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Recently, the Centers for Medicare & Medicaid Services (CMS) released its 2014 quality and financial performance results for Medicare Accountable Care Organizations (ACO). According to CMS, overall, 353 ACOs – 20 Pioneer ACOs and 333 Medicare Shared Savings ACOs – generated a net savings of more than $411 million in 2014. In addition, 97 ACOs met their quality standards and savings threshold, qualifying them for shared savings payments of more than $422 million. According to CMS Acting Administrator Andy Slavitt, “These results show that ac countable care organizations as a group are on the path towards transforming how care is provided. . . . Many of these ACOs are demonstrating that they can deliver a higher level of coordinated care that leads to healthier people and smarter spending.” According to CMS, some of the quality and financial performance results included:

  • Of the 20 Pioneer ACOs participating in 2014, 15 ACOs generated savings and 5 ACOs generated losses. Of the 15 ACOs that generated savings, 11 ACOs qualified for shared payments of $82 million due to them generating savings outside a minimum savings rate. Of the 5 ACOs that generated losses, 3 ACOs are paying $9 million in shared losses to CMS for generating losses outside a minimum loss rate.
  • Pioneer ACOs generated a total savings of $120 million, which equates to a 24% increase in performance from the $96 million of total savings in 2013. Further, the total model savings per ACO increased from $4.2 million per ACO in 2013 to $6 million per ACO in 2014.
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The U.S. Department of Health and Human Services (HHS), Office of Civil Rights (OCR), recently announced a settlement with St. Elizabeth’s Medical Center (SEMC) over violations of the Health Insurance Portability and Accountability Act of 1996 (HIPAA). SEMC is a tertiary care hospital located in Massachusetts. OCR’s investigation began in November 2014, when OCR alleged that SEMC violated HIPAA’s Privacy, Security and Breach Notification Rules. As part of the settlement, SEMC agreed to pay $218,400 and adopt a corrective action plan to address the deficiencies in SEMC’s HIPAA compliance program.

On July 10, 2015, OCR released an HHS OCR Bulletin containing the allegations against SEMC, the parties’ settlement agreement and SEMC’s corrective action plan. OCR’s investigation stemmed from a complaint against SEMC filed on November 16, 2012. The allegations pertain to SEMC’s use of internet-based document sharing programs that contain electronic protected health information (ePHI). OCR found that SEMC used the internet-based applications without analyzing the privacy and security risks, as required by HIPAA. Further, critical to SEMC’s liability under HIPAA, OCR alleged that SEMC “failed to timely identify and respond to the known security incident, mitigate the harmful effects of the security incident, and document the security incident and its outcome.” The settlement agreement also covers a separate HIPAA breach that occurred in August 2014, when SEMC notified HHS of a breach of unsecured ePHI located on a personal laptop and USB flash drive.

The settlement between OCR and SEMC is predicated on SEMC’s continued compliance with the settlement agreement’s corrective action plan. As part of the plan, SEMC agreed to perform robust “self-assessment” to determine the SEMC’s workforce members’ knowledge of and compliance with SEMC policies and procedures regarding: transmitting ePHI using unauthorized networks; storing ePHI on unauthorized information systems; removal of ePHI from SEMC; prohibition on sharing accounts and passwords for ePHI access or storage; encryption of portable devices that access or store ePHI; and security incident reporting related to ePHI. The self-assessment includes unannounced site visits to various SEMC departments, randomly selected interviews of SEMC workforce members, and inspection of portable devices that can access ePHI in the departments impacted by the breach. SEMC is also required to provide a report documenting its self-assessment to HHS within 150 days of the settlement.

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In June, the U.S. Court of Appeals for the District of Columbia Circuit ruled on two regulations implemented by the Centers for Medicare and Medicaid Services (CMS) under the federal Stark law (Stark) in 2008. Following a challenge by the Council for Urological Interests (the Council), a urology trade association, the court rejected CMS’ prohibition on per-click equipment rental leases but upheld CMS’ new interpretation of “entity furnishing designated health services” and thus the prohibition against “under-arrangement” transactions.

Stark prohibits physicians from referring Medicare or Medicaid patients for designated health services to an entity with which the physician has a financial relationship unless an exception applies. An exception to Stark exists for equipment leases. Under CMS’ 2008 regulation challenged by the Council, CMS barred per-click rental arrangements based on CMS’ analysis that Congress did not intend to protect arrangements where the lessor’s amount of income fluctuated based on the amount of patients referred by the lessor to the lessee. CMS claimed to base its determination to bar per-click equipment leases on a 1993 U.S. House of Representatives conference report (Conference Report).

The court reviewed CMS’ per-click equipment lease prohibition under the two-step Chevron legal test used to determine whether a court must grant deference to a government agency’s interpretation of a statute. First, the court determined that Stark did not forbid CMS from banning per-click leases, as the statute does not expressly permit per-click leases and also allows the Secretary of the U.S. Department of Health and Human Services (the Secretary) to impose, by regulation, other requirements as needed to protect against program or patient abuse. However, the court determined that the per-click ban failed under step-two of the Chevron analysis, as the agency’s statutory interpretation was not permissible or reasonable in light of Congress’s intent. The court’s decision focused on the Conference Report cited by CMS. The Conference Report explained, “in reference to the rental-charge clause for the equipment rental exception, ‘[t]he conferees intended that charges for space and equipment leases may be based on…time-based rates or rates based on units of service furnished, so long as the amount of time-based or units of service rates does not fluctuate during the contract period.'” The court’s decision highlighted how the Secretary’s interpretation of the Conference Report had changed over time, pointing out that in 2001, the Secretary explained, “given the clearly expressed congressional intent in the legislative history, we are permitting ‘per use’ payments.” The court found that the Conference Report makes clear that unit of service rates are what cannot fluctuate during the contract period, and noted that the Secretary’s new interpretation of the Conference Report ignored the word “rates” completely. In rejecting the ban on per-click leases, the court stated that the agency’s “jargon is plainly not a reasonable attempt to grapple with the Conference Report; it belongs instead to the cross-your-fingers-and-hope-it-goes-away school of statutory interpretation.”

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On July 2, 2015, the U.S. Court of Appeals for the Fourth Circuit upheld a $237 million verdict against Toumey Healthcare System (“Toumey) for violations of the federal Stark law (“Stark”) and, consequently, the federal False Claims Act. The verdict marks the latest decision in the government’s longstanding legal battle against Toumey, a community hospital in South Carolina, and serves as a reminder to healthcare providers of the significant liability that can result from compensation arrangements that fail to comply with Stark’s safe harbor requirements.

In this case, the lower court determined that Toumey entered into part-time employment agreements with physicians that violated Stark. The agreements violated Stark’s limitations on physician compensation arrangements by varying with, or taking into account, the volume or value of the physicians’ referrals to the hospital. Under the False Claims Act, claims submitted for payment arising out of referrals prohibited by Stark constitute false claims, and subject providers to treble damages. In this case, the jury found that Toumey knowingly submitted 21,730 false claims, which amounted to $39.3 million in Medicare payments. The court awarded treble damages as well as other penalties.

The Fourth Circuit’s decision analyzed Toumey’s argument that since Toumey relied upon the advice of lawyers in determining that the compensation arrangements were permissible under Stark, Toumey could not have knowingly violated the False Claims Act. In rejecting this argument, the Fourth Circuit highlighted the fact that Toumey consulted with multiple attorneys, one of which raised serious concerns about the compensation arrangements, and that Toumey effectively lawyer-shopped for legal opinions that approved the employment contracts. Accordingly, the case should provide notice to providers to proceed with caution if they are contemplating obtaining multiple legal opinions in order to determine that an arrangement is compliant with health care fraud and abuse laws because of how the opinions may be scrutinized in hindsight.

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On June 1, 2015, the Centers for Medicare and Medicaid Services (CMS) released a proposed rule revising the Medicaid managed care regulations. One of the key components of the proposed rule is the revision to the states’ responsibilities relating to the screening and enrollment of network providers of managed care organizations (MCOs), prepaid inpatient health plans (PIHPs) and prepaid ambulatory health plans (PAHPs).

Specifically, the proposed rule provides that the state must enroll all network providers of MCOs, PIHPs and PAHPS (collectively, managed care entities (MCEs)) that are not already enrolled with the state to provide services to Medicaid fee-for-service (FFS) beneficiaries. The provisions would apply to all providers that order, refer or render health services in the context of Medicaid managed care to ensure these providers are appropriately screened and enrolled. As stated by CMS, the requirements contained in the proposed rule are to “ensure that there are no ‘safe havens’ for providers who, though unable to enroll in Medicaid FFS programs, shift participation from managed care plan to manage care plan to avoid detection.”

While the screening and enrollment of network providers is currently a role performed by the MCE, CMS believes transferring this function to the state will eliminate the need for each MCE to perform duplicative screening activities. However, the proposed rule would not prevent the MCEs from carrying out their own provider screening beyond those performed by the state. In addition, the proposed system would enable states to apply the risk classification protocols to all providers that furnish services to managed care or Medicaid FFS beneficiaries, in which screened providers would be categorized as “limited,” “moderate” or “high” risk, permitting site visits for moderate and high risk providers.

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In June, the New York Attorney General announced a widespread settlement with Aspen Dental Management, Inc. (“Aspen Dental”) based on the Attorney General’s finding that the dental practice management company engaged in the unauthorized practice of dentistry and illegal fee splitting under New York law.

The Attorney General’s investigation evidences enforcement of the corporate practice of medicine doctrine, which exists in many states and prohibits corporations owned by non-professionals from employing or otherwise contracting with physicians to practice medicine and charging for professional services, except in limited circumstances. In New York, like many states, the corporate practice of medicine doctrine emanates from prior court decisions, laws regulating professional corporations, and laws restricting the division of fees generated from professional services. The prohibition on the corporate practice of medicine is grounded in public policy concerns based on the principle that when a lay corporation holds a financial interest in a physician’s profits, the entity has a direct interest in and ability to control medical decision-making and impact the quality of care provided to patients.

The Attorney General’s announcement highlights the regulatory challenges faced by medical practice management companies that receive percentage of revenue compensation. In this case, Aspen Dental provided business support and administrative services to several independently owned dental practices. The Attorney General, however, determined that Aspen Dental held an impermissible level of control over the clinics, which included sharing in the clinics’ profits, marketing the clinics under the Aspen Dental trade name, incentivizing or otherwise pressuring clinic staff to increase sales of dental services or products, implementing revenue-oriented scheduling systems, and the hiring and oversight of clinical staff. Additionally, the Attorney General cited Aspen Dental’s control over the practice’s bank accounts and implementation of non-competition and non-solicitation agreements that effectively prohibited the practices from competing with any other dental practice affiliated with Aspen Dental.

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Recently, on June 1, the Center for Medicare & Medicaid Services (CMS) published its long anticipated Medicaid managed care proposed rules. This is the first time CMS proposed revisions to the Medicaid managed care regulations since 2002. The proposed rules includes several measures intended by CMS “to modernize the Medicaid managed care regulatory structure in order to facilitate and support delivery system reform initiatives to improve health outcomes and the beneficiary experience, while effectively managing costs.” Among other things, the proposed rule would make a number of changes designed to align Medicaid managed care operating standards with those used in other markets.

For example, the proposed rule includes modifications to the current regulations governing the grievance and appeals systems for Medicaid managed care. The goal is to further align and increase uniformity in the grievance and appeals systems with Medicare Advantage managed care plans and private health insurance and group health plans in order to make the process more consistent across markets. Of particular note, most capitated, risk-bearing forms of Medicaid managed care–whether full or partial risk–would be expected to offer an internal appeals process with specified time frames, with external appeal to the state Medicaid fair hearing process in the event of an adverse determination. The rule would introduce new appeals timeframes, timeframes for plan compliance with favorable beneficiary rulings, and would clarify the right of beneficiaries to introduce new evidence at each stage of appeal.

In addition, the proposed rule would require all states to offer a 60-day time period to request external review through a fair hearing (some states now allow a far shorter time period) and would clarify members’ right to their case file, medical records, and other documents such as the plan documents used to conduct coverage determinations. The expedited appeal time frame would be tightened, as would notice and recordkeeping requirements. Simultaneously, the proposed rule would also require beneficiaries to exhaust internal appeals procedures before seeking a state fair hearing. This is a significant change since some states now allow beneficiaries to bypass the internal process.

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Recently, United States Representative Sam Graves introduced the bill HR 2156, otherwise known as the Medicare Audit Improvement Act of 2015. Currently pending, the Medicare Audit Improvement Act addresses the aggressive nature of recovery audit contractors (“RACs”). Since the beginning of the RAC program, contractors have been paid on a contingency fee basis, thus incentivizing them to find improper payments.

The Medicare Audit Improvement Act is intended to curb such practices. The bill would eliminate the contingency fee for RACs and replace it with a flat fee rate–similar to other Medicare integrity contractors. Additionally, the bill would reduce a RAC’s payment at the end of each fiscal year if the RAC had a high overturn rate resulting from the Medicare appeals process. The bill defines a “high overturn rate” as 10% or more in a contract year. Under these circumstances, the RAC’s payment would not only be reduced, but would also have increasing levels of reduction. The Center for Medicare and Medicaid Services (“CMS”) would be required to calculate the fee reduction for each RAC within six months at the end of each contract year. CMS would have the discretion to determine how to apply the reduction to a RAC’s fees–either a per-claim reduction or a reduction in the overall fee paid.

The Medicare Audit Improvement Act also includes a measure that would create a statutory exception for the timely filing requirements for Part B rebilling. Currently, hospitals are permitted to rebill denied Part A inpatient stay claims as Part B outpatient claims, but are required to do so within one year of the date of service (“DOS”). The exception would allow these denied Part A claims to be rebilled under Part B within 180 days after a final determination by the contractor or 180 days following the exhaustion of the provider’s appeal rights.

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On April 28, 2015, the U.S. Senate Finance Committee held a hearing to address the rising Medicare appeals claims backlog. At the hearing, Nancy Griswold, Chief Administrative Law Judge (ALJ) at the Office of Medicare Hearings and Appeals (OMHA), blamed the backlog on a lack of funding and an unprecedented amount of appeals. ALJ Griswold stated that the average processing time for each claim has soared to 550 days, more than quadrupling over the past five years. There are currently over 500,000 Medicare appeals pending review.

While appeals continue to stack up, OMHA’s budget was increased from $69 million to $82.3 million over the past fiscal year (FY). Additionally, OMHA’s staff has expanded from 492 employees to 514 employees for the same FY. However, ALJ Griswold claimed that this boost in resources is still not enough. In FY 2013, OMHA received 700,000 claims, which represents an astonishing increase from the 60,000 claims received just two years prior. Despite the staggering amount of claims, only 60 officers are assigned to handle cases.

Although Senate Finance Committee Chairman Orrin Hatch acknowledged the importance of preventing improper Medicare payments, he emphasized the seriousness of the backlog is due to the “insurmountable increase in appeals.” Senator Hatch also noted that 60 percent of appeals are found in favor of defendants, and questioned how initial decisions are being made and whether providers are facing undue burdens.

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On Friday March 20, 2015, the Centers for Medicare & Medicaid Services (“CMS“) announced the release of the new Stage 3 meaningful use proposed rules. Concurrently, the Office of the National Coordinator for Health Information Technology (“ONC”) released its new EHR certification requirements, which are linked to its previously released interoperability roadmap. CMS says that the new rules “will give providers additional flexibility, make the program simpler, and drive interoperability among electronic health records, and increase the focus on patient outcomes to improve care.”

With the announcement of the new rules came the release of the two proposals: one outlining the Stage 3 meaningful use requirements for hospitals and providers and one outlining the new EHR certification requirements. The proposed Stage 3 meaningful use rule is intended to specify the meaningful use criteria that eligible professionals, eligible hospitals, and critical access hospitals must meet in order to qualify for Medicare and Medicaid EHR incentive payments and avoid downward adjustments under Medicare for Stage 3 of the EHR incentive program. According to the summary of the proposed rule, it would continue to encourage submission of clinical quality measure (“CQM”) data for all providers where feasible in 2017, propose to require the electronic submission of CQMs where feasible in 2018, and establish requirements to transition the program to a single stage for meaningful use. Also, the Stage 3 proposed rule, according to CMS, would change the EHR reporting period so that all providers would report under a full calendar year timeline with a limited exception under the Medicaid EHR Incentive Program for providers demonstrating meaningful use for the first time.

In the proposed rule regarding EHR certification requirements, CMS introduces a new edition of certification criteria, proposes a new 2015 Edition Base EHR definition, and proposes to modify the ONC Health IT Certification Program “to make it open and accessible to more types of health IT and health IT that supports various care and practice settings.” It would also establish the capabilities and specify the related standards and implementation specifications that Certified EHR Technology (“CEHRT”) would need to include to, at a minimum, support the achievement of meaningful use by eligible professionals, eligible hospitals, and critical access hospitals under the Medicare and Medicaid EHR Incentive Programs when such edition is required for use under these programs.

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