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Health Headlines – April 10, 2017

10 Apr 2017

D.C. District Court Allows Part C Plan to Continue with Challenge of Overpayment Rule – On March 31, 2017, Judge Rosemary Collyer of the United States District Court for the District of Columbia held that plaintiffs UnitedHealthcare Insurance Company et al. (“United”) had standing to challenge CMS’s overpayment rule as it applies to Medicare Advantage organizations (“MAOs”).  The Affordable Care Act requires that if a “person” receives a Medicare overpayment, the person must report and return the overpayment within 60 days of its identification or face False Claims Act Liability.  Pub. L. No. 111-148, § 6402, codified at 42 U.S.C. § 1320a-7k(d)(1).  Judge Collyer’s decision allows United to continue its appeal of CMS’s application of the statute, which, United argues, in effect puts MAOs on the hook for faulty documentation made by Medicare Part C providers and requires more searching review than that which the False Claims Act calls for.  Providers should also closely monitor this case, which mirrors potential arguments against requirements for heightened documentation review in the provider overpayment liability context. 

MAOs receive a per-member/per-month (“PMPM”) capitated payment from CMS for Medicare beneficiaries, rather than a payment directly tied to services.  To ensure “actuarial equivalence” between fee-for-service and MAO services, CMS requires that MAOs submit beneficiary encounter data.  CMS then adjusts the PMPM payments based on the relative health of the MAO’s beneficiaries, normalized to fee-for-service experience.  See 42 C.F.R. § 422.308(c); Medicare Managed Care Manual, Pub. No. 100-16, Ch. 7.  These data points roughly reflect beneficiary medical needs and expected expenditures.  CMS also conducts Risk Adjustment Data Validation audits, reviewing medical documentation for a small subset of MAOs.  The results of these audits are then extrapolated to MAOs generally, further adjusting PMPM payments. 

CMS interprets its finalized MAO overpayment rule, 42 C.F.R. § 422.326, to require that inadequately documented diagnostic codes, even if otherwise accurate, would result in an overpayment.  79 Fed. Reg. 29844, 29921 (May 23, 2014) (“a risk adjustment diagnosis that has been submitted for payment but is found to be invalid because it does not have supporting medical record documentation would result in an overpayment”).  “Identification” requires that the MAO “determined, or should have determined through the exercise of reasonable diligence,” that it received an overpayment.  42 C.F.R. § 422.326(c).  Similar language (“reasonable diligence”) is also found in the Medicare provider overpayment regulation. See 42 C.F.R. 401.305(a).  In both the MAO and provider context, CMS has defined “reasonable diligence” to require “proactive compliance activities conducted in good faith by qualified individuals” with little further clarification.  79 Fed. Reg. at 29923; see also 81 Fed. Reg. 7654, 7661 (Feb. 12, 2016).

During rulemaking, a commenter expressed concern that the MAO overpayment rule “could impose a boundless duty to troll medical records in search of unknown vulnerabilities” and requested that CMS find that MAOs need not proactively search for an overpayment without reason to believe one exists.  79 Fed. Reg. at 29923.  Similar arguments have been put forth by providers.  See 81 Fed. Reg. at 7663 (expressing concern that the “reasonable diligence” standard requires providers to “be under a duty to investigate every ‘whiff’ of an overpayment”).  In both occasions, CMS disagreed and finalized the overpayment rules.  United now challenges the MAO overpayment requirements.

The Secretary had argued that the court lacked subject matter jurisdiction; Judge Collyer found that United had Article III and statutory standing to bring the suit.  The merits of the underlying claim – whether and how MAOs are required to review the underlying medical documentation prior to submitting data to CMS – may now be litigated.

To that end, United has argued that CMS’s rulemaking is invalid.  Most relevant to Medicare providers, United argues thatCMS’s definition of “reasonable diligence” (“proactive compliance activities conducted in good faith by qualified  individuals,” 79 Fed. Reg. at 29923) impermissibly subjects MAOs to a negligence standard for purposes of the False Claims Act, whereas the False Claims Act itself imposes a recklessness standard. 

Judge Collyer’s opinion in UnitedHealthcare Insurance Company v. Price, No. 16-cv-00157 (D.D.C. March 31, 2017) is available here.  Judge Collyer has yet to set a briefing schedule on the merits.

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

Efforts to Revive American Health Care Act (AHCA) Stall Before Recess – Last week, prior to departing Washington, D.C. for a two week congressional recess, House Republicans and the Trump Administration worked to come to an agreement on the American Health Care Act (AHCA), legislation to repeal and replace the Affordable Care Act (ACA).  Vice President Pence was heavily engaged in the negotiations.  Proposals to gain the support of conservatives threatened to derail the support of moderate Republicans, and by the end of the week, no deal was reached.

Early in the week, House Speaker Paul Ryan (R-WI) indicated that “productive talks” to move forward on health care reform were taking place and were at the “conceptual stage.”  Among the proposals raised was giving States the ability to request a waiver from the essential health benefit requirement  as well as from the community rating requirement.  The community rating proposal, which would allow insurers to charge higher premiums for sicker people, generated significant opposition, including from House Chief Deputy Whip Patrick McHenry (R-NC), who called this weakening of protection for people with pre-existing conditions, “a bridge too far.”

On April 6, 2017, the House Rules Committee approved an amendment to add a $15 billion Federal Invisible Risk Sharing Program to the pending AHCA bill, to help marketplace insurers pay for high-cost enrollees.  An April 7, 2017 analysis of the Federal Invisible High Risk Program by Milliman Inc. found that the actual costs of the program, whether hospitals and physicians are paid at Medicare or commercial rates, would be more than $15 billion.  Adoption of the risk-sharing amendment did not move the vote tally significantly, although House leadership has cautioned that members of Congress could be called back to Washington for a vote during the recess, if a deal can be struck.

As health care reform legislative talks continue, policymakers and stakeholders are also focused on the outlook for current ACA cost-sharing subsidies.  The Trump Administration and congressional leadership are negotiating a solution, with some advocating the subsidies be preserved and some urging that they be stopped.  Even staunch ACA critics are concerned that halting the subsidies would be an unfair disruption to the insurance market, before a longer-term resolution can be reached.  Speaker Ryan has promised that the House of Representatives will not drop its lawsuit against these subsidies, maintaining that it is an important separation of powers issue and that the Obama Administration spent billions of dollars in subsidies without the necessary congressional appropriation.  The case, now House v. Price (formerly House v. Burwell), is on hold at the U.S. Court of Appeals for the District of Columbia Circuit, with a status report from both sides due May 22, 2017.  Nearer term, insurers including the Alliance of Community Health Plans (ACHP), are encouraging House and Senate leaders to appropriate funding for these subsidies as part of an omnibus Fiscal Year 2017 appropriations bill before April 28, 2017, when current federal funding expires.

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

Office of Management and Budget Offers Guidance on Executive Order Aimed at Reducing Regulation – On April 5, 2017, the Office of Management and Budget (OMB) issued a memorandum that outlines the proper procedures for agencies to comply with Executive Order (EO) 13771.  EO 13771 was issued on January 30, 2017 with goals of reducing regulation and controlling regulatory costs, requiring agencies to eliminate two existing regulations for every new regulation.  The OMB memorandum supersedes the interim guidance issued in February and responds to questions and comments submitted during the public comment period.  The OMB memorandum is available here, and EO 13771 is available here.  The OMB’s interim guidance is available here.

Among other things, EO 13771 requires agencies to eliminate two regulations for every new regulation introduced that imposes total costs greater than zero.  The savings associated with the deregulatory actions must completely offset the cost of the proposed regulation.  According to the OMB memorandum, the requirement also extends to significant interpretive guidance that would impose costs.  Agencies must offset regulatory actions taken on or after January 20, 2017 at noon.  This includes rules finalizing a Notice of Proposed Rulemaking.  If an agency will not be in compliance with EO 13771 by the end of the Federal fiscal year, it must submit a report to the OMB with a plan for coming into compliance with EO 13771.

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


King & Spalding Roundtable on Compliance Enforcement and Post-Acute Care Providers – Please join us for on Wednesday April 19, 2017 from 1:00 p.m. to 2:30 p.m. ET for a Roundtable webinar that will explore recent enforcement trends and current industry scrutiny on post-acute providers, including hospice, home health, inpatient rehabilitation facility, and skilled nursing providers. In addition, this webinar will also highlight strategies for providers to consider in order to manage risk proactively and promote compliance with federal healthcare program requirements. There is no charge to participate. Please register here.

King & Spalding and BakerHostetler Host Atlanta Life Sciences & Healthcare Group Spring Happy Hour – On Thursday, April 13, 2017 from 5:30 p.m. to 7:30 p.m. King & Spalding and BakerHostetler will host the Atlanta Life Sciences & Healthcare Group (formerly Atlanta Young Professionals in Healthcare) Spring Happy Hour.  The event will feature brief remarks from Russell Allen (Georgia Bio) and Jason Rupp (Southeastern Medical Device Association) regarding their respective organizations’ role in serving the Atlanta life sciences industry.  The event will be held at BakerHostetler, parking is available at 1170 Crescent Avenue.  Please register here.

King & Spalding’s 2017 Cybersecurity & Privacy Summit – On Monday, April 24, 2017, make plans to join the cybersecurity and privacy experts from King & Spalding and PwC, as well as representatives from the U.S. Department of Justice, the Federal Trade Commission, Georgia Institute of Technology, The Home Depot, and TSYS, to learn about the latest strategies for protecting your company against the legal and financial risks of cybersecurity breaches and other privacy incidents. Click here for more information regarding session topics and featured speakers.