last week’s vote puts many House Republicans in districts which were won by Secretary Clinton on the hot seat for their re-election in 2018.  The dynamic is eerily similar to what occurred in 2009 and 2010 when Democrats passed the Affordable Care Act.

Stay tuned for further updates as we watch the Senate to see what happens to the AHCA and to the ACA.

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Payor/Provider Convergence: Joint Venture Health Plans

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Background

Health Plans and health care providers are getting into each other’s business.  This payor/provider convergence has taken different forms.  Health systems have ventured into the health insurance business by acquiring or starting their own health plans and by establishing joint ventures with payors, to jointly own and operate a health plan.  Health plans have also moved into the health care provider business by acquiring hospitals, surgery centers, medical groups, and other providers.  This blog post examines one aspect of this Payor/Provider Convergence – payor/provider joint ventures to operate health plans.

A recent study by McKinsey & Company recites that as of 2015 “13% of all US health systems offer health plans in one or more markets – commercial, Medicare Advantage (MA), or managed Medicaid,” with provider-led plans representing a higher percentage (23%) of the Medicaid Market. Consistent with this trend, there have been a number of joint ventures announced between health systems and health plans.  Many of these result in a health plan being owned on a 50/50 basis by a larger health insurer and the health system, though there are other percentage ownership arrangements.  These joint ventures may utilize narrow provider networks featuring the health system’s providers as the core of the provider network.  The health care media has reported a number of such joint ventures between larger health plans and health care systems in various markets across the country.

What is driving this is activity?

There are a number of reasons leading to this joint venture activity.  With the Affordable Care Act and new alternative payment models as a catalyst, health systems are keenly focused on the provision of efficient services and are increasingly assuming accountability for the cost and quality of their services.  These value-based programs require health systems to obtain data to analyze the care provided and to manage that care.  Such programs have also led health systems to develop and use technology and infrastructure to quickly analyze data and incorporate such data into the provision of care.  Such developments have given providers confidence that they can succeed in a managed care environment where they are at risk for some or all of the cost of care.  With such data and focus, health systems believe having a role in managed care operations and the opportunity to share in the health plan’s portion of the health care dollar are appropriate next steps.

The expected issuance of more and different alternative payment programs and increasing population health financial arrangements, encourage health systems to act.  Health systems also view participation in ownership as a way to share in the premium or administrative fee dollars earned by health plans.  This helps them diversify their business into an area they are beginning to understand and for which they are already taking some of the health care risk.

Health systems also seek a role in shaping the network for the health plan.  Through narrow networks which feature the health system’s providers exclusively or in the top tier, health systems hope to drive increased patient volume to the health system.  With a role in governance of a health plan, the health system also sees it as advantageous to target the markets it enters and the larger employers with whom it seeks to contract for services.

A joint venture with an existing health plan or health insurer that has experience and the tools to operate the back office functions of a health plan both reduces the risk and speeds the time to market as compared to a health system starting or acquiring its own health plan.  Many health systems have a history of trying unsuccessfully to own and operate a health plan on their own.  A joint venture provides an opportunity to share the risk and also brings an experienced and successful partner to the arrangement.

Health plans also see positive opportunities in partnering with health systems.  Joint ventures can create marketing advantages for a health plan by aligning with a health system that has earned loyalty from patients in certain markets through the care provided over the years.  Health plans also envision that sharing the operations and bottom line with a health system will incentivize the health system even more to provide efficient care, to eliminate any unnecessary services or waste, and to be accountable for cost of care provided.

Certain health plans also view such joint ventures as an opportunity to help jump start the health plan’s efforts to expand into a new market, with a strong network of the health system’s providers.  Health plans may also anticipate that the health system will furnish it with favorable pricing to allow it to compete effectively for new insurance or self-funded employer business.

What are the more significant issues in structuring such arrangements?

Such joint venture health plans present a myriad of challenging issues, both legal and business.  The issues include the normal issues present in any joint venture between separate businesses as well as ones caused by the positions each has in health care.

  • Percentage ownership/governance – Will the parties agree to a 50/50 arrangement or will one party’s need for financial and accounting consolidation or for control require such party to own a majority of the interests and exercise control? If one party needs control for financial consolidation, how may such control be balanced through other aspects of the arrangement protecting the other party without jeopardizing control required for consolidation?
  • Investment – What will each party contribute and how will non-cash contributions be valued? Will the level of the contributions trigger the need for a Hart-Scott-Rodino filing under the rules applicable to joint ventures?
  • Decision-making – What decisions may be made by the officers, by the governing board, or by the joint venture parties? Are there certain decisions that require both parties to approve?  How should reserve powers be structured?
  • Application of Copperweld – From an Antitrust perspective, will the entity be sufficiently controlled by one of the venturers to obtain Cooperweld protection or will it be an independent entity for antitrust purposes? If the later, there will be need for strict Antitrust guidelines to ensure joint venture is separate from and does not engage in improper activities with either venturer.
  • Services – Will the joint venture provide its own services or will it acquire some services from the venture parties? What price will be paid for the services and which ones, from an insurance regulatory perspective under state’s insurance holding company act, must “fair and reasonable” to the health plan, generally considered to be at “cost?”  What role will both or one of the venturers have in services such as marketing plans, care management, underwriting/pricing, network development, etc.?
  • Leadership – Will the executive officers be representatives of one of the parties or be hired separately by the joint venture to be independent from each venturer?
  • Markets Served – In what markets will the joint venture operate? Is the market limited to the service area of the health system venturer?  Is there overlap with a market served by the health plan venturer’s existing health plan offerings?  If so, how are potential conflict issues resolved?
  • Provider Network – Who decides who is included in the provider network? Are the products limited to narrow network offerings?  Does the health system venturer have a role in network make-up?  How is provider pricing determined and how is the health system screened from pricing of any competitor providers included in the network?
  • Exit Rights – What rights does each party have to exit or terminate the joint venture? What are the triggers for such rights and does each venturer have the right to buy-out the other under certain circumstances?
  • Non-Compete/Exclusivity – Is the joint venture’s health plan the exclusive payor offering of each venturer in a certain geography? What, if any, limits are there on the health system in other health insurance participation?
  • Side-by-Side Selling – If there is no exclusivity, how does the joint venture compete for business with products offered by the health plan venturer? How are the offerings coordinated if they can be coordinated in compliance with the Antitrust laws?
  • Conflicting Goals – Will the potentially different goals of the joint venture, the health plan, and the health system be reconciled?
  • Cannibalizing Existing Business – If the health system provides favorable pricing for a narrow network offering, what protections does the health system have that the venture will not market to customers already utilizing the health system’s services albeit at a lower price point through the joint venture? Without such protections, the health system may just be seeing the same business but at a lower price point.

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The increasing popularity of health system/health plan convergence in the form of a joint venture health plan, presents opportunities but also requires a careful identification and resolution of a number of issues for them to succeed and to realize each party’s goals.

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