Category: Reimbursement

CMS Rule Reducing Medicare Payments for Off-Campus Hospital Based Clinics Vacated

In November 2018, the Centers for Medicare & Medicaid Services (“CMS”) issued a final rule (the “Rule”) reducing payments for evaluation and management services provided at off-campus hospital based clinics, to the same rates as when provided in a physician’s office.  The Rule, which CMS described as a method to control what it viewed as unnecessary increases in the volume of outpatient services at off-campus hospital based clinics, became effective on January 1, 2019.

Prior to adoption, the Rule went through the formal notice-and-comment rulemaking process during which CMS received nearly 3,000 comments. Many of the comments suggested that CMS lacked statutory authority to implement the Rule.  CMS considered and rejected those arguments.

Almost immediately following the publishing of the Rule, the American Hospital Association, the Association of American Medical Colleges and various hospital systems from across the country filed suit seeking to vacate the Rule.  The suit was filed in the United States District Court for the District of Columbia and was captioned The American Hospital Association, et al. v. Azar, Case No. 1:18-CV-2841.

The plaintiffs in the case argued that, pursuant to 42 U.S.C. § 1396l(t)(9)(A)-(B), if CMS wanted to reduce payment rates for a particular outpatient service, it should have changed the relative payment weights and adjustments through the annual review process in a budget neutral manner. The Rule did not take budget neutrality into account.

Conversely, CMS argued that it has authority to develop a “method” for controlling unnecessary increases in volume under 42 U.S.C. § 1396l(t)(2)(F), without regard for budget neutrality. CMS further argued that the term “method” is not explicitly defined in the statute, that its approach satisfied the generic definitions of the term and deference should be given to that approach.

The plaintiffs moved for summary judgment, and the Court addressed these issues in its September 17, 2019 opinion.  Therein, the Court reviewed the context of the statutory reference to “method” and found “[t]hat context does not make clear what a ‘method’ is, but it does make clear what a ‘method’ is not:  it is not a price setting tool, and the government’s effort to wield it in such a manner is manifestly inconsistent with the statutory scheme.”  Thus, the Court found the Rule was ultra vires, vacated the applicable portions of the Rule and remanded the matter for further proceedings consistent with its opinion.

While the decision certainly benefits hospital systems across the country, this battle appears to be far from over.  Since the issuing of the Court’s opinion, CMS has filed a motion to modify the order to a remand without vacatur, or in the alternative, for the Court to stay the portion of its order vacating the Rule for sixty days to allow the Solicitor General time to determine whether to authorize an appeal.  That appeal is likely to be filed and the battle will wage on.

CMS Proposes Simplifying E/M Documentation Requirements to Reduce Clinician Burden While Simultaneously Seeking to Cut E/M Reimbursement Rates

The Centers for Medicare and Medicaid Services (“CMS”) recently released its notice of proposed rulemaking titled “Revisions to Payment Policies under the Physician Fee Schedule and Other Revisions to Part B for CY 2019.” Buried therein were proposed changes to the way in which evaluation and management (“E/M”) visits are documented and paid. While CMS has touted its proposal as a “historic change[] that would increase the amount of time that doctors and other clinicians can spend with their patients by reducing the burden of paperwork,” it has also slipped in a cut in reimbursement for many E/M visits, especially those coded at Level 4 or Level 5. Consequently, many specialists who historically code at these higher level visits due to the complexity of the patients they typically treat may face significant reductions in revenue for the services they provide.

E/M services have historically been categorized in the outpatient setting as Level 1 to Level 5 with visits being distinguished based on the level of complexity, site of service and whether the patient is new or established. Moreover, the coding takes into account such key components as the history of present illness, the physical examination and the medical decision making of the clinician. In its most basic sense, the greater the time and complexity required, the higher the level of visit and the greater the payment rate.

CMS has proposed to simplify the documentation for these services by (1) eliminating the need to document medical necessity of a home visit made in lieu of an office or outpatient visit, (2) eliminating the prohibition of documenting multiple visits with the same practitioner, or by practitioners in the same or very similar specialties within a group practice, on the same day as another E/M service, and (3) allowing practitioners to choose, as an alternative to the current framework specified under 1995 or 1997 guidelines, either medical decision making or time (regardless of whether 50% is spent on counseling or care coordination) as a basis to determine the appropriate level of an E/M visit. CMS has stated in its press release, which was issued following the proposals, that it believes these changes will “fundamentally improve the nation’s healthcare system and help restore the doctor-patient relationship by empowering clinicians to use their electronic health records (EHRs) to document clinically meaningful information, instead of information that is only for billing purposes” and therefore “puts patients over paperwork.” As a result of this, CMS has suggested that clinicians will see a savings of thousands of hours and millions of dollars in reduced administrative costs in CY 2019.

Absent from the CMS press release is any real discussion of the corresponding cut in reimbursement that is also included in the proposal and which accompanies this reduction in necessary documentation. A review of the notice reveals CMS is attempting to sell its changes on reimbursement as a proposal to “simplify” the payments and “eliminate the increasingly outdated distinction between the kinds of visits” reflected in the current levels. In actuality, as the below chart demonstrates, specialists that are required to expend the greater amounts of time and address the cases with greater complexity (i.e. Level 4 and 5 visits) will be reimbursed significantly less per visit while those general practitioners and others that have historically treated less complex cases (i.e. Levels 2 and 3) will suddenly be compensated more than they have historically and exactly the same as the most complex Level 4 and Level 5 cases.

New Patient 2018 Rate, National Avg 2019 Rate, Proposed, National Avg
99201 $45 $44
99202 $76 $135
99203 $110 $135
99204 $167 $135
99205 $211 $135
Established Patient 2018 Rate, National Avg 2019 Rate, Proposed, National Avg
99211 $22 $24
99212 $45 $93
99213 $74 $93
99214 $109 $93
99215 $148 $93


CMS has attempted to rectify the inherent inequity in creating a uniform rate for Levels 2 through 5 by creating new Healthcare Common Procedure Coding System G-code add-ons for factors such as inherent visit complexity and additional prolonged face-to-face services. With these additional codes, additional work Relative Value Units can be added to a visit. Nevertheless, CMS acknowledges in its proposal that there will nevertheless be a number of specialties that see a decrease in overall reimbursement for providing the exact same services they are providing today. Included in that list are such specialties as dermatology, rheumatology, oncology, neurology and hematology, which are each estimated to see decreases in overall reimbursement.

CMS is currently seeking comments, which are due by September 10, 2018, regarding not only whether such implementations should be made, but also whether a delay in implementation, such as to January 1, 2020 rather than January 1, 2019, would be warranted given the breadth of changes being proposed.

Department of Health Announces Delay In Distribution of Medicaid DSH Subsidies

On Tuesday, June 6, 2018, the Commissioner of the New Jersey Department of Health, Shereef Elnahal, conducted a conference call with the Chief Executive Officers of New Jersey’s 70 acute care hospitals alerting them of delays in the distribution of their Disproportionate Share Hospital (DSH) subsidies which would ordinarily be received in mid-June.

The delayed payments include $21 million in charity care subsidies, which are intended to offset the costs incurred by New Jersey hospitals in treating uninsured, low income patients.   $18.2 million in general medical education (GME) subsidies due to 43 New Jersey hospitals which are used to support teaching programs will also be delayed.

The Commissioner indicated the delay was ordered by the Treasurer and the Office of Management and Budget.  No specific reason for the delay was provided; however, it appears to be related to the ongoing budget dispute in the Legislature.  The Commissioner stated that he hoped the payments would be made in a timely manner.  However, there was no guaranty on when, or even if, the payments would be made.

The delay in these DSH payments could have a meaningful impact on New Jersey’s hospitals, who are already dealing with significant cuts to their Medicaid DSH funding over the past several years.  Indeed, the charity care subsidy has been cut from a total state wide distribution of $675 million in the 2014 SFY to $252 million in the current fiscal year. While the GME subsidy has increased from $100 million to $218 million in the same timeframe, the overall amount of these DSH subsidies has decreased by more than $300 million in only four years.

There is no doubt that New Jersey hospitals rely on these subsidies to ensure treatment to the State’s residence.  Indeed, Gary S. Horan, President and CEO of Trinitas Regional Medical Center was quoted in a article describing the subsidies as the hospital’s “lifeblood.”

For now, New Jersey hospitals can only hope that this will be just a short delay in receiving payment, and not a precursor to additional cuts in the Medicaid DSH subsidies they rely upon. In the time since the Commissioner’s conference call, there has been no further word from the State regarding how this matter will resolve or when it is anticipated to resolve.

What You Need To Know About New Jersey’s Out-of-Network Legislation

The New Jersey legislature recently passed the Out-Of-Network Consumer Protection, Transparency, Cost Containment and Accountability Act”, a bill that has been heavily contested since its introduction. Drafters of the bill believe that its passage will lead to a reform of the current health care delivery system by (i) increasing transparency in pricing for health care services, (ii) enhancing consumer protections, and (iii) creating an arbitration system to resolve certain health care billing disputes. Those that have questioned the bill worry it will be a mechanism for carriers to avoid covering out-of-network bills for health care services by providers. What is undisputed is that this new system for handling out-of-network care is likely the first of its kind in the country and will have a significant impact on health care in New Jersey. Following passage by both houses the bill now goes to the governor’s desk for review.


The bill requires health care providers (including both health care facilities and health care professionals) to disclose certain information to patients prior to rendering services to the patient. For non-emergency or elective procedures, the facility must disclose to the patient: (i) whether the facility is in-network or out-of-network with respect to that patient’s health plan, (ii) advise the patient to confirm his or her provider’s status (i.e., in-network vs. out-of-network) with respect to the patient’s health plan and (iii) advise the patient that for in-network facilities, the patient will have a financial responsibility applicable to an in-network procedure. If the facility is out-of-network under that patient’s health plan, the bill requires the facility to advise the patient of the out-of-network status and explain that any such service may carry out-of-network costs and encourage the patient to discuss with his or her health plan.

Further, the bill requires that the facility’s website contain a list of standard charges for items and services provided by the facility, including but not limited to: (i) the health plans in which the facility participates; (ii) a statement that (a) physician services provided in the facility are not included in the facility’s charges; (b) physicians who provide the services at the facility may or may not participate in the same health plans as the facility, and (c) advise the patient to check with the physician and their insurance carrier for further information; (iii) when applicable, the name, mailing address, and telephone number of hospital-based physician groups with whom the facility contracts; and (iv) when applicable, the name, mailing address, and telephone number of physicians employed by the facility whose services may be provided at the facility and the health plans in which they participate.

The bill includes a similar requirement for health care professionals. Prior to performing non-emergency services, a health care professional must disclose, either in writing or via its website, the health benefit plans in which it participates and the facilities with which the health care professional is affiliated. This information must also be provided to the patient at the time of the patient’s appointment. As with the facility, if the professional is considered out-of-network under the patient’s heath plan, the professional must inform the patient of its out-of-network status and provide an estimate of the cost of services. For all patients, including in-network, the professional must also inform the patient of any other health care provider scheduled to perform services (i.e., anesthesiology, laboratory, pathology or radiology) in connection with the patient’s care and provide the patient with instructions on how to determine the health plans accepted by those providers.

Carriers are also affected by the bill. The bill requires carriers to update their website within 20 days of the addition or termination of a health care provider from its network. The carrier is also required to provide the patient with a clear and understandable explanation of the plan’s out-of-network health care benefits, including the amount the plan will reimburse under the carrier’s methodology to determine reimbursement for out-of-network services. The carrier’s website also must provide examples of anticipated out of pocket costs for frequently billed out-of-network services and also contain enough information to allow the patient to calculate the out of pocket costs for out-of-network services in their geographical region or zip code. Carriers also are given the responsibility of notifying a patient of a facility’s change of in-network status if the patient had previously received carrier’s authorization to obtain services at such facility. If the carrier does not provide this notice at least 30 days prior to the scheduled service, the patient will be billed as if the services were in-network.

Limits on Out-of-Network Billing/Balance Billing

Aside from transparency, the bill also addresses out-of-network charges to a patient. The bill limits out-of-network reimbursement in two scenarios: (i) if a patient receives emergency or urgent medical treatment at an out-of-network facility and (ii) in the event of inadvertent out-of-network services. An “inadvertent out-of-network service” is a service that is covered under a managed care contract that provides a network, but the service is provided by an out-of-network provider at an in-network facility due to unavailability of in-network services in that facility.

For emergency or urgent medically necessary services, the facility and/or provider cannot bill the patient in excess of any deductible, copayment, or coinsurance amount applicable to in-network services per the patient’s health plan. If the carrier and the facility are unable to agree on the reimbursement rate within 30 days of the carrier being billed for the services, the carrier and the facility may enter into binding arbitration. This requirement is also present when a patient receives inadvertent out-of-network services on an emergency or urgent basis. The facility may not bill the patient in excess of any deductible, copayment, or coinsurance amount. If unable to agree on an amount, the carrier and the facility must arbitrate. In other words, the facility cannot “balance bill” or bill the difference between what the carrier will reimburse and the cost of the services to the patient. Further, the bill requires any in-network facility to ensure that medical professionals contracted to provide services at the facility are in-network for the same health plans as the facility and that providers of emergency care accept reimbursement rates in accordance with the bill’s provisions.


For carriers that choose to “opt-in” to arbitration, upon receipt of an out-of-network bill, the carrier will have 20 days under the proposed legislation to either pay the billed amount or, if the carrier believes that the amount billed is excessive, notify the provider of its determination. If the carrier provides such notice of its determination, the carrier and the facility will have 30 days to negotiate the amount that the carrier will reimburse the facility. If the facility and the carrier cannot agree on a final offer and the difference between the final offers of each is not less than $1,000, then either party may initiate binding arbitration and at the conclusion of the 30 days the carrier shall pay the provider the carrier’s final offer. If a carrier does not elect to opt-in to the arbitration and balance-billing protections of the bill, the plan member or out-of-network health care provider may initiate binding arbitration to determine payment for the services by filing a request with the department.

Arbitration will begin with a review of a final offer from both the carrier and the provider. The “baseball style” of arbitration will be applied, meaning that the arbitrator will choose to accept either the provider’s offer or the carrier’s offer. The decision will be issued within 30 days after the request is filed with the department. In most cases, the arbitration fees will be split evenly among the two parties, with the one exception occurring if the arbitrator believes that the payment made by the carrier was not in good faith, requiring the carrier to pay all fees associated with the arbitration. While a prior version of the bill required the arbitrator, in making his/her decision, to review the level of experience and training of the health care professional, the provider’s usual charge for comparable services provided in-network and out-of-network, the circumstances and complexity of the services, the individual patient’s characteristics, and the average in-network and average out-of-network amount paid for the service by the carrier, the final version passed by the legislature eliminated that language.


In addition to the impacts on providers, carriers and patients, the legislation also is intended to increase overall transparency of our health care system. For example, the commissioner of the Department of Banking and Insurance (“DOBI”), in consultation with other agencies, will be required to annually publish certain data including: (1) a list of all arbitrations filed and the award amounts; (2) the percentage of facilities in-network for each carrier in the State; (3) the number of out-of-network complaints received by the department relating to out-of-network health care charges; (4) the number of physician specialists in the State and whether they are in-network or out-of-network; and (5) the results of the network audit required by the legislation. Carriers will also be required to calculate, and report to DOBI, the savings that result from the provisions of the bill and DOBI is required not only to publish this information but produce a report to the Governor each year on the savings to policyholders and the healthcare system.

Now that both houses of the legislature have approved the bill, the Governor has 45 days to act on the bill.  As with all proposed legislation, he can either conditionally veto the bill, pocket veto the bill or sign the bill into law.  If the bill is signed by the Governor, it will go into effect 90 days thereafter. During that 90 day period, DOBI will promulgate rules to implement the new law. The regulations proposed by DOBI could either strengthen the bill or provide some flexibility to providers, especially those specialty providers, who choose to remain out-of-network.

New Bundled Payment Initiatives From CMS

Although a new Secretary of Health and Human Services has yet to be confirmed, Centers for Medicare and Medicaid Services Administrator Seema Verma is putting her fingerprints on a course change in handling bundled payment initiatives for beneficiaries covered by traditional Medicare.

The Trump Administration had previously pulled back from the Obama Administration movement toward mandatory programs, in favor of voluntary initiatives. On August 17, 2017, the new administration proposed a rule that among other things scrubbed a mandatory Episode Payment Model finalized on January 3, 2017 in the last days of the Obama administration.

In that proposed rule change, CMS said “if at a later date we decide to test these models, or similar models, on a voluntary basis, we would not expect to implement them through rulemaking, but rather would use methods of soliciting applications and securing participants’ agreement to participate consistent with how we have implemented other voluntary models.”

On January 9, 2018, CMS did just that, soliciting applications for voluntary participation in 29 Inpatient Clinical Episodes and three outpatient clinical Episodes in what it is calling “Bundled Payments for Care Improvement Advanced (BPCI Advanced)”.

The 29 Inpatient Clinical Episodes are:

  • Disorders of the liver excluding malignancy, cirrhosis, alcoholic hepatitis
  • Acute myocardial infarction
  • Back & neck except spinal fusion
  • Cardiac arrhythmia
  • Cardiac defibrillator
  • Cardiac valve
  • Cellulitis
  • Cervical spinal fusion
  • COPD, bronchitis, asthma
  • Combined anterior posterior spinal fusion
  • Congestive heart failure
  • Coronary artery bypass graft
  • Double joint replacement of the lower extremity
  • Fractures of the femur and hip or pelvis
  • Gastrointestinal hemorrhage
  • Gastrointestinal obstruction
  • Hip & femur procedures except major joint
  • Lower extremity/humerus procedure except hip, foot, femur
  • Major bowel procedure
  • Major joint replacement of the lower extremity
  • Major joint replacement of the upper extremity
  • Pacemaker
  • Percutaneous coronary intervention
  • Renal failure
  • Sepsis
  • Simple pneumonia and respiratory infections
  • Spinal fusion (non-cervical)
  • Stroke
  • Urinary tract infection

The three Outpatient Clinical Episodes are:

  • Percutaneous Coronary Intervention (PCI)
  • Cardiac Defibrillator
  • Back & Neck except Spinal Fusion

Seven quality measures will apply.

Acute Care Hospitals and Physician Group Practices can participate as “Convener Participants” or “Non-Convener Participants”. Other entities that are either Medicare-enrolled or not Medicare-enrolled providers or suppliers may participate as “Convener Participants” only. A “Convener Participant” is a Participant that brings together multiple downstream entities, facilitates coordination among those downstream entities, and bears and apportions financial risk under the Model.  A Non-Convener Participant is a downstream entity that bears financial risk only for itself.

Under the program, Medicare Fee-for-service payments are made for services delivered, with a retrospective reconciliation. CMS will compare aggregate Medicare Fee-For-Service spending for all items and services included in a Clinical Episode against the Target Price for that Clinical Episode to determine whether the Participant is eligible to receive a payment from CMS, or is required to pay a repayment amount to CMS.

Clinical Episodes are measured from the first day of the triggering inpatient stay or outpatient procedure, and extend through the 90-day period starting on the day of discharge from the inpatient stay or the completion of the outpatient procedure, as applicable.\

BPCI Advanced will qualify as an Advanced Alternative Payment Model under the Medicare access and CHIP Reauthorization Act (MACRA) Quality Payment Program.

Interested participants have until March 12 to apply.

CMS Releases CY 2018 OPPS and ASC Payment System Final Rules Slashing Reimbursement for the 340B Program

On November 1, 2017 the Centers for Medicare and Medicaid Services (CMS) issued its final rule updating payment rates and policy changes for the Hospital Outpatient Prospective Payment System and Ambulatory Surgical Center Payment System.

The most controversial aspect of the Rule is the significant reductions to reimbursement for drugs purchased through the 340B program. The final Rule reduces reimbursement for such drugs from the Average Sale Price (ASP) plus 6% to ASP minus 22.5%.  CMS indicated that it selected this reimbursement rate based on an analysis previously performed by the Medicare Payment Advisory Commission (MedPAC).  However, this reduction greatly exceeds that suggested by MedPAC who when commenting on the proposed Rule recommended a reduction of only 10% of the ASP.  Thus, it is unclear exactly what CMS ultimately relied upon to determine the appropriateness of the ASP minus 22.5% rate.

These reductions exclude certain facilities including Rural Sole Community Hospitals, Children’s’ Hospitals and PPS-Exempt Cancer Hospitals. The Rule also does not apply to Critical Access Hospitals and non-excepted provider based sites under Section 603 of the Bipartisan Budget Act.  Each of these facilities will continue to be paid at the prior rate of ASP plus 6%.

CMS anticipates this policy will result in a decrease of $1.6 billion in drug payments which will be redistributed to non-drug items and services throughout the OPPS to maintain budget neutrality. CMS indicates that overall OPPS payments will increase in 2018 by 1.4%.  Nevertheless, 340B facilities will see significant decreases in drug reimbursement in CY 2018.

Unsurprisingly, the reductions in 340B reimbursement have been met with great criticism from the impacted parties. Indeed, within two weeks of the issuance of the final rule several hospital associations and hospitals filed suit seeking to enjoin the implementation of this provision in the CY 2018 OPPS Rule.  The government has moved to dismiss and a hearing on the matter is scheduled for December 21, 2017.

While the reduction in 340B payments is the most significant change in the final Rule, there are several other aspects of the Rule worth commenting on:

  • The Rule increases OPPS payment rates by 1.35% and ASC payment rates by 1.2%.
  • The Rule removes Total Knee Arthroplasty from the Medicare inpatient only list, thereby allowing reimbursement for such procedures performed on an outpatient basis.
  • The Rule also establishes a new modifier, “FY” to be used to identify X-rays taken using computed radiography technology. Claims submitted with this modifier will be subject to phased-in payment reductions of 7% for services provided in CY 2018 through CY 2022 and 10% for services provided in or after CY 2023.
  • The Rule will also allow laboratories to bill Medicare directly for molecular pathology tests and advanced diagnostic laboratory tests in order to reduce concerns that the current date of service policy known as the “14 Day Rule” creates operational burdens for hospitals and laboratories.

Absent the Court issuing a preliminary injunction in the previously mentioned lawsuit, each of these rule changes will become effective January 1, 2018.

Hospitals Challenged by the Required Care to Undocumented Immigrants

Medical institutions are facing a dilemma in providing care to undocumented immigrants. While being required to administer emergency care upon a patient’s arrival, once stabilized, providers are finding it difficult to place these individuals in long term care and other sub-acute care facilities. This is the result of their immigration status, which prevents many of the potential financial compensation that might otherwise be available via Medicare, Medicaid or private payor. Without any insurance, these sub-acute care facilities refuse to take the patients leaving the acute care facilities with patients that are unable to be discharged and have no source of funding for their care.

Undocumented immigrants typically have no insurance so they rely on emergency rooms. Federal and state laws require healthcare providers to provide care regardless of legal status and/or ability to pay. The New Jersey “Take all Comers” Statute (N.J.S.A. 26:2H-18.64) dictates that no hospital shall deny any admission or appropriate service to a patient on the basis of that patient’s ability to pay or source of payment. However, this does not require a hospital to perform non-emergency or elective services. Hospitals across the country find themselves in a mystified state and ask themselves “What can we do?”. In order to best accommodate the needs of undocumented individuals and protect the hospital it is vital to make sure ER physicians are appropriately triaging patients and only admitting those that need to be admitted. Additionally, social workers and staff must be diligent in determining elective medical requests.

Many health care providers are left with the difficult decision of whether to attempt to try and return the undocumented immigrant to their native land via coordination of a transfer to an appropriate sub-acute facility there. This is referred to as repatriation. This process is not regulated by the federal government and limited case law exists on the subject. Moreover, no New Jersey State agency has a policy in place on the practice. Hospitals willing to pursue this course of action must be mindful that many patients do not wish to voluntarily go. Thus, hospitals in those situations should consider seeking a court order to permit an involuntary transport. As in many areas of the law, litigation is a constant threat and predicting the outcome is difficult given the lack of precedent in this area of the law. As such, hospitals should proceed with caution and following consultation with counsel whenever met with resistance from an undocumented patient. Ultimately, coordination with families and social workers is critical in exploring all options for both the patient and the hospital before resorting to litigation. However, when faced with a patient that refused to cooperate and the threat of limitless uncompensated medical bills, repatriation may be a hospital’s only remaining option.


Say Goodnight To The Two Midnight Rule’s Payment Reductions

The Two Midnight Rule, which was introduced as part of CMS’ FY 2014 Inpatient Prospective Payment System (“IPPS”) rule, dictates that when a physician expects a beneficiary to require care that crosses two midnights and admits the beneficiary based on that expectation, Medicare Part A payment is generally appropriate.  Conversely, if the beneficiary’s hospital stay is expected to be less than a period spanning two midnights, payment under Medicare Part A is generally inappropriate.

Because CMS anticipated significant increases in expenditures as a result of the Two Midnight Rule, CMS exercised the Secretary’s “broad authority” under 42 U.S.C. 11395ww(d)(5)(I)(i) to impose a 0.2% reduction to the national capital federal rate in FY 2014 to offset the anticipated increase in expenditures.  That same reduction was applied to the national capital federal rate in FY 2015 and FY 2016 as well.

In connection with the adoption of the Two Midnight Rule numerous commenters questioned the validity of the Secretary’s prediction of increased expenditures, upon which the decision to reduce rates was based. However, CMS never addressed these comments in detail when adopting its final rule except to say that the reductions were an appropriate use of the Secretary’s statutory exceptions and adjustments authority.

Having not received an adequate response to their comments during the rule making process, numerous hospitals filed suit challenging the 0.2% reduction. Several of those suits were consolidated before the United States District Court for the District of Columbia under the caption Shands Jacksonville Medical Center, et al. v. Burwell, Consolidated Civil Case Nos. 14-263, 14-503, 14-536, 14-607, 14-976, 14-1477 (the “Shands Litigation”).

On September 21, 2015 the Court in the Shands Litigation found that the Secretary’s failure to disclose critical assumptions made by the actuaries who calculated the alleged increase in expenditures, which was relied upon to impose the 0.2% reduction, failed to meet the standards of the Administrative Procedures Act by depriving the public of a meaningful opportunity to comment on the proposed rule. As a result, the Court remanded the matter back to the agency for further proceedings regarding the adequacy of the 0.2% reduction.

After remand, CMS issued public notice of the basis for the 0.2% reduction and its underlying assumptions.  As a result of the comments received to that public notice, CMS eliminated the 0.2% reduction for FY 2017 in connection with the FY 2017 IPPS final rule.  Additionally, CMS adjusted the FY 2017 capital IPPS rate to effectively eliminate the impact of the 0.2% reduction to rates in previous years by implementing a one-time prospective adjustment of 1.006 in FY 2017 to the national capital Federal rate.

Despite implementing this adjustment, CMS denies any error and continues to maintain that “the assumptions underlying the 0.2% reduction to the rates put in place beginning in FY 2014 were reasonable at the time we made them in 2013.”  Nevertheless, whether CMS recognized its error, or felt compelled to make this change as a result of the Shands Litigation, the end result is the same for hospitals throughout the country.  They have been relieved of the burden imposed by the 0.2% reduction associated with the adoption of the Two Midnight Rule.


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.

Be Prepared for the New ICD-10 Reimbursement Coding Standard

On October 1, 2014 the reimbursement process for the United States health care system will become significantly more complicated. On this date, a new system for recording injuries, medical diagnoses, and inpatient procedures will go into effect. It is known as ICD-10, the 10th version of the International Classification of Diseases created by the World Health Organization.

Of particular concern to the industry is the explosion of the number of codes from 17,000 under the current system to approximately 155,000 under ICD-10. As a consequence, the pressure and stress on already strained health care professionals and their staffs to properly code a particular service will only increase. This means the new system must be implemented and learned by the deadline or providers risk losing reimbursement due to coding errors. And, with the explosion of new codes, many in the health care industry fear there will be a significant learning curve when diagnoses in ICD-10 have exploded to include every conceivable iteration of an injury or disease. For example, in ICD-9 there were nine codes for bites while under ICD-10 there are over 300. Proponents of the new standard argue that there is a systematic approach and hierarchy to the coding which makes it easy to navigate. They also argue that such a system is beneficial because it provides a greater level of detail for predictive analytics, which every business can utilize to better assess its services and improve quality and performance. Many in the industry appear skeptical that this will be the case. Regardless, the health care system will have to become familiar with the following, which are only a sampling of the entertaining and frankly absurd examples of coding specificity in ICD-10:

  • V9733XA – sucked into jet engine, initial encounter;
  • V80731A – occupant of animal-drawn vehicle injured in collision with streetcar, initial encounter;
  • V9027XA – drowning and submersion due to falling or jumping from burning water-skis, initial encounter;
  • T71232A – asphyxiation due to being trapped in a (discarded) refrigerator, intentional self-harm, initial encounter; and
  • T63813A – toxic effect of contact with venomous frog, assault, initial encounter.

Aside from the complexity of the new system, what is also alarming is the fact that until recently, despite the numerous setbacks and embarrassments from implementation of the Affordable Care Act and HealthCare,gov, the Center for Medicare and Medicaid Services (CMS) had no plans to conduct end-to-end testing of the system before the October launch date. A February 18, 2014 letter from four Republican senators to the CMS administrator, which urged testing, finally resulted in CMS announcing it would offer limited end-to-end testing sometime in the summer of 2014 with details to be disseminated at a later time. It remains to be seen if the testing will actually occur or how robust it will be to prepare the system for this major change.

While the deadline for implementation has already been delayed twice, CMS has issued stern warnings to the industry that the current October 1, 2014 deadline is a firm deadline. As a result, the health care system is trying to figure out how to go about implementing and preparing for the changes. As of 2008, a study by the health care IT firm Nachimson Advisors warned that estimated total costs for implementation would be $83,290 for a small practice (3 physicians and 2 administrative staffers), $285,195 for a medium practice (10 providers, 1 professional coder, and 6 administrative staffers), and $2.7 million for a large practice (100 providers, 10 full-time coding staffers, and 54 medical records staffers).

The American Medical Association, an opponent of the ICD-10 implementation, has a significant amount of literature on its website regarding challenges to the adoption of the standard as well as recommended action for providers to prepare for the October 1, 2014 deadline. The materials can be found here.