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Health Headlines – March 20, 2017

20 Mar 2017


ACA Repeal and Replace Update:  House Vote Expected This Week; CBO Estimates Impact of Repeal and Replace Legislation; CMS Administrator Verma Confirmed; HHS and CMS Signal “new era for the [F]ederal and [S]tate Medicaid partnership”  – After narrowly passing the Budget Committee, the Republican-sponsored health reform repeal and replace bill, the American Health Care Act (AHCA), is scheduled for a floor vote for Thursday, March 23, 2017, seven years to the date that the Affordable Care Act was signed into law. 

As previously reported here, the Congressional Budget Office (CBO) released a report last week on the estimated impact of the AHCA (the “CBO Report”). CBO estimates that the AHCA will reduce Federal deficits by $337 billion over 10 years; the largest savings would come from reducing the number of people covered by Medicaid and eliminating the ACA subsidies for insurance purchased individually (nongroup health insurance). The largest costs would come from repealing changes the ACA made to the Internal Revenue Code, which includes an increased Hospital Insurance payroll tax rate for high-income taxpayers, a surtax on those taxpayers’ net investment income, and annual fees imposed on health insurers. 

Impact on Health Insurance Coverage

Perhaps the most widely publicized finding of the CBO report was CBO’s prediction that “14 million more people would be uninsured under the legislation than under current law” and would rise to 24 million in 2026. In 2026, the report estimates that 52 million people would be uninsured, compared with 28 million uninsured people under the current law in that year.

This estimate is based on the impact of repealing penalties associated with the individual mandate, noting that many of the people currently with coverage only chose to have insurance under the current law to avoid paying penalties, and some people would forgo insurance because of higher premiums. Lower insurance coverage would also stem from changes to Medicaid enrollment, including terminating enhanced Federal matching funds for Medicaid expansion and capped per-enrollee spending.

Impact on Premiums

CBO estimates that average premiums in the nongroup market would be 15 percent to 20 percent higher than under the current law prior to 2020, and lower average premiums thereafter. The immediate increase would result from fewer comparatively healthy people signing up if the individual mandate penalties were eliminated.

Beginning in 2020, the increased average premiums from the individual mandate penalty repeal would be expected to be offset by grants to states for the Patient and State Stability Fund, which pulls high-cost patients out of the general insurance pools and intends to limit the costs to insurers of enrollees with very high claims.

CBO also noted that while average premiums would be expected to increase prior to 2020 and being to decrease starting in 2020, the changes in premiums would significantly different for people of different ages, compared to the current law. Under the proposed legislation, insurers would be able to charge five times more for older enrollees than younger enrollees, compared to three times more under the current law.

ACA Rules Expected to Remain in Effect

Under the proposed legislation, some aspects of the current law would not be changed. Insurers would still be required to accept all applicants during open-enrollment periods and could not deny coverage based on enrollee’s preexisting health conditions. Additionally, insurers would still be required to cover specified categories of health care services, and annual and lifetime maximum benefits would continue to be prohibited. 

The CBO Report is available here. A detailed King & Spalding Client Alert summarizing the American Health Care Act and its prospects for passage is available here.

Seema Verma Confirmed As CMS Administrator And Is Already to Work

On March 13, 2017, the Senate confirmed Seema Verma as CMS Administrator, and on the same day, HHS sent a letter to State Governors, urging them to apply for State Innovation Waivers on State experiments for risk pools and reinsurance plans, to help improve access to insurance coverage.  On March 14, HHS Secretary Tom Price and Administrator Verma sent a second letter to State Governors, noting their commitment to a “new era for the [F]ederal and [S]tate Medicaid partnership where [S]tates have more freedom to design programs that meet the spectrum of diverse needs of their Medicaid population.”   

In the March 14 letter to State Governors, the new administration pledges to empower States to design programs that meet the “spectrum of diverse needs of their Medicaid population,” allow for more expedient approval processes related to Medicaid waiver requests, and encourage employment among Medicaid beneficiaries.

Administrator Verma’s plans have received quick opposition from House Energy and Commerce Committee and Senate Finance Committee Democrats in a March 14 letter stating that the new plans work counter to the goals of the Medicaid program.

Administrator Verma is known for leading the reform of the Indiana Medicaid program and worked with a number of State insurance agencies and public health agencies as they prepared for the changes implemented pursuant to the Affordable Care Act.

Reporters, Caitlin Pardue, Atlanta, +1 404 572 4877, and Juliet M. McBride, Houston, +1 713 276 7448,

D.C. District Court Upholds CMS’s Predicate Fact Three-Year Reopening Limitation - On March 10, 2017, Judge John Bates of the U.S. District Court for the District of Columbia upheld CMS’s three-year cost report reopening limitation, as applied to “predicate fact” determinations.  The regulation at issue is 42 C.F.R. § 405.1885, which allows specific legal and factual findings by CMS, Medicare Administrative Contractors or the Provider Reimbursement Review Board to be reopened and revised within three years of the decision, or longer if based on fraud or similar fault.  Effective in 2013 following the Kaiser Found. Hosps. v. Sebelius litigation, predicate facts, like payment determinations, are explicitly limited to the three-year reopening window.  42 C.F.R. § 405.1885(a)(1)(iii).  The 300+ hospitals in the case before the D.C. District Court argued that the updated regulation was impermissibly retroactive to their pending challenge of the 1981 base rate data used to set inpatient prospective payment rates.  Judge Bates granted summary judgment for the Secretary, finding that the Secretary properly exercised his statutory authority to apply the rule retroactively and, even if applied only prospectively, the Secretary did not act arbitrarily or capriciously.

A “predicate fact” is “a finding of fact based on a factual matter that first arose in . . . a cost reporting period that predates the period at issue . . . and, once determined, was used to determine an aspect of the provider’s reimbursement for one or more later cost reporting periods.”  42 C.F.R. § 405.1885(a)(1)(iii) (2013 onward).  The predicate fact in the D.C. District Court case is the 1981 cost reporting data, used as the base rate in developing IPPS rates ever year thereafter.  The hospitals argued that the 1981 data did not appropriately distinguish between discharges and transfers, resulting in an artificially low cost-per-discharge and lower inpatient payment rates.  The hospitals filed consolidated appeals of their 2002 through 2015 cost reporting periods—all well-after the 1981 discharge data was finalized and incorporated into the base payment rates.

In separate 2011 litigation, the D.C. Circuit Court held that the regulatory language “finding on matters at issue in a determination or decision” did not include predicate facts and thus the three-year re-opening limitation did not apply.  See Kaiser Found. Hosps. v. Sebelius, 404 U.S. App. D.C. 148 (D.C. Cir. 2013).  In response, CMS amended the re-opening regulations to specifically incorporate predicate facts.  See 42 C.F.R. § 405.1885(a)(1)(iii) (effective 2013).  In enacting the changes, CMS stated that the 2013 amendment applied to all appeals “pending on or after the effective date of the final rule.”  78 Fed. Reg. 74826, 75265 (Dec. 10, 2013).

The litigants argued to the D.C. District Court that the Secretary’s 2013 rulemaking was impermissibly retroactive, and, even if applied prospectively, was arbitrary and capricious.  Judge Bates disagreed.  Finding that the Secretary properly invoked the required statutory authority to enact a retroactive rule, Judge Bates found that the “2013 Amendment represents a policy choice between the competing values of finality and accuracy” and was a decision “ultimately reasonable and reasonably explained.” (internal quotation omitted).  Judge Bates noted that the Secretary’s rulemaking was not “robust,” but held nonetheless that the 2013 regulation was lawful.  The court also found that the 2013 change made “crystal clear” that it applied to pending appeals, such as those filed by the litigants.  Moreover, the court decided that even when applied prospectively, the 2013 amendment was not arbitrary and capricious.  According to Judge Bates, the 2013 change was not an inconsistent interpretation of prior policy, but a wholesale change to the regulation at issue.  To hold that CMS could never enact new regulations contradictory to prior regulations would mean that the agency could never adopt a new policy approach, and that, in the end, “this argument boils down to a disagreement with the agency’s decision to prioritize finality over accuracy in the hospital base rate,” and the Secretary’s decision-making was lawful.

The case, Saint Francis Med. Ctr. v. Price,No. 15-1659, is available here.  Plaintiffs have yet to docket an appeal in the U.S. Court of Appeals for the D.C. Circuit.

Reporter, Elizabeth Swayne, Washington, D.C., +1 202 383 8932,

U.S. District Court Rules that Hospital May Face FCA Liability Over Medical Directorship Arrangements that Lacked Written Agreements - On March 15, 2017, the U.S. District Court for the Western District of Pennsylvania held in United States ex rel. Emanuele v. Medicor Assocs., 2017 BL 80113, W.D. Pa., No. 10-cv-245, 3/15/17, that a hospital that created medical directorship positions without having signed contracts with the doctors violated the Federal physician self-referral law (referred to by the court as the “Stark Act”).  Specifically, the court granted in part and denied in part the whistle-blower’s partial motion for summary judgment finding the Stark Act was violated when certain financial arrangements were not memorialized into written agreements.

The relator, a former cardiologist with Medicor Associates, argued that the defendants had submitted false claims for payment based on referrals that violated the Stark Act and the Federal “Anti-Kickback Act” and sought damages under the False Claims Act (“FCA”).  The court noted that although the parties focused their arguments almost entirely on the Stark Act, the same analysis applied to the alleged violations of the Anti-Kickback Act and that under both legislative acts, a defendant would avoid liability by demonstrating that either a statutory or regulatory exception (or safe harbor) applies. 

The court recognized in its review of possible exceptions to the law that both the Stark Act’s fair market value exception and the personal service arrangement exception contain requirements that agreements be in writing.  See 42 C.F.R. § 411.357(l) (fair market value exception); 42 C.F.R. § 411.357(d) (personal services exception).  In its discussion, the court referred to recent guidance and rule changes issued by CMS in 80 Fed. Reg. 70886, 71314-71316 allowing for greater flexibility in proving compliance with the writing and signature requirements.  Specifically,  on October 30, 2015, CMS posted their final rule, which was published in the Federal Register on November 16, 2015 (“Final Rule”), modifying the Stark Act’s regulations. In the Final Rule, CMS acknowledged that the Stark regulations do not require that an arrangement be documented in a single, formal contract, but that a collection of contemporaneous documents may satisfy the writing requirement.  The Final Rule also provided a non-exhaustive list of documents that may demonstrate whether a compensation arrangement complies with the writing requirement.  The Final Rule can be found in its entirety here

In Emanuele,  the defendants occasionally let lapse six of the agreements at issue. The defendants continued to pay and perform under these six agreements before entering into new back-dated arrangements.  Relying on the new CMS Final Rule, the court noted “that the requirements of the statutory exceptions - including the writing requirement - must each be satisfied at all times,”  however, CMS does not require that an arrangement under the Stark Act be in one single contract, as it may be found in a “collection of documents.”  The court also emphasized language from the Final Rule that the arrangement must signed by the parties and “permit a reasonable person to verify that the arrangement complied with an applicable exception at the time the referral was made.”  The court stated that by looking at the collection of documents as a whole for these particular agreements, including the expired agreements themselves, and separate invoices and payments, that a jury could find the written agreement requirement was satisfied and therefore, that an exception to the law could apply.  The court ultimately found material issues of disputed fact on whether those six agreements were “adequately described in contemporaneous documents for purposes of the fair market value and personal service arrangements exceptions” and denied the plaintiff’s motion with respect to the those agreements. 

However, for two other directorships that “were never set forth in a signed writing or collection of writings and do not meet the requirements of any Stark Act exception,” the court found that those arrangements could not satisfy a Stark Act exception and granted summary judgment.  Despite defendant’s argument that there was a similarly sufficient collection of documents to support a written agreement, the court held that the bylaws, manuals, meeting minutes, invoices, general ledgers, and even electronic communications relied upon by the defense were deficient in showing that the critical terms were satisfied.  Furthermore, none of the documents were signed by the parties, and thus, according to the court, no reasonable jury could find that an exception to the Stark Act would apply.

The court’s holding is notable for several reasons.  First, as noted above, the court found that the writing requirement was not just a “mere technicality.”  Second, the court’s refusal to grant summary judgment for the other category of agreements reinforces the significance of the CMS guidance issued in late 2015 reflecting a more permissive approach toward proving compliance the writing and signature requirements.  Finally, the grant of summary judgment emphasizes the risk in certain situations of actually losing Stark claims, and being subjected to the FCA’s treble damages and per-claim penalties, at the summary judgment stage.  As such, any violation under the Stark law, even with respect to entirely legitimate, good faith arrangements, could lead to potential damages and even losing a FCA claim at summary judgment.  The case is available here.

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


CMS Delays Effective Date for Episode Payment Model (EPM) Final Rule  – CMS has announced that the effective date for the Final Rule for certain EPMs will be delayed until May 20, 2017. This is the second delay for the Final Rule. CMS previously pushed the effective date from February 18 to March 21. The Final Rule will implement new EPMs for acute care hospitals in certain geographic areas. These retrospective EPMs will target care for Medicare fee-for-service beneficiaries receiving services during acute myocardial infarction, coronary artery bypass graft, and surgical hip/femur fracture treatment episodes. The announcement of the delay is available here.

King & Spalding Webinar: 60 Days and Counting, A Look at President Trump’s First Two Months in Office  – Please join King & Spalding Government Advocacy & Public Policy professionals for a webinar tomorrow, Tuesday, March 21 from 12:30 to 1:30 PM ET as they break down what has happened so far in the Trump Administration, what it means, and how you can prepare for what’s ahead. Register here.

Save the Date: King & Spalding Reception at HCCA Compliance Institute – Please join Sara Kay Wheeler, Immediate Past President of the Health Care Compliance Association (HCCA), and the King & Spalding team at a reception during the 21st annual HCCA Compliance Institute. The reception will be held at the Gaylord National Resort & Convention Center in National Harbor, Maryland, on Sunday, March 26, 2017, from 6:00 p.m. - 8:30 p.m. ET. Register here.

Save the Date: King & Spalding Reception at the AHLA Institute on Medicare and Medicaid Payment Issues – Please join King & Spalding at a reception during the AHLA Institute on Medicare and Medicaid Payment Issues. The reception will be held at the Baltimore Marriott Waterfront Laurel Room in Baltimore, Maryland, on Thursday, March 30, 2017, from 7:00 - 9:30 p.m. Register here.

Save the Date – Please mark your calendars for Thursday, April 6, 2017 and join us a webinar on Managed Care Contracting Risks: An Antitrust, Government Pricing, and Fraud and Abuse Analysis for pharmaceutical companies. More information is available 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.