On April 14, 2017, CMS issued the FY 2018 Medicare Hospital IPPS Proposed Rule that includes numerous proposed changes.   However, there is a very small provision in this proposed rule that organizations may not be aware of …. especially those that are not hospitals and who normally would not look at the Hospital IPPS rule.

Within the rule, there is a section proposing to revise the application and re-application process for Accrediting Organizations so as to require them to post provider/supplier survey reports and plans of corrections on their website.   Although the survey results are currently available through a number of other methods, CMS states that they are proposing AOs be required to post this information on their websites “in order to advance the Department’s and Agency’s commitment to transparency in terms of patient access to quality and safety information. Access to survey reports and PoCs will enable health care consumers, in addition to Medicare beneficiaries, to make a more informed decision regarding where to receive health care thus encouraging health care providers to improve the quality of care and services they provide.”

In my communications and discussions with several AOs and health care providers, many are concerned that a requirement that AOs post this information on their websites will not achieve the desired result of providing consumers with more transparency, but instead will merely provide what otherwise might be considered confusing information.   Specifically, it has been advanced that requiring AOs to post these reports on their websites will not support the intent to help the public but instead will:

  • Jeopardize the necessary confidentiality of quality improvement work that takes place between organizations and accrediting bodies through the private accreditation survey to ensure quality outcomes that are already public through accreditation decisions;  and
  • Not produce meaningful information for patients or the public beyond extensive data already available through CMS, departments of health, and many other entities that report information to the public appropriate to their scopes and roles, but instead create confusion for the public and patients seeking valid quality data on a healthcare organization.

Comments are due to CMS no later than 5:00 pm EST on June 13, 2017.

On March 15, 2017, the United States District Court for the Western District of Pennsylvania issued an opinion that sheds insight on how courts view the “writing” requirement of various exceptions under the federal physician self-referral law (or “Stark Law”). The ruling involved the FCA qui tam case, United States ex rel. Emanuele v. Medicor Assocs., No. 1:10-cv-245, 2017 U.S. Dist. LEXIS 36593 (W.D. Pa. Mar. 15, 2017), involving a cardiology practice (Medicor Associates, Inc.) and the Hamot Medical Center. The Court’s detailed discussion of the Stark Law in its summary judgment opinion provides guidance as to what may or may not constitute a “collection of documents” for purposes of satisfying a Stark Law exception.

This opinion is of particular note because it marks the first time that a physician arrangement has been analyzed since the Stark Law was most recently amended in November 2015, at which time the Centers for Medicare and Medicaid Services (“CMS”) clarified and codified its longstanding interpretation of when the writing requirement is satisfied under various exceptions.

Arrangements Established by a “Collection of Documents”

Both the “professional services arrangement” and “fair market value” exceptions were potentially applicable, and require that the arrangement be “in writing” and signed. However, two of the medical directorships were not reduced to a formal written agreement. The Defendants identified the following collection of documents as evidence that the writing requirement was satisfied:

  • Emails regarding a general initiative between Hamot and Medicor for cardiac services, but without any specific information regarding directorship positions, duties or compensation.
  • Letter correspondence between Hamot and Medicor discussing the potential establishment of a director position for the women’s cardiac program.
  • Internal summary that identified a Medicor physician as the director of the women’s cardiac program.
  • Unsigned draft Agreement for Medical Supervision and Direction of the Women’s Cardiac Services Program.
  • A one page letter appointing a Medicor physician as the CV Chair and identifying a three-year term that expired June 30, 2008.

The Court said that although “these kinds of documents may generally be considered in determining whether the writing requirement is satisfied, it is essential that the documents outline, at an absolute minimum, identifiable services, a timeframe, and a rate of compensation.” (emphasis added). In addition, the Court noted that CMS requires that at least one of the documents in the collection be signed by each party. After confirming that these “critical” terms were missing from the documents described above, the Court concluded that no reasonable jury could find that either arrangement was set forth in writing in order to satisfy Stark’s fair market value exception or personal service arrangement exception.

Expired Arrangements

Other directorships were initially memorialized in signed, formal written contracts, but they all terminated pursuant to their terms on December 31, 2006 and were not formally extended or renewed in writing on or prior to their termination. Thereafter, Medicor continued to provide services and Hamot continued to make payments under the agreements. The parties eventually executed a series of “addendums” to extend the term of each arrangement, although these addenda had a prior effective date. During the timeframe between when the agreements expired and when the addenda were executed, invoices were continuously submitted and paid.

Plaintiff argued that the failure to execute timely written extensions in advance of renewals resulted in a failure of all six arrangements to meet the “writing” requirement under a relevant Stark Law exception. The Court disagreed, explaining that there is no requirement that the “writing” be a single formal agreement and CMS has provided guidance as to the type of collection of documents that could be considered when determining if the writing requirement is met at the time of the physician referral. In this case, the Defendants specifically relied upon the invoices from Medicor to Hamot and the checks that were sent in payment thereof.

In deciding that a reasonable jury could find that there was a sufficient collection of documents, the Court denied Plaintiff/Relator’s motion for summary judgment with respect to these six ‘expiring” directorships, and the case will proceed to trial on these claims.

Hospitals should carefully consider this opinion when auditing Stark Law compliance of their physician arrangements. A more detailed article analyzing this case will be published in the July edition of Compliance Today.

As the transition in Washington moves into high gear this month, it’s not just the new Administration and Congress that are putting in place plans for policy and legislation; stakeholders are busy creating agendas, too.

Many stakeholder agendas will seek to affect how government addresses such prominent health care issues as the Affordable Care Act, Medicare entitlements, fraud-and-abuse policies, FDA user fees, and drug pricing. There will be a myriad of stakeholder ideas, cutting a variety of directions, all framed with an eye to the new political terrain.

But whatever policies a stakeholder advocates, ideas must be translated into a form that that the political system can digest. For this to occur, an important technical conversion must take place; words must be conjured and organized so that desired policy can become legal reality.  This is no easy task, and stakeholders should proceed thoughtfully.

Here are five takeaways for making proposals concrete and workable:

1. Butterfly Effect

A “simple” contract (to buy a house, say) can end up getting pretty complicated, even when the stated rights and obligations apply to no more than two parties. In contrast, a policy proposal typically seeks to set arrangements for a broad array of parties (perhaps a whole economic sector) and thus will usually involve substantial complexity.

The large number of parties potentially affected means that even the most minor-seeming policy adjustment can have large, unintended, and unpredictable results – not dissimilar from how the proverbial flap of a butterfly’s wings can start the chain reaction that leads to a distant hurricane.

2. Pre-Drafting Steps

Taming the butterfly effect should begin before putting pen to paper. It starts with a clear view of the problem to be solved and the ways to solve it.  Notably, the legislative drafters available to Congress place some considerable emphasis on the steps that precede actual drafting.

For example, the House Legislative Counsel’s Office recommends use of a pre-drafting checklist that includes questions like these:  What is the planned policy’s scope (expressed as populations or subjects)?   Who will administer the policy?  Who will enforce it?  When should the policy take effect (and are transition rules needed)?  Each of these questions contains multiple sub-questions.

Similarly, the Senate Legislative Counsel’s Office points out that most legislated policies build on prior statutes. As such, it is important to know how new provisions will harmonize with — or will override — previously adopted language.  Making these judgments requires a solid grasp of existing legal authorities and ways these authorities have been interpreted.

3. Words on the Page

Translating concepts into words is a specialized task, for ultimately the words must be “right” – they must be technically sufficient to effectuate the policy intended.

It is not news that Congresses, Presidents, and courts sometimes have different views on the meaning of statutes, regulations, and other types of policy issuances. In theory, the drafting curative is to make the words so clear that only a single meaning is possible.  But realistically, legal contention often comes with the territory of a controversial policy, and so stakeholders should at a minimum avoid such unforced errors as these:

  • Obvious mistakes – e.g., purporting to amend a U.S. code title that has not been enacted into positive law;
  • Wrong law – e.g., confusing the statute that enacts new language with the statute that the new language amends;
  • Wrong time – e.g., getting the words right but putting them into effect for an unintended time period;
  • Imprecise labels – e.g., referring to concepts or parties via shorthand phrases similar to, but not identical to, defined terms; and
  • Vague references — e.g., omitting enough key details to confer unintended discretion on an agency or administrative official.

4. Document Silos

Today’s integrated world doesn’t look kindly on silos, but, in the specialized context of Washington policy development, they can be a helpful check on the temptation to combine technical drafting with political messaging.

The desire to combine these two forms of communication is understandable, for it is an appealing notion that policy proposals be “user friendly” so they can be quickly scanned for substantive gist. In fact, however, the practice is dilutive and dangerous; it can put the wrong words on the page and undermine policy intent.

A better course is for stakeholders to manage separately siloed sets of documents that, while consistent, operate at different levels of specificity. One silo should be reserved for the technically rigorous proposals that effect legal authority and a separate silo for “plain English” issue briefs, fact sheets, and other materials that summarize the authority.

5. Plug & Play

Washington policy debates are less often set battles, more often fast-moving skirmishes. Such places a premium on ability to adapt as new ideas emerge, political signals morph, and coalitions shift.  For the task of converting ideas into policies, there are at least two implications.

First, stakeholders should be prepared to think and draft in modules – in discrete chunks of policy that can be embedded in one or more larger proposals. In Congress, stakeholder-originated ideas are more likely to emerge as legislative amendments than as free-standing bills.

Second, stakeholders should be ready to iterate quickly as debate advances. Feedback from reviewers will often focus on proposal summaries because they are easier to read and understand.  But changes in response to comments must also be reflected in the technical proposals themselves.  Tight deadlines are the norm, so separately siloing the two types of documents (see above) will help speed an effective response when political opportunity strikes.

On December 31, 2016, the U.S. District Court for the Northern District of Texas issued a nationwide preliminary injunction that prohibits the U.S. Department of Health and Human Services (HHS) from enforcing certain provisions of its regulations implementing Section 1557 of the Affordable Care Act that prohibit discrimination on the basis of gender identity or termination of pregnancy. This ruling, in Franciscan Alliance v. Burwell (Case No. 7:16-cv-00108-O), a case filed by the Franciscan Alliance (a Catholic hospital system), a Catholic medical group, a Christian medical association, and eight states in which the plaintiffs allege, among other allegations, that the Section 1557 regulations force them to provide gender transition services and abortion services against their religious beliefs and medical judgment in violation of the Religious Freedom Restoration Act (“RFRA”).

By way of background, the Section 1557 regulations prohibit discrimination on the basis of gender identify, which regulations define to mean “an internal sense of gender, which may be male, female, neither, or a combination of male and female, and which may be different from an individual’s sex assigned at birth.”[i] The regulations prohibit a categorical insurance coverage exclusion or limitation for all health services related to gender transition and requires providers to provide transition-related procedures if the provider performs an analogous service in a different context. The plaintiffs also alleged that because they perform certain procedures for miscarriages, the Section 1557 regulations will require them to perform such procedures for abortions to avoid discriminating on the basis of termination of pregnancy.

The court held that the Section 1557 regulations failed to incorporate the exceptions for religious institutions and abortions services that Congress provided in Title IX. The court also found that Title IX, which is incorporated by Section 1557 statute, only prohibits discrimination on the basis of biological sex. The court further noted that “the government’s own health insurance programs, Medicare and Medicaid, do not mandate coverage for transition surgeries; the military’s health insurance program, TRICARE, specifically excludes coverage for transition surgeries. . .”[ii]

Specifically, the court concluded that “the regulation violates the Administrative Procedure Act (“APA”) by contradicting existing law and exceeding statutory authority, and the regulation likely violates the [RFRA] as applied to Private Plaintiffs.” The court also agreed that the plaintiffs would likely suffer irreparable harm without the injunction as “one of the State Plaintiffs is already undergoing investigation by the HHS’s OCR, and entities similarly situated to Private Plaintiffs have already been sued under the Rule since it took partial effect on May 18, 2016″ (emphasis added). Conversely, the court found that HHS will not suffer any harm by delaying implementation of this portion of the Section 1557 regulations. It should be noted that this is a ruling granting a preliminary injunction and a final ruling on the merits of a permanent injunction is still to come.

While an HHS appeal of this order would normally be expected, the impending change of Administration—including new leadership at HHS and an expected early Congressional push to repeal and replace the Affordable Care Act—makes it very uncertain whether an appeal will be filed, or ruled upon, prior to any possible changes in the regulatory scheme or underlying statute.

Health care entities should take note, however, that the remaining provisions of the Section 1557 regulations, including those that prohibit discrimination on the basis of disability, race, color, age, national origin, or sex (other than gender identity), are not impacted by the nationwide injunction and HHS can still enforce such provisions. Indeed, HHS has issued a broadcast email specifically stating that:

“[OCR] will continue to enforce the law—including its important protections against discrimination on the basis of race, color, national origin, age, or disability and its provisions aimed at enhancing language assistance for people with limited English proficiency, as well as other sex discrimination provisions—to the full extent consistent with the Court’s order.”

Health care entities should closely monitor this area of law for further developments and ensure that their operations are compliant with the remaining provisions of the Section 1557 regulations.

Further information regarding Section 1557 and its accompanying regulations can be found in EBG Client Alerts and Webinars.

[i] 45 C.F.R. § 92.4

[ii] The court cited Burwell v. Hobby Lobby Stores, Inc., 134 S. Ct. 2751, 2780 (2014). The Supreme Court will consider whether Title IX covers gender identity in Gloucester Cty. School Bd. V. G.G., Sup. Ct. No. 16-273, during the current term.

The Medicare Payment Advisory Commission (“MedPAC”) met in Washington, DC, on December 8-9, 2016. The purpose of this and other public meetings of MedPAC is for the commissioners to review the issues and challenges facing the Medicare program and then make policy recommendations to Congress. MedPAC issues these recommendations in two annual reports, one in March and another in June. MedPAC’s meetings can provide valuable insight into the state of Medicare, the direction of the program moving forward, and the content of MedPAC’s next report to Congress. At the annual December meeting MedPAC reviews draft recommendations to Congress regarding Medicare payment policy. MedPAC reviews and formalizes these recommendations during its January meeting.

As thought leaders in health law, Epstein Becker Green monitors MedPAC developments to gage the direction of the health care marketplace. Our five biggest takeaways from the October meeting are as follows:

1. MedPAC discusses recommending that Congress update Medicare inpatient and outpatient payments by the amounts specified in current law.

MedPAC reviewed the inpatient and outpatient hospital payment adequacy. In doing so MedPAC reviewed beneficiary access to care, provider access to capital, quality of care, and the impact of cost growth on hospital margin. MedPAC found that beneficiary access to care is good, provider access to capital is strong, quality is improving, and that margin for inpatient and outpatient hospital services in Medicare was at 9%. This led the MedPAC make a draft recommendation that Congress update the inpatient and outpatient payments as currently specified in existing law.

2. MedPAC finds annual volume growth in the clinician services highest in five year period, but that beneficiary access to clinician services remained comparable to private health insurance.

In reviewing payment adequacy to physicians and other health professionals MedPAC staff found that the annual volume growth in clinician services was higher in 2015 than it was in the period from 2010-2014. The staff also found that the growth in services reflected a shift from freestanding offices to hospital based settings. However, despite the growth in volume MedPAC also found that Medicare beneficiaries have comparable access to clinician services as those with private insurance. Based on this MedPAC’s draft recommendation to Congress is that they should increase payment rates for physician and other health professional services as specified in current law.

3. MedPAC considers recommending changes to how Medicare pays for skilled nursing facility (SNF) services.

MedPAC’s review of the current SNF payment model found that Medicare fee-for-service payments remain higher then Medicare Advantage payments for services and that differences in beneficiary population across payment models does not explain the payment differences. They also found that the current payment model has resulted in a wide disparity in SNF margins partially due to the current payment model favoring intensive therapy over medically complex care. MedPac’s draft recommendation is for Congress to eliminate the market basket for 2018 and 2019 and direct the Secretary of Health and Human Services to revise the prospective payment system for SNFs.

4. MedPAC considers recommending Congress eliminate the update to Medicare hospice payments for 2018.

MedPAC review of the Medicare hospice benefit found that the number of hospice providers has continued to increase and that the number of Medicare beneficiaries utilizing hospice has also increased. Medicare hospice providers saw a marginal profit of 11% in 2014. Given the strength of marginal profit and the increase of in the number of hospice providers MedPAC’s draft recommendation is that Congress should eliminate the update to the hospice payment rates for fiscal year 2018.

5. MedPAC considers recommending changes to Medicare’s home health payment model, including reducing the total payment level.

MedPAC found that Medicare home health benefits have resulted in a provider margin of better than 16% in the 2001 to 2014 period. MedPAC also found that the current payment model may be creating inefficiencies in treatment by incentivize multiple therapy visits per episode. To address these areas MedPAC’s draft recommendation is that Congress should reduce payments by 5% in 2018, and implement a two year rebasing of the payment system, beginning in 2019. Further, MedPAC draft recommendation is that Congress should direct the Secretary of Health and Human Services to revise the PPS to eliminate the use of therapy visits as a factor in payment determinations, concurrent with rebasing.

The Medicare Payment Advisory Commission (“MedPAC”) met in Washington, DC, on October 6-7, 2016. The purpose of this and other public meetings of MedPAC is for the commissioners to review the issues and challenges facing the Medicare program and then make policy recommendations to Congress. MedPAC issues these recommendations in two annual reports, one in March and another in June. MedPAC’s meetings can provide valuable insight into the state of Medicare, the direction of the program moving forward, and the content of MedPAC’s next report to Congress.

As thought leaders in health law, Epstein Becker Green monitors MedPAC developments to gage the direction of the health care marketplace. Our five biggest takeaways from the October meeting are as follows:

1. While Accountable Care Organizations received high marks for quality they failed to produce Medicare savings in 2015.

MedPAC staff provided a status report on Medicare Accountable Care Organizations (“ACOs”). The report found that while ACOs received high marks for quality they failed to produce significant Medicare savings in 2015. Pioneer model ACOs produced net savings of only $5 million while Medicare Shared Savings ACOs cost the Medicare program $216 million. The MedPAC staff conducted a review of the ACO data and found that ACOs in the south, those that are physician led, and are smaller in size were more likely to produce savings. However, the most important variable was the historic level of service use in the area where the ACO was located. Regions with a high historic use of services had more success producing savings.

2. MedPAC finds the rate of potentially avoidable hospital admissions varied significantly among long-stay nursing facilities.

As part of an ongoing project to develop measures to properly evaluate initiatives aimed at reducing the number of hospital admissions and use of skilled nursing facilities among long-stay nursing facility residents, MedPAC staff found a wide discrepancy among nursing facility providers. Overall the staff found that in 2014 long-stay nursing residents accounted for 200,000 “potentially avoidable” hospital admissions and 20 million days of skilled nursing facility care. They found that nursing facilities with fewer than 100 beds and rural nursing facilities made up a disproportionate share of facilities with high potentially avoidable hospital admission rates. The data showed that some facility-level characteristics affected the rate of potentially avoidable hospital admissions; facilities with higher portions of hospice days and access to x-ray services on site had lower potential avoidable admissions, and facilities with a higher use of licensed practical nurses and lower frequency of physician visits had higher rates of hospital use.

3. MedPAC considering suggesting changes to Part B drug payment policies.

MedPAC discussed a number of policy options with respect to the Part B drug payments. The options the Commission discussed sought to either increase price competition and address the growth in Part B prices or improve the current payment formula and available data.  The polices designed to increase price completion and address price growth  included: consolidating billing codes for drugs and biologics with similar health effects, limit the growth in drug prices based on inflation, and introduced a restructured competitive acquisition program. The policies designed to improve the payment formula and improve available data included: modifying the average sale price add-on formula, modifying the wholesale accusation cost formula, and strengthen the manufacture reporting requirements. MedPAC is expected to continue to actively work towards developing policy recommendations regarding Part B drug payment reforms.

4. MedPAC continues to develop a premium support model to reward high quality plans and ACOs and incentivize beneficiaries to seek out high quality care.

As part of its efforts to develop a payment model that rewards high quality care and incentivizes beneficiaries to seek high quality care MedPAC continued its discussion of alternative quality measures that could be used across the Medicare delivery system. Under this alternative model Medicare would use a smaller number of population based health outcomes and patient experience to measures to measure quality across the delivery spectrum (including fee-for service). The Commission suggests that these quality measures be collected at a local market level; each market will then be given a quality benchmark based on the measures. Medicare Advantage (“MA”) plans and ACOs which have quality scores that are higher than the benchmark would see an increased federal contribution to lower beneficiary premiums, with the hope of pushing more beneficiaries into higher quality delivery systems based on the lower beneficiary premiums.

5. MedPAC is considering how to improve Medicare’s behavioral health benefits.

MedPAC staff gave an overview of behavioral health issues among Medicare beneficiaries and of highlighted potential areas for programmatic improvement. The staff suggested Medicare improve payment of inpatient psychiatric care and work towards integrating primary care delivery and behavioral health services. MedPAC appears to be committed to dedicating more resources towards developing policy options for achieving these suggestions in the future.

The Medicare Payment Advisory Commission (“MedPAC”) met in Washington, DC, on September 8-9, 2016. The purpose of this and other public meetings of MedPAC is for the commissioners to review the issues and challenges facing the Medicare program and then make policy recommendations to Congress. MedPAC issues these recommendations in two annual reports, one in March and another in June. MedPAC’s meetings can provide valuable insight into the state of Medicare, the direction of the program moving forward, and the content of MedPAC’s next report to Congress.

As thought leaders in health law, Epstein Becker Green monitors MedPAC developments to gage the direction of the health care marketplace. Our five biggest takeaways from the September meeting are as follows:

  1. MedPAC expects Medicare spending growth to outpace GDP, with total Medicare spending to reach approximately $1 trillion by 2025
    MedPAC began its September meeting with a discussion of the projected growth in the Medicare program. Although the growth in both Medicare and overall health care spending slowed from 2009 to 2013, the Congressional Budget Office (“CBO”) and the Medicare Trustees (“Trustees”) project that total Medicare spending will return to growing at a rate that outpaces gross domestic product (“GDP”) growth. Driven by an increase in both enrollment and per beneficiary spending, the CBO and Trustees project that total Medicare spending will grow at an average rate of 7 percent annually through 2025; if these projections are accurate, the Medicare program will almost double in size—from $600 billion in 2015 to approximately $1 trillion 2025.
  2. MedPAC predicts the trends in Medicare to trigger action from the Independent Payment and Advisory Board in 2017
    MedPAC staff expects the growth in Medicare spending to trigger action from the Independent Payment and Advisory Board (“IPAB”) at some point in 2017. Created by the Affordable Care Act, IPAB is an independent board tasked with proposing Medicare policies designed to reduce spending growth. As of now, no one has been appointed to IPAB. If there are no members when Medicare growth triggers IPAB action, IPAB’s authority will transfer to the Secretary of Health and Human Services. The Secretary will then be required to fulfill IPAB’s role, and the Secretary’s savings proposals will automatically become law unless Congress affirmatively acts to block the proposals.
  3. Physician practice sizes continue to grow, and a greater number are affiliating with health systems and hospitals
    MedPAC staff, using the SK&A Office-based physician database (a commercial database file with information on almost 600,000 physicians), determined that the number of physicians who reported as affiliated with a health system or hospital rose from 34 percent in 2012 to 39 percent in 2014. Over that same time period, the percentage of physicians working in practices with more than 50 physicians grew from 16 percent to 22 percent. MedPAC plans to look deeper into the size and affiliation of physician practice groups, including the geographic distribution of practice groups, to more accurately understand the infrastructure needed to move towards alternative payment models.
  4. MedPAC will focus on recommending steps for adjusting the clinician fee schedule to address “misvalued” services
    MedPAC expressed concern that certain clinician services, mainly primary care, are undervalued and undercompensated as a part of the clinician fee schedule. Accordingly, MedPAC will continue to look at recommendations to improve the Relative Value Scale Update Committee (or “RUC”) process and make suggestions to increase payment for primary care services, including a potential partial capitation payment for primary care services.
  5. MedPAC is considering how to evaluate initiatives for reducing avoidable hospitalizations of long-stay nursing facility residents
    MedPAC staff gave an overview of provider initiatives to reduce avoidable hospitalizations of nursing facility residents. These initiatives included efforts made in conjunction with the Center for Medicare and Medicaid Innovation that feature a new three-part payment model. The new model will make payments to facilities for providing treatment for qualified conditions, increase payments to clinicians for providing treatment in nursing facilities, and establish a new payment to providers who conduct care coordination in nursing facilities. MedPAC is planning on developing measures to evaluate the success of these initiatives at reducing cost and improving beneficiary care.

On July 7, 2016, the Centers for Medicare and Medicaid Services (“CMS”) imposed several administrative penalties on Theranos, a clinical laboratory company that proposed to revolutionize the clinical laboratory business by performing multiple blood tests using a few drops of blood drawn from a finger rather than from a traditional blood draw that relies on needles and tubes. However, after inspecting the laboratory, CMS concluded that the company failed to comply with federal law and regulations governing clinical laboratories and it posed an immediate jeopardy to patient health and safety. CMS has revoked the CLIA certification of the company’s California lab, imposed a civil monetary penalty of $10,000 per day until all deficiencies are corrected, barred Medicare or Medicaid reimbursement for its services, and excluded its founder and CEO from owning or operating a clinical laboratory for two years.

Although Theranos’s history has received an outsize amount of media attention, its experience with regulatory agencies highlights several important issues for start-up and emerging health care entities:

What Do Regulators Want?

It is no surprise that health care is one of the most highly regulated sectors of the U.S. economy, and that noncompliance with health care laws and regulations can result in penalties that can cripple an organization or force it to shut down. As a result, even in an environment that encourages innovation, health care organizations must understand the scope of regulatory oversight at the federal and state levels, and the range of remedies available to regulators for noncompliance. Every organization should also have a protocol in place for responding to regulatory inquiries or inspections.

What Do Health Care Providers and Payors Want?

Adopting a new health care technology is an intensely data-driven process. This is especially the case with clinical laboratories, which are subject to rigorous requirements for proficiency, quality assurance, and training. This burden is greater for laboratory-developed tests, commonly known as “home brew” tests, because they are currently exempt from FDA oversight.

In most cases, the innovator sponsors clinical studies subject to peer review and publication to demonstrate the efficacy of the new technology. These trials can also generate the clinical and cost data needed to convince practitioners that the test has reliable diagnostic or clinical value, and to persuade payors that the test is medically necessary.

However, Theranos declined requests to sponsor studies or disclose data. This was a red flag for many clinicians. In the interim, a group of independent investigators published a study based on a small sample of patients and found that the Theranos’s results were more variable than the results obtained from the same blood samples sent to laboratories using standard equipment. These variations were significant enough that they had the potential to affect clinical decision-making and jeopardize patients.

Who Is Investing in the Venture?

For start-up companies, committed investors are indispensable. Although early-stage investors are accustomed to risk, they also depend on reliable data to gauge whether health care professionals will adopt a new technology, and whether health plans will cover and pay for that technology. In Theranos’s case, several investors with experience in health care start-ups did not invest in the company because it did not release data on its proprietary technology and did not conduct or sponsor well-controlled clinical trials.

Who’s on Board?

The critical role of health care regulations demands that a company’s management and board be familiar with the key challenges and potential barriers to entry under the applicable regulatory framework. Nevertheless, at the time of the CMS survey Theranos’s board reportedly lacked individuals with specific experience in health care operations or clinical laboratories; however, it included two former Secretaries of State (one of whom had also been the dean of a business school), two former U.S. senators, the CEO of a bank, and retired military officers. While it is unclear how much the board knew of potential regulatory risks, the fact that CMS determined that the company had not made a “credible allegation of compliance” in response to any of the deficiencies in the initial survey report is an indicator that CMS did not believe that the company’s management and directors may not have appreciated the regulatory requirements or how to avoid or minimize these significant risks.

2016 is poised to be a major year in network adequacy developments across public and private insurance markets.  Changes are ahead in the Medicare and Medicaid managed care programs, the Exchange markets and the state-regulated group and individual markets, including state-run Exchanges.  The developing standards and enforcement will vary significantly across these markets.

Through 2014 and 2015, major news stories discussed concerns over the growing use of narrow provider networks by issuers on the Affordable Care Act’s insurance exchanges (“Exchanges”).  Others reported on enrollees’ frustration with receipt of unexpected charges from out-of-network practitioners when receiving treatment at in-network facilities (often referred to as “surprise bills”).  As a result, calls for improved network adequacy and transparency mounted.  A September 2014 HHS Office of Inspector General (OIG) report was critical of variation in state oversight of the Medicaid managed care market.  An August 2015 Government Accountability Office (GAO) report called for greater CMS network oversight in the Medicare Advantage market.  In response, a series of proposed rules and other changes have accumulated –

Medicare Advantage (MA) – In April 2015, CMS announced in a Call Letter that it will impose more stringent network adequacy requirements in the application process for MA plans.  To address surprise provider terminations, CMS will require 90 days notice of any significant mid-year changes.  Additionally, plans must establish and maintain a process to keep provider directories current in real-time.  CMS intends to monitor compliance and is considering a CY2017 requirement for standardized electronic submission for inclusion in a nationwide provider database.  CMS has also expressed its intent to review network adequacy as part of its regular program audits, as a pilot in 2016 and as a standard feature in 2017.

Medicaid Managed Care – In May 2015, CMS released the first proposed rule to make comprehensive changes to its Medicaid managed care rules in 12 years, including new quantitative network adequacy standards.  Once finalized, states would be required to establish time and distance standards for specific provider types, including primary care (adult and pediatric), OB/GYN, behavioral health, specialists (adult and pediatric), hospital, pharmacy, pediatric dental, and any “additional provider types when it promotes the objectives of the Medicaid program for the provider type to be subject to such time and distance standards.”[1]  Interestingly, CMS suggested in its proposed rule that states look to MA and state commercial standards as models.

Federal Exchanges – In December 2015, CMS, through its Center for Consumer Information and Insurance Oversight (CCIIO), released a proposed rule that featured more prescriptive network adequacy standards for Qualified Health Plans (QHPs) offered on the federal Exchange.  Where CCIIO is satisfied that a state uses “an acceptable quantifiable metric,” it will defer to their review of QHPs.  In other states, a default federal standard would apply.  Starting in 2017, CMS expects to take a similar approach as to MA and apply time and distance standards, with an emphasis on high-utilization specialties.  While CMS says it will not “prohibit certification of plans with narrow networks or otherwise impede innovation in plan design,”[2] it intends to set a floor with the federal Exchange default standards and it seeks greater network transparency.  Toward that end, ratings on QHP network coverage may be a future feature of HealthCare.gov.

State Regulated Group and Individual Markets – In November 2015, the National Association of Insurance Commissioners (NAIC) released a long-awaited network adequacy model act with more detailed requirements than federal and many state standards.  While the act would not impose quantitative standards such as provider number and type requirements, it does include reimbursement parity provisions for emergency and out-of-network facility-based providers.

Looking Ahead

With legislative sessions underway in all but four states this year, there are several important developments to watch for in 2016.  Some states will adopt the NAIC model act, in whole or in part, or use the act as a baseline from which to tailor its own standards.  Other states will decline to adopt it, leaving existing standards intact that range from minimal to highly detailed and prescriptive.  With increasing pressure from CMS across markets, some states may seek to aggressively increase the specificity of their network adequacy standards, adding number and type requirements or legislating that their insurance commissioners do so through an administrative process.  Some states may consider aligning standards across markets to ensure regulatory uniformity.  While there is nothing in the model act that suggests states increase oversight and enforcement activities, CMS is clearly increasing its own oversight and is pushing states to set a floor for state level access standards.  Changes to the landscape will come better into focus as CMS releases its final rules for all of the above proposed changes.

 

[1] 80 Fed. Reg. at 31145.

[2] 80 Fed. Reg. at 75550.

On September 28, 2015, the Centers for Medicare & Medicaid Services (“CMS”) issued a request for information (“RFI”) seeking comments on two key components of the physician payment reform provisions included in the Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”), the law enacted on April 16, 2015, repealing the sustainable growth rate formula used to update payment rates under the Medicare Physician Fee Schedule.  The RFI was originally open for a 30-comment period.  However, CMS has announced that it is extending the comment period for an additional 15 days.  Comments to the RFI are now due to CMS on November 17, 2015.

The RFI included an extensive list of questions related to the implementation of the Merit-Based Incentive Program System (“MIPS”), as well as adoption and physician participation in Alternative Payment Models (“APMs”) and Physician-Focused Payment Models (“PFPMs”).  More details on the questions that CMS has raised and the areas where CMS is seeking input in the RFI are discussed in the Epstein Becker Green Client Alert, “New Opportunity to Comment on Key Components of Medicare Physician Payment Reform: CMS Issues 30-Day Request for Information on MIPS and APMs.”

Importantly, in the CMS announcement extending the public comment period released on October 15, 2015, CMS identified sections and questions in the RFI that are of higher priority to the agency.  For example, CMS has ranked questions about how physicians should be identified to determine eligibility, participation, and performance under the MIPS performance categories, and what measures and reporting mechanisms should be used for each of the four MIPS performance categories (quality, resource use, clinical practice improvement activities, and meaningful use of certified electronic health record technology), above questions about public reporting requirements, use of measures from other payment systems, and the weighting of performance categories and the determination of performance scores and thresholds.  Similarly, for questions related to the adoption of APMs, CMS has prioritized questions about how to define the amount of services furnished through an eligible APM entity, how to determine the Medicare and other payer payment thresholds used to identify qualifying and partial qualifying APM participants, and how to compare state Medicaid medical home models to medical home models expanded under Section 1115A(c) of the Social Security Act.  Given the short period of time to provide comments to CMS, stakeholders should consider the priority rankings that CMS has assigned to the various topics that it is seeking input on.

All stakeholders, not just physicians, should consider how the fundamental shift in Medicare physician payments, from traditional fee-for-service to value-based models, will impact them.  It is important to engage with CMS now by submitting comments to the RFI, in order to shape how these new payment mechanisms are implemented in the years to come.  For additional information about the physician payment reforms implemented in MACRA, or if you are interested in submitting comments to CMS, please contact Lesley Yeung or the Epstein Becker Green attorney who regularly handles your legal matters.