New Proposed Legislation Seeks To Restore Tax Exempt Status to Non-Profit Acute Care Hospitals In New Jersey and Implement Instead a Community Service Contribution Payment

In the wake of the 2015 court case challenging the tax exempt status of a nonprofit hospital here in New Jersey, the fight continues over this issue with many of the non-profit hospitals in New Jersey currently engaged in litigation before the Tax Courts and various bills having been proposed and debated in the Legislature. This past week a bill (A4985) was introduced in the Assembly of the New Jersey Legislature that seeks to restore the property tax exemption for nonprofit hospitals that operate with on-site for-profit providers. The bill was sponsored by Assemblyman Troy Singleton. The Statement to the bill makes clear that the bill “would establish a clear and predictable system in which nonprofit hospitals make a reasonable contribution to their host communities.”

In addition to restoring the tax exempt status, the proposed bill requires these hospitals to pay community service contributions to host municipalities and it establishes a Nonprofit Hospital Community Service Contribution Study Commission.

With regard to the contribution, the community service contribution would be equal to $2.50 a day for each licensed bed at the exempt acute care hospital property except in the case of a satellite emergency care facility in which case the contribution would be equal to $250 a day. Following 2018, and for each subsequent tax year, the per day amount utilized for the calculation will be increased by two percent over the prior tax year.

Up to 75% of that annual community service contribution can be reduced by the amount of payments remitted to the municipality in which the acute care hospital or satellite emergency care facility is located pursuant to a voluntary agreement operative in the prior tax year to compensate for public safety services.  Similarly, up to 25% of the annual community service contribution can be reduced pursuant to any agreement to provide compensation for the provision of affordable housing in the municipality.

The municipalities will be required to utilize a portion of these contribution funds for police or fire protection; first aid, emergency, rescue, or ambulance services; any other public safety purpose; or to reduce the property tax levy and the remainder for affordable housing.

Acute care hospitals are permitted to apply to the New Jersey Health Care Facilities Financing Authority in the Department of Health for a certificate of exemption for a given tax year in the event the hospital is either in financial distress or at risk of being in financial distress. Such an application would require significant information including audited financial records. A response from the government will be promptly required within 60 days of receipt of the records.

Beyond the financial requirement, the bill also proposes the creation of the Nonprofit Hospital Community Service Contribution Study Commission. The Commission would consist of nine members made up of agency heads, members of the Senate and Assembly, mayors of municipalities and chief executive officers of nonprofit hospitals. The Commission will be tasked with studying the implementation of this bill and reporting on its financial impact on both nonprofit hospitals and the municipalities receiving the contributions. The report shall also include any recommendations to improve the administration, equity or other aspect of the nonprofit community service contribution system including the adequacy of the amount of the contribution.

Finally, the bill contemplates having exemptions for a large number of properties including buildings used for colleges, schools, academies, public libraries, asylums or schools for those with developmental disabilities, religious sites and many others.

While this bill will not eliminate the financial obligation nonprofit acute care hospitals are now faced with following the 2015 ruling, this legislation appears to at least help to alleviate the amount that will need to be remitted by these hospitals and provides oversight on how the money will be utilized by the municipalities. Time will tell whether this newest legislative effort will have more success than its predecessors and whether the Tax Courts will act prior to it having a chance to work its way through the Legislature.

The Office of Inspector General and the Health Care Compliance Association Collaborate to Provide Guidance on Effective Compliance Programs

On March 27, 2017 the Department of Health and Human Services Office of Inspector General (“OIG”) and the Health Care Compliance Association (“HCCA”) released a document called Measuring Compliance Program Effectiveness: A Resource Guide (the “Guide”). The Guide is the collaboration of forty compliance professionals and OIG staff that met in January 2017 to discuss ways to measure the effectiveness of a compliance program. Given the historically limited information provided by the OIG regarding compliance programs this document provides important insight to the industry regarding how to assess the effectiveness of a compliance program.

The Guide takes the basic seven elements of a compliance program and provides lists of individual compliance program metrics to consider in implementing each item. The areas addressed in the Guide including the following:

  1. Standards, Policies and Procedures, including policy/procedure access, accountability for their update and the quality of their content
  2. Compliance Program Administration, including the roles of those responsible, the culture fostered by the compliance personnel, incentives, evaluations and risk assessment based on staffing/knowledge base
  3. Screening and Evaluation of Employees, Physicians, Vendors and other Agents, including accountability, potential conflicts of interest, disclosures and proper screening protocols
  4. Communication, Education and Training on Compliance Issues, including proper training, communication and accountability
  5. Monitoring, Auditing and Internal Reporting Systems, including proper processes, risk assessments, proper monitoring and auditing and timely corrective action plans/remediation
  6. Discipline for Non-Compliance, including consistency, awareness and documentation
  7. Investigations and Remedial Measures, including proper guidelines, consistency, quality, process, documentation, timeliness, communication and competency

The Guide is cautious to point out that it is not a “checklist” of required items to be applied wholesale in assessing the effectiveness of a compliance program. Rather, the items are intended to serve as broad ideas of metrics for health care organizations to choose based upon which best fit their needs. The Guide even states that an attempt to use all or even a large number of the items in the Guide would be impractical and is not recommended. Thus, it is important for health care organizations to consult with their compliance department and legal counsel to assess which best fit their needs and assist in advancing the effectiveness of their compliance program. Factors such as the organization’s risk areas, size, resources, industry segment, etc. are all critical to the analysis of which items to utilize.

The 2017 OIG Work Plan – Areas of New Focus In the New Year

On November 10, 2016 the Department of Health and Human Services Office of Inspector General released its 2017 Work Plan. The Work Plan, which is updated annually, furnishes key guidance to providers, suppliers, and others doing business in the health care industry regarding audit and enforcement activities that will be focused upon by the agency in the upcoming year. Providers should therefore be diligent in ensuring that their compliance programs and scheduled audit activities encompass these areas of focus. The following is a summary of some of the key new areas of focus identified in the Work Plan for Part A and Part B Medicare services. Unlike in some prior years, there does not appear to be one new area of emphasis by the OIG but rather the identification of a few select focused new items of interest that it has added to its Work Plan. In addition to these new areas, the OIG has maintained in its Work Plan several other areas of focus that it will continue to work this year.

Hospitals

  1. Hyperbaric Oxygen Therapy Services – Hyperbaric oxygen (HBO) therapy involves giving a beneficiary high concentration of oxygen within a pressurized chamber. Given that HBO therapy is primarily an adjunctive treatment for the management of select nonhealing wounds, CMS Publication 100-03, National Coverage Determinations Manual, Ch. 20, § 20.29(A) requires a beneficiary meet 1 of 15 covered conditions for providers to receive reimbursement. In the past the OIG has reviewed such claims for medical appropriateness, sufficient documentation and noncovered conditions. The OIG intends to reemphasize its efforts in assessing whether reimbursement was in accordance with Federal requirements.
  2. Incorrect Medical Assistance Days Claimed by Hospitals – The OIG will be reviewing Medicaid patient days to determine whether the Medicare administrative contractors have properly settlement Medicare cost reports for disproportionate share hospitals (DSH) that have received Medicare DSH payments to ensure compliance with all Federal requirements.
  3. Inpatient Psychiatric Facility Outlier Payments – From FY 2014 to FY 2015 the number of claims with outlier payments increased by 28 percent for Inpatient Psychiatric Facilities providing active psychiatric treatment to meet the urgent needs of those experiencing an acute mental health crisis, which may involve mental illness or alcohol- or drug-related problems. In terms of Medicare payments for such stays, the total outlier payments have increased from $450.2 million to $534.6 million. OIG intends to determine whether these facilities have complied with Medicare documentation, coverage and coding requirements for stays resulting in outlier payments.
  4. Case Review of Inpatient Rehabilitation Hospital Patients Not Suited for Intensive Therapy – In a separate medical review seeking to identify adverse events in inpatient rehabilitation hospitals, physician reviewers found a small number of cases in which patients appeared to be unsuited for intensive rehabilitation therapy. This study will assess a sample of rehabilitation hospital admissions to determine whether the patients participated in and benefited from intensive rehabilitation therapy for their illness, injury or surgery. For those identified as not suitable candidates, the reviewers will identify reasons why.

Nursing Homes

  1. Nursing Home Complaint Investigation Data Brief – The OIG will be reviewing the diligence with which State agencies are investigating complaints categorized as “immediate jeopardy” or “actual harm” within the applicable timeframes called for under the law at nursing homes.
  2. Skilled Nursing Facilities – Unreported Incidents of Potential Abuse and Neglect – The OIG will be assessing whether there are incidences of abuse and neglect at Skilled Nursing Facilities that are going unreported. The OIG will be looking for evidence that incidents were properly reported and investigated per Federal and State requirements.
  3. Skilled Nursing Facility Reimbursement – Skilled Nursing Facilities must periodically assess their patients using the tool called the Minimum Data Set to classify each patient into a resource utilization group for payment. Medicare reimbursement is tied to the activities of daily living and therapy received by each beneficiary and reported on the Minimum Data Set. The OIG will be reviewing documentation at selected SNFs to determine if the requirements for each particular resource utilization group is accurate.
  4. Skilled Nursing Facility Adverse Event Screening Tool – The OIG will be assisting in rolling out the Adverse Event Screening Tool in coordination with the Institute for Healthcare Improvement. The goal of the product is to disseminate practical information about the tool for use by those involved with the skilled nursing industry.

Hospices

  1. Medicare Hospice Benefit Vulnerabilities and Recommendations for Improvement – The OIG has identified vulnerabilities in payment, compliance and oversight as well as quality-of-care concerns that directly impact beneficiaries of these services. The OIG will be making recommendations for protecting beneficiaries and improving the program.
  2. Review of Hospices’ Compliance with Medicare Requirements – A review of hospice medical records and billing documentation will be conducted to determine whether Medicare payments for hospice services were made in accordance with Medicare requirements.
  3. Hospice Home Care – Frequency of Nurse On-Site Visits to Assess Quality of Care and Services – A review will be conducted to determine if hospice nurses were performing the requirements on-site visits to the homes of Medicare beneficiaries receiving hospice care at least once every 14 days to assess quality of care and services provided by the aid.

Home Health Services

  1. Comparing HHA Survey Documents to Medicare Claims Data – The OIG is concerned with identifying potentially unqualified or fraudulent providers. Home Health Agencies are required to supply patient information to State agencies and thus a determination will be made as to whether HHAs are accurately providing patient information to State agencies for recertification surveys.

Medical Equipment and Supplies

  1. Part B Services During Non-Part A Nursing Home Stays: Durable Medical Equipment – If a beneficiary resides at a SNF after 100 days, Medicare Part B may provide coverage for certain therapy and supplies (non-Part A stay). However, a 2009 OIG report found that Medicare Part B allowed inappropriate payments of $30 million in 2006 for durable medical equipment, prosthetics, orthotics and supplies during non-Part A stays in SNFs. This new study will determine the extent of inappropriate Medicare Part B payments for such items during non-Part A stays in 2015.
  2. Medicare Market Share of Mail-Order Diabetic Testing Strips – The OIG will be releasing its required reporting on the market share of diabetic testing strips in anticipation of the next round of the competitive bidding program.
  3. Positive Airway Pressure Device Supplies – Beneficiaries routinely receive replacements of continuous positive airway pressure or respiratory assist device therapy (PAP) when they wear out or are exhausted. Previously the OIG had discovered that equipment was being shipped when no physician order for refills were in effect. The OIG will be investigating whether claims for frequent replaced PAP device supplies were properly documented as medically necessary along with ensuring frequency of replace and other Medicare requirements are being met.

Prescription Drugs

  1. Drug Waste of Single-Use Vial Drugs – The FDA approves vial sizes for single use submitted by manufacturers but does not control the vial sizes submitted for approval. A study will be conducted to determine if savings might be realized if smaller single use vial sizes were utilized here in the United States as is done in other countries.
  2. Potential Savings from Inflation-Based Rebates in Medicare Part B – Each year statutorily mandated rebates enable Medicaid to recoup substantial portions of the billions spent on prescription drugs. In contrast, Medicare Part B similarly spends billions annually but has no similar rebate. The OIG will perform a sample study to calculate how much the Federal Government could potentially collect from pharmaceutical manufacturers if similar rebates were required for Part B.

The Work Plan also contains new endeavors relating to other Providers and Suppliers such as Diagnostic Laboratories, Transitional or Chronic Care Management and Ambulance Services.

In addition to Medicare Part A and Part B, the OIG will be implementing new focuses for Part C and Part D services as well. They include the following new initiatives:

Part C – Medicare Advantage

  1. Medicare Part C Payments for Service Dates After Individual’s Date of Death – CMS pays MA organizations for Part C benefits prospectively. A prior OIG review determined that Medicare improperly made $23 million in payments in 2011 for deceased beneficiaries of which $20 million was directly related to Part C payments. The OIG will therefore be examining if payments made after a beneficiaries’ date of death were in accordance with Medicare requirements.
  2. Extent of Denied Care in Medicare Advantage and CMS Oversight – Capitated payments, as used by CMS to pay MA plans, can result in financial incentives for plans to underserve beneficiaries. A review will be conducted to assess the extent to which inappropriate denials are occurring.

Part D – Prescription Drug Program

  1. Medicare Part D Rebates Related to Drugs Dispensed by 340B Pharmacies – The OIG will assess potential savings if pharmaceutical manufacturers paid rebates for drugs dispensed through the Medicare Part D program but at 340B covered entities and contract pharmacies.
  2. Questionable Billing for Compounded Topical Drugs in Part D – Part D spending for compounded topical drugs grew by more than 3,400 percent between 2006 and 2015. The OIG will be investigating the potential fraud risk given this sharp increase in spending and identifying pharmacies with questionable Part D billing for these drugs and any associated prescribers.

A review of the full Work Plan identifies a number of other areas to be reviewed by the OIG including review of the States’ operations of their Medicaid programs and the activities within the Health Insurance Marketplaces.

Not surprisingly, it will be another busy year for the OIG and its various audit, investigation and review bodies.

Appellate Division Enforces The Self-Critical Analysis Privilege Protections of the Patient Safety Act

On February 6, 2017, the New Jersey Appellate Division reversed a trial court ruling by holding that a hospital’s failure to notify regulators of a treatment error does not mean that the hospital loses the privilege and confidentiality afforded to its internal self-critical analysis under the Patient Safety Act.

The matter of Brugaletta v. Chilton Memorial Hospital, et al. concerned a claim of medical malpractice by a patient, Ms. Brugaletta. During discovery she sought the hospital’s internal self-critical analysis of her care. The trial judge initially ruled the documentation should be produced claiming that Ms. Brugaletta had suffered a “serious preventable adverse event” (“SPAE”) and that the hospital had failed to report the event to the New Jersey Department of Health or Ms. Brugaletta in violation of the Patient Safety Act. The hospital appealed that determination disputing that Ms. Brugaletta suffered an SPAE and that it had any reporting obligation to the Department or Ms. Brugaletta.

The Patient Safety Act (N.J.S.A. 26:2H-12.23, et al.) creates an absolute privilege over certain documents that a hospital develops as part of a self-critical analysis. In analyzing the Patient Safety Act, the Appellate Division held that the only statutory precondition of the self-critical analysis privilege is compliance with the statutory requirement that hospitals develop and implement a patient safety plan in accordance with the requirements established by the commissioner by regulation. Thus, as long as the proper procedure is followed as set forth in the hospital’s safety plan, then the self-critical analysis is protected by the privilege.

The Appellate Division rejected any interpretation whereby the self-critical analysis privilege was conditioned on a hospital meeting its reporting obligations. Rather, it viewed those as a separate and distinct obligation under the Patient Safety Act. The Appellate Division also disagreed with the trial court’s finding that an SPAE had occurred as the trial court failed to identify record evidence to make such a conclusion, specifically with regard to causation. 

Thus, the Appellate Division found the trial court had erred in compelling the hospital to disclose the self-critical analysis and in finding that the hospital failed to report an alleged SPAE to the Department and Ms. Brugaletta.

This case and decision are just the most recent example of the continuing efforts by patients to challenge the protections of the Patient Safety Act and the courts’ efforts at determining the legislature’s intended purpose of the statute’s language. History suggestions this will not be the last such case.

 

The Future Is Uncertain For the Patient Protection and Affordable Care Act

With the election of Donald Trump to the office of President of the United States, Republicans and their supporters began implementing plans for the repeal and replacement of President Obama’s signature legislation, the Patient Protection and Affordable Care Act (“ACA”). President-Elect Trump’s selection of Representative Tom Price (R-GA) to the position of Secretary of Health and Human Services signaled the next step in those efforts.

Dr. Price, an orthopedic surgeon, has been a regular voice in opposition to the ACA and many in Congress and the media see this selection as confirmation that every effort will be made to replace the ACA. Several Democrats have already come forth indicating they plan to challenge Dr. Price’s selection as they see any threat to the ACA as a threat to thousands of patients that have only received insurance as a result of the ACA.

While a repeal of the ACA is still not guaranteed and many are already challenging whether it could even be effectuated without significant impacts on the health insurance industry and millions of Americans, it is nevertheless important to understand what a replacement program might look like. Dr. Price has previously submitted one of the more detailed Republican plans to replace the ACA. His previously proposed legislation is known as the Empowering Patients First Act.

Unlike the ACA, Dr. Price’s legislation seeks to minimize government’s role in health care. The following are five key elements of Dr. Price’s prior proposal:

  1. Fixed tax credits that rise with age so that patients can purchase their own insurance on the private market, including across state lines. The tax credits would not fluctuate based on income.
  2. Expand health savings accounts to further incentivize patients to contribute to such accounts to pay co-pays and deductibles.
  3. Preexisting conditions would continue to be excluded as a basis to deny coverage but only if the patient has had continuous insurance for eighteen months prior to selecting a new policy. If not, coverage might be denied for up to eighteen months under the new policy.
  4. Limiting the amount of money companies can deduct from their taxes for employee health insurance expenses.
  5. States would be paid federal funds to set up high risk pools to assist those with preexisting conditions that cannot afford insurance on the private market.

While Dr. Price has indicated his willingness to negotiate and compromise on what the ultimate replacement looks like, it remains to be seen how flexible he and the Republicans will be on a substitute for the ACA. Regardless of the final form, one cannot forget that as Secretary of HHS, Dr. Price would ultimately control the authoring of the enabling regulations to implement the new legislation.

It is anticipated that during President-Elect Trump’s first 100 days in office this issue will be addressed.

Stark Undergoes Another Change

The Stark Act, 42 U.S.C. § 1395nn, prohibits physicians from engaging in a “self-referral” when referring patients elsewhere for certain services. Generally, if a physician (or an immediate family member of such physician) has a financial relationship with an entity, then the physician may not make a referral to the entity for the furnishing of designated health services for which payment otherwise may be made under Medicare. For example, an orthopedist may not refer a patient for imaging to a facility in which the physician or a member of her immediate family has an interest. The entity accepting the prohibited referral may not present or cause to be presented a claim to Medicare or bill to any individual, third party payor, or other entity. If the referral entity collects payments billed in violation of this prohibition, it must refund those amounts on a timely basis, typically within 60 days of identification.

Exceptions to Stark do exist, and on November 16, 2015, the Department of Health and Human Services, Centers for Medicare and Medicaid Services, (CMS) issued a final rule revising and adding further exceptions to offer providers additional flexibility in their efforts to comply with Stark. Some of the major changes include:

1.) CMS created a new exception for assistance to compensate a non-physician practitioner. The exception permits remuneration from a hospital, federally qualified health center, or rural health clinic to a physician to recruit a non-physician practitioner (physician assistants; nurse practitioners; clinical nurse specialists; certified nurse midwives, clinical social workers and clinical psychologists) where substantially all of the services furnished by the non-physician practitioner to the patients of the physician’s patients are for primary care services or mental health care services;

2.) CMS created a new timeshare arrangement exception to cover the use of some premises, equipment, personnel, items, supplies, or services. Compensation for such arrangements must be carefully structured. Percentage compensation and per-unit services fees are prohibited; hourly or half day rates are acceptable. The arrangement cannot be conditioned upon referrals and cannot convey a possessory interest in the office space;

3.) CMS revised the temporary noncompliance with signature requirement. Previously, parties who inadvertently failed to comply with the signature requirement had 90 days to comply with others having 30 days. The revision provides a flat 90 day period to comply with this requirement, regardless of whether the failure to obtain a signature was inadvertent or not;

4.) CMS created a new, indefinite holdover provision. An expired arrangement under the office space and equipment rental exceptions and the personal service arrangements exception can now be “held over” indefinitely rather than for only six months, provided the arrangement: (a) satisfies all of the requirements [list] at the time of expiration; (b) continues on the same terms and conditions; and (c) continues to satisfy all of the enumerated requirements during the holdover;

5.) CMS clarified the writing requirement, requiring only an arrangement need be set out in writing. Although CMS recommends having one signed written contract that satisfies every requirement of the exception, this requirement may also be satisfied through a collection of documents that relate to one another and to the exact arrangement.

These are only some of the revisions and only the highlights of a very technical set of regulations. It is critical that physicians, hospitals, health care facilities and business associates ensure that they are aware and up-to-date with all of the major changes to Stark. Complying with Stark in practice can be particularly complex and thus must be closely monitored.

Extrapolation – Coming to a Hospital Near You

A review of the OIG’s daily bulletins reveals the common use of extrapolation in its audit of hospitals. Subsets of records identified by the government as statistically valid are regularly reviewed at hospitals across the country and then the identified error rate projected out across all reimbursement for the facility. As a result, $600,000 worth of identified overpayments within a subset is routinely extrapolated to a demand for repayment of over $10 million. One such recent example occurred at the University of Cincinnati Medical Center. This leaves hospitals in the precarious position of deciding whether to challenge the government’s error rate and risk revealing an even greater percentage of overpayments or accepting a repayment the facility knows is not based on a review of all claims composing that $10 million figure.

This controversial practice of extrapolation has been around for decades as courts have permitted the practice by government agencies and their contractors. Courts have recognized the importance of extrapolation as a means of performing realistic and practical audits, given the enormous number of claims at issue and the limited resources of the federal government to investigate. See e.g. Ratanasen v. California, 11 F.3d 1467 (9th Cir. 1993); Yorktown Medical Laboratory, Inc. v. Perales, 948 F.2d 84, 89–90 (2d Cir. 1991); and Chaves County Home Health Service, Inc. v. Sullivan, 931 F.2d 914 (D.C. Cir. 1991). As previously discussed on this blog, the United States District Court in Tennessee has even go so far as to allow extrapolation as a means of establishing liability in a False Claims Act litigation.

Extrapolation does have its limits and Congress has specifically stated that “[a] medicare contractor may not use extrapolation to determine overpayment amounts to be recovered by recoupment, offset, or otherwise unless the Secretary determines that — (A) there is a sustained or high level of payment error; or (B) documented educational intervention has failed to correct the payment error.” However, there is no such express limitation on audits conducted by the OIG, which is what has caused concern for many hospitals and the American Hospital Association (“AHA”). The concern is that the government is using the OIG as a proxy for CMS and the Medicare Administrative Contractors to perform extrapolation despite no determination by the Secretary that “there [was] a sustained or high level of payment error” or that “documented educational intervention [had] failed to correct the payment error.” Thus, by having the OIG perform the audits, this prerequisite to extrapolation is avoided. The AHA has argued that the MAC has been using the OIG as a sort of subcontractor and impermissibly attempting to do an end-run around the congressionally-imposed limits on the MAC’s ability to utilize extrapolation. To date, challenges to the practice have been unsuccessful and thus the practice continues.

Thus, hospitals must be proactive in identifying and correcting errors before the auditors arrive. A review of recent OIG audits reveals a pattern of common areas of problems that are being seized upon by the government. These areas include inpatient short stays, incorrectly billed inpatient stays and improper DRG coding. For additional information please see our prior posts discussing these areas of focus by the OIG audits and our discussion of the new additions to the OIG Work Plan for 2015, both of which will provide some insight into where the government is focusing its efforts.

Extrapolation appears to be here to stay and therefore hospitals must be proactive in their compliance efforts and in coordinating the proactive internal reviews necessary to identify and correct these issues before the OIG auditors knock on the door.

The Office of Inspector General Releases Its Fiscal Year 2015 Work Plan

On November 1, 2014, the United States Department of Health and Human Services, Office of Inspector General (OIG), published its Fiscal Year 2015 Work Plan (available here). For most providers subject to the OIG’s reviews, the areas of focus remained the same with the core categories of review being (1) policies and procedures; (2) billing and payments and (3) quality of care and safety.

Hospital reviews of billing and payment practices included a new area of focus: hospital wage data used to calculate Medicare payments. According to the OIG, past work in the area of wage indexes revealed hundreds of millions of dollars in incorrectly reported wage data. This resulted in CMS changing its policy with regard to how hospitals report deferred compensation costs. The OIG will be placing a renewed emphasis this year on the validity and accuracy of the wage data.

Another new area of hospital review in the quality of care and safety category will include: long-term care hospitals – adverse events in post-acute care for Medicare beneficiaries. The OIG will be estimating the national incidence of adverse and temporary harm events for Medicare beneficiaries receiving care in long-term-care hospitals. From those estimations, the OIG will be identifying factors contributing to these events and attempting to determine whether they were preventable and thereby estimating the associated costs to Medicare.

The OIG introduced a few other new areas of focus for fiscal year 2015. For independent clinical laboratories, the OIG will be attempting to determine laboratory compliance with selected billing requirements believed to be at high risk for overpayments. Accountable Care Organizations are also being reviewed with the OIG indicating it will be conducting a risk assessment of the Pioneer Accountable Care Organization Model to determine whether there are appropriate internal controls over the administration of these new health care delivery systems.

State Medicaid programs will also see a few new areas of focus under the OIG’s 2015 Work Plan. State collection of rebates for drugs dispensed by Medicaid MCOs will be one new area of focus with the OIG reviewing whether drug utilization is being properly reported to the State and whether the States are then appropriately collecting the rebates from the manufacturers. Another area of focus will be transfers of Medicaid patients from group homes or nursing facilities to hospital emergency departments. The OIG will be determining whether high occurrences of transfers is a sign of poor quality of care. The OIG Work Plan notes that this area is one of interest to Congress as well. Finally, the OIG has identified concerns with MCO’s paying for services after a Medicaid beneficiary has passed away or for beneficiaries later determined to have been ineligible for Medicaid at the time of services.

These are just a few of the new areas of focus identified by the OIG. The OIG’s Fiscal Year 2015 Work Plan provides a complete list of all new areas of focus along with all areas of past review that remain part of the OIG’s target work.

CMS to Propose Revisions to the Safe Harbors under the Anti-Kickback Statute, and to the Civil Monetary Penalty Rules Regarding Beneficiary Inducements and Gainsharing

It is anticipated that today the Center for Medicare and Medicaid Services (“CMS”) will publish in the Federal Register a set of proposed rules that would amend the safe harbors to the anti-kickback statute and the civil monetary penalty (“CMP”) rules under the authority of the Office of Inspector General.

The proposed rules will seek to add new safe harbors consistent with statutory provisions of the Medicare Prescription Drug, Improvement and Modernization Care Act, Pub. L. No. 111-148, and the Patient Protection and Affordable Care Act, Pub. L. No. 111-152.  In particular, CMS seeks to amend 42 C.F.R. 1001.952 to make the following changes:

  • a technical correction to the existing safe harbor for referral services;
  • protection for certain cost-sharing waivers, including: pharmacy waivers of cost-sharing for financially needy Medicare Part D beneficiaries; and waivers of cost-sharing for emergency ambulance services furnished by State- or municipality owned ambulance services;
  • protection for certain remuneration between Medicare Advantage organizations and federally qualified health centers;
  • protection for discounts by manufacturers on drugs furnished to beneficiaries under the Medicare Coverage Gap Discount Program; and
  • protection for free or discounted local transportation services that meet specified criteria.

Additionally, CMS seeks to amend the definition of “remuneration” under the CMP regulations at 42 C.F.R. 1003 by adding certain exceptions for:

  • copayment reductions for certain hospital outpatient department services;
  • certain remuneration that poses a low risk of harm and promotes access to care;
  • coupons, rebates, or other retailer reward programs that meet specified requirements;
  • certain remuneration to financially needy individuals; and
  • copayment waivers for the first fill of generic drugs.

CMS also propose to codify the gainsharing CMP set forth in section 1128A(b) of the Social Security Act.

For further information please refer to the Proposed Rule which is available here and which it is anticipated will be officially published to the Federal Register on October 3, 2014. Comments on the proposed amendments will be due within 60 days of the publication of the proposed rules.

OIG Issues Favorable Advisory Opinion 14-05 Regarding A Pharmaceutical Manufacturer’s Direct-To-Patient Product Sales Program

The U.S. Department of Health and Human Services, Office of Inspector General (the “OIG’), on July 21, 2014, issued a favorable advisory opinion regarding a pharmaceutical manufacturer’s (the “Manufacturer”) direct-to-patient product sales program, which allows eligible patients to purchase one of the Manufacturer’s brand name products for a fixed price from an online retail pharmacy vendor outside of any applicable prescription drug insurance benefit (the “Arrangement”).  The OIG decided not to impose administrative sanctions on the Manufacturer pursuant to the civil monetary prohibition on offering inducements to beneficiaries or the Anti-Kickback Statute in connection with the Arrangement.  Although Advisory Opinion 14-05 is limited to only the specific Arrangement of this particular Manufacturer, it is a promising decision for patients in desperate need of discounted brand name products and other pharmaceutical manufacturers with aspirations to establish similar arrangements.

Pursuant to the Arrangement, the Manufacturer sells a brand name product, which is eligible under Medicare Part D, but not included on most third party payer formularies or otherwise placed on non-preferred formulary tiers due to the availability of generic equivalents.  The participants enroll by phone, internet, or mail and purchase the product directly from an online retail pharmacy vendor, who contracted to be the Manufacturer’s dispensing agent.  The Arrangement operates completely outside of all federal health care programs.

The OIG addressed several issues regarding the Arrangement, including:  (1) whether the discount provided under the Arrangement is likely to induce the participants to select the online pharmacy to supply items, for which payment may be made by Medicare, Medicaid, or a State health care program; and (2) whether the Arrangement implicated the Anti-Kickback Statute by providing remuneration to the participants or the online pharmacy.  When deciding whether the Arrangement induced participants in violation of the civil monetary prohibition, the OIG concluded that the availability of a discount was not likely to influence the participants to select the online pharmacy to supply other products, which may be payable under Medicare or Medicaid.  Moreover, the OIG similarly concluded that there was a sufficiently low risk that the Arrangement violated the Anti-Kickback Statute.

Advisory Opinion 14-05 is encouraging for other pharmaceutical manufacturers with ambitions of establishing similar arrangements and patients in need of discounts on brand name products.  However, the OIG acknowledged that its decision might be different if the product has no generic equivalents, is covered by more plan formularies, or is more generously covered by some plan formularies.  The
full text of Advisory Opinion 14-05 can be found here.