On December 14, 2011, the Center for Medicare and Medicaid Services (CMS) released a notice of proposed rulemaking implementing the Physician Payment Sunshine provisions of Section 6002 of the Affordable Care Act. The Sunshine provisions seek to make publicly available information about payments or other transfers of value to physicians made by manufacturers of drugs and medical devices and supplies covered by Medicare and Medicaid. Under the proposed rule, manufacturers must annually report all payments, gifts, consulting fees, research activities, speaking fees, meals, and travel reimbursements paid to physicians and teaching hospitals to the Secretary of Health and Human Services. The definition of manufacturer would extend to include entities under common ownership with a manufacturer that are involved in manufacturing, marketing, selling or distributing covered products. The proposed rule would also make available to the public information about physician ownership or investment interests in manufacturers or group purchasing organizations. CMS is accepting public comments on the proposed rule through February 17, 2012. A copy of the proposed rule is available here. –Meagan J. Thomasson
Health Care Law
The U.S. Supreme Court has agreed to hear five and a half hours of oral arguments in the Florida v. Department of Health and Human Services case challenging the constitutionality of the controversial Patient Protection and Affordable Care Act (“PPACA”). The case arises out of an appeal by 26 states of a decision by The United States Court of Appeals for the Eleventh Circuit. The scope of what the Court has agreed to consider is limited to the issues of whether (1) it is within Congress’ power to require states to choose between complying with the provision of the PPACA or losing federal Medicaid funding, and (2) whether the “individual mandate” provision of the PPACA is constitutional and, if not, the extent to which it may be severed from the remainder of the Act. Arguments will be heard in March of 2012 and a decision is expected before the Court recesses in late June. A copy of the petition for certiorari submitted by Florida et al. is available here. –Meagan J. Thomasson
On November 2, 2011, the Center for Medicare & Medicaid Services (CMS) final rule governing Accountable Care Organizations (ACOs) under the Medicare Shared Savings Program appeared in the Federal Register. ACOs are legal entities that are designed to encourage collaboration between health care providers by allowing members of the ACO to share in any savings it generates with respect to Medicare beneficiary expenditures. The final rule presents several substantial changes from the proposed rule, many of which may make the formation of an ACO a more attractive option to healthcare providers. The most significant of the new developments are discussed below.
First, the track one ACO model no longer presents a downside risk to formation as the final rule eliminates the requirement of the proposed rule that an ACO pay back any incurred shared losses. In line with this change, the provision that CMS will withhold the first 25% of any savings in order to recover potential future losses has been eliminated. Second, the addition of the advance payment ACO initiative now offers selected participants access to capital to aid in the formation of an ACO. CMS will recoup the advance payments from the ACO’s shared savings. Third, the proposed sixty-five quality measures used to establish quality performance standards have been reduced to thirty-three. Fourth, ACOs may now share in the first dollar of any savings that they generate. This rule is in contrast to the proposed rule requirement that the ACO shares only in savings that are in excess of 2% of the savings benchmark. Finally, the savings cap has been increased to 10% for the first three years of participation (up from 7.5% in the first two years).
On Monday, October 3rd, the United States Supreme Court began a new term by hearing oral arguments on whether Medicaid recipients and healthcare providers can bring a lawsuit against a state for failing to pay the rates required under the federal Medicaid law. The case, Douglas v. Independent Living Centers of Southern California, arises out of the Ninth Circuit and stems from a decision made by the California legislature to cut the rates paid to healthcare providers due to budget concerns.
Under the Medicaid program, the federal government finances a significant portion of costs to doctors who provide healthcare services to the poor. In exchange for receiving the federal funds, states must agree to pay fees to health care providers of an amount sufficient to ensure that indigent patients have access to care. The federal Department of Health and Human Services makes the determination of whether the rates paid to doctors and hospitals are sufficient and any change to those rates must first by approved by the agency prior to implementation. The concern is that lower fees will not cover the costs associated with patient care such that doctors and hospitals will be unable to afford to take care of Medicaid patients. In 2008 and 2009, California cut the fees paid to doctors by 10 percent without first obtaining approval of the federal government. In response, doctors, hospitals, and patients filed suit against the state and won temporary injunctive relief that required California to maintain the higher rate pending trial. The state appealed the decision.
Representing the state was California Deputy Attorney General Karen Schwartz, who argued that patients, doctors, and hospitals lacked standing to challenge the rate cuts in court because Congress had not specifically authorized such private party suits. According to Schwartz, the only available remedy for the unauthorized rate cuts is for the federal government to discontinue funding California’s Medicaid program, a measure Justice Ruth Bader Ginsburg called “a very drastic remedy that’s going to hurt the people that Medicaid was meant to benefit.” In response to Schwartz, the attorney representing the medical providers and patients argued that the Supremacy Clause of the U.S. Constitution permitted the beneficiaries of a federal program to bring a claim against a state to ensure that federal law prevails in instances where a state’s actions are inhibiting the enforcement of federal law. No clear majority opinion was evident after oral arguments were completed but a decision is expected in the near future.
–Meagan J. Thomasson
On September 8, 2011, the U.S. Court of Appeals for the Fourth Circuit dismissed two lawsuits challenging the constitutionality of the individual mandate provision contained in President Obama’s healthcare reform overhaul (“Obamacare”).
The three-judge panel declared that the Fourth Circuit does not have jurisdiction, citing the Tax Anti-Injunction Act as preventing the court from hearing a challenge to the constitutionality of Obamacare.
Therefore, the appellate court dismissed the two lawsuits—one filed by Virginia Attorney General Ken Cuccinelli and one filed by Liberty University—without ruling on the constitutionality issues presented.
The Fourth Circuit is the third appellate court to hear lawsuits challenging Obamacare, which includes the individual mandate provision requiring individuals to buy health insurance or pay a penalty. The Sixth Circuit ruling upheld the constitutionality while the Eleventh Circuit declared the individual mandate provision to be unconstitutional. The D.C. Circuit is yet to rule on the appeal pending in its appellate court. This latest decision from the Fourth Circuit further paves the road heading toward the Supreme Court.
–Christopher L. McLean
Earlier this month, the Centers for Medicare & Medicaid Services (“CMS”) announced the fifth year results of the Physician Group Practice (PGP) Demonstration, which was a precursor to and assisted in shaping and forming the Accountable Care Organization (ACO) model that was developed and rolled out to the public for consumption in the Patient Protection and Affordable Care Act (PPACA). Under the PGP Demonstration, the participating physician group practices were afforded an opportunity to earn incentive payments based on meeting certain criteria for the quality of care delivered to the recipients of their professional services in addition to savings generated for the Medicare program.
CMS reported that, of the ten total physician group practices participating in the PGP Demonstration, four such groups will share $29.4 million of the $36.2 million in total program savings generated in the fifth year of the five-year PGP Demonstration. In addition, CMS reported that with respect to the 32 quality measures used to determine a physician group practice’s quality of care, seven of the ten participating physician group practices achieved the benchmarks set forth by CMS for all 32 measures, while the remaining three participating physician group practices achieved the quality benchmarks in at least 30 of the 32 quality measures. This is in contrast to the first year of the PGP Demonstration in which only two of the ten participating physician group practices achieved the quality benchmarks set by CMS in all of the quality measures. Over the course of the five-year PGP Demonstration, seven of the ten participating physician group practices have shared in $110 million in savings generated for the Medicare program. Further, each of the physician group practices realized increases in quality scores for quality measures pertaining to heart failure, coronary artery disease, diabetes, cancer screening, hypertension and preventative care.
Additionally, CMS announced that all ten of the participating physician group practices are participating in CMS’ PGP Transition Demonstration which is a follow up two year demonstration that began on January 1, 2011. While the ACO regulations issued by CMS were inordinately complex and difficult for entities to comply with, one thing that seems fairly clear from the results of the five-year PGP Demonstration is that quality outcomes and reductions in costs to the Medicare program are achievable when physicians and physician groups are incentivized to achieve certain quality benchmarks. It will be interesting to track the progress and results with respect to the PGP Transition Demonstration over the next couple of years. –Aaron J. Ambrose
Senator Orrin Hatch recently released a report by the Senate Finance Committee offering an overview of key issues and potential areas for Congressional oversight concerning Physician-Owned Distributors (“PODs”). After the issuance of this report, the Chairman and Ranking Members of the Senate Finance Committee sent letters to the Centers for Medicare & Medicaid Services (“CMS”) and the United States Department of Health and Human Services (“HHS”) requesting they address the concerns voiced in this report.
PODs normally consist of a small group of physicians who form these companies to distribute and sometimes manufacture medical implantation devices used in surgery. The report emphasized that because these very physicians usually work at the hospitals to which these PODs sell their products, they believed there is a significant risk of fraud and abuse. The Committee asserted that the very nature of PODs creates financial incentives for physicians to use the devices distributed by their PODs as much as possible, whether or not this is the most efficient use of hospital funds, in their patients’ best interests, or the highest quality products.
The report asserted instances where the number of certain surgeries spiked with the advent of a new POD device that was integral to such operations. Further, it offered anecdotal stories where physicians redid surgeries so as to use their own POD devices, or engaged in several surgeries that all required POD devices on elderly patients, despite the high risk that numerous surgeries pose to this demographic.
As a result of this report, the Senate is calling for more regulation to clarify the environment in which PODs operate. Although the HHS has issued written guidance concerning PODs expressing the need to carefully review and scrutinize these entities under fraud and abuse laws, it declined to specifically regulate PODs under the Stark Law. In its report, the Senate Finance Committee has called for HHS and CMS to take several measures to increase scrutiny of PODs. The Committee would like to see HHS and CMSinquire into existing PODs and their current ownership structures in order to develop additional regulatory guidance and recommendations for further regulation of PODs. Further, the Committee believes that PODs should be included within the final definition of “applicable manufacturers” under the Sunshine Act so that these POD entities’ activities will be more transparent and subject to the Sunshine law’s reporting requirements.
On August 12, 2011, the Eleventh U.S. Circuit Court of Appeals issued a ruling holding the individual mandate provision of the Patient Protection and Affordable Care Act, passed in 2010 (“Obamacare”), to be unconstitutional. The divided three-judge panel struck down the requirement that Americans must carry health insurance or face penalties. The ruling did not go so far as to invalidate Obamacare entirely.
The Eleventh Circuit ruling follows the June 29, 2011 Sixth Circuit ruling which upheld the constitutionality of Obamacare, which was the first appeals court decision to rule on a challenge to the law. Appeals still remain pending in Richmond (4th Circuit), and Washington, D.C. (D.C. Circuit).
The Eleventh Circuit ruling opens the door to the Supreme Court granting certiorari to resolve the conflicting decisions in different circuits regarding the constitutionality of the individual mandate provisions of Obamacare. The Thomas More Law Center has already filed a petition for certiorari with the United States Supreme Court on July 26, 2011. However, the Supreme Court is unlikely to grant certiorari until the remaining circuits rule, which most likely will not occur until 2012. –Christopher L. McLean
Centers for Medicare & Medicaid Services (“CMS”) proposed its update to the Medicare Physician Fee Schedule (“MPFS”) for the calendar year of 2012. Under this plan, more than one million providers of vital health services receive compensation for the care they provide Medicare’s beneficiaries. It proposes several things, but most importantly calls for a 29.5% percent reduction in payment rates to physicians and nonphysicians under this plan according to the statutory sustainable growth rate formula (“SGR”). CMS has voiced its displeasure with such a cut in reimbursement to such providers and asserts that it is not a correct valuation of their services. Its hands are tied however, because this formula can only be changed through legislation. Congress has confronted this problem every year since 2003, and has each year enacted legislation to chip away at these large reductions, saving providers from a large reduction in reimbursement for services provided to Medicare beneficiaries. Fortunately for Medicare beneficiaries and the providers treating such beneficiaries, Congress is again expected to implement legislation as a temporary fix to decrease this severe cut in reimbursement.
The proposed rule sets out other notable changes that all purport to ensure that Medicare reimburses physicians accurately for the services provided.
In what could be the most significant change in reimbursement methodology, the proposed rule aims to expand Medicare’s multiple procedure payment reduction (“MPPR”) policy for advanced diagnostic imaging services. Currently, the MPPR policy applies only to the technical component of diagnostic imaging services and not to the professional component. Upon implementation of the proposed rule, CMS will, in the event of multiple diagnostic imaging procedures performed on the same date of service, reimburse at 100% of the fee schedule amount for technical and professional components of the highest paid procedure, but will only reimburse at 50% of the fee schedule amount for both technical and professional components of any other diagnostic imaging procedure performed on the same date of service.
CMS is accepting comments on the proposed rule until August 30, 2011 and will review and respond to all comments by November 1, 2011. For more information, please click here to see the entire proposed rule. –Christopher L. McLean
The physician recruitment exception to the Stark Law allows a hospital to provide certain financial incentives to a physician group practice to induce a physician to relocate his practice to a location within the hospital’s service area. In order to comply with the physician recruitment exception, the financial arrangement must comply with a number of criteria. Among these criteria, the exception requires that the physician group practice to which the physician is recruited may not impose practice restrictions that “unreasonably” restrict the physician’s ability to practice medicine in the geographic area served by the hospital. Until recently, the Centers for Medicare & Medicaid Services (“CMS”) has declined to provide any guidance regarding what types of practice restrictions CMS would consider to be unreasonable.
In January of 2011, CMS finally addressed this reasonableness standard and issued an advisory opinion, CMS-AO-2011-01, finding permissible a physician recruitment arrangement between a hospital and a pediatric orthopedic surgeon that included a non-competition clause. In its advisory opinion, CMS examined the recruitment arrangement which contained a provision that prevented the physician from practicing medicine at any health care facility within twenty-five (25) miles of the hospital for one (1) year following the physician’s termination of employment. CMS stated that both the time and geographic restrictions were reasonable based on the large geographic area the hospital serves. CMS also found persuasive that, during the one year restriction period, the physician would be able to practice at a hospital outside the twenty-five (25) mile radius, but still within the general geographic area of the hospital. Additionally, during the restricted year the surgeon could work at three hospitals that were technically outside of the hospital’s geographic area, but were still located within sixty (60) miles of the hospital. CMS stated in its opinion that after evaluating the totality of the circumstances relating to the factors set forth in the physician recruitment exception, the non-competition provision did not constitute an unreasonable restriction on the physician’s ability to practice medicine in the geographic area of the hospital. Although CMS did not provide a separate analysis of state law, CMS did rely on the hospital’s representation that such an arrangement complied with state laws regarding restrictions on competition.
Although this advisory opinion cannot be relied upon by another individual or entity, it is the first time CMS has provided guidance as to how CMS interprets the physician recruitment exception’s requirement that a group practice not unreasonably restrict a recruited physician’s ability to practice medicine in the hospital’s geographic service area. This advisory opinion should provide group practices that are considering a recruitment arrangement with a new physician with valuable guidance concerning what CMS is likely to consider reasonable in terms of restrictions on competition. To read the full Advisory Opinion issued by CMS, click here. -Aaron J. Ambrose