Category: Affordable Care Act

Federal Appeals Courts Disagree On Subsidies, Creating More ACA Uncertainty

Two separate federal appeals courts have come to opposite conclusions regarding key provisions of the Affordable Care Act (ACA) that make subsidies available to individuals who purchase coverage through federally-run exchanges in thirty-six states.  Approximately 4.7 million people, or 86 percent of all enrollees, qualify for a subsidy to assist in offsetting the cost of coverage in 2014.

Mid-morning on Tuesday, July 22, 2014 a three-judge panel of the U.S. Court of Appeals for the District of Columbia held that the IRS exceeded their jurisdiction when it extended subsidiaries through federally-run exchanges in the states refused or failed to set up their own.  Hours later, the Fourth Circuit of Appeals sitting in Richmond, Virginia upheld the IRS’s authority to grant the subsidies in question.  Statutory language in the ACA which authorizes subsidies in the form of tax credits specifically for insurance bought “through an exchange established by the State,” (emphasis added) is central to both rulings.  Although the contradictory decisions will have no immediate impact on consumers, they have cast additional doubt on the long-term survival of the ACA.

The first opinion, Halbig v. Burwell, held the IRS regulation authorizing tax credits in federal exchanges was invalid. Judge Griffith, writing for the majority, concluded that “the ACA “unambiguously restricts” the section 36B subsidy to insurance purchased on Exchanges ‘established by the State.’”  The court reaffirmed the principle that the law is what Congress enacts, the text of the statute itself, and not the unexpressed intentions or hopes of legislators or a bill’s proponents.  Acknowledging the far-reaching ramifications of its ruling, Judge Randolph, concurring, noted the majority’s hesitancy, saying, “[w]e reach this conclusion, frankly, with reluctance. At least until states that wish to can set up their own Exchanges, our ruling will likely have significant consequences both for millions of individuals receiving tax credits through federal Exchanges and for health insurance markets more broadly.” If upheld, this decision could lead many, if not most, individuals who received subsidies through a federally-run exchange unable to pay their future healthcare premiums.  The Department of Justice has indicated its intention to file a request that all eleven judges of the D.C. Circuit Court of Appeals hear the case en banc.

The ink had barely dried on Halbig when a three-judge panel of the Fourth Circuit Court of Appeals issued a unanimous contradictory ruling in King v. Burwell, a separate case that raised the same challenge to subsidies provided through federally-run exchanges.  In King, the court remarked that challengers could not “rely on our help to deny to millions of Americans desperately-need health insurance through a tortured, nonsensical construction of a federal statute whose manifest purpose, as revealed by the wholeness and coherence of its test and structure, could not be more clear.”

The ACA has been subject to a series of legal challenges since it was enacted four years ago.  Although it has not escaped unscathed, it has thus far survived any cataclysmic damage from the courts.   It seems all but certain that the Government will ask that Halbig be heard en banc by the D.C. Circuit Court of Appeals where Democratic appointees outnumber Republicans seven-to-four.  If the judges vote along partisan lines, that would resolve the split with King from the Fourth Circuit.  These cases are not the last word on this issue, however; similar challenges to the federal subsidies are currently before courts in Oklahoma and Indiana.

Although the Supreme Court could be petitioned to review the matter, the Court is unlikely to intervene unless there is an obvious clash among Courts of Appeals.  Because it is not yet clear if a true schism exists among the Courts of Appeal on this issue, the Supreme Court is unlikely to consider the issue imminently, but would be more likely to do so if a split emerges in the coming months among the lower courts.  For the time being, the Government has indicated that the IRS will continue to provide ACA subsidies in the form of tax credits.

DOJ Intervenes In False Claims Act Case and Alleges Violation for Failure to Return Medicaid Overpayment Within 60 Days of “Identification”

The need to investigate and “identify” potential Medicare and Medicaid overpayments promptly and diligently after they have come to the attention of hospitals and health care providers was underscored by recent action of the Department of Justice (DOJ). On June 27, 2014, DOJ intervened in a qui tam whistleblower lawsuit pending in the United States District Court for the Southern District of New York. It joined in claims under the federal False Claims Act against New York City’s Continuum Health Partners and its constituent hospitals based on the defendants’ failure to return Medicaid overpayments within sixty (60) days of identifying them, as required by § 6402(d) of the Affordable Care Act (ACA). United States ex rel. Kane v. Continuum Health Partners, Inc., et al, (Civil Action No. 11-2325 (ER)) (Complaint in Intervention filed June 27, 2014). These allegations are based solely on the fact that repayment did not occur within the 60-day timeframe required by the ACA and were brought despite defendants’ repayment of all amounts in dispute.

 The qui tam lawsuit that had been filed under seal in the Federal Court for the Southern District of New York included claims against the Healthfirst MCO, its affiliate entities, a large number of New York hospitals and also 20 New Jersey hospitals.  On June 26, 2014 the United States Attorney for the Southern District of New York and the New York Attorney General intervened in part of the case involving New York hospitals.  That same day, the qui tam Amended Complaint was unsealed.  It includes allegations that the 20 New Jersey hospitals had also erroneously billed Medicaid and attempted to unlawfully retain the overpayments in an aggregate amount of approximately $125 million.  In the Third Count, the qui tam Plaintiff asserts claims against the New Jersey hospitals under the New Jersey False Claims Act, N.J.S.A. 2A:32C(g), based on the hospitals’ alleged knowing failure to report and return the overpayments.  The State of New Jersey has not yet indicated whether it will intervene or not.

 Section 6402(d) of the ACA requires any “overpayment” to be reported, explained and returned within 60 days after the date on which it is identified or any corresponding cost report was due, as applicable. 42 U.S.C. § 1320a-7k(d). An “overpayment” is defined as “any funds that a person receives or retains under… [Medicare or Medicaid] to which the person, after applicable reconciliation, is not entitled under such title.” 42 U.S.C. § 1320a-7k(d)(4)(B).  Although to date CMS has not issued expected final regulatory guidance, the statutory text indicates that any overpayment retained past this deadline can lead to liability under the False Claims Act (FCA) in the form of treble damages, civil monetary penalties between $5,000 to $11,000 per violation, attorney’s fees and/or exclusion from Medicare participation. 31 U.S.C. § 3729; 42 U.S.C. § 1320a-7.

 In Kane, the overpayments were not the fault of any of the providers involved, but rather the result of coding errors by Healthfirst, the MCO which contracted with the Continuum providers for services to New York Medicaid managed care enrollees. Starting around early 2009, these errors caused Healthfirst to erroneously authorize the hospitals to seek additional payments from secondary payers. As a result, Continuum impermissibly submitted claims to New York Medicaid on behalf of its constituent providers

 The complaint alleges that in September 2010, the State of New York identified a small number of claims submitted by Continuum on behalf of its hospitals as having been wrongly submitted to Medicaid as secondary payer. Less than six months later, according to the DOJ, an internal investigation at Continuum revealed that approximately 900 specific claims totaling over $1 million may have been submitted to, and paid by Medicaid as a secondary payer, in error. While Continuum eventually made final repayment of all amounts in issue, that process was not completed until March 2013 and only after the Government issued a Civil Investigative Demand concerning these payments in June 2012.

 The DOJ is seeking treble damages in an amount to be determined, penalties of $11,000 for each overpayment retained beyond the 60-day deadline created by the ACA, and costs of suit. This is believed to be the first instance where damages under the FCA are sought solely as a result of failing to comply with the ACA’s requirement that overpayments be returned within 60 days.

 When exactly each alleged overpayment was “identified” by the defendants will be a crucial issue in Kane. This ambiguity concerning the “identification” of overpayments under § 6402(d) has been the source of industry concern since the ACA’s enactment. In February 2012, the Centers for Medicare and Medicaid Services (CMS) issued a proposed rule addressing this, at least in part. See 77 Fed. Reg. 32, 9179-9187 (Feb. 16, 2012) (the “Proposed Rule”). In speaking to Medicare, (leaving “[o]ther stakeholders, including, without limitation… Medicaid MCOs … [to] be addressed at a later date”), CMS advocated a knowledge requirement similar to that which exists under the FCA, stating that an overpayment has been identified for purposes of the ACA when “the person has actual knowledge of the existence of the overpayment or acts in reckless disregard or deliberate indifference of the overpayment.” Id. at 9180, 9187 (proposed 42 C.F.R. § 401.305(a)(2)).

Concerning “identification,” of overpayments, the Proposed Rule states that a provider “may receive information concerning a potential overpayment that creates an obligation to make a reasonable inquiry to determine whether an overpayment exists.” Id. at 9182. Failure to make such a “reasonable inquiry” with “all deliberate speed after obtaining the information could result in the provider knowingly retaining an overpayment because it acted in reckless disregard or deliberate ignorance of whether or not it received such an overpayment.” Ibid.

Illustrative examples of wrongfully retained overpayments, apropos of Kane, provided in the Proposed Rule include instances where a provider “is informed by a government agency of an audit that discovered a potential overpayment, and… fails to make a reasonable inquiry.” Ibid. In CMS’s view, “[w]hen government agency informs a provider or supplier of a potential overpayment, the provider or supplier has an obligation to accept the finding or make a reasonable inquiry. If the provider’s or supplier’s inquiry verifies the audit results, then it has identified an overpayment and, assuming there is no applicable cost report, has 60 days to report and return the overpayment.” Ibid.

Though the Proposed Rule was never enacted, that is not of any significance in light of the plain language of the statute. Confirming this, CMS warned “all stakeholders that even without a final regulation they are subject to the statutory requirements found in… [Section  6402(d) of the ACA] and could face potential False Claims Act liability, Civil Monetary  Penalties Law liability, and exclusion from Federal health care programs for failure to report and return an overpayment.” Id. at 9180-81.

 By intervening in Kane, the DOJ has signaled its expansive view of what constitutes “identification” of these overpayments and its willingness to seek the draconian remedies permitted by the FCA.

Cesarean Section Rates: Standard of Care or Standard of Fear and the Potential Impact of the Affordable Care Act

A recent New York Times article reported the filing of a lawsuit on behalf of a Staten Island woman alleging a forced cesarean section.  This may provide an impetus to look – once again – at the high rate of cesarean section deliveries and perhaps take the initiative to bring about some reforms within the context of reimbursement policy and the Affordable Care Act.

The concerns regarding cesarean section rates involve both the initial or primary delivery of a woman’s baby and the handling of repeat pregnancies.   In particular, controversy persists regarding vaginal birth after cesareans, the so-called VBAC procedure.  For a number of years, the cesarean section rate in New   Jersey has been in excess of 30% and approaching 40%.   The rate for c-sections in repeat pregnancies where the primary delivery was by c-section may even be higher, and the common belief is that once a woman delivers by c-section, she is destined to deliver all subsequent children by the same method.  According to some scales, New Jersey has the second highest cesarean section rate in the United States.  A 2009 publication of the World Health Organization stated that the acceptable level of cesarean section births is “not more than 15%.”  The United States Public Health Service had a similar target figure in 1998.

The New York lawsuit presents a number of challenging issues involving patient autonomy, bioethical standards, and the balancing of the sometimes divergent interests of mother and unborn child.  A published opinion of the New Jersey Appellate Division in Draper v. Jasionowski, 372 N.J. Super. 368, 858 A.2d 1141 (2004), recognized a duty on the part of the obstetrician to not only the pregnant mother but to her unborn child in the context of informed consent and the possibility of a cesarean section as opposed to a vaginal birth.   As a result of the vaginal birth in that case, the child developed an Erb’s palsy and suffered hypoxia and brain damage.  In contrast, the patient in the New York case had previously given birth by cesarean section procedures but wished to have a vaginal delivery for this child.  She refused consent.  The attending physicians explicitly “overrode” her decision and did the cesarean section because of the fetus being “at risk for serious harm without the C-section.”  There was an injury to her bladder in the course of the operation but a healthy child was born.

The decision-making leading to the performance of a cesarean section has many facets.    There are a number of clinical situations that present risk to the well-being of the fetus.  But there are times when c-sections have been done for the convenience of either the laboring mother or the attending physician.  The availability of staffing in some hospitals has also come into play.  Nonetheless, there are a number of studies that have demonstrated that the medical-legal concern of liability exposure influences the judgment of many physicians so as to lower the threshold for doing the operation.  See, e.g., Minkoff, Fear of litigation and cesarean section rates, 36 Semin. Perinatol. 390 (2012); Yang, Mello, Subramanian, & Studdert, Relationship between malpractice litigation pressure and rates of cesarean section and vaginal birth after cesarean section, 47 Med. Care 234 (2009).

The impact of the Affordable Care Act on malpractice claims remains to be seen.  In the view of some, the number of claims will increase as the number of people using healthcare services expand.  On the other hand, there are those who believe that fewer patients will need to bring claims because they will now have a means for covering the expense of their injury claims.  Medical malpractice reform is barely mentioned in the Affordable Care Act. Section 6801 articulates the nonbinding “sense of the Senate,” and recognized that health care reform presented an opportunity to address issues related to medical malpractice and “encouraged” States to develop and test alternatives to the existing civil litigation system to improve patient safety, reduce medical errors, and stimulate efficiency in the resolution of disputes while preserving an individual’s right to seek redress through the courts. Moreover, Section 10607 provides potential federal grant money to support demonstration or pilot programs to develop alternatives to tort litigation.

The many evolving changes being implemented through the Affordable Care Act make it likely that the malpractice aspect of healthcare will also change.  And change brings opportunity.

The issue of cesarean section rates can be one of these opportunities.

One path to consider involves effective use of Clinical Practice Guidelines (CPGs), an approach considered in the past but meriting renewed evaluation.   There are several underlying assumptions necessary for practice guidelines to exert influence in the context of litigation.  They have to be developed for conditions or procedures that frequently lead to events for which negligence claims are filed.  They have to be widely accepted in the medical profession and fully integrated into clinical practice.  They also must be straightforward and readily interpreted in a litigation setting.  Proposals have been advanced to give CPGs a role in medical malpractice litigation in several different ways. One requires that courts take judicial notice of CPGs as the standard of care, with deviations conclusively establishing negligence. An alternative and more sensible approach would have compliance with CPGs constitute an affirmative defense for physicians, but that deviations from CPGs should not be used as inculpatory evidence.  See, e.g., Bovbjerg & Berenson, The Value of Clinical Practice Guidelines as Malpractice “Safe Harbors,” Timely Analysis of Immediate Health Policy Issues: Urban Institute (2012);  Mello, Of Swords and Shields: The Role of Clinical Practice Guidelines in Medical Malpractice Litigation, 149 U. Penn. L.Rev. 645 (2001).  The increasing recognition of Evidence-Based Medicine holds out hope that effective CPGs could be developed with regard to the indication and non-indications for cesarean section procedures.

Another possibility involves reimbursement policy.  This might take several forms.  One might involve financial disincentives for elective cesarean sections, those performed before 39 weeks of gestation without a documented medical indication for the procedure.  Payments for a planned VBAC delivery that nonetheless become a cesarean section might be limited to centers that have a demonstrated adequate staffing and resources for these procedures.

There is a compelling public health need to explore and resolve the issue of cesarean section rates.  Babies born by Cesarean section are more likely to have breathing problems and to develop several chronic diseases, childhood-onset diabetes, allergies with cold-like symptoms and asthma.  The surgery presents risks to the mother, including infection, blood clots, wound healing problems, prolonged recovery, and permanent scarring.  That the New Jersey cesarean section rate of greater than 30% is not a necessary circumstance is manifested by the fact that in a few counties the section rate occurs in one out of four births.  One must wonder why.


State of New Jersey, Department of Health, Safety and Quality in Maternity Care available at

State of New Jersey, Department of Health – Maternal & Child Health Epidemiology: Cesarean Delivery: Comparing New Jersey Hospitals, 2012 available at

Proposed OIG Regulations Seek to Expand “Kiss of Death”

On May 9, 2014, the Office of Inspector General (“OIG”) of the Department of Health and Human Services (“HHS”) published in the Federal Register (79 Fed. Reg. 26810-26828 (May 9, 2014)) a set of proposed rule amendments to the regulations relating to the OIG’s exclusion authority. The amendments would expand the OIG’s exclusion authority, also known in the industry as the “kiss of death” due to the fact that a provider’s exclusion from federal programs such as Medicare and Medicaid can often spell doom since these programs are often vital revenue sources for providers.

Presently, if a provider is found to have engaged in any of four grounds for mandatory exclusion, the OIG is required to exclude a provider from federal health care program participation. 42 U.S.C. § 1320a-7(a). Mandatory exclusions last a minimum of five years and apply to convictions of the following types of criminal offenses:

  1. Medicare or Medicaid fraud, in addition to any other offenses related to the delivery of items or services pursuant to Medicare, Medicaid, SCHIP or other state health care programs;
  2. Patient abuse or neglect in connection with the delivery of a health care item or service;
  3. Felony convictions, under federal or state law, in connection with the delivery of a health care item or service, for other health care related fraud, theft, or other financial misconduct; and
  4. Felony convictions relating to controlled substances and their unlawful manufacturing, distribution, prescription or dispensing.

There are also 16 different permissive exclusion categories which give the OIG discretion to exclude a provider from participation in any federal health care program. 42 U.S.C. § 1320a-7(b). Permissive exclusions fall into two categories: (1) “derivative” exclusions that are based on actions previously taken by a court or other law enforcement or regulatory agency; and (2) “affirmative” exclusions that are based on OIG-initiated determinations of misconduct. Permissive exclusions include such events as revocation or suspension of the provider’s license, claims for excessive charges or medically unnecessary services, improper kickbacks, controlling a sanctioned entity as an owner, officer or managing employee, and convictions for health care related misdemeanor crimes. While there is no five-year minimum term for permissive exclusions, some categories of permissive exclusions have varying minimum or benchmark exclusion terms.

The OIG’s proposed rule amendment would expand the permissive exclusions to include the following additional circumstances as identified in the Affordable Care Act §§6402(d), 6406(c) and 6408(c):

  1. Conviction of an offense in connection with the obstruction of an audit;
  2. Furnishing, ordering, referring for furnishing or certifying the need for items or services for which payment may be made and then failing to supply the requisite payment information;
  3. Knowingly making, or causing to be made, any false statement, omission or misrepresentation of a material fact in any application, agreement, bid, or contract to participate or enroll as a provider of services or as a supplier under a Federal health care program.

These additional exclusionary circumstances put greater pressure on providers especially with regard to audits. This push to encourage a higher level of cooperation with governmental audits is not surprising given that the OIG, the Department of Justice and various other federal and state agencies continue to expand their audit efforts to uncover waste, fraud and abuse in the system. Providers will therefore only face greater pressure to cooperate fully with all governmental audits now that there is the added threat of exclusion from federal health care programs. Most providers cannot take such a risk and thus are left in the difficult position of deciding when to push back against governmental audits that can easily become burdensome and costly, especially when the agency has targeted a particular individual or entity.

Affordable Care and the Continuing Debate on Malpractice Damages Caps

The Affordable Care Act contains only a passing reference to malpractice tort reform in a section providing the “sense of the Senate” as well as establishing funding for pilot programs at the state level.  Lobbying efforts to achieve any significant tort reform measures were unsuccessful.  Those efforts included the pursuit of a federal cap on medical malpractice awards.  Such efforts at both the federal and state levels can be traced to the 1975 innovation in California with its passage of the Medical Injury Compensation Reform Act (“MICRA”) limiting noneconomic damages to $250,000.  California’s MICRA has withstood court challenges to its constitutionality.  A number of other states followed similar paths to that taken in California, enacting various iterations of the MICRA model; no such legislation has been enacted in New Jersey although such bills have been introduced in the legislature.   While some state courts around the country have upheld such legislation against constitutional attacks, there are several states that have found the legislation to violate several different constitutional guarantees.

The intensity of the debate over damages caps waxes and wanes.  Renewed activity is likely to be sparked by a March 24, 2014 ballot initiative in California to raise the cap amount from $250,000 to $1.1 million and an opinion filed March 13, 2014 by the Florida Supreme Court.  In Estate of McCall v. United States, 2014 WL 959180 (Fl. 2014), the court ruled that that state’s statutory cap enacted in 2003 limiting the wrongful death noneconomic damages that could be recovered in a medical malpractice case was an unconstitutional violation of the equal protection clause of the Florida constitution.  Five of the seven justices agreed with that conclusion but fractured over the reasoning to get to it.  The opinion for the court was actually a plurality decision rather than a majority.  There were two justices who dissented as to the entirety of the decision and who would have deferred to the legislature’s policy choice of enacting a cap of $1 million on noneconomic damages in medical malpractice cases involving death as being rationally related to legitimate state interests of decreasing medical malpractice insurance rates and increasing the affordability and availability of health care in Florida.

The issue in the case arose out of the prenatal care given to a patient at a United States Air Force clinic who was suffering from preeclampsia.  There was an extended delay in performing an emergency cesarean section.  Although a healthy baby was born, the mother went into shock and cardiac arrest.   The woman never regained consciousness and died four days later.   A lawsuit was filed under the Federal Tort Claims Act which provides that damages are determined by the law of the state where the tortious act was committed.  Sitting without a jury in accordance with the Federal Tort Claims Act, the trial judge determined that the economic damages for financial losses were in the amount of $980,462.40 and that there were noneconomic damages of $2 million in favor of the surviving family members.   The trial judge then proceeded to reduce the noneconomic damages recovery to $1 million pursuant to the Florida statutory cap for medical malpractice matters.   The trial judge rejected challenges to the constitutionality of the damages cap.  On appeal, the Eleventh Circuit rejected several components of the plaintiff’s constitutional challenges.  Estate of McCall ex rel McCall v. United States, 642 F.3d 944 (11th Cir. 2011).  These included the alleged violations of the Fourteenth Amendment’s Equal Protection Clause.  (The United States Supreme Court had declined to review constitutional challenges to California’s MICRA in Fein v. Permanente Medical Group, 474 U.S. 892 (1985) dismissing the appeal “for want of a substantial federal question.”). With regard to state constitutional challenges, the Court of Appeals concluded that there was inadequate state precedent and it used an available procedure to certify questions directly to the Florida Supreme Court.   It identified four questions to be addressed but the Florida Supreme Court chose to answer only one, which it rephrased in terms of the wrongful death noneconomic damages and equal protection.  Since the court found the constitution was violated, it did not need to address the remaining alternative grounds of challenge.  It emphasized the wrongful death claim as being of statutory nature and unknown at common law.  It did not address the constitutional status of the damages cap in a non-wrongful death context.

The equal protection deficiencies with damages caps have been articulated in various ways.  These include an arbitrary distinction between injured victims of medical negligence and persons injured through other forms of negligence or tortuous conduct and distinguishing the recovery available for a slightly injured person from that available for a severely injured person.  Interference with the right to a jury trial to resolve the extent of any damages award has also been involved.  The assessment of governmental purposes of reducing costs and assuring access to care has been subject to differing levels of scrutiny, affecting the conclusion reached by various courts.

While New Jersey does not have a statute generally applying to recoverable damages in medical malpractice cases, it has long had a statute limiting recoverable damages in malpractice claims against nonprofit hospitals.  N.J.S.A. 2A:53A-8.  As originally enacted this limit was $10,000.  The statute was amended in 1991 to increase the recoverable amount to $250,000.  This limitation only applies to the institution and not to employees or agents who can be identified as culpable actors.   The constitutional validity of N.J.S.A. 2A:53A-8 was challenged but upheld in Edwards v. Our Lady of Lourdes Hosp., 217 N.J. Super. 448 (App. Div. 1987).  The court noted that the limitation on the hospital liability was an exception to the complete immunity afforded to charitable institutions in a preceding statutory provision.  The constitutionality of the statute was again challenged in Johnson v. Mountainside Hosp., 239 N.J. Super. 312 (App. Div.), certif. denied, 122 N.J. 188 (1990).   Plaintiff argued that the statute was “special legislation” and violated the due process and equal protection clauses of the federal constitution and the comparable protections of the New Jersey constitution.  The intermediate appellate court upheld the statute’s constitutionality and further review was denied by the New Jersey Supreme Court.

There currently are bills pending in the New Jersey legislature that would cap recoverable noneconomic damages in a professional negligence action against a “health care provider” at $250,000.  Similar bills have been introduced in prior sessions but not been released from committee.  There is substantial literature looking at the impact of tort reform with damages caps on lowering direct and indirect costs of medical care and the access to health care.

Engaging in an analysis of malpractice tort reform – whether in the form of damages caps or otherwise – is likely to be critical to the full implementation of the Affordable Care Act.

Recent District Court Decision Highlights Potential Conflicts Between Goals of the Affordable Care Act and Antitrust Laws

The Affordable Care Act (“ACA”) promotes the formation of Accountable Care Organizations (“ACO”) designed to improve patient outcomes and lower the overall cost of medical care.  However, a recent decision by the United States District Court for the District of Idaho, in Saint Alphonsus Medical Center, et al. v. St. Luke’s Health System, LTD, Docket No. 1:12-CV-00560-BLW, highlights the fact that the goals of the ACA do not override the antitrust concerns regarding the potential anticompetitive effects such organizations may have on the healthcare market.

The Idaho suit was brought by the Federal Trade Commission as well as two of the merged entity’s competitors, who contended the acquisition would have anticompetitive effects.  The merged entity, which was formed by St. Luke’s Health System and a Saltzer Medical Group, argued that the acquisition was primarily intended to improve patient outcomes.

In its decision, the District Court noted that it believed that if left intact the acquisition would have indeed improved patient outcomes.  In fact, the court stated that “St. Luke’s is to be applauded for its efforts to improve the delivery of health care in the Treasure Valley.” Nevertheless, the District Court concluded that the potential for improved patient outcomes was outweighed by the potential anticompetitive effects including the risk that the combined entity would use its dominant market share to (1) negotiate higher reimbursement rates with health plans and (2) charge more for ancillary services at higher hospital-billing rates.  Thus, the District Court found the affiliation to violate Section 7 of the Clayton Act and ordered the acquisition to be unwound.

The decision reminds us that when forming ACOs through vertical and horizontal integration, health care organizations must remain cognizant of the potential effects of such organizations on market competition.  Regardless of the goals of the entities forming such organizations, it will be the potential effects on competition which determines whether the affiliations run afoul of the antitrust laws.

IRS Premium Tax Credit Final Rule Upheld

On March 23, 2010, Congress enacted the Patient Protection and Affordable Care Act (“ACA”). Pub. L. No. 111 – 148, 124 Stat. 119 (2010). One provision in the voluminous ACA addresses premium tax credits to certain individuals who sign up for health insurance on an internet-based marketplace called an “Exchange.” See 42 U.S.C. §§ 18031, 18041. The provision authorizes a federal tax credit for many low-and middle-income individuals to offset the cost of insurance purchased on an Exchange established by a state. 26 U.S.C. §36B. Thus, the issue arises, what about exchanges established by or with the assistance of the federal government in the 34 states that declined to establish their own Exchange. Individuals interested in this issue may be those that would be wholly exempt from the individual mandate if not for the tax credit. Further, employers have an interest because their tax penalty is, to an extent, dependent upon an employee receiving a tax credit resulting from his or her joining an exchange.

The IRS addressed this issue on May 23, 2012 in a Final Rule implementing the ACA’s premium tax credit provision.   77 Fed. Reg. 30,377.  In its Final Rule, the IRS interpreted the ACA as authorizing the agency to grant tax credits to certain individuals who purchase insurance on either a state-run health insurance Exchange or a federally-facilitated Exchange.  The IRS rejected the limitation of the tax credit to individuals purchasing insurance on a state Exchange only, stating:

The statutory language of section 36B and other provisions of the [ACA] support the interpretation that credits are available to taxpayers who obtain coverage through a State Exchange, regional Exchange, subsidiary Exchange, and the Federally-facilitated Exchange. Moreover, the relevant legislative history does not demonstrate that Congress intended to limit the premium tax credit to State Exchanges. Accordingly, the final regulations maintain the rule in the proposed regulations because it is consistent with the language, purpose, and structure of section 36B and the [ACA] as a whole.

On January 15, 2014, Judge Paul L. Friedman, U.S. District Court for the District of Columbia, upheld the IRS final rule, which had been challenged by a group of individuals and employers residing in states that had declined to create an Exchange. The opinion appears here.  Judge Friedman agreed that “on its face, the plain language of 26 U.S.C. § 36B(b)-(c), viewed in isolation, appears to support” the argument that the tax credits only apply to individuals who purchase health care insurance on a state Exchange.  However, the overall law does not support this limited interpretation, and for the purpose of the ACA’s premium tax credit provision, the federal government may create an Exchange on behalf of a state.  Thus, Judge Friedman held “that the IRS Rule is consistent with the text, structure, and purpose of the [ACA]. Section 36B must be read as authorizing the IRS to deliver tax credits to individuals purchasing health insurance on federally-facilitated Exchanges.”

Within minutes of the decision, it was appealed to the United States Court of Appeals for the District of Columbia Circuit.  Challengers to the IRS Final Rule maintain that it is contrary to the law enacted by Congress and dilutes states’ decisions to refrain from creating an Exchange.  Individual plaintiffs are upset because without the credits they would be exempt from the individual mandate altogether.   The federal government responds that the ruling is appropriate because in this case the federal government may step in the shoes of the states, which have declined to create an Exchange, in order to create one on their behalf.  The D.C. Circuit will review Judge Friedman’s decision and may uphold, reverse, or send the decision back to the lower court with instructions.  At this point, no one can predict what the final determination will be as to whether individuals may receive a tax credit when purchasing health care insurance on a federally-facilitated Exchange.

OIG Report: Most Electronic Health Records Lack Adequate Program Integrity Practices

One of the Affordable Care Act’s signature objectives is the widespread implementation and adoption of Electronic Health Records (EHRs) by providers of all sizes and types.  To encourage EHR adoption, CMS will pay over $22.5 billion in incentive payments to eligible professionals and hospitals that demonstrate meaningful use of certified EHR technology.   Beginning in 2015, providers who fail to demonstrate such meaningful use will face Medicare payment reductions as a result.  In a January 2014 report, the Office of Inspector General (OIG) has determined CMS and most CMS contractors have yet to adopt program integrity practice specific to EHRs.   This is a glaring vulnerability for fraud and abuse to permeate and undermine one of the ACA’s flagship goals.

The most common vulnerabilities endemic to EHRs are “copy-pasting” and “overdocumentation.”  While opportunities for a provider to inappropriately copy and paste language or overdocument the medical record for higher payment exists in paper medical records as well as EHRs, the technology makes it easier for providers to utilize these practices in EHRs.   Without question, EHRs make it easier for providers to commit certain types of fraud.

Copy-pasting (sometimes called “cloning”) permits users to select information from one source and duplicate it in another location.   Copy-paste functionality is a familiar word-processing tool that has many legitimate uses in an EHR.  However, its unrestricted use in the EHR context has led to inaccurate medical records which could potentially lead to inappropriate charges being billed to patients and third-party health payers.   More troubling is that such functionality, if used in an intentionally deceptive manner, could facilitate inflation, duplication or submission of fraudulent claims.

Overdocumentation refers to the practice of inserting false or irrelevant documentation to create the impression of support for billing of higher level services.  Some EHR systems auto-populate fields or generate verbose text with single click.  These documentation aids, which were originally created to ease the learning curve for new users, can lead to significant inaccuracies if they are not appropriately edited by the provider by creating the suggestion that the provider performed more comprehensive services than were actually rendered.

Despite the incentive programs encouraging the use of EHR technology and its inherent fraud and abuse potential,  CMS and most of its contractors have yet to adjust their practices for identifying and investigating EHR fraud. Few contractors review EHRs differently from paper records, and additional scrutiny is not (yet) required by CMS.  Additionally, less than 20% of Medicare contractors reported using EHR audit log data as part of the reviews or investigative processes.    Medicare contractors reported varying ability to identify copied language and overdocumentation in both EHRs and paper medical records.  Overdocumentation appears to be easier to identify because it is evident within the supporting medical record for a single claim, while copied language in a single claim may not be detectable unless multiple claims from a single patient or provider are examined for such occurrences.

Although CMS has issued guidance to its contractors that “medical recordkeeping within an EHR deserves special considerations” and that “the original content, the modified content, and the dates and authorship” must be identifiable, these instructions have proven inadequate in light of the OIG’s findings, and require additional detail which takes into account the unique nature of the technology.

In response to the OIG report, CMS intends to develop guidance on the appropriate use of the copy-paste feature in EHRs.  It also plans to work with contractors to identify best practices for detecting fraud and abuse within EHRs.  Presumably, this will include addressing the automatic population of fields and generation of text instigated by a single keystroke or click.  In addition, CMS  will work with its contractors and other stakeholders to consider issues presented by digital clinical data including determining the authenticity of information in EHRs, but the exact manner in which this will occur remains uncertain.

The OIG’s full report is available from its website:

We have previously written about fraud and other vulnerabilities related to the use of EHRs:

Provider Rights to Primary Care Enhanced Payments Under the ACA in Question

Section 1202 of the Healthcare Education and Reconciliation Act of 2010 amended the Affordable Care Act to mandate an increase in Medicaid primary care service payment rates for 2013 and 2014. These enhanced payments were intended to lure more providers into primary care, thereby increasing access to such services for Medicaid beneficiaries.

Despite no clear directive in the statute or implementing regulations, some Medicaid managed care organizations (MCO) have taken the position that the enhanced payments must be paid directly to the rendering provider, be it a physician, nurse practitioner, physician’s assistant or the like. Some MCOs have even requested that providers sign attestations “certifying” that the payments will be allocated in this manner.

This has created confusion for group providers who employ physicians that have signed employment agreements requiring all revenue derived from professional activities be assigned to the group. CMS has provided no official position, except to reiterate that the intent of the statute is to insure that the enhanced payment does not stay with the state Medicaid agency or the MCO.

In response to a comment submitted about a salaried physician working for a county provider, CMS indicated that “the physician must receive the increased payment” but that “[i]f, as a condition of employment, the physician agrees to accept a fixed salary amount then we expect an appropriate adjustment to the salary to reflect the increase in payment.” This, however, fails to address the most common circumstance where the physician has assigned all fees to the provider pursuant to an employment agreement.

Group providers should be sensitive to the potential exposure these enhanced payments could create given the lack of a clear directive either in the law or by the federal and state agencies.