On January 5, 2018, consistent with the 21st Century Cures Act’s focus on creating interoperability and correspondingly a Trusted Exchange, the Office of the National Coordinator for Health Information Technology (“ONC”) released its “Draft Trusted Exchange Framework” (“Draft Framework”).  The Draft Framework is intended to streamline the exchange of Electronic Health Information (“EHI”) so that both health care providers and patients have better access to health information, thus improving communication and quality health care.  EHI includes information beyond protected health information, such as health information from other consumer driven devices.  ONC has asked for public comments; the comment period is open until February 18, 2018.

ONC’s Draft Framework develops a mechanism to connect Health Integrated Networks (“Qualified HINs”) across the country. The ONC intends to select a single Recognized Coordinating Entity (“RCE”) through a competitive bidding process, which will be open in the spring of 2018.  The RCE’s responsibilities will be to develop the Common Agreement and operationalize the Trusted Exchange.  The Draft Framework includes the Principles of a Trusted Exchange (Part A) and the minimum terms and conditions that will be required for a Trusted Exchange (Part B) (the contractual terms that operationalize the principles of Part A).

The Draft Framework sets a number of conditions on Qualified HINs, some of which may require more direct interaction with patients than currently exists, or may require the Qualified HIN to disclose information that might otherwise be considered proprietary to the Qualified HIN. The biggest takeaways from the Principles (Part A) are:

  • Qualified HINs will be expected to use standards adopted or recognized by ONC’s Health IT Certification Program and Interoperability Standards Advisory (“ISA”) or industry standards readily available to all stakeholders;
    • Participants of Qualified HINs that provide services and functionality to providers are expected to follow the 2015 Edition Health IT Certification Criteria, 2015 Edition Base Electronic Health Record (EHR) Definition, and ONC Health IT Certification Program Modification final rule (“2015 Edition final rule”), and associated guidance for the certification of health IT; and
    • Qualified HINs and participants will be expected to implement processes that encourage more “person-centered” care;
  • Qualified HINs will be required to operate openly and transparently by:
    • Making terms and conditions for participation publicly available;
    • Supporting permitted uses and disclosures of EHI. Qualified HINs that only support HIPAA Treatment purpose exchanges, may want to support additional permitted purposes;
    • Making their privacy practices publicly available;
  • Qualified HINs must cooperate with and not discriminate among the various stakeholders across the continuum of care by not implementing policies, procedures, technology or fees that will obstruct access and exchange of EHI between other Qualified HINs, participants, and end users;
  • Qualified HINs must exchange EHI securely and in a manner that preserves data integrity by:
    • Including appropriate information to ensure the correct matching of individuals to their EHI; and
    • Ensuring providers and other organizations are confident that appropriate consents and authorizations have been captured;
  • Qualified HINs must ensure that individuals have easy access to their information by:
    • Ensuring full and consistent access to information; and
    • Having policies in place to allow an individual to withdraw or revoke his or her participation in the Qualified HIN; and
  • Qualified HINs will be expected to support the ability for participants to pull and push population level records—bulk transfer—in a single transaction rather than transmit one record at a time.

The Draft Framework is ONC’s most significant push toward interoperability among electronic health care systems and most likely will affect all stakeholders in the health IT industry and their participants at some point.

On December 21, the Department of Justice (“DOJ”) reported its fraud recoveries for Fiscal Year 2017. While overall numbers were significant – $3.7 billion in settlements and judgments from civil cases involving allegations of fraud and false claims against the government – this was an approximate $1 billion drop from FY 2016. However, the statistics released by DOJ reflect themes significant to the healthcare industry.

Greatest Recoveries Come From The Healthcare Industry

As in years past, matters involving allegations of healthcare fraud were the driver, accounting for more than 66% of all fraud related recoveries in FY 2017. While the $2.47 billion was effectively constant from FY 2016, this was the fourth largest recovery in the past 30 years. It is also the eighth consecutive year that healthcare fraud recoveries exceeded $2 billion.  Largest recoveries came from settlements involving the drug and medical device sector.

Qui Tam Cases Lead Recoveries – and Healthcare Cases Dominate

Cases pursued under the False Claims Act’s qui tam provisions continue to drive matters pursued against healthcare entities. Of the 544 new matters brought in FY 2017, 491 were initiated by relators, down just slightly from 2016 but, nevertheless, the third largest annual filing since DOJ began keeping records in 1986.

Government intervention in these cases continues to generate the lions share of the recoveries. Of the $2.47 billion recovered in healthcare matters, $2.06 billion was generated from cases where the government intervened. While by contrast cases in which the government declined to intervene generated $380 million, this was the second-highest annual recovery from such cases in 30 years. Thus, while government intervention continues to be a significant concern, the reality is that more cases are being pursued by relators post declination, creating additional risk for healthcare entities.

DOJ statistics also confirm the significant financial incentives for relators to pursue these cases. In FY 2017, the government paid more than $392 million in relator share awards; more than $283 million of these payments came in connection with healthcare cases. Since 1987, almost $5 billion has been paid to realtors. These numbers suggest that the potential of a major financial reward is real and will continue to encourage the filing and pursuit of actions, particularly against those in the healthcare industry.

Individual Accountability Remains A Priority…Particularly in Healthcare
Finally, the report reflects the Department’s continued focus on individual accountability. Recoveries included individuals agreeing to hold themselves jointly and severally responsible for multimillion dollar settlements with the government, as well as individual settlements following, and separate and apart from, corporate resolutions.

Significantly, every case cited in DOJ’s press release on the issue of individual accountability was from the healthcare sector. This suggests that those employed in the healthcare industry remain key targets of both the government and qui tam relators.

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The FY 2017 DOJ statistics reflect that a change in Administration has done little to alter the government’s belief that devoting time and resources to FCA cases makes “good business sense.” Health care entities—and, as important, individuals in the healthcare industry—need to be mindful of this focus, the potential for violations and to ensure the existence of strong compliance functions to deal with compliance-related matters in a way that is intended to prevent claims and litigation, and to serve as strong defenses when matters are pursued.

At this point, it’s not really ground-breaking news that America has a problem with opioid drugs. By way of anecdote, when I became a federal prosecutor in 2011, the last heroin case that had been prosecuted in the Nashville U.S. Attorney’s office was in the early-1990s; although, to be fair, there were then lots of what we called “pill” cases involving opioids. When I left the office in 2017, at least half of the office’s major investigations were directly related to opioids–some pills, but mostly outright heroin or fentanyl/carfentanyl . In Nashville, Tennessee, OxyContin (which is an opioid-based painkiller) can be worth up to $1.25/milligram (mg). That means that just one 80mg OxyContin has a street value of $100. Price, is of course, a reflection of demand and demand, in this case, is driven by addiction.

That addiction is costing Americans a lot of money. The White House estimates that in 2015, over 33,000 Americans died from opioid related overdoses and that the economic cost of the opioid crisis was $504.0 billion, or 2.8% of GDP. To put that in some perspective, 2015 U.S. healthcare spending accounted for 17.7% of GDP, which means that Americans spent ~1/6 as much on opioids as they did on healthcare. State governments, often stuck footing the bill for indigent addicts because of increased law-enforcement activity and drug/medical treatment, are looking at the opioid manufacturers and distributors to help pay some of this cost.

In September, 41 state attorneys general announced serving subpoenas on 6 opioid manufacturers as part of a multi-state investigation into whether the companies engaged in any unlawful practices in the marketing and distribution of prescription opioids. The attorneys general are also looking into the distribution practices of 3 pharmaceutical distributors that account for the distribution of roughly 90% of the U.S. opioid supply. According the N.Y. State AG, opioid distributors alone make nearly $500 billion a year in revenue, but those numbers (perhaps as a result of the market response to the negative publicity generated by all of this) might not be as robust as they once were. Stock prices (many of these companies are privately held) for two of the manufacturers subject to the AG subpoenas have seen stocks nose dive by ~90% and ~75% respectively after both achieving all-time highs in 2015. Of course, the reason for those drops is likely non-singular, but the timing does perhaps signal the market’s appetite for risk.

So, obviously, if you are an AG looking to combat a public health disaster, going after the manufacturers of opioids (who, at least in 2015, had lots of money), much like the manufacturers of tobacco is pretty appealing. That said, there are some considerations that are likely to be major impediments in the effort to make this into a big tobacco settlement:

  1. Prescription pills are prescribed by a medical doctor. Unlike the pack of cigarettes bought at the gas station from a clerk whose only responsibility is to verify age, opioids are, ostensibly, ordered by someone with years of advanced medical training. Pinning all the responsibility (or even just “most of it”) on manufacturers and distributors alone will be a challenge.
  2. The success of the tobacco litigation was driven in no small part by the efforts of Richard “Dickie” Scruggs, the exceptionally well-connected Mississippi lawyer who spearheaded the class-action effort and coalesced all the states into letting him be the point-man for all negotiations. Much of what made Scruggs successful in that effort–1) the self-proclaimed advantage of home cookin‘; 2) the ability to wheel and deal in the Capital thanks to his access to then Senate Majority Leader, and brother-in-law, Trent Lott; 3) the close relationship with then Mississippi Attorney General Mike Moore (who, coincidentally, is advocating for the opioid suit, this time as a plaintiff’s attorney)–is unlikely to fly in today’s world given the guttural uneasiness associated with any of the tactics utilized by Scruggs, now a convicted felon for attempting to bribe a judge in a post-Katrina litigation, and overall discomfort with anything that smacks of nepotism.
  3. The stated goal of many of the proponents of the tobacco litigation was to put cigarette manufacturers out of business–this, of course, is a sentiment still voiced by some. But, no one is realistically seeking to litigate these pharmaceutical companies into the ground. While these companies manufacture opioids, they also research and manufacture drugs that help treat pediatric Crohn’s disease, multiple sclerosis and Parkinson’s disease, among others. Simply, even if there is a settlement in all of this, the reality is that the settlement is likely to contemplate the ability of these companies to continue to research and manufacture the next wave of pharmaceutical improvements.

On December 14, the Federal Communications Commission (FCC) voted to remove regulations that prohibit providers from blocking websites or charging for high quality service to access specific content. Many worry that allowing telecommunications companies to favor certain businesses will cause problems within the health care industry. Specifically, concerns have risen about the effect of the ruling on the progress of telemedicine and the role it plays in access to care. Experts worry that a tiered system in which service providers can charge more for speed connectivity can be detrimental to vulnerable populations.  Although the ramifications of the ruling are not entirely known, an exception for health care services would ensure that vulnerable populations can continue to gain access to care.

Telemedicine is often used as a tool to improve care by providing access to those who wouldn’t ordinarily have access to care. Through video consultation, patients have the ability to check-in with health care providers and access health specialists. Robust connectivity is vital for these services and community providers, and rural areas may lack the financial means to pay for optimal connectivity in a tiered framework.

In the past, the FCC recognized the importance of broadband connectivity to the health care industry. In 2015, the FCC‘s Open Internet Order acknowledged that health care is a specialized service that would be exempt from conduct based rules.  However, the new rule may undermine the 2015 Order and thus leave vulnerable populations at risk.

Moreover, the technology industry would likewise benefit from a health services exception. Innovation in health care delivery could be stifled by the FCC ruling and hurt the population as a whole. From tech start-ups to access-to-care advocates, various members of the health care ecosystem may need to anticipate building coalitions and urge the FCC to create an exception for health care services.

The Medicare Payment Advisory Commission (“MedPAC”) met in Washington, DC, on December 7-8, 2017. 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 gauge the direction of the health care marketplace. Our five biggest takeaways from the December meeting are as follows:

  1. MedPAC proposes replacing the Merit-Based Incentive Program with a new Voluntary Value Program.

MedPAC provided an overview of the Chairman’s draft recommendation for an alternative to the Merit-Based Incentive Program (“MIPS”). As discussed in the October and November meetings, MedPAC is concerned that the MIPS is burdensome, inequitable, and will neither improve care for beneficiaries, nor move the Medicare program and clinicians towards high-value care. Because clinicians are reporting in 2017 for the 2019 payment year, MedPAC feels it is imperative that the Congress act now. The Chairman’s draft recommendation asks the Congress to eliminate the current MIPS and establish a new voluntary value program (“VVP”) in fee-for-service Medicare.

The proposed VVP would use a uniform set of population-based measures in the categories of quality, patient experience, and cost or value. The measures would assess care across time and delivery systems, align with other Medicare value-based purchasing programs and advanced alternative payment model (“A-APMs”), and are consistent with outcomes important to beneficiaries and the program. Clinicians would join voluntary groups of other clinicians whose performance as a whole would determine if they qualified for a value payment. Value payments would be funded by a “withhold” applied to all participating clinicians.

Congress will still need to consider and discuss the various tradeoffs, including the size of the withhold and the value payment, as well as how the voluntary group’s composite score would be calculated.

  1. MedPAC reports on payment adequacy and updates for Hospice Services.

MedPAC discussed the Chairman’s draft recommendation to the Congress for Hospice Services. The Chairman’s draft recommendation reads: “The Congress should eliminate the fiscal year 2019 update to the hospice payment rates.” Given that the indicators of payment adequacy within the current system have shown favorable results and the industry has sustained comfortable profit margins, MedPAC believes that hospice providers will be able to cover cost increases in 2019 without any increase in their payment rates. In 2015, the aggregate margin for the industry was 10%, and the marginal profit was 13%. For 2018, the projected aggregate margin for hospice is 8.7%. Additionally, MedPAC reported an increase in both the supply of hospice providers, and in the use of hospice. The number of providers for hospice services increased by 4% in 2016, and approximately 1.4 million beneficiaries elected the hospice benefit. MedPAC also saw a growth in the total number of days beneficiaries remained in hospice, reaching 100 million days in 2016. Specifically, MedPAC noted that longer stays were generally recognized to be more profitable than shorter stays. As a result, MedPAC attributes differences in financial performance across different types of hospice providers largely to the length of stay.

MedPAC expects this recommendation to have no adverse impact on beneficiaries nor the providers’ willingness or ability to provide hospice care.

  1. MedPAC recommends a new payment system within each post-acute care setting.

MedPAC followed up November’s discussion regarding methods to increase the equity of payments within each post-acute care (“PAC”) setting, by combining the setting-specific and PAC prospective payment system (“PAC PPS”) relative weights to establish payments in each setting (e.g., Skilled Nursing Facilities (“SNFs”), Home Health Agencies (“HHAs”), Inpatient Rehabilitation Facilities (“IRFs”), and Long-Term Care Hospitals (“LTCHs”)).  This would be done prior to implementing a unified payment system.  Specifically, MedPAC is concerned that the current PAC payment system fosters different payment for the treatment of similar conditions merely because of different settings, lacks evidence-based guidelines for treatment, and has the effect of incentivizing providers to avoid medically complex patients.

MedPAC recommends blending the current relative weights and the relative weights from the PAC PPS, which will shift payments across conditions. Payments will then be more closely aligned with the cost of care across conditions and thus increase the equity of payments within each setting.  This payment redistribution would, for example, increase payments for medically complex care while decreasing payments for patient stays that involve therapy not related to a patient’s condition.  Payments for providers would be redistributed based on the mix of conditions they treat and their current therapy practices.  The result would increase payments to nonprofit providers and hospital-based providers, and decrease payments to for-profit facilities and freestanding providers.

The Chairman’s draft recommendation will ask Congress to direct the Secretary to begin basing Medicare payments to PAC providers on a blend of the setting-specific relative weights and the unified PAC PPS relative weights in fiscal year 2019.

  1. MedPAC recommends updating the payment system for Skilled Nursing Facilities.

Skilled Nursing Facilities (“SNFs”) Medicare payments are very high when compared to the cost of care. In 2008, MedPAC recommended revising the prospective payment system (“PPS”) because it found that although a provider’s costs increases as more therapy is furnished, payments increase even more, thereby making therapy more profitable if furnished than if not furnished.  Therefore, consistent with the Chairman’s draft recommendation, MedPAC recommends: (1) eliminating the market basket for fiscal years 2019 and 2020, (2) directing the Secretary to report to Congress on the impacts of the revised PPS, and (3) making any additional adjustments needed to more closely align payments with the costs in fiscal year 2021.

Implementing the revised SNF PPS would redistribute payments across conditions and narrow profitability differences across providers. This would enable MedPAC to recommend, and for policymakers to implement, a level of payments that would more closely reflect the cost of care.  According to MedPAC, the revised PPS would not have any adverse impact on beneficiaries, but would increase access to care for medically complex patients.  Payments would shift from freestanding SNFs and for-profit SNFs to hospital-based and non-profit providers.  This would result in a reduction of disparities in Medicare margins across providers.

  1. MedPAC updates payments for hospital inpatient and outpatient services.

MedPAC expects negative Medicare margins in 2018, based on 2016 margins, policy changes during 2017 and 2018, expected price inflation, and mandated ACA adjustments. Yet, MedPAC expects hospitals to continue to have financial incentive to take on Medicare patients because projected Medicare revenues are expected to exceed marginal costs in 2018.  Accordingly MedPAC’s estimated update for inpatient and outpatient rates for 2019 will be 1.25% if current estimated market basket for 2018 remains at 2.8%.  Accordingly, the Chairman’s draft recommendation asks Congress to increase the 2019 payment rate for acute-care hospitals by 1.25%.  MedPAC predicts that the overall Medicare margin will decline from negative 9.6% in 2016 to about negative 11% in 2018.  MedPAC also expects cost growth to be larger than payment updates, which are equal to expected input price inflation, as the margin declines due to expected cost growth around 2.5% per year.  MedPAC does not expect any impact on program spending or on beneficiaries or providers.

The 21st Century Cures Act (“Cures Act”) was enacted in December of 2016.  Among other things, the Cures Act includes provisions to encourage the interoperability of electronic health records. Specifically, the Cures Act provides for civil penalties for those who engage in “information blocking.”  The Cures Act defines “information blocking” broadly as a “practice that . . . is likely to interfere with, prevent, or materially discourage access, exchange or use of electronic health information” if that practice is known by a developer, exchange, network, or provider as being likely to “interfere with, prevent, or materially discourage the access, exchange, or use of electronic health information.”  42 U.S.C. §300jj-52(a).  The penalty for vendors is up to $1 million “per violation.”

The Office of the National Coordinator for Health IT is reported to be currently working on a draft rule on information blocking – which many hope will address a number of issues including guidance that: distinguishes between information blocking and technology implementation issues; provides for a standard for when a practice is “known” or should have been known; and describes how the “per violation” will be defined and applied.  Although there has been some suggestion that the proposed rules will be released prior to the end of the year, the Director of the Office of the National Coordinator has not indicated when he thinks the proposed rule will be released.

The state-action antitrust exemption grew out of the 1943 decision of Parker v. Brown, 317 U.S. 341 (1943), in which the Supreme Court explained that “nothing in the language of the Sherman Act or in its history suggests that its purpose was to restrain a state or its officers or agents from activities directed by its legislatures.”  And, relying on principles of federalism, the Supreme Court gave deference to the state as a sovereign body.

Subsequent decisions expanded the reach of state-action to state and local governmental agencies (including counties and municipalities), as well as private parties.  In California Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97 (1980), the Supreme Court held that the actions of state and local governmental agencies was exempt if they were undertaken pursuant to a clearly articulated state policy.  Also in Midcal, the Supreme Court ruled that private parties could take cover under this exemption if they acted pursuant to a clearly articulated state policy and were actively supervised.

However, the federal enforcement agencies have become increasingly frustrated with what, in their view, are the adverse competitive consequences of state-action, particularly as it relates to the health care industry. And, over the years they have actively pursued cases designed to shape and narrow this judicially created exemption.  For example, based on cases brought by the Federal Trade Commission, the Supreme Court clarified that only activity that is undertaken pursuant to a “clearly articulated and affirmatively expressed” state policy to displace competition, and is the “foreseeable result” of what the state authorized, can be covered by state-action, see FTC v. Phoebe Putney Health Sys., 568 U.S. 261 (2013), and, more recently, the Supreme Court agreed that even activities of a state agency (such as a state licensing board) must be actively supervised before state-action can apply if the agency is dominated by market participants, see N.C. State Bd. of Dental Exam’rs v. FTC, 135 S. Ct. 1101 (2015).

And the assault on state-action continues. Maureen K. Ohlhausen, the acting Chair of the Federal Trade Commission (until confirmation of Joseph Simon), in a recent speech given at the George Washington University Law School entitled Competition Policy at the FTC in the New Administration, indicated that the Commission will continue to “work to define and confine the anticompetitive effects that flow from state action.”  And earlier in November, the Federal Trade Commission and the Antitrust Division of the Department of Justice jointly filed an amicus brief in the United States Court of Appeals for the Ninth Circuit in the matter of Chamber of Commerce v. City of Seattle (Appeal No. 17-35640), seeking to convince the Court (in a case to which neither federal agency is a party) to apply an extremely narrow interpretation of conduct covered by a Seattle ordinance regulating the provision of taxi services.

The bottom line is that as a matter of stated policy, the federal antitrust enforcement agencies will continue their pursuit to limit application of the state-action exemption, and parties looking to rely on state-action to insulate their activity from antitrust challenge should take note. Attacks on other judicially created antitrust exemptions, and to the extent possible, Certificate of Need and Certificate of Public Advantage statutes, will also continue.

There has been a growing trend of strategic joint ventures throughout the healthcare industry with the goal of enhancing expertise, accessing financial resources, gaining efficiencies, and improving performance in the changing environment. This includes, for example, hospital-hospital joint ventures, hospital-payor joint ventures, and hospital joint ventures with various ancillary providers (e.g., ambulatory surgery, imaging, home health, physical therapy, behavioral health, etc.). Extra precautions need to be taken in joint ventures between tax-exempt entities and for-profit companies.

The Internal Revenue Service (“IRS”) issued a final adverse determination letter revoking a general acute care hospital’s 501(c)(3) status. Although various details have been redacted, it is clear that the hospital entered into a lease agreement with a for-profit entity in a manner found to be incongruent with its exempt status.

The hospital leased its land, property, and equipment to the for-profit, which specialized in operating rural hospitals. Control of the hospital’s operations (including revenue collection) was given to the for-profit. The for-profit agreed to provide charity care in a manner that was to be consistent with the hospital’s past practice.

IRS § 1.501(c)(3) states that an organization must be organized and operated exclusively for one or more exempt purposes. The regulations further note that an organization is not exempt if it fails to meet either the organizational or operational test. Although an argument was made that the for-profit served an exempt purpose by maintaining the hospital’s land, building, and equipment in order to ensure that it would be available to the public, the IRS noted that there was not enough information to sufficiently make the facts at hand analogous to the authorities that support serving such an exempt purpose.

Ultimately, the IRS revoked the hospital’s status because it was not operated exclusively for a tax-exempt purpose. The lease agreement resulted in the for-profit deriving private benefit that is inconsistent with tax exemption. The IRS noted that the hospital operated in a manner materially different than what was originally represented in the Application of Exemption. Sometime in the 1990s the hospital first transferred management and then operational control to the for-profit. Even though the lease agreement had a provision on providing charity care, the IRS focused on the lack of control the hospital had over its own operations.

In giving an example of a permissible and not-permissible level of control, the IRS brought up the two hospital examples provided in Rev. Rul. 69-545. The IRS stated that the hospital in this instance is more similar to the non-exempt hospital described in Situation 2 of Rev. Rul. 69-545, which was controlled by physicians who had a substantial economic interest in the hospital. By comparison, the exempt hospital in Situation 1 was controlled by independent civic leaders who comprised the board of trustees.

The IRS highlighted Rev. Rul. 98-15, which explored how a joint venture may operate between a non-profit and a for-profit. The IRS further noted that the arrangement between the hospital in this situation and the for-profit missed the mark. The Revenue Ruling on joint ventures makes it clear that the tax-exempt organization must retain control of the joint venture. Safeguards from Rev. Rul. 98-15 (as noted by the IRS) include the following components in the governing documents of a limited liability company formed to run a hospital:

  • The limited liability company will be managed by a governing board that has three individuals chosen by the hospital and two individuals chosen by the for-profit partner.
  • Language that effectively prevents the for-profit from amending the governing documents.
  • Requirement that the hospital be operated in a manner that furthers charitable purposes by promoting health for the broad cross section of its community.
  • Conflict language that states in the event of a conflict between the community benefit standard and any duty to maximize profits, the community benefit standard must win (without regard to the consequences of maximizing profitability).

As joint ventures in the healthcare industry become more prevalent, this final adverse determination letter highlights the importance of properly structuring joint ventures between for-profit entities and tax-exempt organizations by taking into consideration this and other guidance, including Rev. Rul. 98-15 and St. David’s Health Care Sys. v. United States, 349 F.3d 232 (2003).

Perspectives on Health Care and Life Sciences advisory by Bob Atlas, President of EBG Advisors, Inc. 

Following is an excerpt:

The U.S. Senate and House of Representatives have both passed their tax reform bills and will now confer toward creating a unified bill that both chambers can support, and that President Trump will sign. The two bills differ in some key respects, but their implications for health care are already rather clear. Some aspects of the legislation explicitly touch health care, while other effects would be indirect. Overall, it appears that most of the changes would adversely affect many health care industry participants, especially those in the nonprofit sector that would not gain from the reduction in the corporate tax rate that is the central feature of the legislation. …

Read the full post here or download a PDF of this piece.

The National Defense Authorization Act (“NDAA”) – passed in late 2016 – provides numerous changes to military health care. One of the changes, NDAA Sec. 706, establishes the Military-Civilian Integrated Health Care Delivery Systems – a sweeping new change for the Defense Health Agency (“DHA”) and the Military Treatment Facilities (“MTFs”) to provide health care services for non-active duty beneficiaries through partnerships with the private sector.

These private sector partnerships require the Secretary of Defense by January 1, 2018, to enter into Memoranda of Understanding (MOU) and contracts between the MTFs and:

  • Health maintenance organizations
  • Health care centers of excellence
  • Public or private academic medical institutions
  • Regional health organizations
  • Integrated health systems
  • Accountable care organizations, and
  • Other health systems as the Secretary of Defense considers appropriate.

This is an opportunity for these organizations to provide health care to the military dependents and retirees either in its own facilities utilizing capitated payments, bundled payments, or pay for performance. NDAA Section 706 makes clear that the covered beneficiaries are eligible to enroll in and receive medical services under the private sector components of the military-civilian integrated health delivery systems listed above. Of course, the health care services must be comparable to the quality of services received by beneficiaries at an MTF.

What is the purpose of the Military-Civilian Integrated Health Care Delivery System?

The Military-Civilian Integrated Health Care Delivery System is designed to improve access to health care and outcomes while enhancing the health care experience for beneficiaries. And the NDAA provides for the sharing of resources – such as staff, equipment, and training assets – between the Department of Defense (“DoD”) and the private sector to carry out the integrated health delivery systems. Importantly, services within the MTF that are essential for the maintenance of the DoD operation medical force readiness skills of health care providers must be maintained and members of the Armed Forces must be provided additional training opportunities to maintain these skills.

What will be included in the Military-Civilian Integrated Health Care Delivery System?

There are 9 major elements in the Military-Civilian Integrated Health Care Delivery System:

  1. Deliver high quality health care as measured by leading national health quality measurement organizations;
  2. Achieve greater efficiency in the delivery of health care by identifying and implementing within each such system improvement opportunities that guide patients through the entire continuum of care, thereby reducing variations in the delivery of health care and preventing medical errors and duplication of medical services;
  3. Improve population-based health outcomes by using a team approach to deliver case management prevention, and wellness services to high-need and high cost patients;
  4. Focus on preventive care that emphasizes:
    (A) Early detection and timely treatment of disease;
    (B) Periodic health screenings; and
    (C) Education regarding healthy lifestyle behaviors;
  5. Coordinate and integrate health care across the continuum of care, connecting all aspects of healthcare received by the patient, including the patient’s health care team;
  6. Facilitate access to health care providers, including
    (A) After-hours care;
    (B) Urgent care; and
    (C) Through telehealth appointments when appropriate;
  7. Encourage patients to participate in making health care decisions;
  8. Use evidence based treatment protocols that improve the consistency of health care and eliminate ineffective, wasteful healthcare practices; and
  9. Improve coordination of behavioral health services with primary health care.

Overall, these elements seek to provide high quality care more effectively and efficiently with a focus on providing preventative care as well as convenient access to providers.