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Health Headlines – February 13, 2017

13 Feb 2017

Federal Court Blocks Anthem - Cigna Merger; King & Spalding Looks Deeper into Aetna-Humana Challenge – On February 8, 2017, the United States District Court for the District of Columbia granted a request filed by the U.S. Department of Justice’s Antitrust Division for an injunction blocking Anthem, Inc.’s (Anthem) proposed $54 billion acquisition of Cigna Corp. (Cigna).  This decision comes just weeks after the D.C. District Court granted the DOJ’s request for an injunction to block Aetna Inc.’s (Aetna) proposed acquisition of Humana Inc. (Humana) for $37 billion.  The Anthem decision remains under seal to allow the parties to review for confidentiality, though the court did publish a summary opinion.  Anthem has already filed its notice of appeal to the United States Court of Appeals for the District of Columbia Circuit.  Pursuant to the terms of the merger agreement, Anthem will owe Cigna a payment of $1.85 billion if the agreement expires at the end of April.  For an analysis and implications of the decision, see King & Spalding’s Client Alert, available here.  King & Spalding antitrust attorneys Norm Armstrong, John Carroll, and Jeff Spiegel have authored an in-depth analysis of the earlier decision against Aetna and Humana in Law360, available here.    

Prior to the Anthem decision, the DOJ’s successful challenge to the proposed merger between Aetna and Humana received substantial attention, and not just from antitrust and health care lawyers. Of course, any time a $37 billion merger is blocked by the government, there will be headlines.  However, the D.C. District Court’s Aetna decision is significant, not just for the way it approached certain health care antitrust issues, but also for its serious criticism of Aetna’s efforts to conceal evidence regarding its reasons for withdrawing from the insurance exchanges. The DOJ’s challenge was also among the final antitrust actions taken under the Obama Administration, which aggressively scrutinized health care consolidations, and there is no indication that the agencies’ enforcement efforts in this industry will abate in the Trump Administration. 

Reporter, Paige Fillingame, Houston, +1 713 615 7632,

Price Confirmed as HHS Secretary; Hearing Scheduled on Verma Nomination – Early in the morning of February 10, 2017, the U.S. Senate confirmed Rep. Tom Price (R-GA) to be the Secretary of Health and Human Services.  Senators voted along party lines, 52 to 47, to confirm Rep. Price, an orthopedic surgeon and prominent critic of the Affordable Care Act (ACA).   

Sworn in by Vice President Pence on Friday, February 10, Secretary Price has extensive congressional experience, from serving on the House Ways and Means Health Subcommittee and chairing the Budget Committee, to serving as Chairman of the Republican Study Committee and the Republican Policy Committee.  While in Congress, Secretary Price led efforts to repeal and replace the ACA, regularly sponsoring his own full replacement proposals.

Congressional Republicans remain divided over the timing and form of any ACA “repeal and replace” measure, as well as how to enact Medicaid reform – particularly the Medicaid expansion states may have taken pursuant to the ACA.  In recent days, President Trump and House Speaker Paul Ryan (R-WI) have each indicated that ACA repeal and replace may have a broader timetable for enactment, with Ryan anticipating enactment of legislation in 2017.  The confirmation of Secretary Price is expected to expedite discussions and finalization of an approach to “replace.” 

Continuing its work on Trump Administration nominations, the Senate Finance Committee will convene a hearing on February 16 to consider the nomination of Seema Verma to be the CMS Administrator.  Verma, a health care consultant, worked with Vice President Pence while he was Governor of Indiana, to design Indiana’s Medicaid expansion plan, known as the Healthy Indiana Plan (HIP) 2.0.

Reporter, Allison Kassir, Washington, D.C., +1 202 626 5600,

HHS Report Acknowledges Complications of Fraud and Abuse Statutes on Value-Based Arrangements – HHS posted a report to Congress on its website in August 2016 that responds to the requirements in the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) to offer legislative and regulatory suggestions regarding the constraints of fraud and abuse laws in hindering innovative, value-based care models. In this report, HHS acknowledges that the fraud and abuse laws can be “an impediment to robust, innovative programs that align providers by using financial incentives to achieve quality standards, generate cost savings, and reduce waste.”

Section 512(b) of MACRA required the Secretary of HHS, in consultation with HHS OIG, to submit to Congress, “a report with options for amending existing fraud and abuse laws in, and regulations related to, titles XI and XVIII of the Social Security Act, through exceptions, safe harbors or other narrowly tailored provisions, to permit gainsharing arrangements that otherwise would be subject to the civil money penalties described in paragraphs (1) and (2) of section 1128A(b) of such Act, or similar arrangements between physicians and hospitals, and that improve care while reducing waste and increasing efficiency.”

In its report, authored by CMS in consultation with OIG, the department was tasked with responding to the following issues:

  • Consider whether such provisions should apply to ownership interests, compensation arrangements, or other relationships;
  • Describe how the recommendations address accountability, transparency, and quality, including how best to limit inducements to stint on care, discharge patients prematurely, or otherwise reduce or limit medically necessary care; and
  • Consider whether a portion of any savings generated by such arrangements (as compared to a historical benchmark or other metric specified by the Secretary to determine the impact of delivery and payment system changes under title XVIII on expenditures made under such title) should accrue to the Medicare program.

Even though HHS abstained from offering specific legislative or regulatory proposals for amending the existing fraud and abuse laws as required by MACRA, it acknowledged the limits of the statutory exceptions currently available for providers considering value-based arrangements.  HHS specifically highlighted the obstacles caused by the physician self-referral law, which prohibits compensation to physicians to account for the volume or value of a physician’s referrals or other business generated between the parties. The report noted that HHS provided waivers for HHS-administered programs such as the Medicare Shared Savings program and other demonstrations developed by the Center for Medicare and Medicaid Innovation only where authorized by specific statutory provisions.  The agency acknowledged that provider-sponsored gainsharing and other innovative arrangements that operate outside the Medicare program could also benefit Medicare by providing overall cost savings to the program while simultaneously improving care to patients, reducing waste, and increasing efficiency.

The American Hospital Association (AHA) expressed support for Congress’s efforts to reexamine the fraud and abuse statutory and regulatory regime, and separately released a report sharing its view of the impediments to collaboration caused by existing fraud and abuse laws.  In its report, AHA offered specific legislative recommendations, suggesting that Congress authorize a comprehensive safe harbor for innovative arrangements that will allow hospitals to fully invest in value-based models, allow payments to physicians to reflect achieving patient-centered goals, and allow hospitals or other sponsors to provide needed assistance to patients where appropriate to foster improved access to care.  The King & Spalding Stark Coalition has also identified other problems arising from the physician self-referral law and other potential areas for improvement.

The HHS Report to Congress can be found here; and the AHA response is available here.

Reporter, C’Reda Weeden, Washington D.C., +1 202 626 5572,

District Court Allows Medicare Beneficiary Class Action to Proceed – On February 8, 2017, the United States District Court for the District of Connecticut declined to fully dismiss allegations filed by a class of Medicare patients against HHS in Alexander et al. v. Cochran (formerly Bagnall et al. v. Sebelius). Specifically, the Court found that the complaint plausibly alleged that HHS encouraged hospitals to place patients in observation status rather than admitting them as inpatients, thus causing the patients to ultimately pay more for their care without providing an avenue for the patients to appeal that decision.

This class action was originally filed in November 2011 against HHS, claiming violations of the Medicare Act, the Administrative Procedure Act, the Freedom of Information Act, and the Due Process Clause of the U.S. Constitution. The plaintiffs alleged that CMS pressured hospitals to treat patients in observation where they would remain as outpatients rather than admit them and provide treatment as inpatients. Plaintiffs also argued that HHS failed to provide sufficient notice to beneficiaries of their status as outpatients receiving observation services, and that HHS failed to provide sufficient appeal and administrative review processes.

Specifically, plaintiffs allege that CMS directs providers to apply commercially available screening tools which substitute for the medical judgment of treating physicians. Further, plaintiffs allege that CMS exerts pressure on hospitals through billing policies and through Recovery Audit Contractor reviews, incentivizing hospitals – as a cost-savings or compliance measure – to place more beneficiaries in observation status for longer periods of times. The plaintiffs further argue that certain services provided to patients as observation services are identical to those provided to inpatients, but the observation services ultimately require patients to pay more for their care, so the plaintiffs lost thousands of dollars in coverage. 

As previously reported here, the case was initially dismissed with the District Court relying on the finding that HHS leaves the classification of patient status to the discretion of doctors and hospitals by tying it to their determination as to whether formally to admit a beneficiary. However, in January 2015, the United States Court of Appeals for the Second Circuit allowed the case to proceed, stating plaintiffs had alleged a property interest sufficient to state a due process claim. The court explained that if plaintiffs were able to prove their allegations that CMS channels the discretion of doctors to admit patients as outpatients, then plaintiffs could arguably show that qualifying Medicare beneficiaries have a property interest in being treated as inpatients that is protected by the due process clause. The case was remanded to the District Court where plaintiffs were permitted to take discovery limited to the issue of whether plaintiffs had a property interest in being admitted to the hospital as inpatients to support their due process claims. 

Summary judgment motions filed by the plaintiffs and HHS were both denied last week due to the existence of significant factual disputes material to the question of whether CMS meaningfully channels the discretion of doctors by providing fixed or objective criteria for when patients should be admitted. For instance, the District Court found that there are genuine disputes of material fact about the extent to which hospitals rely on commercial screening tools in their patient status decisions, as well as the extent to which CMS actions and policies have shaped hospital decision-making about inpatient admissions.

However, the District Court allowed the case to continue, declining to fully dismiss the plaintiffs’ allegations. The court permitted the case to proceed on due process grounds as the complaint “plausibly alleged that the inpatient admission decision is the result of ‘significant encouragement’ from the Secretary [of HHS], through CMS,”  relying on allegations that CMS, through its billing policies and through its retroactive contractor reviews, pressures and  incentives hospitals to place more Medicare beneficiaries into observation status for longer periods of time. The court also noted that the “parties agree there are no administrative review procedures for Medicare beneficiaries who seek to challenge their placement on observation status.” However, the District Court disagreed with plaintiffs’ argument that beneficiaries do not receive sufficient notice of observation services because plaintiffs lack standing to challenge the adequacy of the notices they received since lack of notice did not cause plaintiffs’ injuries. Further, the District Court noted that the NOTICE Act moots the plaintiffs’ claims with regard to expedited notice.

The District Court’s decision is available here.

Reporter, Lauren Gennett, Atlanta, + 1 404 572 3592,

Understanding CMS’s New Settlement Reporting Thresholds – When a Medicare beneficiary receives a liability insurance (including self-insurance) settlement, the Medicare Trust Fund may, by statute, recover conditional payments it made for medical care related to the settlement.  On December 12, 2016, CMS issued a technical alert that announced a change in reporting requirements for several different types of settlements with total payment obligation to claimant (TPOC) dates on or after January 1, 2017, and no ongoing responsibility for medicals (ORM).  King & Spalding attorneys David Farber and Lynn McKay have published a detailed summary of this alert and its practical implications in Law360, available here.

Reporters, David Farber, Washington, D.C., +1 202 626 2941,, and Lynn McKay, Washington, D.C., +1 202 626 2944,


King & Spalding to Host Roundtable on EMTALA and the Rise of Freestanding Emergency Departments – Join us on Tuesday, February 28 at 1:00 PM - 2:30 PM ET, for a webinar-only Roundtable titled “Now Presenting in the ED: An EMTALA Update and Discussion of the Rise of the Freestanding ED.”  The Roundtable will get you up to speed on highlights of the new OIG EMTALA rule; EMTALA considerations for urgent care clinics and freestanding EDs; the business and regulatory challenges specific to freestanding EDs; and other payment and compliance considerations for ED services, including the Medicare provider-based regulation and CMS survey guidelines.  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, 2017, 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 new 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, 2017, 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.

King & Spalding Healthcare Trends Brochure – King & Spalding recently published its Healthcare Industry Trends Brochure for 2017.  The brochure is available here.