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Health Headlines – December 27, 2016

27 Dec 2016

CMS Issues Final Rule for New Cardiac, Orthopedic Bundled Payment Models On December 20, 2016, CMS issued its final rule implementing three new Medicare Parts A and B episode payment models for patients admitted for treatment for heart attack, bypass surgery, or hip/femur fracture under its Section 1115A authority to test innovative payment and service delivery models.  For the three conditions, hospitals will be accountable for the quality and cost of care provided during hospitalization and virtually all care within 90 days of hospital discharge.  The final rule also implements a cardiac rehabilitation incentive payment model, makes adjustments to the Comprehensive Care for Joint Replacement Model (the “CJR Model”), and provides new ways for physicians who participate in bundled payment models to qualify for an incentive under the Quality Payment Program created by MACRA.

How the New Episode Payment Models Work

Under the new episode payment models, the hospital is financially responsible for the quality and cost of an episode of care from admission until 90-days after discharge.  CMS will establish annual Medicare episode quality-adjusted target prices for each participant hospital that will include payment for all related services provided to eligible beneficiaries who are treated and discharged for specified Medicare Severity-Diagnosis Related Groups (MS-DRGs) relating to heart attacks, bypass surgeries, and hip/femur fractures.  CMS will initially set annual quality-adjusted target prices based on a blend of provider-specific pricing and pricing in the relevant census regions, while increasing the proportion of regional pricing over time. 

Providers will continue to be paid under the usual payment rules of the Medicare program for episode services provided throughout the year.  At the end of each year, actual spending for all episodes will be aggregated and compared to the aggregate quality-adjusted target price for the participant hospital.  Under the new models, participants will earn a composite quality score (CQS) based on quality of care previously provided and performance relative to other hospitals.  At the end of each performance year, hospitals with actual episode spending below the target price and an acceptable or better CQS will be eligible to earn a reconciliation payment from Medicare for the difference between the target price and actual episode spending, up to a specified limit.  Hospitals with model episode spending exceeding the target price will be financially responsible for the difference to Medicare, up to a specified repayment limit. 

Hospital Participants Under the New Episode Payment Models

Acute care hospitals in certain selected geographic areas will participate in the episode payment models.  The heart attack and bypass surgery models will be implemented in 98 geographic areas, defined by metropolitan statistical areas (MSAs).  The hip/femur fracture model will be implemented in the 67 MSAs where the CJR Model is currently proceeding. 

Cardiac Rehabilitation Incentive Payment Model

Under the cardiac rehabilitation incentive payment model, providers will continue to be paid under the usual Medicare program payment rules.  At the end of each performance year, hospitals may receive an additional incentive payment depending on beneficiaries’ utilization of cardiac rehabilitation services.
The cardiac rehabilitation incentive payment model will be carried out in 45 geographic areas also designated for the heart attack and bypass surgery models, defined by MSAs, as well as in 45 geographic areas not selected for the heart attack and bypass surgery models. 

Adjustments to the CJR Model

In addition to expanding the CJR program to include hip and femur fractures, the final rule makes several other modifications to the program primarily to make it consistent with the other episode payment models.  These adjustments include refinements for use of the skilled nursing facility waiver, exclusion of beneficiaries participating in selected accountable care organizations, and revising the methodology for target pricing to include reconciliation and repayment amounts for performance years 3, 4, and 5. 

The new episode payment models are slated to begin demonstrations July 1, 2017, and last through 2021, unless they are overturned by the new administration.  Tom Price, the nominee for Secretary of HHS, has previously introduced legislation to undo the CJR program.  For more information, click here to view CMS’s Fact Sheet regarding the final rule.

Reporter, John Whittaker, Sacramento, +1 916 321 4808,

HHS Claims it is Unable to Meet Court-Ordered Targets to Resolve Medicare Appeals Backlog The U.S. District Court for the District of Columbia issued an order on December 5, 2016 compelling HHS to meet certain annual targets to resolve its backlog of hundreds of thousands of pending Medicare claim appeals.  HHS recently asked the district court to reconsider its order, arguing that HHS does not have the sufficient resources to meet these targets.

The American Hospital Association and affiliated entities initiated the litigation, requesting a writ of mandamus to compel the Secretary of HHS to adjudicate pending Medicare appeals in compliance with statutorily imposed deadlines.  The district court’s December 5 order established the following targets for HHS to resolve the backlog: 30 percent through 2017, 60 percent through 2018, 90 percent through 2019, and 100 percent through 2020.

HHS filed a motion for reconsideration of the district court’s order on December 15.  In its motion, HHS argues that it cannot meet the scheduled reduction targets without “substantial new resources and authorities” that Congress has not provided.  Without these resources, HHS says that the only way to meet the targets would be to pay pending claims without regard to their merit, which is prohibited by the Medicare statute.  HHS argues that this leaves it trapped between “a statutory rock and a statutory hard place.”  Accordingly, HHS asked the district court to set aside the mandatory targets and leave resolution of the backlog to HHS’s discretion.

HHS previously made these same arguments to the district court to no avail.  In its December 5 opinion the district court heeded plaintiffs’ argument that it must assume Congress is “unlikely to play the role of the cavalry” to provide additional resources through legislation.  The district court also rejected HHS’s argument that it would be required to pay non-meritorious claims, explaining that the deadlines simply require HHS to figure out how to undertake proper claim substantiation within a reasonable timeframe.

HHS noted in prior filings that it has eliminated hundreds of thousands of hospital appeals through settlement—which does not violate the prohibition against paying non-meritorious claims—and plans to compromise or settle thousands more.  HHS does not explain in its new motion why it cannot address the backlog through settlement or compromise.

The case is Am. Hosp. Ass'n v. Burwell, No. 14-cv-851 (D.D.C.). Please click here for a copy of the HHS motion.  For a copy of the district court’s December 5 opinion, please click here.

Reporter, J. Gardner Armsby, Atlanta, +1 404 572 2760,

HHS OIG Issues Report on CMS’s Management of the Quality Payment Program – On December 21, 2016, the HHS OIG posted a report summarizing its early review of CMS’s management of the implementation of the Quality Payment Program (QPP) and related findings (“Report”).  The Report concludes that, while CMS has made significant progress toward implementing the QPP, two vulnerabilities remain: (1) providing sufficient guidance and technical assistance to ensure that clinicians are ready to participate in the QPP and (2) developing IT systems to support data reporting, scoring, and payment adjustment.

The QPP, which is a set of clinician payment reforms with an increased focus on the quality and value of care, is part of the implementation of Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) by CMS.  The QPP is a significant deviation from historical clinician payment calculations, which means CMS must develop a new system for measuring, reporting, and scoring the value and quality of care.  The first payment adjustments based on QPP performance measures go into effect on January 1, 2019.  To meet this statutory deadline, CMS issued final regulations implementing the QPP on October 14, 2016, and established the first performance year for clinicians as January 1, 2017. 

Due to the amount of development and implementation that is required of CMS within a short time frame, the OIG conducted an early review of CMS’s management of QPP implementation to evaluate CMS’s progress and identify key challenges and potential vulnerabilities.

According to the OIG, CMS is focused on clinicians’ acceptance of the QPP, and readiness to participate in it, based on CMS’s belief that it is critical to ensuring the program’s success.  This focus on clinicians informed CMS’s decision making regarding its other management priorities, including: 

  • adopting integrated internal business practices to accommodate a flexible, user-centric approach;
  • developing IT systems that support and streamline clinician participation;
  • developing flexible and transparent MIPS policies; and
  • facilitating participation in Advanced APMs.

The Report states CMS has made “significant progress” towards implementing the QPP, including:

  • finalizing key policies to implement the QPP, including issuing final regulations and identifying Medicare models that qualify as Advanced APMs for the first performance period;
  • initiating engagement and outreach activities to clinicians;
  • launching a public-facing informational website; and
  • awarding various contracts for technical assistance and training.

However, according to the Report, CMS still needs to expand its technical assistance efforts, issue promised sub-regulatory guidance, award and oversee key contracts, and complete development of the back end IT systems supporting QPP operations.  In addition, the Report identifies two critical vulnerabilities that should be addressed in 2017, due to their potential impact on the program’s success: 

  • providing sufficient guidance and technical assistance to ensure that clinicians are ready to participate in the QPP, and
  • developing IT systems to support data reporting, scoring, and payment adjustment.

Reporter, Lara Compton, Los Angeles, +1 213 443-4369,

HHS OIG Issues Report on Medicare’s 2-Midnight Rule - On December 19, 2016, the HHS OIG issued a report on Medicare’s 2-midnight rule titled “Vulnerabilities Remain Under Medicare 2-Midnight Hospital Policy.”  The report reviews data from 2013 and 2014 and reaches several findings regarding the HHS OIG’s conclusions about the new inpatient coverage standard which has been the source of controversy since the rule was first adopted.  The report is available here.

CMS implemented the 2-midnight rule in the Fiscal Year 2014 Inpatient Prospective Payment System Final Rule (“FY 2014 IPPS rule”).  Under the 2-midnight rule, inpatient stays that extend across two midnights after the point of formal admission are generally considered to be medically necessary.  Inpatient stays that do not are considered to be medically unnecessary unless at the time of admission the admitting physician reasonably believed that the beneficiary would require hospital care for a period greater than two midnights and the beneficiary did in fact receive that care, including time spent in outpatient settings such as the emergency department or observation.  In 2015, CMS adopted in the Fiscal Year 2016 Outpatient Prospective Payment rule (“FY 2016 OPPS rule”) an exception to the 2-midnight rule which recognized that, in some cases, an inpatient level of care may be necessary (and therefore Part A payment may be appropriate) even though the admitting physician does not expect the patient to require more than two midnights of hospital services.  The FY 2016 OPPS rule is available here.

In the FY 2014 IPPS rule, CMS explained that it adopted the 2-midnight rule, in part, to clarify the standards for inpatient admission in order to avoid confusion that had resulted in a spike in extended observation stays of 48 hours or more.  This trend, according to CMS, was brought about by hospitals trying to avoid Medicare contractor denials of short inpatient stays, including Recovery Audit Contractor denials, citing as the reason that the hospital services could have been provided in an outpatient or observation setting. 

The December 19 HHS OIG report compares paid inpatient and outpatient Medicare hospital claims from 2013 prior to implementation of the policy, to claims from 2014 post implementation.  The report does not look at Medicare claims submitted after the 2-midnight rule exception announced in the FY 2016 OPPS rule.  The report found that the number of inpatient stays decreased following the 2-midnight rule, and conversely the number of outpatient stays increased.  The report also found that Medicare paid almost $2.9 billion for short inpatient stays which were potentially inappropriate under the policy.  Both of these findings are interesting given that CMS predicted in the FY 2014 IPPS rule that the 2-midnight rule would lead to an aggregate increase in Part A payments despite the fact that the new standard narrowed the conditions under which Part A payment would be paid for inpatient stays. 

The HHS OIG also reported on findings that addressed the extent to which the 2-midnight rule affected the trend of extended outpatient or observation stays. The report found that hospitals continued to bill for a large number of long outpatient stays, and as a result an increased number of beneficiaries in outpatient stays pay more and have limited access to SNF services than they would as inpatients.  Under Medicare policy, SNF services are generally covered only after an inpatient stay of three days or more.

The HHS OIG report recommends that CMS improve its oversight of the 2-midnight rule and increase protections for beneficiaries.  Specifically, the HHS OIG recommended that CMS: “(1) conduct routine analysis of hospital billing and target for review the hospitals with high or increasing numbers of short inpatient stays that are potentially inappropriate under the 2-midnight policy; (2) identify and target for review the short inpatient stays that are potentially inappropriate under the 2-midnight policy; (3) analyze the potential impacts of counting time spent as an outpatient toward the 3-night requirement for SNF services so that beneficiaries receiving similar hospital care have similar access to these services; and (4) explore ways of protecting beneficiaries in outpatient stays from paying more than they would have paid as inpatients.” CMS agreed with all four of HHS OIG’s recommendations found within the report.

Reporter, Kiel Yager, Sacramento, +1 916 321-4811,


King & Spalding to Host Roundtable on the 21st Century Cures Act – Join us on Thursday, January 12, 1:00 PM - 2:30 PM ET, for a webinar-only roundtable titled “A Cancer Moonshot and So Much More: An Introduction to the 21st Century Cures Act for Healthcare Providers and Pharmaceutical and Medical Device Companies.”  The Roundtable will bring you quickly up to speed on the key provisions of the 21st Centuries Cures Act, including insights regarding opportunities and challenges and why some of the innovations are controversial.  CLE credit will be applied for in CA, GA, NY, TX, and, if needed, NC and VA.  Register here.

King & Spalding to Host 26th Annual Health Law & Policy Forum – Join us on Monday, March 20, 8:00 AM – 5:30 PM ET, for the 26th Annual Health & Law Policy Forum at the St. Regis Hotel, in Atlanta, Georgia.  Keynote speaker Jeffrey Toobin, a senior analyst for CNN and a staff writer for The New Yorker, will discuss the Supreme Court and how it may impact health policy in the next administration.  As in previous years, Forum sessions will cover a variety of health law and policy topics.  Attendance is $95 per person (lunch included).  Capacity is limited.  Register here.

Save the Date: 2017 Cybersecurity & Privacy Summit – On Monday, April 24, King & Spalding will host its 2017 Cybersecurity & Privacy Summit via webinar and in person in Atlanta, Georgia.  The Summit will cover the latest developments and strategies for data protection.  Additional details to follow.