CMS Announces Enforcement of EHR Payment Adjustments in 2015

POSTED BY Carolyn V. Metnick ON January 26, 2015

On December 17, 2014, the Centers for Medicare and Medicaid Services ("CMS") announced that there would be reductions in Medicare reimbursement for health care providers who do not meet the CMS electronic health record ("EHR") incentive program's meaningful use requirements. This announcement comes in the wake of CMS' decision in October to extend the hardship exception deadline - an exception that allowed health care providers to avoid a payment adjustment in 2015, until November 30, 2014.

The EHR incentive program was implemented as part of the American Recovery and Reinvestment Act of 2009. Healthcare providers that implement EHR technology can receive incentive payments by demonstrating compliance with the meaningful use requirements established by CMS. The meaningful use requirements are a combination of patient and provider measurements that range from recording patient information to provider performance. However, the incentive structure built into the EHR incentive program states that healthcare providers that fail to meet the meaningful use requirements are subject to penalties in the form of payment adjustments.

Beginning on January 5, 2015, physicians who failed to adopt an EHR system and meet the meaningful use requirements in 2014 face a 1% reduction in their 2015 Medicare payments. In addition, physicians who failed to meet both the meaningful use and the electronic prescribing program requirements in 2014 face a 2% reduction in 2015. Approximately 285,000 physicians will experience a reduction in payment.

Healthcare facilities are not exempt from these reductions. On October 1, 2014, approximately 200 hospitals that failed to participate in the meaningful use program began to receive less Medicare dollars per patient. These payment adjustments apply to the percentage increase to the Inpatient Prospective Payment System ("IPPS") payment rate for those hospitals that are not meaningful EHR users. In 2015, hospitals face a 25% reduction, with the payment adjustment increasing to 50% in 2016.

The payment adjustments announced by CMS signals that healthcare providers may have a steeper hill to climb in order to meet the meaningful use requirements in later stages. The EHR incentive program is divided into three stages, and healthcare providers must demonstrate meaningful use of EHR technology during each stage. Given CMS' enforcement of payment adjustments in Stage 1, healthcare providers should brace for challenges from more binding requirements in Stage 2 and Stage 3.

Affected healthcare providers may appeal the proposed payment reduction on or before February 28, 2015. Details on how to file the appeal are contained within the CMS written notice of payment reduction distributed in mid-December.

As the EHR incentive program continues, Akerman is poised to assist physicians and hospitals in complying with the meaningful use requirements. For any questions about this blog or topic, please contact the author.

Home Health Care Remains Affordable: New Companionship Exemption Rules Overturned


A federal court has invalidated the U.S. Department of Labor's ("DOL") amended rule that would have extended minimum wage and overtime protections to nearly two million home health care workers and affected the cost and availability of those services to the millions of patients under their care. The ruling represents a significant victory for the home health care industry, though it remains to be seen if the court's ruling will be appealed. 

As background, since 1974 the Fair Labor Standards Act ("FLSA") has covered workers who perform a "domestic service" – i.e., services of a household nature performed by a worker in a private home. This term includes services performed by babysitters, housekeepers, nannies, nurses, handymen, gardeners, home health aides, and family chauffeurs, among others.  However, the FLSA also provides for a "companionship services" exemption, exempting from minimum wage and overtime protection certain domestic service workers employed to provide "companionship services" for an elderly person or a person with an illness, injury, or disability.

On September 17, 2013, the DOL announced an amended rule that narrowed the companionship services exemption in two ways. First, it narrowed the definition of "companionship services." Second, it provided that the exemption could only be claimed by the individual, family, or household using the services, not by a third party such as a home health care agency.

The new rule was to take effect January 1, 2015. However, health care industry groups challenged the amended rule in court, and thus far their challenge has been successful.

On December 22, 2014, the court in Home Care Association of America v. Weil, et al., invalidated the third-party agency portion of the new rule. The court ruled that the DOL had no authority to narrow the exemption to apply only to those caregivers who are employed by the individuals for whom the caregivers provide their services.  Under the new rule, most home health care agencies would not have been able to claim the exemption, even if the work performed would otherwise be exempt. However, the court found that it was Congress' intent that the companionship services exemption apply to any employee, regardless of who "writes the check" for the employee's compensation.

The new rule also narrowed the definition of the word "care" as it related to "companionship services," such that much of the work performed by home health aides (such as feeding, dressing, bathing, etc.) would no longer qualify for the exemption. On January 14, 2015, the court invalidated that portion of the new rule as well. The court held that the DOL exceeded its authority to redefine, after more than 40 years, what constitutes the provision of "companionship services." The court found that the DOL's regulation impermissibly conflicted with the plain language of the FLSA. 

Had the new rule taken effect, all those who either provided or received companionship services would have been significantly impacted. Since payment for companionship services is mostly self-funded by elderly patients and their families, they would either have had to pay more for services (assuming they could afford the additional cost) or limit the amount of care they received. In turn, home health aides currently providing care in excess of 40 hours per week, would likely have had their work hours reduced so that patients and their families could avoid the additional cost.    

Because the third-party employer exemption had already been vacated on December 22, 2014, the entire regulation has now been invalidated, and the DOL is without authority to enforce the new rule. The DOL has not yet indicated whether it intends to appeal the court's ruling.

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A Quick Look at Healthcare Issues Expected to Make News in 2015


As we look into our crystal balls, we do not expect a lot of new issues in 2015. Rather, we believe that most of the significant issues will be a continuation of issues that arose in 2014 or earlier. For example, continued implementation of the Patient Protection and Affordable Care Act (the "ACA"), which was signed into law on March 23, 2010, will be a primary issue in 2015 and beyond. And, with the Republicans gaining control of the House of Representatives and the United States Senate, we can expect additional challenges to the ACA. 

Of course there will always be events we cannot anticipate that will cause concern in the healthcare industry, and by definition we cannot know what they are. However, we do believe the following six healthcare issues will continue to be significant in 2015. In no particular order:

1)    Subsidies in the health insurance exchanges

Under the ACA, persons with incomes between 100 and 400 percent of the federal poverty level are eligible to receive federal tax credits, if they purchase coverage through state-run exchanges.  In King v. Burwell, the 4th Circuit Court of Appeals found that the IRS was appropriate in determining that the subsidy also applies to coverage provided through federal exchanges and federal-state partnership exchanges. This decision has been appealed, and the U.S. Supreme Court granted certiorari and has scheduled oral arguments for March 4, 2015. A decision is expected by late June or early July 2015. That decision, either way, will have a profound ripple effect on this aspect of the ACA.

2)    Joint ventures and continued horizontal and vertical integration

As healthcare dollars continue to be squeezed, we believe there will be even greater focus on cost savings through consolidation and innovative provider contracts. Health insurance companies and health maintenance organizations will continue to look to business sectors that are not subject to the federal medical loss ratio restrictions, including continued acquisitions of physician groups. We also expect that large provider groups and hospital systems increasingly will enter into risk-share arrangements, with payors responsible for marketing, compliance and enrollment while the healthcare providers increasingly will be responsible for cost cutting. Both payors and providers will be responsible for our third issue, monitoring and increasing the quality of care.

3)    Increased focus on quality of care

With the cost pressures discussed above, state and federal governments will continue to focus on ensuring high-quality care for patients. One example of this is the reduction in Medicare payments to hospitals with the highest rates of "Hospital-Acquired Conditions ("HACs"). CMS and many commercial payors have already begun refusing to pay for treatment associated with these conditions. In 2014, CMS began decreasing Medicare payments, and some states have issued fines to hospitals with significant HAC rates. This focus will continue. For example, beginning in October, Medicare will include in its analysis the rates of surgical site infections. The following year, Medicare will examine the frequency of reporting by facilities of two antibiotic-resistant germs, including MRSA. CMS has also stated that it will revise its network adequacy requirements, and the National Association of Insurance Commissioners has released for comment a new version of its draft network adequacy model law. Note that the California Insurance Commissioner has already released this year an emergency regulation regarding network adequacy.

4)    Additional cost concerns

As various technologies continue to improve, costs in many sectors have started dropping.  However, other costs, including some specialty pharmaceuticals, are increasingly (almost prohibitively) expensive. For example, in April 2014 the World Health Organization endorsed two new oral drugs that fight hepatitis C. At the same time, though, the Organization also noticed concern about the high price of these new medicines, one of which costs $1,000 per pill. As patients continue to expect that they will receive the newest and "best" medications and treatments, cost will continue to be a significant issue. To help control costs, and thus increase patient access, expect continued emphasis on electronic medical records and health information technology, and expect increased use of telemedicine and physician extenders (such as nurse practitioners and physician assistants). Finally, under the ACA, Medicaid payments to certain primary care physicians was based upon the Medicare payment methodology from 2013 and 2014. Such increased payments are no longer federally required beginning in 2015, and this will be of huge concern as States contemplate the battle between costs and retention of Medicaid physicians/access to care.

5)    Medicaid Expansion

Medicaid expansion provides healthcare coverage to persons with incomes up to 138% of the federal poverty level. According to the Kaiser Family Foundation, 27 states and the District of Columbia have adopted Medicaid Expansion, seven states have the adoption of Medicaid expansion as "under discussion," and 16 states currently are not contemplating the expansion of their Medicaid programs. (Status of State Action on the Medicaid Expansion Decision can be found here.) However, some of the states that are "contemplating" expansion, and even some of the states that are characterized as "not contemplating" expansion, are considering other mechanisms to cover these persons. For example, Florida business-industry groups are seeking legislative approval for "A Healthy Florida Works," which is a program that would provide coverage to certain persons who would qualify under Medicaid expansion. Tennessee, Utah and Wisconsin also are some of the states with either existing or contemplated programs that are alternatives to Medicaid expansion.

6)    Healthcare and Data Security

The ACA and the Meaningful Use programs both pose unique security challenges to the health care industry. After hacks last year in other industries, such as the Sony hack in December, there will likely be more persistent threats to healthcare data in 2015. Inadvertent leaks are not uncommon in the healthcare industry, and hackers will take full advantage of those opportunities. And with more data storage on "cloud"' based servers, healthcare data makes for an attractive target for cybercriminals. As a result, look for greater focus on employee training, review of systems security as well as third party review to verify that healthcare entities are as protected from cyber threats as they can be. Also, look for the Office of Civil Rights of the Department of Health and Human Services to step up its audits and penalties against entities that violate HIPAA.

As the healthcare sector continues to evolve, Akerman stands ready to assist its clients in navigating this ever changing market.

Social Media Use for Clinical Trial Recruitment


Social media can be an effective and easy way to connect with friends and professional contacts. However, it can also serve as a tool for institutions and principal investigators involved in enrolling subjects in clinical research to connect with prospective patients and subjects for clinical trial recruitment.

The research shows that, to-date, there has not been a significant amount of effective use of social media for the recruitment of patients and subjects for clinical trial research. Specifically, the Tufts Center for Drug Development at Tufts University reported on the use of social media in clinical trial research in June 2014 after conducting a nine-month study in 2013 (the “Study”). The Study results demonstrated that the majority of participating drug sponsors posted patient recruitment ads, but less than 1/3 interactively engaged in recruitment. While the Study only included pharma and biotech companies, it is reasonable to assume that device manufacturers and sponsors are also not effectively using social media to engage and recruit patients.

Given the enormous amount of time dedicated to patient recruitment for clinical trials, one would expect institutions to look beyond traditional recruitment methods, such as print, radio, and principal investigator relationships. The internet tends to be the first place that patients and caregivers go for medical information. Therefore, it should serve as a primary resource for information about clinical trials. Moreover, the benefits of recruiting online are numerous - lack of geographic constraints, the ability to access a larger patient population, obtain real-time adverse event reporting and improve feedback from patients, faster enrollment, minimize administrative burdens on sites, and cost savings.

Institutions and principal investigators, however, have not jumped on the internet bandwagon for promoting trials for a number of reasons.  One significant concern is the fear of navigating the legal regulatory landscape and not understanding the parameters of what is, and is not, appropriate. Fear of violating patient privacy and confidentiality is also of great concern.

The regulatory guidance on social media use in clinical trials is difficult to piece together, and it is not comprehensive or well organized. In fact, the regulatory guidance seemingly has been promulgated independently by several agencies, HHS/OIG, HHS’ Office for Human Research Protections and the FDA, and spans a period of about 12 years:

  • HHS OIG, Clinical Trial Websites, A Promising Tool to Foster Informed Consent (May 2002)
  • OHRP Guidance on IRB Review of Clinical Trial Websites (September 2005)
  • FDA Guidance for Industry, Fulfilling Regulatory Requirements for Postmarketing Submissions of Interactive Promotional Media for Prescription Human & Animal Drugs & Biologics, (Draft, January 2014)
  • Recruiting Study Subjects – Info Sheet – Guidance for IRBs and Clinical Investigators (FDA website)
  • FDA Guidance for Industry – Internet/Social Media Platforms with Character Limitations – Presenting Risk and Benefit Information for Prescription Drugs and Medical Devices (Draft, June 2014)
  • FDA Guidance for Industry – Internet/Social Media Platforms: Correcting Independent Third-Party Misinformation about Drugs and Medical Devices (Draft, June 2014)
  • FDA Guidance, Informed Consent Information Sheet – Guidance for IRBs, Clinical Investigators, and Sponsors (Draft, July 2014).

While some of the guidance is less informative than others, viewing all of it together provides a glimpse of the government’s perspective on the use of social media in clinical trials. The most significant take-away and recurring theme throughout the guidance is that the use of social media to recruit clinical trial participants may be part of the informed consent process. It should be noted that informed consent is mistakenly viewed as synonymous with a subject’s signature on the consent form. However, this is only part of consent process. Informed consent includes providing a potential subject with adequate information to allow for an informed decision about participation. Interestingly, while the government seems to suggest that social media can be an effective tool to recruit patients, it also warns about the use of Twitter and other platforms with character-space limitations.

While social media presents opportunities for clinical trial recruitment, the lack of cohesive regulatory guidance presents challenges. Institutions, clinical research organizations or principal investigators interested in exploring the use of social media to improve recruitment into clinical trials, should consult legal counsel in order to ensure that the social media initiative complies with law.

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Justice Department Continues to Target Health Care Providers with "Barrier-Free" Initiative


The Department of Justice's recent settlement with a Chicago-based hospital system is the latest reflecting the agency's continuing pursuit of claims against health care providers – small and large -- who fail to provide adequate service to persons who are deaf or hearing-impaired. Under the settlement, Franciscan St. James Health is required to conduct disability assessments to be documented in the Electronic Medical Records (EMRs), provide interpreters and other auxiliary aids and services to patients and companions with hearing disabilities, designate round-the-clock Americans with Disabilities Act (ADA) administrators, and establish a complaint resolution procedure. In addition, it is required to create policies and posters, train hospital personnel and affiliated physicians, make periodic reports and submit to three years of government oversight.

The St. James settlement, announced earlier this month, is the fourth since October 2014 arising out of the Barrier-Free Health Care Initiative (the Initiative). The Initiative was instituted in 2012 and initially aimed at ensuring that health care providers provide effective communication to people who are deaf or have significant hearing loss. In partnership with the Civil Rights Division and more than 40 U.S. Attorney's offices across the country, the Initiative is aimed at enforcing Title III of the ADA and Section 504 of the Rehabilitation Act. Those laws essentially require health care providers (and others) to ensure that their communications with people with hearing disabilities are as effective as their communication with people without disabilities. To meet this obligation, health care providers must provide appropriate auxiliary aids and services unless it would create an undue burden or would fundamentally alter the service being provided.  Health care providers may not charge the individual with a disability for the cost of auxiliary aids or services, including sign language interpreters. The obligation applies to all health care providers, regardless of size.  

Health care providers should ensure that they have ADA/Section 504 policies, procedures and assistive technology in place, and that staff have been trained on assessing and documenting how they deal with patients and companions with communications needs, including those who lack proficiency in English. EMR systems should be upgraded to ensure that they reflect initial and ongoing assessments of the patient's communications needs and preferences, what services were provided, and how the patient demonstrated that they understood the information being conveyed.

Many of the settlements under the Barrier-Free Health Care Initiative resulted from patients who complained after health care providers denied the patients' requests for American Sign Language interpreters at the providers' expense during treatment. In general, the settlement agreements reached to date require each provider, among other things, to:

  • provide appropriate auxiliary aids and services unless it would result in an undue burden or fundamental alteration of the service;
  • document the determination of what auxiliary aids or services are appropriate in consultation with the person with the disability, using established factors and a defined timeline;
  • perform a communications assessment and document the results in the patient's chart;
  • post conspicuous notices about the availability of qualified interpreters free of charge for patients, family members;
  • log each request for auxiliary services and how it was handled;
  • provide mandatory training to personnel annually; and
  • submit to two to three years of DOJ oversight.

Health care providers are well advised to take many of those steps now, including training staff on how to appropriately deal with patients with hearing disabilities. Those who have implemented EMRs also should adapt their EMR systems now to ensure appropriate documentation. 

For any questions about this blog or topic, please contact the author.

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Reimbursement Changes, Shift to Consumerism Discussed at Akerman Healthcare Briefing


Changing reimbursement models and a shift to consumerism were two of the hot topics discussed at Akerman LLP's recent Healthcare Briefing event titled "Financial and Corporate Implications of the Affordable Care Act: A Look at the Past, Present, and Future". Health care and financial industry leaders gathered Friday, November 21 in Tampa for the interactive discussion. Panelists leading the discussion included:

  • Jeff Bak, president and CEO of HealthPlan Services;
  • George Huang, director and senior analyst of the non-profit healthcare sector for Wells Fargo Securities, LLC; and
  • Lorraine Lutton, president of St. Joseph's Hospital, Tampa, Florida

Hospitals Adjusting to Reimbursement Changes

From the outset of the conversation, the panelists highlighted the effect of the Affordable Care Act (ACA) on hospital reimbursement. Hospitals are undergoing a major financial transition because the ACA was funded, in part, by reduced reimbursements to hospitals through the Disproportionate Share Hospital and Low-Income Pool programs. These programs allocated additional money to hospitals serving a disproportionate amount of Medicaid enrollees and uninsured patients. The drafters of the ACA anticipated such payments would no longer be essential because of Medicaid expansion; however, that expansion has not materialized in many states.

Hospitals are also adjusting to the ACA's shift to value-based purchasing, which focuses on quality and penalizes hospitals for factors like high readmission rates.

Hospitals have typically been reimbursed on a fee-for-service model, but the panel expected that more risk-based contracting will be on the way, resulting in an even greater emphasis on improving health outcomes and reducing costs.

Employers Lead Charge Toward Consumerism

A greater number of employers are choosing to offer high-deductible health plans and health savings accounts instead of traditional, low-deductible policies. The panel noted the number of high-deductible plans has tripled in the last five years, and this represents a 10-15 year ongoing trend of employers increasing cost-sharing requirements. The increased cost-sharing encourages consumerism, making employees more likely to ask "How much does it cost?" With low-deductible, cost-shielding plans less common, patients are incentivized to spend their healthcare dollars more like typical consumers, shopping around and comparing costs.

The Role of Physicians

The panel also addressed the effects the ACA continues to have on physicians with increased administrative and legal compliance burdens. One notable effect is the increased consolidation of physicians into larger physician groups and the affiliation of physician groups with hospitals to help physicians address the new concerns. Correspondingly, solo and duo physician practices are becoming more rare. More physicians also now work as employees of hospitals and health systems rather than as independent contractors.

Similarly to hospitals, the shift to integrated care networks and pay-for-performance reimbursement models – and the corresponding move away from fee-for-service – has changed incentives. Physicians now can earn more if they can improve health outcomes and decrease costs, such as by keeping patients from receiving services in the ER.

Additionally, because of an expected shortage of physicians, the panel foresees an even greater need to rely on physician extenders, such as nurses and physician assistants, for less complex ailments.

New Emphasis on Reducing Costs

With the changing reimbursement models and incentives discussed above, the healthcare sector has placed new emphasis on reducing the cost of healthcare. One cost reduction tool the panel addressed is telemedicine, which in some settings can improve care in addition to reducing costs. For instance, the panel discussed that one specialist, who can only be in one place at one time, can now monitor patients across multiple facilities using telemedicine technology. This gives patients better access to specialists and reduces the cost of providing the specialist's services – especially in rural or other under-served areas.

Directing patients to the least-complex care setting needed is another way providers are reducing costs. In particular, giving patients alternatives to the costly ER for non-emergency conditions can have a significant effect.

Finally, with a large portion of health care expenses incurred during the last 6 months of a person's life, end-of-life care is a very important factor that the panel agreed must be addressed. The panel noted that patients and families should be encouraged to have the difficult conversations about life and death.

Akerman's Healthcare Briefing programs continue to highlight pressing issues facing healthcare companies today. To inquire about future healthcare events, please contact the author, Sheryl Rosen.

ACO Participation By Tax-Exempt Healthcare Organizations –Is Tax-Exempt Financing at Stake?


Does A Tax-Exempt Healthcare Organization’s Participation in an Accountable Care Organization (ACO) Adversely Affect Its Tax-Exempt Financing? IRS Notice 2014-67 Provides Guidance.


The Patient Protection and Affordable Care Act authorizes the Department of Health and Human Services ("HHS") to establish a Medicare Shared Savings Program ("Shared Savings Program") to promote accountability for care of Medicare beneficiaries, to improve the coordination of Medicare fee-for-service items, and to promote efficiency in the delivery of services. Under the Shared Savings Program, groups of health care providers and suppliers that establish a mechanism for shared governance and meet criteria established by HHS can participate in "accountable care organizations" or "ACOs." ACOs may become eligible to participate in Shared Savings Programs under which they can share in the economic benefits of increased efficiency in the delivery of services.

Since ACOs frequently include for-profit healthcare providers, tax-exempt healthcare organizations initially were faced with the question whether their participation in an ACO with non-exempt entities would raise private inurement or excess private benefit concerns. The IRS, in Notice 2011-20, provided assurance that a tax-exempt healthcare organization’s participation in an ACO would not result in private inurement or an impermissible private benefit to the non-exempt participants in the ACO, provided that the requirements stated in the notice were met.  Although Notice 2011-20 provided comfort as to private inurement and excess private benefit concerns, tax-exempt healthcare organizations which used tax-exempt bonds to finance their facilities worried that their participation in an ACO might constitute a "private business use" of their facilities. If participating in an ACO were to constitute a "private business use" of facilities funded with tax-exempt bonds, the organization’s tax-exempt financing might be adversely affected. 

Guidance for Participation In An ACO:

In Notice 2014-67, the IRS expanded on Notice 2011-20 by providing additional guidance for tax-exempt healthcare organizations that have financed their facilities using tax-exempt financing. Notice 2014-67 provides that participation in an ACO by a tax-exempt healthcare organization will not give rise to private business use of bond-financed facilities if the following factors are met:

  • Terms of participation in the Shared Savings Program by the tax-exempt healthcare organization through the ACO (including its share of payments or losses under the Shared Savings Program) are set forth in advance in a written agreement negotiated at arm’s length;
  • CMS has accepted the ACO into the Shared Savings Program, and has not terminated the ACO’s participation;
  • The share of economic benefits of the tax-exempt healthcare organization (including its share of payments under the Shared Savings Program) is proportional to the benefits or contributions the tax-exempt healthcare organization makes to the ACO.  If the tax-exempt healthcare organization has an ownership interest in the ACO, the ownership interest is proportional and equal in value to the capital contributions to the ACO, and returns of capital, allocations and distributions from the ACO are made in proportion to ownership interests;
  • The tax-exempt healthcare organization’s share of ACO losses (including its share of Shared Savings Program losses) does not exceed the share of ACO economic benefits to which the tax-exempt healthcare organization is entitled;
  • All contracts and transactions entered into by the tax-exempt healthcare organization with the ACO and the other participants in the ACO, and by the ACO with the ACO’s participants, are at fair market value; and
  • The tax-exempt healthcare organization does not transfer or otherwise contribute the property financed with tax-exempt bonds to the ACO (unless the ACO is itself a governmental person or, for qualified 501(c)(3) bonds, a 501(c)(3) organization or a governmental person).

In a bow to consistent treatment, the first 5 factors in Notice 2014-67 are the same as those in Notice 2011-20. Thus, for the most part, the factors relevant to a private inurement and excess private benefit analysis of a tax-exempt organization’s participation in an ACO are also relevant to determining whether there is a private business use of facilities financed with tax-exempt bonds.

Management Contracts With Bonuses For Meeting Shared Savings Program Standards:

Notice 2014-67 also provides guidance concerning the terms of  management agreements that a tax-exempt healthcare organization may enter into with respect to facilities that are financed using tax-exempt bonds. Under Rev. Proc. 97-13, a management contract which compensates the manager on the basis of net profits from the facility provides for an impermissible private business use. Rev. Proc. 97-13 provides specific safe harbors for management contracts to avoid impermissible private business use. Notice 2014-67 expands Rev. Proc. 97-13 by providing a specific safe harbor for management contracts which include productivity awards determined by achievement of quality performance standards under a Shared Savings Program. To come within the safe harbor, the amount of the productivity award must be stated as a fixed dollar amount, a periodic fixed fee, or a tiered system of stated dollar amounts or periodic fixed fees based solely on the level of performance achieved.

Increased Flexibility In Term of Multi-Year Management Contracts:

Notice 2014-67 also adds flexibility to permissible multi-year management agreements by extending safe harbors and permitting five-year management contracts which are not terminable by the tax-exempt healthcare organization prior to the end of the term (prior guidance required that a 5 year management contract be terminable by the tax-exempt entity after 3 years).


Guidance regarding participation of tax-exempt healthcare organizations in ACOs is applicable to tax-exempt bonds issued after January 22, 2015. Guidance as to management contracts is applicable to contracts entered into, materially modified or extended on or after January 22, 2015. 

Public Comment Period:

The Treasury is soliciting public comment on the guidance provided by Notice 2014-67 and on any further guidance needed to facilitate participation un the Shared Savings Program by tax-exempt healthcare organizations. Public comments may be submitted on or before January 22, 2015.

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Self-Insured Group Health Plans: Two Deadlines to Note


As 2014 winds down, plan sponsors are likely thinking ahead to some of the significant changes that will take effect in 2015, most notably, the employer "pay or play" mandate under the ACA. However, there are two deadlines that plan sponsors of self-insured group health plans should be aware of.

November 5, 2014 - Health Plan Identifier (Enforcement is indefinitely delayed)

All large, self-funded, "controlling health plans" were originally required to have obtained a health plan identifier ("HPID") by November 5, 2014. Controlling health plans are those that—(1) control their own business activities, actions, or policies; (2) are controlled by an entity that is not a health plan; or (3) direct the business activities, actions, or policies of one or more subhealth plans. Small health plans (defined as those with annual receipts of $5 million or less) may take advantage of a one-year extension of the HPID deadline, to November 5, 2015. Insured plans are also subject to the HPID requirement, however, the insurance carrier will generally be responsible for obtaining the HPID on behalf of the plan.

HIPAA requires covered entities to use their HPIDs for all HIPAA "standard transactions." These standard transactions include: health care claims and encounters, payment and remittance advice, claims status request and response, eligibility and benefit inquiry and response, benefit enrollment and disenrollment, referrals and authorizations, and premium payment transactions. There is no charge to obtain a HPID, and it can be obtained through the CMS portal called Health Plan and Other Entities Enumeration System (HPOES).

Please note that effective October 31, 2014, CMS announced an indefinite delay in the enforcement of the HPID rules. Although this delay does not technically relieve plan sponsors of large, self-funded, controlling health of their obligation to obtain an HPID and use it for HIPAA standard transactions, the delay signifies that there will be no enforcement action taken at this time against entities that fail to do so.

November 15, 2014 - Enrollment Numbers for Reinsurance Fees

By November 15, 2014, self-funded health plans (including non-calendar year plans) are required to submit their enrollment data for January-September of this year to the Department of Health and Human Services ("HHS") for purposes of the 2015 payment of the ACA's temporary reinsurance fees. This reinsurance fee must be made for all "reinsurance contribution enrollees," a term that includes all individuals covered by a plan for which reinsurance contributions must be made, not just employees or covered employees.

CMS recently announced that the form for submitting this data will be available at in advance of this November 15 deadline. The form will automatically calculate the reinsurance contribution amount due. HHS will then notify plans of their total reinsurance fee responsibility for the year. For 2014 the reinsurance fee will be $63 per health care plan enrollee. This $63 annual fee will be paid in two installments. The first installment of $52.50 per enrollee will be due by January 15, 2015, and the second installment of $10.50 per enrollee will be due by November 15, 2015. The reinsurance fee will be tax-deductible as an ordinary business expense.

For any questions about this blog or pending deadlines, please contact the authors.

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Talk Amongst Yourselves: HIPAA Does Not Preempt Florida Med Mal Presuit Authorization Law


A federal appellate court recently concluded that the Health Insurance Portability and Accountability Act of 1996 ("HIPAA") does not preempt a Florida law that requires aggrieved patients to authorize the release of their protected health information as a presuit condition to suing a medical provider for negligence. See Murphy v. Dulay (11th Cir. Oct. 10, 2014) (opinion available here).

How does this decision affect medical malpractice lawsuits in Florida?

  • In Florida, the presuit notice of intent to initiate a medical malpractice action must also include the authorization required under section 766.1065, Florida Statutes.
  • This authorization will allow a defendant, or his or her attorney, to interview a plaintiff's treating providers regarding the plaintiff's alleged injury without the presence of the plaintiff or the plaintiff's attorney.
  • If a plaintiff's presuit notice does not include the section 766.1065 authorization, the presuit notice is void, and the plaintiff will forego the ability to maintain a medical malpractice action in Florida state court.
  • Defendants in medical malpractice actions will now have the same access as plaintiffs to treating providers, but it remains to be seen whether treating providers will agree to ex parte interviews with defense lawyers.

To read more information about this case, click here.

CMS launches database of manufacturer and GPO payments to physicians


The Affordable Care Act contains a provision known as the Physician Payments Sunshine Act, which requires the Centers for Medicare and Medicaid Services (CMS) to establish a national databank containing information on the financial relationships between physicians (which includes dentists, chiropractors, and other physician specialties) and teaching hospitals, applicable manufacturers, and group purchasing organizations (GPOs). CMS launched its Open Payments website on September 30, 2014, making its database available to the public.

The database is populated by information reported to CMS by applicable manufacturers and GPOs regarding their payments or other transfers of value to physicians and teaching hospitals. It is important to note that this reported information specifically includes any ownership or investment interest that physicians (and their immediate family members) have in the manufacturers and GPOs.

CMS encourages physicians and teaching hospitals to register with the Open Payments website. While registration is voluntary, the reported information is made available to registrants before being made public, and registrants are given an opportunity to dispute any reported information. In fact, there is a mobile app and other resources that allow physicians, teaching hospitals, manufacturers, and GPOs to track provider and industry contact details, share information, and track payments and other transfers of value.

According to CMS and as reported, 4.4 million payments valued at nearly $3.5 billion were made to 546,000 individual physicians and 1,360 teaching hospitals in the last five months of 2013. The website will provide future reports on an annual basis. Beginning in June 2015, it is expected to report twelve full months of data.

We know that the public, and in particular the press, will access the Open Payments database, and there will likely be a high level of misunderstanding and misinformation. One cannot forget the feeding frenzy that arose when CMS released physician Medicare billing data earlier this year. Any physician who receives payments from a manufacturer or GPO would presumably want advance notice of any disclosure regarding payments to that physician. Accordingly, any physician who does receive such payments should register on the Open Payments website and check the accuracy of all information reported about them, and be prepared to answer questions they may be asked.

Court Allows Counterclaim Against Whistleblower for Breach of Employment Agreement


A federal court in New Jersey has permitted a defendant in a False Claims case to defend itself on the grounds that the whistleblower/ex-employees breached their employment agreements by using and disclosing confidential company information. The Defendant, Boston Scientific Neuromodulation Corp. ("Boston Scientific") is a medical device manufacturer. While in Boston Scientific's employ, the whistleblowers signed employment agreements which, among other things, required them to maintain the confidentiality of company information. The whistleblowers ultimately brought suit against their former employer, alleging that the company submitted claims to Medicare and Medicaid which were false for numerous reasons, including that Boston Scientific concealed defective equipment, that claims did not have underlying physician orders establishing medical necessity, and that the company promoted "off-label" use of the equipment. The government declined to intervene in the case.

Boston Scientific responded to the Complaint with its own counterclaims for violations of the whistleblowers' employment agreement, alleging they impermissibly "took, disclosed, and then published" confidential patient claims data and proprietary business information. The whistleblowers sought to dismiss the counterclaims on the grounds that restricting the disclosure of the documents evidencing false claims would frustrate the underlying policy considerations of the False Claims Act. The Court nevertheless sided with Boston Scientific, saying that the breach of contract defense was adequately pleaded at this early stage in the case. It is important to note, however, that the ruling merely allows the breach of contract claim to remain as a potential defense, and the Court did not opine as to whether the defense would ultimately succeed. More important, the Court provided no analysis as to whether or under what circumstances such a defense would be appropriate without undermining the public policies behind the False Claims Act.

Based on this and other recent decisions, healthcare industry employers should consider using employment agreements which strictly prohibit employees from using patient information and confidential employer information other than in the course of their job performance, and from retaining copies of any such information or disclosing it. This is especially important for employees in management, billing, and similar areas which give them access to information that would support a False Claims Act case. A court may ultimately conclude that the employment agreement does not provide the employer with a defense, but, without an appropriately drafted agreement, there is no possibility of such a defense.

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Illinois Court Dismisses Plaintiffs Privacy Claims Arising out of HIPAA Breach


On July 10, 2014, a Kane County, Illinois Circuit Court granted a motion to dismiss with prejudice in favor of Advocate Health & Hospitals Corporation (Advocate) in a class action case arising out of a breach of patients' protected health information (PHI). In August 2013, Advocate reported one of the largest data breaches to date under the Health Insurance Portability and Accountability Act of 1996 (HIPAA) after four laptops containing the unencrypted information of over four million patients were  stolen from an Advocate medical group administrative building. As a result of the breach, two patients filed a class action lawsuit alleging that Advocate failed to take necessary steps to safeguard patients' PHI. Plaintiffs' claims include: negligence, violation of the Illinois Personal Information Protection Act, violation of the Illinois Consumer Fraud Act and invasion of privacy. The Kane County Circuit Court granted Advocate's Motion to Dismiss the complaint with prejudice for lack of standing and failure to state a claim. 

The Court held that the plaintiffs lacked standing because they could not prove that the information stolen had been accessed or used, and therefore, they could not prove that there had been actual identify theft or harm. The Court stated that "there had been no injury and no change in the status quo." While the Court noted that there was an increased risk of harm due to the theft of the laptops and the potential accessibility of the unsecured PHI, there had been no impending certainty of identity theft. In order for the matter to be ripe, the thieves would actually have to disclose, sell to other criminals or otherwise misuse the PHI.

The Court further ruled that there were insufficient allegations of present injury to sustain negligence and Illinois Consumer Fraud Act claims. With respect to the invasion of privacy claim, the Court ruled that there were insufficient allegations of intentional conduct.

This case is an example of the challenges in bringing claims under state law for HIPAA data breaches. There is no private cause of action under HIPAA so plaintiffs must rely on state law theories. Because most, if not all, states require that plaintiffs show actual injury to state a sufficient claim, plaintiffs often must overcome a high hurdle because they cannot show that their PHI was used to commit identity theft or other harm. Even if there is an identity theft, they often cannot prove that the identity theft was the result of the HIPAA breach.   

Even though state causes of action may be difficult to prove, covered entities and business associates face penalties under HIPAA.  Also, although difficult, state causes of action are still a risk. Therefore, HIPAA covered entities and business associates should take steps to protect sensitive information, including encrypting PHI that is stored on portable devices such as laptops, tablets and smartphones.

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OIG's Rejection of Payments for Prescription Transfers Leaves Questions about Central Fill Pharmacy Arrangements.


The U.S. Department of Health & Human Services, Office of Inspector General (OIG) recently refused to bless a specialty pharmacy's request to pay a per-prescription fee to retail pharmacies for "support services" to be provided in connection with prescriptions transferred to the specialty pharmacy (OIG Advisory Opinion 14-06). The OIG found that the per prescription fee could influence the retail pharmacy's decision to transfer prescriptions, that the proposed arrangement implicated the Anti-Kickback Statute ("AKS") and posed more than a minimal risk of fraud and abuse.

Generally, a specialty pharmacy is a mail order pharmacy that carries only expensive, often injectable, medications (usually over $1,000 per month) used to treat specific conditions such as HIV/AIDS and Hemophilia. Often, manufacturers of these specialty drugs limit their distribution to only certain specialty pharmacies and payors often limit patient access to only certain specialty pharmacies. The cost of the drugs and the limited need by retail pharmacies for the medications makes it cost prohibitive for most retail pharmacies to carry most specialty medications in stock. Thus, a retail pharmacy presented with a prescription for a specialty drug will often need to transfer the prescription or refer the patient to a specialty pharmacy.

In this case, the specialty pharmacy asked OIG to allow it to enter into agreements with various local pharmacies and pharmacy networks such that the specialty pharmacy would provide specialty drugs to their patients in exchange for a per-prescription fee amount. The retail pharmacy would be required to provide various "support services" including: (1) accepting new prescriptions from patients or their prescribers; (2) gathering patient and prescriber demographic information; (3) recording patient-specific medication history and use, including drug names, strengths, and directions; (4) counseling patients on appropriate use of their medications; (5) informing the patients about specialty drug access and services generally provided by specialty pharmacies; (6) obtaining patient consent to forward the prescription to the specialty pharmacy; (7) transferring the prescription information; and (8) providing ongoing assessments for subsequent refills, including transmitting information on any changes in the patient's medication regimens (the "support services").

The OIG concluded that the AKS was implicated because the specialty pharmacy would pay a per-prescription fee for support services each time the retail pharmacy transferred (referred) a specialty drug prescription. In most pharmacy-to-pharmacy prescription transfers, there is no accompanying payment. The OIG noted that the specialty pharmacy paid the retail pharmacy for support services only when a specialty prescription was transferred. Thus, the OIG found that the per-prescription fee is "directly linked" to specialty pharmacy prescriptions generated by the retail pharmacy, and could therefore materially influence the retail pharmacy's referral decisions.

The requester argued and the OIG recognized that the retail pharmacy's support services may benefit care coordination. However, the AKS applies if "one purpose" of the remuneration is to generate referrals (the one purpose test). Though the specialty pharmacy argued that it was paying fair market value for the services, the OIG found that there was a significant risk that the per-prescription payments were compensation to the retail pharmacy for generating referrals, rather than solely compensation for bona fide commercially reasonable services.

Most states allow pharmacies that are either commonly owned or have a contractual arrangement to engage in central fill arrangements, whereby an originating pharmacy receives the prescription, the prescription is shared with a dispensing pharmacy which dispenses the medication either directly to the patient or back to the originating pharmacy (similar to the arrangement above). Generally in a central fill arrangement, there is a sharing of pharmacy duties and responsibilities and some sort of sharing of the reimbursement for the medication.  Since many state pharmacy boards allow central fill arrangements, these were usually not viewed as an improper payment for referral arrangements. The above opinion casts doubt on these arrangements where there is a split of the reimbursement and when the drugs are reimbursed by a federal health care program (the AKS only applies when payment is made under a federal health care program). At a minimum, pharmacies engaging in such arrangements should make sure that the arrangements are commercially reasonable and justified such that they would not be viewed as a mere referral arrangement. And, while excluding or "carving out" federal programs does not always remove the federal AKS risk, in this instance excluding federally reimbursed prescriptions may help insulate the arrangements.

Absent from the OIG's discussion was that many state prescription transfer laws and regulations only apply to refills and not to the transfer of the original prescription. 

The opinion may be viewed here.

Key Takeaways:

  • Per-prescription payment for prescription transfers likely implicates the Federal Anti-kickback Statute ("AKS").
  • Central fill arrangements should be carefully crafted to attempt to avoid characterization of reimbursement as a kickback.
  • Consider excluding prescriptions reimbursed by federal programs from central fill arrangements between separate entities (this would not be an issue for pharmacies under common ownership). 
  • In states that have state anti-kickback laws, consider obtaining a state declaratory statement or similar ruling to address the payment arrangements, if your state allows this process.

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Efforts to Stop Health Insurance Fraud Through Use of Contractors Under Fire


In recent reports, from June 25, 2014 and August 13, 2014, the Government Accountability Office (GAO) highlights the mixed results achieved by the federal government's increased efforts to crack down on health insurance fraud through the use of contractors. The government has spent upwards of $600 million a year to uncover and punish health care fraud and overpayments, but  some have seen a need to improve the new initiative’s effectiveness – specifically, its use of contractors to unveil fraud. The GAO has stated that the use of contractors has been, at times, inefficient and lacking in clear oversight.  Currently, while the government spends approximately $600 million a year to combat health insurance fraud, $4.3 billion in fraudulent charges has been recovered.  Medicare fraud is estimated at tens of billions of dollars per year. See U.S. GOV'T ACCOUNTABILITY OFFICE, GAO-14-712T, MEDICARE FRAUD: FURTHER ACTIONS NEEDED TO ADDRESS FRAUD, WASTE, AND ABUSE (2014). 

In June 2014, the GAO recommended a number of fixes to the lack of coordination in these new fraud recovery efforts. Many of these recommendations  had yet to be implemented due to obstacles and a lack of funding. For example, the GAO recommended that CMS increase the amount and type of data collected in its central data repository by fiscal year 2010, as such data would better help CMS and its contractors uncover fraud. As of June of this year, CMS had still not expanded the data reported to its central data repository despite the GAO's suggestions.  The GAO further suggested that CMS force all contractors to adopt a government web portal intended to provide CMS and contractors with a single access point to CMS' central data repository and analytical tools to better analyze CMS' data and uncover fraud. CMS had not required all contractors to adopt that government web portal by June of this year. These and other shortcomings prompted the GAO to conclude in a June report that "although CMS has taken some important steps to identify and prevent fraud through increased provider and supplier screening and other actions, the agency must continue to improve its efforts to reduce fraud, waste, and abuse in the Medicare program." See GAO-14-712T at 17.

The GAO's most recent report on August 13, 2014 detailed a number of further shortcomings with CMS’ management of its fraud contractors. See U.S. GOV'T ACCOUNTABILITY OFFICE, GAO-14-474, MEDICARE PROGRAM INTEGRITY: INCREASED OVERSIGHT AND GUIDANCE COULD IMPROVE EFFECTIVENESS AND EFFICIENCY OF POSTPAYMENT CLAIM REVIEWS(2014). The August report specifically notes that while CMS has created a Recovery Audit Data Warehouse, a claim database which tracks claims that contractors have already reviewed, that database does not track whether all of the various types of contractors have duplicated their efforts reviewing claims. The report concluded that "CMS does not have sufficient information to determine whether its contractors are conducting inappropriate duplicative claims reviews" and that "CMS has conducted insufficient data monitoring to prevent [contractors] from conducting inappropriate duplicative reviews." Id. at 38. The GAO has recommended development of clearer guidelines from CMS to contractors and better oversight by CMS to ensure that contractors are not duplicating efforts.

Adding to the difficulties, hospitals have resisted private contractors who arrive to investigate potential fraud. Some hospitals feel overburdened by the contractors' investigations and the fact that should a contractor's audit result in a determination of overpayment or another adverse action against a hospital, the CMS appeals process, which adjudicates whether a contractor's determination was justified, lacks sufficient resources to manage a high volume of cases. Some estimate there is a backlog of up to two years in the appeals process. See Memorandum From Nancy J. Griswold, Chief Administrative Law Judge, Office of Medicare Hearings and Appeals, to OMHA Medicare Appellants (Dec. 24, 2013). A recent article in The New York Times suggests that such burdens on hospitals may have led them to push back on the government's recent initiatives to curb fraud. Just this past summer, the government terminated a Florida fraud hotline even though it purportedly led to more than a thousand fraud investigations and uncovered millions in possible fraudulent payments. This hotline was once managed by an outside contractor, but calls to the hotline are now transferred to a general Medicare phone number that takes significantly longer to address complaints.  

The GAO's critical reviews, coupled with mounting pressure to do more to reduce health care fraud, should prompt efforts to collect more data regarding Medicare billing along with efforts to make more of that information available to contractors. Thus, it remains to be seen whether hospitals should prepare for and anticipate a more integrated and concerted effort from Medicare fraud contractors to uncover fraudulent billing. As always, Medicare and Medicaid providers should take measures to prevent fraud within their organizations, manage outside contractor audits effectively, and stay abreast of the various new CMS initiatives to address fraud and overbilling. 

For any questions about this blog or compliance with CMS regulations or contractor audits, please contact the authors.

Guidance Helps Medical Device Companies Determine Substantial Equivalence


When is a medical device substantially equivalent to another device? Like so much else, it depends. On July 15, 2014, the U.S. Food and Drug Administration (FDA) issued a draft guidance that aims to clarify that question. The document is officially directed at FDA staff, but it is equally instructive to companies seeking FDA approval for their devices. 

The FDA reviews medical devices before they can be sold in the United States, and manufacturers that prove their devices are substantially equivalent to existing products can undergo an abbreviated review process. However, substantial equivalence is a subjective target.  

The U.S. Food, Drug and Cosmetics Act at 21 U.S. Code 360c(i) states that a new device is substantially equivalent to an existing "predicate" device when the new device:

  1. has the same intended use as the predicate device; and
  2. either has the same technological characteristics as the predicate or has 
    different technological characteristics but is as safe and effective and does not
    raise different questions of safety and effectiveness than the predicate.

The guidance document focuses on the last step of the analysis – how FDA determines a device is as safe and effective as a predicate. The safety and effectiveness need not be identical. A new device can have increased safety and decreased effectiveness – or decreased safety and increased effectiveness – and still be considered substantially equivalent. When making these assessments, the FDA will weigh the benefits and risks of the new device versus the predicate. When considering benefits, the FDA will weigh:

  • Type of benefit
  • Magnitude of the benefit
  • Probability of the patient experiencing the benefit
  • Duration of the benefit

When assessing risks, the FDA will consider:

  • Severity, types, number, and rates of harmful events associated with use of the device
  • Probability of a harmful event
  • Probability of a patient experiencing one or more harmful events
  • Duration of harmful events
  • Risk from false-positive or false-negative results (for diagnostic devices)

The guidance provides several examples, including one in which a manufacturer wishes to market a tool for spinal surgery. The tool has a different shape and a deeper cutting action than the predicate device. Animal and clinical studies show the deeper cutting action leads to a greater risk of injuring surrounding tissue, but the new tool also shortens the duration of surgery and allows improved access to certain parts of the anatomy. The guidance concludes that the new device does not raise different questions of safety and effectiveness, and because the increased risk is accompanied by an increased benefit and a comparable benefit-risk profile, the new device would likely be found substantially equivalent to the predicate. 

Of course, the specific analysis will vary for every product and predicate. Companies seeking FDA approval should consult the guidance and an attorney to help prove their devices are substantially equivalent.


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