Healthcare Litigation

  Today, in a move that is widely supported by those in both political parties and across the country, President Trump declared the opioid epidemic a national emergency.  Doing so will allow for additional resources to be used toward fighting the opioid crisis, which could include expanding treatment facilities and supplying first responders with the anti-overdose remedy, naloxone.  The declaration of a public health emergency unrelated to a natural disaster is rare; the US Department of Health and Human Services declared one in 2016 due to the Zika virus but, prior to that, the last declaration unrelated to a natural disaster was during the 2009-10 flu season.   Drug overdose deaths continue to rise across the county, with 6 out of 10 involving an opioid.  According to the Centers for Disease Control and Prevention, 91 Americans die every day from an opioid overdose, and overdoses from prescription opioids are a driving factor in the increase in opioid overdose deaths.  Since 1999, the prescription opioids sold (and the deaths from prescription opioids) have quadrupled, with no overall change in the amount of pain American’s report.   Across the country, states have adopted a variety of strategies to combat the alarming rise in opioid drug abuse.  Additionally, as of late, a number of legislative bills have been introduced in an attempt to curb the abuse.  For example, on July 28, 2017, the “Every Prescription Conveyed Securely Act” (“Act”) was introduced in the United States House of Representatives. The Act calls for, with some exceptions, controlled substance prescriptions covered under Medicare Part D to be transmitted by a health care practitioner electronically to a pharmacy. Representative Markwayne Mullin, one of the authors of the Act, said in a press release, “[b]y requiring all doctors and pharmacists to use an online database when prescribing these highly addictive drugs, we allow e-prescriptions to control, track, and monitor these highly addictive painkillers on a new level.” The National Association of Chain Drug Stores has long been a proponent of electronic prescriptions believing that electronic prescriptions “are more efficient, improve prescription accuracy, and . . . make it easier for patients to get the medications they need, while also helping to prevent fraud and abuse.”   A full copy of the Every Prescription Conveyed Securely Act can be found by clicking here.  

The Centers for Medicare & Medicaid Services (CMS) released its 2018 Medicare Physician Fee Schedule proposed rule on July 13, 2017. The proposed rule, among other things, proposes to cut Medicare payments for services provided at non-excepted, off-campus provider-based departments from 50% to 25% of the Outpatient Prospective Payment System (OPPS) rate for the 2018 calendar year.   Currently, non-excepted, off-campus provider-based departments are paid for certain items and services under the Medicare Physician Fee Schedule at a payment rate equal to 50% of the OPPS payment rate for the applicable item or service.  The current payment rate has only been in place since January.  CMS said in the proposed rule that it viewed the 2017 rates as “transitional policy,” but few people in the industry were likely expecting to see such a significant decrease in payment so soon.  CMS openly admits, however, that it is working with a limited set of payment data since it does not have claims data from calendar year 2017 and that additional analysis is needed.  CMS said it welcomes stakeholder input with regard to its initial analysis and the proposal to pay for the applicable services at 25% of the OPPS.  In fact, CMS specifically requested comment on whether it should adopt a different payment rate, such as 40% of the OPPS, that would represent a middle ground between the current rates and the proposed rate. If finalized, the payment cut would further disincentive hospitals from opening or operating new (i.e., non-excepted) off-campus provider-based locations.   Some of the key additional changes proposed by CMS in the 1,000+ page proposed rule include:   Medicare Telehealth Services.  CMS is proposing to add several codes to the list of covered telehealth services, including: HCPCS code G0296 (visit to determine low dose computed tomography (LDCT) eligibility); CPT code 90785 (Interactive Complexity); CPT codes 96160 and 96161 (Health Risk Assessment); HCPCS code G0506 (Care Planning for Chronic Care Management); and CPT codes 90839 and 90840 (Psychotherapy for Crisis). Retroactive PQRS and Value Modifier Adjustments.  CMS is also proposing to reduce or eliminate certain financial penalties for performance in 2016 under the Physician Quality Reporting System (PQRS) and the Value Modifier program.  Under PQRS, for example, CMS says it wants to retroactively reduce the number of metrics that physicians had to report on in PQRS from nine to six measures.  For the Value Modifier, CMS proposes to reduce the automatic downward adjustment for not meeting minimum quality reporting requirements from negative four percent to negative two percent for groups of ten or more clinicians and from negative two percent to negative one percent for physician and non-physician solo practitioners and groups of two to nine clinicians. Evaluation and Management Comment Solicitation.  CMS is seeking comment from stakeholders on specific changes it should undertake to “update the guidelines, to reduce the associated burden, and to better align” Evaluation and Management coding and documentation with the current practice of medicine.   The advanced copy of the Proposed Rule is available here.  The official version of the Proposed Rule is scheduled for publication in the Federal Register on July 21, 2017.  Comments on the Proposed Rule are due by September 11, 2017.

On July 13, 2017, CMS released several proposed rules impacting health care, including the 2018 Outpatient Prospective Payment System (OPPS) proposed rule [available here https://s3.amazonaws.com/public-inspection.federalregister.gov/2017-14883.pdf] which, among other proposals, could have a significant impact on 340B covered entities.  The proposed rule states that CMS will change how Medicare pays hospitals that participate in the 340B program for the drugs they acquire under the program in order to address increasing drug prices.  CMS stated that its current reimbursement rates, “…allow[s] these providers to generate significant profits when they administer Part B drugs.”  Specifically, CMS proposes to reduce its reimbursement to hospitals for certain 340B covered drugs from the average sales price (ASP) plus 6 percent (which is the current reimbursement for prescription drugs paid by Medicare) to ASP minus 22.5 percent. Drugs that are on pass-through status and vaccines would be excluded from the proposed reduction.  CMS addressed its proposal in a fact sheet it released on the same day [available here: https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2017-Fact-Sheet-items/2017-07-13.html]   CMS explained, “Such changes would allow the Medicare program and Medicare beneficiaries to share in some of the savings realized by hospitals participating in the 340B program.”  CMS emphasized that because Medicare beneficiaries pay a portion of the cost of the drug (20%) based on the amount Medicare paid for the drug, regardless of the actual cost to the hospital for acquiring the drug, CMS’ proposed reduction in Medicare reimbursement would also help beneficiaries of the Medicare program save money.  The estimated total impact of the reduction to 340B covered entities’ reimbursement is approximately $900 million dollars.   According to CMS, this significant reduction in 340B drug reimbursement is consistent with what the Medicare Payment Advisory Commission (MedPAC) estimated to be the average minimum discount hospitals receive for 340B acquired drugs.  CMS noted that the 22.5% figure was a conservative number, since more recent MedPAC estimates show the average discount being closer to ASP minus 33.6%, and because the U.S. Government Accountability Office (GAO) estimates the discount to range from 20 to 50 percent compared to what the hospitals would have otherwise paid.   In further support of its proposed reduction to 340B drug reimbursement, CMS questioned the benefit of the 340B program overall by citing research showing that Medicare beneficiaries at disproportionate share hospitals (DSH) generally spent more on prescription drugs than patients at hospitals that did not participate in the 340B program.  CMS cited a 2012 GAO study of Medicare beneficiary Part B drug spending at DSH hospitals which found the average beneficiary spending there was $144, compared to $60 at non-340B hospitals.  CMS reported that the discrepancies could not be explained by unique characteristics of the hospitals in the study or by the health status of the patients.  CMS believes the studies indicate the 340B DSH hospitals were either prescribing more drugs or more expensive drugs compared to non-340B hospitals in the study. CMS hopes to learn more about the discrepancy through the use of a new claims modifier that it proposes be established to better track drugs that are billed under OPPS and purchased under the 340B program.   In addition to the OPPS proposed rule, early drafts of the Trump administration’s proposed executive order rolling back the 340B program have led to much speculation that there will be future limitations on 340B contract pharmacy arrangements, among other changes to the program. There is a Congressional Hearing scheduled for July 18, 2017 regarding 340B Program Oversight where representatives from HRSA and HHS-OIG will be testifying.  Hospitals, contract pharmacies and others affected by the 340B program should continue to closely monitor these changes which could have a significant impact on 340B operations across the country.

On July 13, 2017, CMS released a proposed rule as part of its 2018 Outpatient Prospective Payment System proposals [available here: https://s3.amazonaws.com/public-inspection.federalregister.gov/2017-14883.pdf] that is aimed at helping to reduce some of the burdens rural hospitals experience in recruiting physicians. Specifically, CMS proposes a two-year moratorium, for CY 2018 and CY 2019, on the direct supervision requirements for outpatient therapeutic services at critical access hospitals and rural hospitals with 100 or fewer beds.  CMS addressed its proposal in a fact sheet it released on the same day [available here: https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2017-Fact-Sheet-items/2017-07-13.html].   CMS has not enforced the direct supervision rules for these hospitals for several years, but the prior moratorium on enforcement had expired on December 31, 2016.  The current proposed rule provides some additional certainty and extended relief for these providers.  Rural hospitals and CAHs have consistently expressed to CMS that there is insufficient staff available to furnish direct supervision- especially for specialty services such as radiation oncology, which cannot be directly supervised by the physicians on-site in the emergency department either because of the volume of emergency patients or the providers’ lack of specialty expertise in the area to be supervised.  It is difficult to recruit physician and nonphysical practitioners to rural areas.  The comments discuss whether CMS should apply the same supervision rules to all hospitals, to ensure that CMS is purchasing the same basic level of quality and safe outpatient care for all beneficiaries, regardless of the hospital type.  However, CMS acknowledges the unique recruiting challenges facing CAHs and rural hospitals, and also noted that CMS is not aware of any quality of care complaints from beneficiaries or providers in these hospitals related to general supervision being provided (instead of direct physician supervision) for these services.   CMS’ Advisory Panel on Hospital Outpatient Payment is continuing to evaluate whether changes should be made to the supervision requirements.  In the meantime, CMS proposes this two-year moratorium to allow CAHs and rural hospitals additional time to get into compliance, and to give all parties time to submit recommendations to the Advisory Panel.

On June 16th, 2017, The Department of Justice (“DOJ”) announced a $53.6 million dollar settlement with Genesis Healthcare Inc. (“Genesis”) over six federal whistleblower lawsuits alleging that subsidiaries of the rehabilitation and transitional care provider violated the False Claims Act (“FCA”). The original qui tam plaintiffs, former employees of companies acquired by Genesis, will receive a combined $9.67 million dollars in recovery. The settlement resolved allegations involving Genesis subsidiaries; Skilled Healthcare Group Inc. (“SKG”) and its subsidiaries, Sun Healthcare Group Inc., SunDance Rehabilitation Agency Inc., and SunDance Rehabilitation Corp. The settlement resolved the allegations that SKG and its subsidiaries knowingly submitted false claims for Medicare services by “billing for hospice services for patients who were not terminally ill” and “billing inappropriately for physician evaluation management services.” The complaint does not elaborate on the nature of the management services billing violations. Further, SKG and its subsidiaries allegedly submitted false claims to Medicare, TRICARE, and Medicaid by providing therapy to patients longer than medically needed, as well as billing for more therapy than patients actually received. The settlement also resolved allegations that Sun Healthcare Group Inc., SunDance Rehabilitation Agency Inc., and SunDance Rehabilitation Corp. knowingly submitted false claims to Medicare by billing for therapy services in the state of Georgia that were either medically unnecessary or unskilled in nature. Finally, the settlement resolved allegations that Skilled LLC, a subsidiary of SKG, violated the FCA by submitting false claims to the Medicare and Medi-Cal programs for “services that were grossly substandard or worthless and therefore ineligible for payment.” Specifically, the allegations pointed to Skilled LLC failing to meet the requirements for nurse staffing in order to be eligible for government healthcare program reimbursements. The case matter was handled by the DOJ Civil Division’s Commercial Litigation Branch, the Office of the Inspector General, and the U.S. Attorney’s Offices for the Northern District of California, the Northern District of Georgia, the Western District of Missouri, and the District of Nevada. Acting U.S. Attorney Steven W. Myhre for the District of Nevada noted, “Today’s settlement is an example of the U.S. Attorney’s Office’s commitment to holding medical providers accountable…We are committed to protecting federal health care programs, including Medicare, TRICARE, and Medicaid, which are funded by taxpayer dollars.” The recent settlement falls in line with the DOJ’s increased commitment to combating health care fraud. The DOJ budget request for 2017 included a $70.8 million dollar increase ($320.2 million in total) of funding for health care fraud prevention. Summer Associate Justin Taylor provided substantial assistance with the drafting of this blog post/article.

The Centers for Medicare & Medicaid Services (CMS) released an advanced copy of its latest proposed rule revising the Quality Payment Program created by the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). The proposed rule, among other things, would further streamline reporting requirements and ease administrative burdens for small and rural providers. By way of background, MACRA created the Quality Payment Program which reforms how Medicare Part B pays more than 600,000 clinicians across the country.  Under the Quality Payment Program, eligible clinicians, including physicians, physician assistants, nurse practitioners, clinical nurse specialists and certified nurse anesthetists, can participate in the Quality Payment Program through one of two tracks: the Merit-Based Incentive Payment System (MIPS) or Advanced Alternative Payment Models (Advanced APMs).  We are currently in the middle of the first performance year, which began on January 1, 2017.  How clinicians perform in the first year will impact Part B payments beginning on January 1, 2019. Given the complexity of the transition, and the significant impact the new payment rules have on Part B clinicians, CMS has continued to seek public input about how it should implement and revise the program going forward.  The proposed rule is the latest example of CMS’ efforts to respond to public input, particularly from small physician practices and rural providers. Some of the key changes proposed by CMS in the 1,000+ page proposed rule include: Increasing low-volume threshold.  For the current performance year, clinicians and groups are subject to MIPS if they billed more than $30,000 to Medicare Part B and provided care for more than 100 Part B-enrolled Medicare beneficiaries.  Clinicians or groups that do not exceed these thresholds are excluded from MIPS participation.  CMS has proposed to increase the low volume threshold to less than or equal to $90,000 in Medicare Part B allowed charges or less than or equal to 200 Medicare Part B patients.   CMS estimates that approximately 134,000 clinicians currently subject to MIPS will be excluded from MIPS in the 2018 performance year based on the proposed new additional increase in the low-volume threshold. Continuing to allow the use of 2014 Edition CEHRT (Certified Electronic Health Record Technology).  CMS is proposing to allow MIPS eligible clinicians to continue to use EHR technology certified to the 2014 Edition for the 2018 performance year. Creation of virtual groups.  In the current performance year (Year One), clinicians may only participate in MIPS as an individual or as a group under a common Tax Identification Number.  CMS is proposing to allow clinicians to participate in MIPS in virtual groups in future performance years.  Virtual groups would be composed of solo practitioners and groups of 10 or fewer eligible clinicians who come together “virtually” with at least 1 other such solo practitioner or small group in order to participate in MIPS. Adding more flexibility for clinicians in small practices.  CMS proposes to add a new hardship exception under the MIPS Advancing Care Information performance category for clinicians in small practices.  Additionally, for these small practice clinicians, CMS is proposing to add bonus points to their final MIPS score, and continue to award 3 points for measures in the quality performance category that do not meet data completeness requirements. The advanced copy of the Proposed Rule is available here.  The official version of the Proposed Rule is scheduled for publication in the Federal Register on June 30, 2017.  Comments on the Proposed Rule are due by August 21, 2017.  We will continue to provide updates as more information about changes to MACRA are released.

New York Times Obtains Copy of Draft Executive Order on Drug Prices; FDA Blogs that it is Working to Lift Barriers to Generic Drug Competition On June 20, 2017, the New York Times reported that it had obtained a draft proposal of President Trump’s Executive Order on drug prices.[1] The draft Executive Order, which has not been published, has been characterized as focusing on rolling back regulations, with the New York Times reporting that the Executive Order strengthens the pharmaceutical industry’s monopoly power overseas and scales back the federal 340B program, a program that allows hospital and clinics that serve low-income populations to receive discounts on drugs from pharmaceutical companies. One day later, the FDA posted in a blog[2] that it was working on a “Drug Competition Action Plan” and that it intends to hold a public meeting on July 18, 2017 to solicit input on FDA rules, standards and procedures that create obstacles to generic access.  One issue the FDA specifically calls out in the blog post is the use of regulatory or commercial strategies by pharmaceutical companies that create obstacles to the development of generic drugs.  Some of these strategies are to limit access to samples of brand name drugs so that generic alternatives cannot be developed.  This issue has been raised a number of times recently.  For example, the issue was discussed in a June 19, 2017 letter Senate Chuck Grassley (R-Iowa), chairman of the Senate Judiciary Committee, sent to FDA Commissioner Scott Gottlieb[3].  Senator Grassley asked Mr. Gottlieb to  consider ideas proposed in the Creating and Restoring Equal Access to Equivalent Samples (CREATES) Act[4] to solve the problem.  The issue was also discussed at the June 13, 2017 Senate Health, Education, Labor and Pensions Committee hearing on prescription drug pricing and prescription drug supply-chain.[5] We do not know yet how the Executive Order will impact the 340B program. However, changes to the 340B program could have a substantial financial impact on hospital and clinics currently enrolled in the program, as well as on contract pharmacies and others who provide services related to the 340B program. Other proposed changes by the Trump Administration and the FDA will likely impact the entire pharmaceutical supply-chain and are being closely watched by the industry.  We will continue to monitor these changes and update our blog as they occur. [1]  https://www.nytimes.com/2017/06/20/health/draft-order-on-drug-prices-proposes-easing-regulations.html [2]  https://blogs.fda.gov/fdavoice/index.php/2017/06/fda-working-to-lift-barriers-to-generic-drug-competition/ [3]  https://www.judiciary.senate.gov/imo/media/doc/2017-06-19%20CEG%20to%20FDA%20-%20Affordable%20Prescription%20Medication.pdf [4]  https://www.congress.gov/115/bills/s974/BILLS-115s974is.pdf [5]  https://www.help.senate.gov/hearings/the-cost-of-prescription-drugs-how-the-drug-delivery-system-affects-what-patients-pay  

The Cybersecurity Act of 2015 established the Health Care Industry Cybersecurity Task Force to respond to severe cyber-attacks within the rapidly-expanding information technology (“IT”) aspect of health care. Section 405(c) of the Act required the Task Force to research and develop a report summarizing the vulnerabilities in health care IT. On June 2nd, 2017, the Task Force released its Report on Improving Cybersecurity in the Health Care Industry. The Report is sobering, and finds that health care cybersecurity is in critical condition.  The Report outlines six recommendations to improve cybersecurity in the health care industry: Define and streamline leadership, governance, and expectations for health care industry cybersecurity. Increase the security and resilience of medical devices and health IT. Develop the health care workforce capacity necessary to prioritize and ensure cybersecurity awareness and technical capabilities. Increase health care industry readiness through improved cybersecurity awareness and education. Identify mechanisms to protect R&D efforts and intellectual property from attacks or exposure. Improve information sharing of industry threats, risks, and mitigations. These six recommendations recognize the need to assess cybersecurity at the industry level in order to better protect patient care and security. To use a cliché, health care cybersecurity will only be as strong as the weakest link in the industry. However, not every health care entity has similar resources. So, while the recommendations call for improvements and updates to guidance, regulations, and laws that affect health care cybersecurity, they do so in a way that recognizes the need for flexibility in the health care industry. For example, the first recommendation calls federal legislation “confusing” and “conflicting” and asks for a unified regulatory framework that untangles the current mess. In addition, the recommendations illustrate that the growing sophistication of health care IT demands a broader cybersecurity approach than previously required. The cybersecurity concern no longer rests with only protected health information at the provider level. Now, cybersecurity needs to branch out and include, for example, medical device developers. Improving patient care is clearly a central goal, and the Report speaks to that objective by highlighting problem areas with a direct connection to patient care outcomes. The Report also recognizes that the health care industry is a mosaic of large systems, private practices, payers, and developers where a one-size-fits-all approach is not conducive to progress. As such, this Report may trigger a cybersecurity-themed review of various regulatory areas that takes into account both patient care needs and variations in health care entity resources. Summer Associate Randall Hanson provided substantial assistance with the drafting of this blog post.

According to an article posted today on the BioCentury website, the Trump administration is drafting an executive order that will take on the high costs of pharmaceuticals by instructing “executive agencies to use value-based contracts for drug purchases, and to pursue trade policies that enhance the intellectual property rights of American pharmaceutical companies.” This is in line with a statement made by Health and Human Service Secretary, Tom Price, who told senators on June 8, 2017 that taking on the high price of prescription drugs in the United States is still “an absolute priority” to the administration. This report comes just two days after the first of three hearings held by the Senate Health, Education, Labor and Pensions Committee. The bi-partisan hearing was categorized by the Committee chair as a fact-gathering hearing on the issues of prescription drug pricing and the prescription drug supply-chain in the United States.  Those involved in the hearing acknowledged that prescription drug spending has become the fastest growing share of health spending[1] and that changes to current system may be warranted. The June 13, 2017 hearing included discussions on a wide-range of topics such as: the historical increases in drug prices; an overview of the current prescription drug supply chain players; discussion of widely-used industry such as “list price”, “net price”, “drug rebates and discounts” and “average wholesale price”; the effect of research and development costs for new drugs; current biosimilar approval regulations; and patient protections for drug manufacturers. Senators at the hearing asked witnesses for recommendations of legislation that would address drug spending trends and reduce drug cost burdens on consumers and government entities. Some ideas presented at the hearing included the use of outcomes-based contracts; faster approval of second-and-third branded drugs in a therapeutic class; policy development to limit “reverse payment” settlements; policies that limit manufacturers of brand name drugs from blocking generic developers’ access to sample products required for bioequivalence testing; reforms to the 340B drug discount program; revisions to Medicare catastrophic drug spending rules; and policies addresses PBM and PDP rebates. The full committee hearing can be watched at: https://www.help.senate.gov/hearings/the-cost-of-prescription-drugs-how-the-drug-delivery-system-affects-what-patients-pay The second committee hearing on this topic is expected to take place next month. [1] The Centers for Medicare & Medicaid Services projects that prescription drug spending growth will continue to outpace overall health care cost increases over the next decade. Source: Centers for Medicare & Medicaid Services, “National Health Expenditure Projections 2016-2025,” Available at: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/proj2016.pdf

New legislation recently signed into law in Texas paves the way both for digital health companies to expand, particularly direct-to-consumer (D2C) companies, and also potentially heralds an era of virtual care visits on a truly national scale. Over Memorial Day weekend, Texas Governor Greg Abbott signed Senate Bill 1107/House Bill 2697 (found here).  The bill adds video consults to the definition of telehealth and eliminates Texas’s previous requirement that a physician-patient relationship must be established first in person prior to any telehealth visit.  Provided that certain follow-up requirements are met (primarily, that the telehealth practitioner provide guidance as to appropriate follow-up care), patients and physicians in Texas now may initiate telehealth visits for even a first-time meeting. Patients in Texas have had a particular need for telehealth, and this regulatory change is being applauded by patients and businesses alike. Texas ranks 46th out of 50 states in primary care physicians per capita, and 35 of Texas’s 254 counties do not have a family physician.  For those living in less populated areas, access to primary care was typically not possible without a long drive to a doctor’s office.  By quashing the regulatory hurdle to offer telehealth visits for first-time patients, the now-signed bill opens up many more opportunities for new telehealth patients and easier access to care for those who are home-bound or in less populated areas.  It also encourages digital health companies that have been reluctant to offer services in Texas to expand, which could lead to more options for care. Finally, the bill’s passage also portends telehealth expansion at a national level. To date, telehealth companies and providers hoping to offer virtual care have been curtailed by the patchwork of state laws that make it difficult to expand beyond state lines, much less offer consistent types of telehealth services across the nation.  States vary significantly in whether and to what degree they regulate telehealth, and the applicable regulations themselves span a wide range of topics.  (For example, there are a wide variety of state laws pertaining to licensure, scope of practice, DEA registration, prescriptions, privacy, and requisite patient visit documentation – to name a few.)  Texas was the last state to require an in-person physician-patient interaction prior to a telehealth visit.  With this hurdle removed, a new patient can initiate a telehealth visit without a prior in-person visit in all states in the nation.  Although the other telehealth regulatory challenges persist, the Texas bill’s passage into law serves as an important signal of growing national alignment to support and incentivize digital health. What, then, are the business implications for telehealth companies and providers seeking to offer virtual care visits? The most prominent “win” is that direct-to-consumer (D2C) telehealth providers now have a much more viable path to market.  Previously, they would have needed to partner with a (non-telehealth) provider to ensure that the first-time visit requirement was met; now, they may work directly with patients from the outset.  In addition, the ability to initiate a telehealth visit with a first-time patient at a truly national level (with only minor exceptions for telephone-based visits in Arkansas and Idaho) significantly eases the path for telehealth initiatives to expand their businesses and contemplate national service.

The Department of Justice (“DOJ”) announced on May 31, 2017, a $155 million settlement of its lawsuit alleging False Claims Act (“FCA”) and Anti-Kickback Statute (“AKS”) violations committed by eClinicalWorks (“eCW”), one of the nation’s largest electronic health records (“EHR”) software vendors. Brendan Delaney, the original qui tam plaintiff in the case, will receive approximately $30 million as a result of the settlement. The DOJ’s complaint alleges that eCW knowingly made or used false records or statements material to false claims paid or approved by the Government and knowingly caused healthcare providers to present false or fraudulent claims for federal incentive payments that were paid or approved by the Government. More specifically, the complaint alleges eCW falsely attested to its certifying body that it met certification requirements under the Meaningful Use program, and in turn eCW caused its healthcare provider customers to make false claims for incentive payments under the Meaningful Use program by representing to those customers that eCW met applicable certification requirements. The Meaningful Use program, which was established by the Department of Health and Human Services (“HHS”) pursuant to the HITECH Act, provides for incentive payments to healthcare providers who demonstrate meaningful use of certified EHR technology. The complaint contends that eCW implemented certain “hardcoding” practices to pass certification tests without developing software that actually met certification requirements. EHR software is required to generate and transmit prescriptions using “Rx.Norm,” a standardized drug vocabulary, in order to meet certification requirements for the Meaningful Use program. However, the complaint alleges that eCW used publicly available test scripts, which identified sixteen drugs that would be tested for compliance during certification testing, to “hardcode” only the sixteen drugs necessary to pass testing into its software rather than programming the capability to retrieve any code from the database using Rx.Norm codes, which would be required for all of the other drugs. Thus, according to the complaint, eCW was able to pass certification testing without actually meeting certification requirements and falsely attested to meeting certification requirements. Relying on eCW’s representations regarding meeting certification requirements, its healthcare provider customers then made claims for incentive payments believing they satisfied Meaningful Use program requirements through their use of eCW’s software. The complaint also alleges that eCW’s system and software failed to satisfy a number of additional certification requirements, including data portability requirements, audit log requirements, and requirements to reliably record diagnostic imaging orders and reliably perform drug-drug and drug-allergy checks. According to the complaint, eCW had a number of internal communications and/or communications with customers acknowledging issues that demonstrated its failure to satisfy these certification requirements. Again, despite these alleged failures, eCW attested to meeting certification requirements. In addition to causing customers to make false claims for incentive payments under the Meaningful Use program, the complaint also alleges a number of AKS violations by eCW. First, pursuant to a “referral program,” eCW allegedly paid current users for each provider they referred who executed a contract with eCW, resulting in payments totaling in excess of $140,000 to users between 2011 and 2015. Second, through a “site visit program,” eCW allegedly paid current users to host prospective customers at their facilities, with final payouts to current users based on the number of users at the prospective customer’s practice and an additional payment if the visiting practice purchased eCW’s software, resulting in payments totaling in excess of $240,000 to users between 2011 and 2015. Third, through its “reference program,” eCW allegedly paid current users to serve as references for prospective customers and would pay an additional amount if the prospective customer purchased eCW’s software. Finally, eCW allegedly paid “consulting” and “speaker” fees to influential users who promoted its software. Unfortunately, the complaint spends much less time on AKS issues and does not provide a detailed analysis as to the aspects of these arrangements it found objectionable (e.g., the complaint fails to analyze any of the arrangements under the multi-factored test often used for AKS implications of “marketing activities,” as exemplified in OIG Advisory Opinion 12-02). As part of the settlement, eCW entered into a five-year Corporate Integrity Agreement (“CIA”) with the HHS Office of Inspector General (“OIG”). Among other things, the CIA requires eCW to: establish a corporate compliance program addressing identified issues; engage a “Software Quality Oversight Organization” to assess the effectiveness, reliability, and thoroughness of various aspects of eCW’s EHR software, policies, and practices, and to submit reports to eCW and OIG; engage an “Independent Review Organization” to review eCW’s arrangements with actual or potential sources of health care business or referrals and internal practices related to such arrangements; and provide at no cost certain options to its customers, such as free upgrades to software updated to address eCW’s noncompliance issues and the option for existing customers to transfer data to another vendor without penalties or service charges. It remains to be seen whether this settlement signals (or catalyzes) an increasing scrutiny of EHR software vendors under the False Claims Act. Regardless, the settlement serves as a warning and reminder for EHR software vendors to review current practices and products to ensure compliance with certification requirements and to analyze marketing and other activities for compliance with AKS rules.

The FDA has called on the drugmaker Endo Pharmaceuticals to stop selling the opioid Opana ER. The press release on June 8th reflecting this announcement marks a novel approach from the FDA, as the agency for the first time has asked a company to remove a painkiller from the market based on the public health consequences of abuse. This opioid is an extended release version of Opana, and was first approved in 2006. As the nation increasingly faced an epidemic of opioid abuse and overdoses, the manufacturer reformulated the drug in 2012, adding a coating to the medication intended to make it harder to snort or inject the medicine. The FDA found that the product met the regulatory standards for approval, but declined to approve labeling describing the medication as having abuse deterrent properties because they found that the data did not show that the reformulation could be expected to meaningfully reduce abuse. Despite the 2012 reformulation, an increasing number of people abused this opioid by crushing, dissolving, and injecting it. In March of 2017, a panel of advisers to the FDA voted 19-8, with one abstention, that the drug’s benefits no longer outweighed the risks. Data showed that while nasal abuse fell, the rate of abuse through intravenous injection increased and the drug has been associated with outbreaks of HIV and hepatitis C, as well as a blood disorder thrombotic microangiopathy. In addition, Opana was considered at the center of an HIV outbreak in Indiana in 2015. The opioid epidemic in the United States has prompted several novel approaches to reducing abuse, often at the state level. State level responses, including prescription drug monitoring programs, declarations of a state of emergency, and limiting prescription lengths for opioids, are being implemented across the country, at the same time that lawmakers debate the future of the Affordable Care Act which has aimed millions of dollars within the Medicaid program towards addiction treatment and prevention, and expanded the scope of the Mental Health Parity Act. Ohio Attorney General Mike DeWine filed a lawsuit against five opioid manufacturers on May 31, including Endo, accusing them of misleading doctors and patients about the danger of addiction and overdose. Other states and cities have filed similar lawsuits. Ninety-one Americans die every day from opioid overdose according to the CDC. The FDA has stated that if the company resists removal of this opioid from the market, the agency intends to take formal steps to remove it by withdrawing approval. Endo in a response stated that the company is reviewing the request and evaluating potential options as they “determine the appropriate path to move forward.” This FDA action is a significant step in what will likely be a lengthy journey in which federal and state regulators (and private plaintiffs) use whatever legal authorities available to combat an increasingly damaging public health crisis.

The Centers for Medicare and Medicaid Services (“CMS”) issued new Self-Referral Disclosure Protocol (“SRDP”) forms, and, beginning June 1, 2017, these SRDP forms will be mandatory for those parties submitting voluntary self-disclosures of actual or potential violations of the federal physician self-referral law (the “Stark Law”) through the SRDP.  The Patient Protection and Affordable Care Act established the SRDP, giving providers and suppliers that may have received an overpayment as a result of actual or potential violations of the Stark Law the opportunity to facilitate the resolution of these violations with CMS.  The SRDP forms are intended to streamline and standardize the SRDP submission process. Parties making disclosures under the SRDP will now be required to submit: (1) the SRDP Disclosure Form, providing information about the disclosing party including the history of abuse, pervasiveness of noncompliance, and steps to prevent future noncompliance; (2) the Physician Information Form(s), providing details of the noncompliant financial relationship(s) between the physician(s) and the disclosing party; (3) the Financial Analysis Worksheet, quantifying the overpayment; and (4) a certification signed by the disclosing party stating that the information provided is truthful and based on a good faith effort to bring the matter to the attention of CMS. Submissions to the SRDP involving solely a failure by a physician-owned hospital to disclose physician ownership on any public website or in any public advertisement must continue to follow special instructions from CMS available on the SRDP website. Although this is the first time CMS has mandated prescribed forms, much of the information now required for SRDP submissions is not significantly different from information previously required for such submissions.  One of the differences is the new requirement that the disclosing party disclose the pervasiveness of Stark violations, illustrating how common the disclosed noncompliance was in comparison to similar relationships between the disclosing party and physicians.  Some hope the specific forms will allow for faster resolutions of actual or potential Stark Law violations, but that remains to be seen.

Compliance programs are an important tool for health care providers.  Compliance programs help to prevent fraud, waste and abuse, create a mechanism for catching problems early, and effective compliance programs can also provide the basis for a penalty reduction under the US Sentencing Guidelines if an entity is ever faced with sentencing for a criminal violation. It can be difficult to know whether your current compliance program in place is effective since no agency has published a template that will work in all cases.  Instead, the effectiveness of a compliance program is to be evaluated based on the size, operations, resources and risks facing each unique organization.  While an individualized assessment is still necessary, and no “one size fits all” program is available, both the Department of Justice and the Office of Inspector General (along with the Health Care Compliance Association) have recently published guidance to help organizations measure the effectiveness of their compliance programs. The DOJ guidance (available here https://www.justice.gov/criminal-fraud/page/file/937501/download) is not specific to healthcare; however, it does apply to health care organizations.  It provides a checklist of questions for organizations to answer in the process of evaluating their ethics and compliance programs. The OIG guidance (available here https://oig.hhs.gov/compliance/101/files/HCCA-OIG-Resource-Guide.pdf) was published with health care organizations in mind.  It is longer and provides more than 400 ideas of  “what to measure” and  “how to measure” each of the seven elements of an effective healthcare compliance program.  The Inspector General reiterated that no organization is expected to adopt all or even a large number of the suggestions in the guidance document at any one time.  Instead, organizations are encouraged to select the measures that are applicable to them, based on their unique needs, resources and risks, as part of their ongoing compliance program assessment. These two new guidance documents provide valuable and practical assistance to compliance professionals and counsel who work continuously to evaluate and improve compliance programs for organizations in the health care industry.

Clinical laboratories have until May 30, 2017 to make required reports to the Centers for Medicare & Medicaid Services (“CMS”) regarding payment rates paid by private payors for certain diagnostic tests and the volume of such tests furnished for such payors, according to a CMS announcement on March 30, 2017. Last year CMS issued a Final Rule implementing requirements of Section 216 of the Protecting Access to Medicare Act of 2014 (“PAMA”), which made significant changes to the Medicare payment system for clinical diagnostic laboratory tests (“CDLTs”). Since 1984, Medicare has paid for CDLTs based on its clinical laboratory fee schedule (the “Fee Schedule”). Under the Final Rule, the Fee Schedule payment amounts for CDLTs furnished on or after January 1, 2018 will be equal to the weighted median of private payor rates determined for the tests, based on data reported by laboratories during specified data collection periods. The Final Rule established annual data collection periods of six months, from January 1 through June 30 each year beginning in 2016. Collected data is then required to be reported to CMS between January 1 and March 31 of the year following the data collection period, making March 31, 2017 the first reporting deadline under the Final Rule. Failure to report timely each year carries a potential civil monetary penalty (“CMP”) of up to $10,000 per day. However, in its announcement, CMS stated that it would exercise “enforcement discretion” with respect to the application of CMPs for collected data reported between March 31 and May 30, 2017. According to CMS, industry feedback suggests that many reporting entities require additional time, and the “60-day enforcement discretion period is the maximum amount of time CMS can permit to still have sufficient time to calculate” the new payment rates scheduled to go into effect January 1, 2018. CMS directs interested parties to the Clinical Laboratory Fee Schedule website for additional information.

On February 8th, the Department of Justice (DOJ) Criminal Division, Fraud Section issued new guidance (available here) on how it evaluates the effectiveness of a corporate compliance program when conducting an investigation of a corporation. This guidance is significant as it is the first of its kind since the confirmation of the new U.S. Attorney General, and as it pulls from, but provides significantly more detail and practical steps than, existing resources on corporate compliance programs (such as guidelines from the U.S. Sentencing Commission, available here). The new guidance “provides some important topics and sample questions that the Fraud Section has frequently found relevant in evaluating a corporate compliance program.” The sample topics and questions are divided into the following 11 categories: Analysis and remediation of underlying misconduct Senior and middle management Autonomy and resources Policies and procedures (including design and accessibility and operational integration) Risk assessment Training and communications Confidential reporting and investigation Incentives and disciplinary measures Continuous improvement, periodic testing and review Third party management Mergers and acquisitions Health care organizations should use this new guidance, together with previously existing resources including the voluntary compliance program guidance from the Department of Health and Human Services Office of Inspector General tailored for specific types of providers and suppliers (available here), as they implement and maintain a comprehensive corporate compliance program to prevent, detect and respond to improper conduct.  

On February 17, 2017 the Office of the Inspector General (OIG) posted a Drug Pricing and Reimbursement Web portfolio on its website that, according to the OIG announcement, “pulls together the HHS OIG’s body of work since 2010 as well as other relevant items that relate to drug pricing and reimbursement in HHS programs.” The portfolio showcases the OIG’s work in the drug pricing and reimbursement realm as drug pricing continues to be a political hot topic. Overall, the portfolio includes OIG’s reports; implemented and unimplemented recommendations; summaries of civil monetary penalties and assessments against individuals and entities for prohibited conduct related to reporting requirements required under the Medicaid Drug Rebate Program; and OIG’s advisory statements and bulletins on a variety of drug pricing and reimbursement topics. The portfolio should be monitored by plan sponsors, pharmaceutical companies, pharmacy benefit managers, and pharmacies, and others involved in drug distribution as a convenient location to find information published by the OIG that will impact their business. For example, the portfolio outlines future OIG report topics and their expected publication dates, such as the expected 2017 report on the quality of sponsor data used in calculating coverage gap discounts. Additionally, those in the industry can monitor and review OIG recommendations to HHS that, while unimplemented, can shed light on potential future enforcement areas.

Not relying on Congress to take action on the Affordable Care Act, the Centers for Medicare and Medicaid Services (“CMS”) has proposed new regulations intended to attract health insurance issuers back into ACA health insurance exchanges and stabilize the individual and small group insurance markets. On February 17, 2017 CMS proposed a set of modifications to regulations promulgated pursuant to The Patient Protection and Affordable Care Act (Pub. L. 111-148) and The Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152), collectively known as the “Affordable Care Act” or “ACA.” A primary goal of the proposals is to improve the insurance risk pool in the ACA exchanges, individual, and small group markets by promoting continuous health insurance coverage and reducing incentives for individuals to enroll in health insurance plans only when they require services. For example, the proposed rule would allow CMS to verify that individuals seeking to enroll in the Exchanges within a special enrollment period (i.e., outside of the annual open enrollment period) are eligible for special enrollment.   Current CMS policy allows individuals to self-attest that they meet special enrollment period eligibility requirements and enroll without further verification. The proposed rule would also reduce the annual Exchange open enrollment period for 2018 so that it begins November 1, 2017 and ends December 15, 2017 (current regulations have the 2018 plan year enrollment period lasting until January 1, 2018).   CMS states that the 15 day enrollment period reduction may have a positive impact on the Exchange risk pool by reducing the adverse impact of  enrolling individuals who learn they will need services in late December. Another proposal aimed at promoting continuous insurance coverage (rather than enrollment when services are needed) is to permit insurance issuers to attribute an individual’s premium payment for new coverage to any debt the individual owes for premium non-payment for coverage from the same issuer within the prior 12 months. The issuer would be permitted to deny enrollment for the new coverage and apply payment to the past debt.   Regulations at 45 C.F.R. § 147.104 state that issuers must guarantee availability of coverage to individuals and employers, and current interpretation of that regulation allows an individual to avoid premium payment for current coverage at the end of a plan year, yet obtain new coverage from the same issuer so long as one month’s premium is paid at the beginning of the plan year. CMS also proposes to increase the flexibility issuers have to design health plans that meet the Affordable Care Act’s required coverage level. Under the proposal, health plans that have an actuarial value ranging from -4 to + 2 percentage points from the required actuarial value of health coverage would be considered a de minimis variation, and would meet the individual and small group market standard.   Current regulations allow a variation of -2 to +2 percentage points. CMS proposes that the States review the adequacy of an issuer’s provider network, rather than requiring issuers to comply with CMS network adequacy guidance. Where a State does not have a sufficient network adequacy review process, CMS would rely on an issuer’s accreditation from the National Committee for Quality Assurance, URAC, or the Accreditation Association for Ambulatory Health Care as a network adequacy review. Lastly, the proposal would reduce by 10% the minimum percentage of Essential Community Providers (providers that serve predominantly low-income and medically underserved individuals) in a plan service area that an issuer must include in its network, and would allow greater flexibility to identify Essential Community Providers. Whether these proposals are finalized and are enough to attract health insurance issuers back to the Exchange marketplace remains to be seen.   And legislation to repeal or significantly modify the ACA could make the latest CMS proposals moot.  Nonetheless, CMS is not assuming the ACA Exchanges will disappear, and appears to be moving forward with efforts to stabilize the Exchanges and individual and small group markets. A copy of the proposed rule is available here: https://www.gpo.gov/fdsys/pkg/FR-2017-02-17/pdf/2017-03027.pdf

President Trump signed an executive order (the “Order”) on January 30th, 2017 aiming to reduce bureaucracy by requiring agencies to remove two regulations for every one new regulation they implement. The cost of any new regulation should be offset by the elimination of these other two previously issued regulations. The Order could have major consequences in the healthcare industry but the changes it may bring are at this point unpredictable. Some in the healthcare field welcomed the “one in, two out” idea. Rules and regulations in the healthcare world come from several agencies and cover a broad array of practices.  2016 brought several including the Nondiscrimination in Health Programs and Activities Rule, which expands on nondiscrimination requirements found in Section 1557 of the Affordable Care Act, and regulations to implement the Medicare Access and CHIP Reauthorization Act (MACRA) physician payment system, among others. The Order has also brought about confusion. First, the Order left the future uncertain as to what may happen with these most recent regulations and the many other regulations that have helped shape the healthcare industry. While regulations have costs associated with them, regulated entities have already invested in compliance, and will now have to pay close attention as requirements may shift in this upcoming year. Second, it is unclear how the Order may affect any Medicare and other health care payment system regulations, including MACRA, which may involve costs to implement, but are ultimately designed to streamline CMS payment systems. Finally, the Order is vague and may turn out to have no effect on the healthcare industry at all. The executive Order allows the Office of Management and Budget (“OMB”) director the flexibility to interpret and carry out the Order, which could mean the Order will change nothing at all with regard to healthcare regulation. A few days following the Executive Order, a Memorandum offering interim guidance on the Order was released. This clarifies that the Order applies only to “significant regulatory actions” as defined in Section 3(f) of a separate Executive Order.  In addition, it only applies to those regulations released between January 20th and September 30th of 2017. Federal spending rules that cause income transfers from taxpayers to program beneficiaries, for example Medicare spending, are not covered by this Order.  It appears, then, that the Centers for Medicare and Medicaid Services (“CMS”) may not need to adhere to the “one in, two out” framework when promulgated annual rulemakings for Medicare payment for hospital inpatient, hospital outpatient, and physician and other Medicare Part B services. In addition, the Memorandum stated that agency guidance or interpretive documents that are not formal rulemakings may or may not be covered by the Order; OMB will address these guidance documents on a case by case basis. Purely deregulatory actions that confer only savings will not trigger the Order, but if there are costs associated with the rulemaking the agency will need to offset those costs. The “one in, two out” idea is simple and attractive, from a regulatory burden perspective. However, the healthcare industry and its regulation involve complex systems with numerous stakeholders, and a variety of perspectives from which one could view the cost burden of regulations.   How the Order will be implemented and the magnitude of its impact on health care regulation is at this point unpredictable, and ultimately will be in the discretion of the Executive Office of the President.

Author’s note: Dorsey Health Strategies (DHS), a healthcare business consultancy founded by Dorsey & Whitney, offers a comprehensive array of business advisory and regulatory services to health industry clients; accordingly, DHS articles will address healthcare business challenges and regulatory considerations.  Since telehealth/virtual care/digital health is an area of expertise at Dorsey Health Strategies, this article is part of a series, “Virtual Care Realities,” which will explore different business and regulatory challenges specific to telehealth/virtual care for providers, telehealth solutions companies, and medical technology companies seeking to enter the space.  Establishing a telehealth solution is a high priority for many healthcare systems, and yet, without key decisions and alignment in place, can easily become a case of failure to launch. When healthcare provider leaders first confront the complicated telehealth-specific regulatory requirements, the challenges of reimbursement, a wide array of potential vendors to choose from, and the likelihood of internally competing business interests, the question becomes how to just get started, and, moreover, how to launch a scalable telehealth care delivery model that does not cannibalize business from another part of the organization.  Below are five key questions to ask to ensure success: What are your goals, and what will be the ROI that you will specifically measure? Determine with as much specificity as possible what you are striving for in implementing a telehealth solution. While healthcare leaders are certainly well versed in launching initiatives generally, they often fail to dedicate sufficient resources to define the desired outcomes of a telehealth initiative. I would posit that this is because telehealth is too often categorized as an IT-related project, whereas, it should more properly be integrated into and budgeted as a larger strategic planning initiative. Skimping on this key initial planning can lead to a failed implementation, as the desired outcomes for telehealth are not necessarily a given: telehealth solutions may serve as a revenue driver, a cost mitigation measure, a means to improve patient satisfaction and quality metrics, a means to augment staffing, or a means to comply with regulatory or contractual obligations. Different stakeholders will advocate for any one or all of these goals, but it is important to determine which is the primary goal, and which might not be goals at all, as this decision then influences how you will measure success, the message and mission for the team to achieve organizational alignment, and, potentially, how much your organization will be willing to spend and which will be viable vendors. For example, if your organization is looking to augment staffing, the scale of what you will be open to spending will likely be influenced by the comparable budget for hiring a similar staffing complement (and that would then be set likely as an upper limit, as one hopes for lower-cost telehealth solutions). Further, you would then be looking for a telehealth solution that offers both a software platform for delivering care and also staffs virtual care providers. Conversely, if you’re looking for a fast-track revenue driver that is meant to leverage your current staff’s free time or change the flow of patient visits, you would be focusing on telehealth solutions that are software-driven, and the bulk of your budget may be spent on marketing. In which states will your patients be located, both at the outset and at full scale? Assess state licensure regulations at the outset, as these may impact the care delivery model and vendor that you choose. This is perhaps the most overlooked area of initial investigation, perhaps for lack of time or perhaps because of the understandable thought that providing virtual care is regulated like traditional care settings – that is not the case. Licensure requirements for delivering care via telehealth vary considerably across states and, within a given state, across different clinician types (e.g., MDs, NPs, RNs). You will want to consult with an attorney at the outset to understand what is permitted not only in the state in which your patients are receiving care, but also the regulations of any states in which you hope to treat patients in the future. This arises most often in the case of providers treating patients in neighboring states, but is also an important issue for regional and national healthcare systems, as telehealth is so effective at bolstering care coordination. It is painful to expend huge amounts of time and resources to expand your telehealth services to a new state only to learn that that state’s regulations do not permit the same care delivery setup that you have been using. Licensure requirements directly affect staffing and scalability of your telehealth initiative. It also may influence which care delivery model you choose (i.e., who will provide which aspects of a patient visit), and which vendor you choose. Investigate this early. What is the scope of care and services you want to offer via telehealth? Confirm that your state’s scope of practice guidelines align with what you hope to offer and your revenue model. Much like licensure regulations, telehealth scope of care practice guidelines also vary considerably by state and determine the breadth of what your telehealth providers can do.  This can affect the care settings in which you provide telehealth services, the medium you choose (i.e., videoconference versus online form and phone calls), and, potentially, the educational certifications you will require of your staff or those you contract with to provide care.  While scope of practice would be a typical consideration for care delivery onsite, telehealth complicates the answer, as state regulations may be applied differently for telehealth versus onsite care.  Perhaps you hope to offer a behavioral health telehealth program to promote ongoing care coordination, virtual group visits, and a means to monitor patients between visits.  You would want to know at the outset not only the licensure requirements (see above), but also what your care providers will be able to do and via which medium, as this directly impacts your business model.  In some states, for example, a tele-psychiatrist may be able to conduct group therapy visits via videoconference, whereas, other states may not permit this; in some states, tele-psychiatrists may work only with patients they have seen before, whereas, in others they may work with new patients provided certain documentation is obtained.  Moreover, these regulations are changing, as provider systems demand that their state boards provide more clarity. How will your telehealth solution integrate with the rest of your organization? Convene key stakeholders and decide this early, and then seek and promote alignment about how your telehealth offering will bolster your organization.   By integration, I refer both to how telehealth will fit in your organization structurally and how it will be billed and reimbursed. Will it be a “standalone” virtual care clinic offering certain designated services? Will it be integrated with a specific care function and used for certain types of follow-up visits or chronic care monitoring? Will it be treated the same as a regular outpatient visit, or will it be considered a loss-leader means of improving care coordination and quality? This is an important question to address at the outset to obtain alignment with clinicians. Be upfront: if the telehealth service will reduce a certain type of visits, be sure to state that, and explain what measures will be taken to mitigate harm to the affected clinical area, and how the telehealth offering will improve care delivery overall. It is also important to designate which budget(s) will pay for this initiative. Whose P&L will be affected? You will need a united group of leadership, and that includes the clinical leaders, to launch this successfully. How will your telehealth solution integrate with your EHR? Once you have determined the answers to the above – but still before you choose a vendor! – specify where the data from the telehealth visit should appear in the EHR, and which aspects of this answer are “deal breakers” as you consider vendors. If the telehealth visit data is stored in any system other than your EHR, which is usually the case, you will need to consider the telehealth platform’s integration capabilities. In this, the key is how and where the telehealth visit data will appear in your EHR record. Too often, providers will state that they want all telehealth visit data in the EHR, and vendors will answer (accurately) that this is possible, as there are interfaces at the ready.   However, what both parties fail to specify is whether this data will be transferred into discrete data fields within the provider’s EHR. This is a critical question to ask and to see demonstrated by potential vendors, if possible, because the alternative, typically some form of attached file, is unlikely to be searchable or usable in the same ways as the rest of your EHR data. This would then hinder chart review and your population care management efforts; in other words, it impedes the very care coordination you hoped to gain. For that conversation, be sure to involve a clinician, an IT person, and a person well-versed in your EHR setup, and bring up an example EHR record onscreen to ensure that everyone is talking about what will display in the same way. If that vendor is selected, be sure to convey the answers from this conversation to your attorney, or involve the attorney in that discussion, so that the answers are reflected in the vendor contract. Since telehealth, by its very definition, sits at the juncture of healthcare delivery and IT, it implicates a unique array of regulations and business considerations and should be approached with the same level of strategic planning and resources as you would devote to another blue-chip project. While there are many additional key planning considerations that we hope to address in future articles (with reimbursement and referrals being key among them), addressing the initial questions above will enable you to set up a strong overarching project structure and establish momentum. We welcome your suggestions for additional focus topics within this series. Please contact Shira Hauschen at Hauschen.Shira@Dorsey.com with any comments, suggestions, or questions.

One of President Trump’s first actions in office was to sign an Executive Order stating that his Administration will seek to repeal the Affordable Care Act (the “Act”). In the meantime, President Trump directed the executive branch to take “all actions consistent with law to minimize the unwarranted economic and regulatory burdens of the Act, and prepare to afford the States more flexibility and control to create a more free and open healthcare market.”  The Order directs the Secretary of HHS and the heads of other executive departments and agencies with authority under the Act to have all “authority and discretion” to waive, defer, grant exemptions from or delay implementing any provisions of the Act that would impose a fiscal burden on a State, individual, health care provider, health insurer, medical device maker, etc.  The Order states that the heads of applicable departments and agencies shall encourage the free and open market to preserve maximum options for patients and consumers.  To the extent any rulemaking is needed to carry out the directives in the Order, the heads of agencies are directed to follow through with notice and comment rulemaking. The Executive Order regarding agency actions pending the Act’s repeal is in today’s federal register, and can be found here:  https://www.federalregister.gov/documents/2017/01/24/2017-01799/minimizing-the-economic-burden-of-the-patient-protection-and-affordable-care-act-pending-repeal.  There are a large number of regulations that could be impacted in a short time frame. It is unclear whether and what agency action would be taken at the present when there is not yet in place an alternative system to the Affordable Care Act.  Dorsey attorneys will be closely following the changes to the Affordable Care Act and will provide updates as developments unfold.

As of January 6, 2017, final rules published by the United States Department of Health and Human Services Office of the Inspector General (the “OIG”) implementing certain exceptions to the Civil Monetary Penalty law (“CMP”) took effect. The CMP rules were published alongside final rules regarding safe harbors to the federal Anti-Kickback Statute (“AKS”), about which more can be learned in our earlier blog post here. The final rule as published in the Federal Register is available here. As a refresher, the CMP, codified at 42 U.S.C. § 1320a-7a, prohibits inducements in the form of offering or transferring remuneration to beneficiaries of Medicare and State health care programs if the offeror knows or should know the inducement is likely to influence such beneficiary to order or receive a reimbursable service from a particular provider, practitioner, or supplier. It is important to note, and in fact the final rule goes out of its way to remind us, that activities potentially implicating the CMP and AKS may overlap, and meeting a CMP exception does not necessarily mean that AKS risk is mitigated. The final rules amend the CMP’s definition of “remuneration,” codified at 42 C.F.R. § 1003.110, by interpreting and incorporating statutory exceptions. The exceptions interpreted and incorporated are: (i) copayment reductions for certain hospital outpatient department services; (ii) certain remuneration that poses a low risk of harm and promotes access to care; (iii) coupons, rebates, or other retailer reward programs that meet specified requirements; (iv) certain remuneration to financially needy individuals; and (v) copayment waivers for the first fill of generic drugs. While all of the exceptions merit attention, this blog post specifically focuses on certain changes and clarifications to exceptions (ii), (iii), and (v), as listed above. Low risk of harm and promotes access to care: In the final rule, the OIG expanded its interpretation of “care” beyond “medically necessary health care items and services,” as it was in the proposed rules, to the broader “items and services payable under Medicare or State health care programs for beneficiaries who receive them” in recognition of the fact that nonclinical items and services can improve health. Additionally, responding to various comments, the OIG pushed back multiple times on the idea that different standards should apply under this exception to different types of entities, such as risk-bearing providers and suppliers, ACOs, or pharmacy programs (though the OIG did recognize that the structure of arrangements with risk-bearing providers and suppliers and ACOs may make it easier for them to meet the same standards); Coupons, rebates, or other retailer reward programs meeting specified requirements: The OIG maintained its interpretation that a “retailer” is an entity that sells items directly to consumers and does not include individuals or entities that primarily provide services. The OIG clarified in comments that a pharmacy is considered a retailer whether it is a “big box” pharmacy or a smaller pharmacy, stating that, even if a smaller pharmacy provides services, it does not “primarily” provide services. In addition, entities such as a hospital system with a separate retail component (e.g., a pharmacy) may be considered a retailer with respect to a program specific to that retail component. The OIG also clarified that the concept of “other rewards” should be interpreted broadly, provided that it meets other requirements of this exception (i.e., it is a retailer reward, offered or transferred to the public on equal terms, and not tied to other reimbursable items or services). However, “other rewards” could not include a copayment waiver, as it fails to meet the requirement that the rewards not be tied to other reimbursable items or services; and Copayment waivers for the first fill of generic drugs: While otherwise finalizing this rule unchanged, OIG clarified that, because the final rule was published after the deadline for submission to CMS of benefit plan packages for coverage year 2017, the exception for copayment waivers would be applicable to coverage years beginning on or after January 1, 2018. The final rule also adds “copayment” to the definition of “remuneration” for the sake of consistency with other proposed and finalized text and announces an increase in the limits for gifts of nominal value that do not require an exception under the CMP, from $10 for an individual gift and $50 annual aggregate per patient, to $15 and $75, respectively.

The 21St Century Cures Act, Pub. L. No. 114-255, 130 Stat. 1033, was signed into law on December 13, 2016.  This expansive statute addresses topics ranging from investigational drug clinical trial design, mental health program funding and insurance coverage, to a new Medicare benefit for home infusion therapy, among many others.  This post focuses on amendments to the Federal Food, Drug, and Cosmetic Act (“FDCA”) addressing FDA regulation of medical software. Section 3060 of the 21St Century Cures Act describes five types of medical software that are not to be considered a regulated medical device under the FDCA.    Perhaps most notably, this includes software intended to support or provide recommendations to a health care professional about prevention, diagnosis, or treatment of a disease or condition, or to display, analyze, or print medical information about a patient or other medical information  such as peer-reviewed clinical studies and clinical practice guidelines. However, to avoid regulation the software function must enable a health care professional to independently review the basis for the software’s recommendations, so that it is not intended that the health care professional rely primarily on the software’s recommendations to make a diagnosis or treatment decision about an individual patient. In addition, the software function must not be intended to acquire, process, or analyze a medical image or a signal from an in vitro diagnostic device or a pattern or signal from a signal acquisition system. This provision essentially ensures that FDA may not regulate many types of clinical practice support software as medical devices, so long as the software does not acquire or analyze medical images or in vitro device signals, and does not perform biomedical signal acquisition. The other four types of medical software excluded from the definition of a medical “device” are software intended: to transfer, store, convert, format, or display clinical diagnostic laboratory test results or other device data, findings by a health care professional regarding such data and results, and general information about those findings and background information about the tests and devices, so long as the software is not intended to interpret or analyze a laboratory test or device data, results, or findings; for administrative support of a health care facility (including processing claims and billing information, business analytics, population health management, lab workflow, cost-effectiveness and utilization analysis, and appointment scheduling); to maintain or encourage a healthy lifestyle, so long as the software is unrelated to the diagnosis, cure, mitigation, prevention, or treatment of a disease or condition; and to serve as an electronic patient record to the extent the electronic record is intended to transfer, store, convert formats, or display the equivalent of a paper medical record, and so long as: (a) the records were created, stored, transferred, or reviewed by a health care professional (or by those supervised by a health care professional); (b) the records are part of a certified health information technology; and (c) the software function is not intended to interpret or analyze patient records in order to diagnose, cure, mitigate, prevent, or treat a disease or condition. The medical software industry will welcome these provisions because they clear away ambiguity as to whether many types of clinical practice support software, EHR software, and other types of administrative software used in health care settings may be regulated as medical devices under the FDCA. As medical software continues to evolve and biomedical signal acquisition and similar features continue to integrate into administrative and clinical practice software, certainly  some software functions of more complex, multi-use software may be regulated under FDA’s  medical device authorities.   Moreover, medical software developers and producers must remain attentive to regulation affecting certain aspects of their products and product use (such as HIPAA and FTC privacy and security regulation).   But the 21st Century Cures Act undoubtedly brings greater certainty about the costs and ongoing regulatory burden associated with a wide variety of medical software.

On January 6, 2017, two new safe harbors to the federal anti-kickback statute (the “AKS”) will become effective pursuant to a final rule published by the United States Department of Health and Human Services Office of the Inspector General (the “OIG”) on December 7, 2016. The final rule also codifies safe harbors for certain AKS exceptions and makes a technical correction to the existing safe harbor for referral services.  The OIG is authorized to promulgate safe harbors to protect various business arrangements from criminal prosecution under the AKS even though the arrangements potentially may be capable of inducing referrals of federal health care program business.  The final rule as published in the Federal Register is available here. New Safe Harbors Created The two new safe harbors share a focus on making medical-related transportation more affordable. The first new safe harbor protects reductions or waivers of a federal health care program beneficiary’s obligation to pay copayment, coinsurance or deductible (“cost-sharing”) amounts for emergency ambulance services provided by a state-, municipality- or tribal-owned ambulance supplier and paid for under a fee-for-service payment system if specified requirements are satisfied (e.g., the reduction or waiver must be offered on a uniform basis to all residents, tribal members or transported individuals). See 42 C.F.R. § 1001.952(k)(4).  The second new safe harbor protects free or discounted local transportation provided by an “eligible entity” (i.e., any individual or entity, except for individuals or entities that primarily supply health care items) to federal health care beneficiaries in the form of a “shuttle service” if certain conditions are met. See 42 C.F.R. § 1001.952(bb). AKS Exceptions Codified as Safe Harbors The final rule also protects certain pharmacy reductions or waivers of cost-sharing amounts (see 42 C.F.R. § 1001.952(k)(3)), remuneration between a federally qualified health center (“FQHC”) and a Medicare Advantage (“MA”) organization and (see 42 C.F.R. § 1001.952(z)), and discounts by manufacturers on drugs furnished to beneficiaries under the Medicare Coverage Gap Discount Program (see 42 C.F.R. § 1001.952(aa)). Focus on Safe Harbor for Pharmacy Cost-Sharing Waivers While all of the safe harbors are noteworthy, some additional commentary on the scope and requirements of the safe harbor for pharmacy cost-sharing waivers is warranted. First, the scope of the final rule’s pharmacy cost-sharing waiver safe harbor includes both the Medicare Part D program and the Medicaid program, whereas the similar AKS statutory exception covers only Medicare Part D. Second, the OIG clarified in its comments to the final rule that the safe harbor requirement that the reduction or waiver not be part of an “advertisement or solicitation” would be violated by a pharmacy posting information on its Web site regarding the reduction or wavier, but generally would not be violated by responding to an inquiry from a particular patient in person. Third, with respect to the safe harbor requirement that the reduction or waiver not be “routine,” the OIG stated in its comments that what is “routine” depends on the facts and circumstances of a particular case but that giving a reduction or waiver could be common enough without being automatic and still be routine. Fourth, the OIG declined to specify any particular method of determining whether a beneficiary has a “financial need,” permitting pharmacies flexibility, by way of examples, to use a multiple of the poverty guidelines or to use a combination of the poverty guidelines plus family medical expenses. The key to satisfying the requirement is that the pharmacy must apply a reasonable determination method of financial need uniformly. And while not requiring a written policy describing the pharmacy’s determination method, the OIG did say that having such a written policy, along with evidence that the policy was followed, would be “useful” in asserting the safe harbor’s protection. Fifth, if a patient is not in financial need then the pharmacy must make “reasonable collection efforts” before waiving the cost-sharing amount. The OIG recognized in its comments that the amount of the copayment or the historical inability to collect from a particular patient might be factors in a pharmacy’s decision regarding what collection efforts to take. However, a preemptive decision by a pharmacy not to request payment from, or not to pursue any collection efforts regarding, a particular patient would not satisfy this requirement. Parties intending to fit within a particular safe harbor are advised to review all of the applicable requirements. In addition, as illustrated by the discussion of the safe harbor for pharmacy cost-sharing waivers above, reviewing the OIG’s responses to comments in the final rule can help interpret the regulatory language.

Executive Summary The United States Department of Health and Human Services Office of the Inspector General (“OIG”) published its Fiscal Year 2017 Work Plan (“2017 Plan”) on November 10, 2016. The work plan is published annually by the OIG and identifies new and ongoing investigative, enforcement and compliance priorities for the OIG in the upcoming year.  Along with its advisory opinions, provider-specific compliance guidelines, fraud alerts and special bulletins, the OIG’s annual work plans are a valuable resource for compliance officers and counsel to use when identifying internal audit and review topics for the upcoming year. For 2017, the OIG identified a number of new areas of focus that apply to different types of healthcare organizations, including hospitals, long-term care providers and pharmacies. Some of the key new and revised areas of focus are summarized below. In addition, the OIG will continue to focus on a number of issues it has focused on in the past. A complete copy of the 2017 Plan may be accessed here. A.        Hospital Audit Activities In 2017, the OIG will focus on six new compliance risk areas for hospital activities and has revised its focus on one risk area, including: Hyperbaric Oxygen Therapy Services-Provider Reimbursement in Compliance with Federal Regulations (NEW). The OIG will determine whether Medicare payments for hyperbaric oxygen therapy outpatient services were made in accordance with Medicare requirements. This will include a review of whether beneficiaries received treatment for noncovered conditions, the medical documentation supporting the services and whether beneficiaries received more treatments than were medically necessary. Incorrect Medical Assistance Days Claimed by Hospitals (NEW). The OIG will focus on reviewing whether Medicare administrative contractors properly settled Medicare cost reports for Medicare disproportionate share hospitals with respect to Medicaid patient days. Inpatient Psychiatric Facility Outlier Payments (NEW). The OIG intends to determine whether Inpatient Psychiatric Facilities complied with Medicare documentation, coverage, and coding requirements for stays that resulted in outlier payments. Case Review of Inpatient Rehabilitation Hospital Patients Not Suited for Intensive Therapy (NEW). The OIG will study a sample of rehabilitation hospital admissions to determine whether the patients participated in and benefited from intensive therapy, and for patients that were unsuited for intensive therapy, identify reasons they were not able to participate and benefit from therapy. Medicare Payments for Services after Individuals’ Dates of Death (NEW). The OIG will review CMS’ policies and procedures that ensure that payments are not made for Medicare services ostensibly rendered to deceased individuals as required by Section 502 of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). Management Review: CMS’ Implementation of the Quality Payment Program (NEW). The OIG will outline the timelines and key milestones CMS has established for implementing the Quality Payment Program under MACRA and identify key challenges and potential vulnerabilities CMS faces during implementation. Intensity Modulated Radiation Therapy (REVISED). The OIG will focus on reviewing outpatient payments for intensity-modulated radiation therapy to determine whether payments were made in accordance with payment requirements. B.        Nursing Home Audit Activities In 2017, the OIG will focus on four new compliance risk areas for nursing home activities and has revised its focus on one risk area, including: Nursing Home Compliant Investigation Data Brief (NEW). The OIG will review whether State agencies investigate complaints categorized as immediate jeopardy and actual harm within required timeframes (2 and 10 days, respectively). Skilled Nursing Facilities- Unreported Incidents of Potential Abuse and Neglect (NEW). The OIG intends to investigate the incidence of abuse and negligent of Medicare beneficiaries receiving treatment in skilled nursing facilities and determine whether incidents of abuse and negligent were properly reported and investigated in accordance with Federal and State law. OIG also intends to interview State officials to determine if sampled incidents were reported, if required, and whether the incident was investigated and prosecuted by the State, if appropriate. Skilled Nursing Facility Reimbursement (NEW). The OIG will review documentation related to reports on the Minimum Data Set to determine if the documentation meets the requirement for each particular resource utilization group. Skilled Nursing Facility Adverse Event Screening Tool (NEW). The OIG will release a tool that describes the purpose, use, and benefit of the skilled nursing facility adverse event trigger tool and guidance document released by the Institute for Healthcare Improvement. National Background Checks for Long-Term Employees-Mandatory Review (REVISED). The OIG will review the outcomes of State’s programs related to National Background Check Program grant which requires background checks of long-term care employees and providers and determine whether the background checks led to any unintended consequences. C.        Prescription Drugs Audit Activities In 2017, the OIG will focus on five new compliance risk areas for prescription drug activities and has revised its focus on one risk areas, including: Drug Waste of Single-Use Vial Drugs (NEW). The OIG will determine drug waste for the 20 single-use-vial drugs with the highest amount paid by Medicare and provide specific examples of where a different size vial could significantly reduce waste. Potential Savings from Inflation-Based Rebates in Medicare Part B (NEW). The OIG will examine the amount that could be collected from pharmaceutical manufacturers if inflated-indexed rebates were required under Medicare Part B. Medicare Part D Rebates Related to Drugs Dispensed by 340B Pharmacies (NEW). The OIG intends to review the amount that could be saved for drugs dispensed through the Medicare Part D program at 340B covered entities and contract pharmacies if Medicare Part D adopted requirements that require manufactures to pay rebates similar to those of the Medicaid Drug Rebate Program. Questionable Billing for Compounded Topical Drugs in Part D (NEW). The OIG will review billing for topical compounded drugs under Medicare Part D and will identify pharmacies and associate prescribers with questionable Part D billing for these drugs. Medicare Part D Payments for Service Dates After Individuals’ Dates of Death (NEW). The OIG will determine whether prospective payments made after a beneficiaries death were made in accordance with Medicare requirements that require a Part D sponsor to disenroll a beneficiary from its prescription drug plan upon the death of the individual, which is effective the first day of the calendar month following the month of death. Medicare Part D Eligibility Verification Transactions (REVISED). OIG will review CMS’ oversight of E1 transactions processed by contractors and will review E1 transactions to assess the validity of the data. D.        Medical Equipment and Supplies Audit Activities In 2017, the OIG will focus on three new compliance risk areas for medical equipment and supplies activities including: Part B Services During Non-Part A Nursing Home Stays: Durable Medical Equipment (NEW). The OIG will seek to determine the extent of inappropriate Medicare Part B payments for DMEPOS provided during non-Part A stays in skilled nursing facilities and whether CMS has a system in place to identify inappropriate payments and recoup payments from suppliers. Medicare Market Share of Mail-Order Diabetic Testing Strips April 1 through June 30, 2016-Mandatory Review (NEW). The OIG will report the market share of diabetic testing strips before each subsequent round of the competitive bidding program pursuant to section 1847(b)(10)(B) of the Social Security Act. Positive Airway Pressure Device Supplies-Supplier Compliance with Documentation Requirements for Frequency and Medical Necessity (NEW). The OIG will review claims for frequently replaced positive airway pressure or respiratory assist device therapy supplies to determine whether documentation requirements for medical necessity, frequency of replacement, and other Medicare requirements are being met. E.        Other Provider and Suppliers Audit Activities In 2017, the OIG will focus on five new compliance risk areas for other providers and suppliers activities and revised its focus on one area, including: Monitoring Medicare Payments for Clinical Diagnostic Laboratory Tests-Mandatory Review (NEW). The OIG will analyze Medicare payments for clinical diagnostic laboratory tests performed in 2016 and monitor CMS’ implementation of the new Medicare payment system for these tests. Medicare Payments for Transitional Care Management (NEW). The OIG intends to review whether payments for transitional care management were made in accordance with Medicare requirements. Medicare Payments for Chronic Care Management (NEW). The OIG intends to review whether payments for chronic care management were made in accordance with Medicare requirements. Data Brief on Financial Interests Reported Under the Open Payments Program (NEW). The OIG will review 2015 data from the Open Payments website to determine how much Medicare paid for drugs and DMEPOS ordered by physicians who had financial relationships with manufactures and group purchasing organizations. Power Mobility Device Equipment-Portfolio Report on Medicare Part B Payments (NEW). The OIG will compile results, of prior OIG audits, evaluations and investigations of power mobility devices paid by Medicare to identify trends in payment, compliance and fraud vulnerabilities and will make recommendations to improve detected vulnerabilities. Ambulance Services-Supplier Compliance with Payment Requirements (REVISED). The OIG will review whether Medicare payments for ambulance services, including basic life support, advance life support, and specialty care transport, were made in accordance with Medicare requirements. Inpatient Rehabilitation Facility Payment System Requirements (REVISED). The OIG will review whether inpatient rehabilitation facilities billed claims in accordance with Medicare documentation and coverage requirements. Histocompatibility Laboratories-Supplier Compliance with Payment Requirements (REVISED). The OIG will review whether payments to histocompatibility laboratories, which typically provide testing for bone marrow and solid organ transplantation services, were made in accordance with Medicare requirements.  Conclusion As the healthcare industry continues to modify its care delivery and payment models, the 2017 Plan is a useful tool for compliance officers and legal counsel to use when deciding where to focus its internal compliance efforts for the upcoming year.     

On November 2, the Centers for Medicare & Medicaid Services (CMS) finalized the 2017 Medicare Physician Fee Schedule (PFS) rule. This rule, which takes effect on January 1, 2017, updates payment policies and rates for services furnished under the PFS.  A CMS fact sheet summarizing the major components of the rule is available here.  The rule included several updates to and clarifications regarding the federal physician self-referral law (or “Stark Law”), including: (1) unit-based compensation in arrangements for the rental of office space or equipment; (2) a technical correction; and (3) the annual update to CPT/HCPCS codes used to identify certain categories of Stark designated health services (or “DHS”).  These updates and clarifications are either routine or, in the case of unit-based compensation, ultimately resulted in no changes to the Stark regulations as currently implemented. Unit-Based Compensation. First, the PFS rule included a lengthy discussion of unit-based compensation in arrangements for the rental of office space or equipment (so-called “per-click” arrangements).  This discussion stemmed from an opinion issued by the D.C. Circuit on June 12, 2015 in Council for Urological Interests v. Burwell, 790 F.3d 212 (available here).  In this opinion, the D.C. Circuit concluded that CMS’s discussion of a 1993 House of Representatives conference report in the 2009 Inpatient Prospective Payment System (IPPS) final rule, which finalized regulations prohibiting certain per-unit of service compensation formulas in the rental of office space and equipment regulatory exceptions (found at 42 C.F.R. § 411.357(a)(5)(ii)(B) and (b)(4)(ii)(B), respectively), “contained an unreasonable interpretation of the conferees’ statements” concerning the rental of office space and rental of equipment statutory exceptions (found at 42 U.S.C. § 1395(e)(1)(A) and (e)(1)(B), respectively), and remanded the case to CMS “to permit a fuller consideration of the legislative history.” CMS responded to this directive in the final PFS rule. In the proposed 2017 PFS rule (available here), CMS used the same language in the existing exceptions for office space and equipment and proposed to include in each exception a requirement that, as previously implemented, rental charges for the lease of office space or equipment are not determined using a formula based on per-unit of service rental charges, to the extent that such charges reflect services provided to patients referred by the lessor to the lessee.  CMS also used the opportunity to re-propose the same language, as was previously implemented, banning per-click lease arrangements in the exceptions for fair market value compensation and indirect compensation arrangements (at 42 C.F.R. § 411.357(l)((3)(ii)) and (p)(1)(ii)(B), respectively).  In the final rule, CMS finalized these requirements without modification.  The net result is that the language in all four exceptions (for office space, equipment, fair market value compensation and indirect compensation arrangements) has remained unchanged.  Note that the relatively new exception for timeshare arrangements (at 42 C.F.R. § 411.357(y)(6)(ii)(B)), which was effective on January 1, 2016, includes a parallel ban on per-unit of service fees, with CMS using the same rationale for including it there. CMS rejected the position of the Council for Urological Interests that it lacked authority to impose a ban on per-click leases, and asserted that its reasoning in this final rule fully addressed the court’s concerns. As the D.C. Circuit stated, CMS emphasized that the Stark Law “does not unambiguously forbid the Secretary from banning per-click leases as she evaluates the needs of the Medicare system and its patients.”  CMS pointed out that the Stark Law gives it the authority to add requirements as needed to protect against program or patient abuse, explicitly permits it to impose additional conditions on arrangements for the rental of office space or equipment, and does not state that per-click rates must always be permitted.  CMS stated its belief, as first stated in the 2009 IPPS rule, that such a ban is necessary because per-click lease arrangements (where the lessor makes referrals to the lessee that generate payments to the lessor) create improper incentives for physicians to over-utilize services (by ordering unnecessary services that would not have been ordered absent a profit motive), may narrow the choice of treatment options of a patient and may increase costs to the Medicare program. Further, citing language from the opinion, CMS stated that “Congress knew how to cabin the Secretary’s authority to impose ‘other’ requirements” and “knew how to further clarify what it meant by compensation that does not take into account the volume of business generated between the parties” (as it did in the employment exception). Additionally, Congress knew how to permit per-click payments explicitly (as it did in the exception for continuation of certain group practice arrangements with a hospital).  The fact that Congress did not explicitly prohibit or permit per-click arrangements in the context of the exceptions for office space and equipment leases supports the position that the Stark Law is silent regarding the permissibility of per-click for equipment rentals.  Therefore, CMS has the authority to impose such a prohibition in order to protect against program or patient abuse. CMS emphasized that it does not absolutely prohibit rental charges based on units of service furnished. This is only prohibited “where the lessor generates the payment from the lessee through a referral to the lessee for a service to be provided in the rented office space or using the rented equipment.”  For this reason, per-unit of service rental charges are permitted, as long as the referral for those services did not come from the lessor. Technical Correction. Second, the rule included a technical correction regarding instructions for submitting a request for an advisory opinion related to physician referrals at 42 C.F.R. § 411.372(a).  This rule now provides that parties must submit such requests to CMS according to instructions specified on the CMS website.  Previously, this regulation specified that parties must submit such requests to CMS in writing.  However, the CMS website regarding advisory opinions (available here) has not been updated since March 2016 and does not include instructions for submitting an advisory opinion.  These instructions will likely be posted to this website in the near future. Code List Updates. Third, the rule included the annual update to the list of CPT/HCPCS codes used to identify certain categories of DHS (the “Code List”).  As specified in the Stark Law regulations at 42 C.F.R. § 411.351, the following four categories of DHS are defined by reference to the Code List: (1) clinical laboratory services; (2) physical therapy, occupational therapy, and outpatient speech-language pathology services; (3) radiology and certain other imaging services; and (4) radiation therapy services and supplies.  The Code List is updated annually to reflect changes in the most recent CPT and HCPCS Level II publications.  Further, items and services that may qualify for either of two Stark Law exceptions—the exception for preventive screening tests, immunizations and vaccines at 42 C.F.R. § 411.355(h) and the exception for EPO and other dialysis-related drugs at 42 C.F.R. § 411.355(g)—are identified by reference to the Code List.  The Code List included the annual updates to the codes eligible for the preventive screening tests, immunizations and vaccines exception.  However, as in previous years, the Code List does not include any codes eligible for the EPO and other dialysis-related drugs exception (for reasons explained by CMS in the rule).  The PFS rule includes tables showing the additions and deletions to the Code List.  We expect that, as per usual, the complete list will be posted before the end of the year to the CMS website dedicated to the Code List, found here. The advanced copy of the PFS rule is available here.  The official version of the rule is scheduled for publication in the Federal Register on November 15, 2016.

The Centers for Medicare & Medicaid Services (CMS) released its 2017 Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center Payment System Final Rule (Final Rule) on Tuesday. The Final Rule implements section 603 of the Bipartisan Budget Act of 2015 relating to payment for items and services furnished by certain off-campus provider-based departments of a provider. Section 603 of the Act amended the Social Security Act by providing that items and services furnished at off-campus departments of a hospital will not be reimbursed under the OPPS if items and services furnished at that off-campus department were not billed as outpatient hospital services prior to November 2, 2015.  CMS uses the term “nonexcepted” when referring to a location or items or services that are subject to the new payment limitations.  The Final Rule appears to largely adopt the regulations included in its proposed rule published in July, with only some modification. In addition, CMS also released an interim final rule (Interim Final Rule) in the same publication establishing the Medicare Physician Fee Schedule as the “applicable payment system” for the majority of the nonexcepted items and services furnished by nonexcepted off-campus provider-based departments. The Interim Final Rule establishes new site-of-service payment rates under the Medicare Physician Fee Schedule to pay nonexcepted off-campus provider-based departments for the furnishing of nonexcepted items and services.  These nonexcepted items and services must be reported on the institutional claim form and identified with a newly established claims processing modifier. CMS is soliciting comments on certain aspects of both the Final Rule and the Interim Final Rule. Comments are due by December 31, 2016.  The advanced copy of the Final Rule is available here.  The official version of the Final Rule is scheduled for publication in the Federal Register on November 14, 2016. Look for a more detailed analysis of the Final Rule and Interim Final Rule from Dorsey and Whitney.