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Health Headlines - February 27, 2012

27 Feb 2012

Medicaid Contractor Developments: OIG Issues Report on Review MICs and CMS Publishes Notice of Medicaid RAC Contingency Fees – The U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) recently issued a report on the Centers for Medicare and Medicaid Services’ (CMS’s) Review Medicaid Integrity Contractors (Review MICs) “Early Assessment of Review Medicaid Integrity Contractors” (the OIG Report).  Additionally, on February 24, 2012, CMS published a notice in the Federal Register regarding Medicaid Recovery Audit Contractor (RAC) contingency fees.

A. Early Assessment of Review MICs

According to the OIG Report, the purpose of the OIG’s review was twofold: (1) to determine the extent to which Review MICs completed assignments, recommended audit leads, and identified potential fraud; and (2) to identify barriers that Review MICs encountered in their program integrity activities.  The study examined Review MIC assignments for a six month period—January 1, 2010 through June 30, 2010.  The OIG Report provides that while Review MICs completed 81 percent of their assignments, they had limited involvement in identifying potential fraud.  In fact, according to the OIG Report, Review MICs did not identify any potential fraud leads during the six month review period.

In the report, OIG notes that CMS projected $22.5 billion in Medicaid improper payments in fiscal year 2010.  While the OIG Report specifically provides that the study did not evaluate the effectiveness of the MIC program or CMS’s policies and procedures regarding Review MIC assignments, the effectiveness of the MIC program is naturally raised.

According to the OIG Report, CMS makes monthly assignments to the Review MICs to identify potential fraud. For each assignment, CMS specifies the state, type of Medicaid claims data, and the dates of service the Review MICs are to review.   After completing these assignments, Review MICs generally transmit their selected samples of potential overpayments to the states for validation, as states are responsible for determining whether the potential overpayments are accurate.  Of the potential overpayments identified by the Review MICs during this review period, states invalidated 34 percent of the potential overpayments.  The OIG Report suggests that inaccurate data used by the Review MICs largely contributed to the ultimate invalidation of more than one third of the potential overpayments.

OIG recommends that CMS: (1) improve the quality of data that Review MICs can access for conducting data analysis and (2) require Review MICs to recommend specific audit leads.  CMS concurred with both recommendations, and stated that it currently has several initiatives underway to improve the quality of data accessible to the Review MICs.

B. Medicaid RAC Contingency Fees

Pursuant to the Medicaid RAC final rule issued in September 2011, states maintain the authority to determine the contingency fee paid to Medicaid RACs for the recovery of overpayments.  However, the Medicaid RAC contingency fee cannot exceed that of the highest Medicare RAC contingency fee, unless a state submits, and CMS approves, a waiver of the specified maximum contingency fee.  On June 1, 2011, CMS increased the contingency fee by 5 percent for durable medical equipment (DME) claims for Medicare RACs—making the current Medicaid RAC maximum contingency fee for DME claims 17.5 percent.  The current Medicare RAC maximum contingency fee for all non-DME claims is 12.5 percent.  Accordingly, on February 24, 2012, CMS issued a notice that the maximum Medicaid RAC contingency fee for non-DME claims is 12.5 percent and the maximum contingency fee for DME claims is 17.5 percent.  

To view the OIG Report click here.  To view the Federal Register notice click here.

Reporters, Sara Kay Wheeler, Atlanta, +1 404 572 4685, and Stephanie F. Johnson, Atlanta, +1 404 572 4629,

CMS and ONC Issue Stage 2 Meaningful Use and Certification Standards Proposed Rules – On February 23, 2012, CMS posted a display copy of the proposed Stage 2 Meaningful Use criteria that eligible professionals (EPs), eligible hospitals, and critical access hospitals (CAHs) must meet in order to qualify for incentive payments under the Medicare and Medicaid Electronic Health Record (EHR) Incentives Programs.  The proposed rule sets forth new functionality and clinical quality objectives eligible providers must satisfy in order to receive incentive payments under the HITECH Act.  On February 24, 2012, the Office of the National Coordinator for Health IT (ONC) released a companion proposed rule setting forth the certification standards certified EHRs must meet to enable providers to achieve Meaningful Use during Stage 2.

The Stage 2 criteria will take effect during 2014 for providers that have successfully attested to the Stage 1 criteria.  Originally, providers that successfully attested to the Stage 1 criteria would be responsible for meeting Stage 2 criteria in 2013.  CMS now proposes to extend that timeline by one year.

The proposed Stage 2 requirements include the same core-menu structure as the Stage 1 requirements:  EPs must meet or qualify for an exclusion to 17 core objectives and three of five menu objectives, while eligible hospitals and CAHs must meet or qualify for an exclusion to 16 core objectives and two of four menu objectives.   CMS notes that almost all of the Stage 1 core and menu objectives have been retained in the proposed State 2 criteria.   In the proposed rule, CMS also has proposed an electronic process by which eligible providers may submit clinical quality measures (CQMs), with EPs required to report 12 CQMs and eligible hospitals and CAHs required to report 24 CQMs. 

EPs will be responsible for reporting CQMs for the entire period beginning on January 1, 2014 through December 31, 2014.  Eligible hospitals' reporting period spans from October 1, 2013 through September 30, 2014.  Both types of providers have two months from the end of their respective reporting periods to submit data to CMS.  EPs may submit quality data individually through a CMS portal or through one of three group reporting options (i.e., under a common group practice Tax Identification Number, through participation in an accountable care organization already using a certified EHR in the Medicare Shared Savings Program, or through using a certified EHR in the Physician Quality Reporting System).  Eligible hospitals also may submit clinical quality data through a CMS portal.

Like the CQMs, the functionality measures proposed for Stage 2 largely build upon Stage 1 criteria. For example, CMS proposes to require that 60 percent of all medication, laboratory and radiology orders must be made by providers using computerized provider order entry (CPOE) during Stage 2.  Stage 1 required only 30 percent of an eligible provider's medication orders for unique patients to be entered using CPOE.  Moreover, eligible providers would need to implement five clinical decision support interventions, up from one in Stage 1.  The proposed rule also requires EPs to increase patient access to electronic health information: more than 50 percent of unique patients must be provided online access to their health information within four business days after the information is available to the EP, and 10 percent of all unique patients (or their designated representatives) must actually view, download or transmit to a third party their health information. 

For Medicaid purposes, CMS proposes to redefine an “encounter” to encompass any service furnished to an enrolled Medicaid beneficiary, even if the service rendered is not covered by Medicaid.

CMS also has proposed to increase the amount of health information exchange eligible providers must successfully complete.  For example, eligible providers must electronically transmit a summary of care record using a certified EHR to a recipient with no organizational affiliation and using a different certified EHR than the sender for more than 10 percent of care transitions/referrals.

Medicare payment adjustments will begin in 2015 for EPs who do not achieve meaningful use in the 2013 reporting year.  Subsequent payment adjustments will be made based upon whether the EP achieved Meaningful Use two reporting periods prior (e.g., an EP will receive an adjustment in 2016 for not being a meaningful user in 2014).  CMS also proposes four potential categories of exceptions to adjustments:  “(1)  lack of availability of internet access or barriers to obtaining IT infrastructure, (2) a time-limited exception for newly practicing EPs or new hospitals who would not otherwise be able to avoid payment adjustments, (3) unforeseen circumstances such as natural disasters that would be handled on a case-by-case basis, and (4) a combination of clinical features limiting a provider's interaction with patients and lack of control over the availability of Certified EHR technology at their practice locations.”

The ONC proposed rule on Stage 2 certification standards proposes a new definition to “certified” EHR technology beginning in 2014.  Under the proposal, providers would have a “base” certified EHR that includes the fundamental capabilities that span all stages of meaningful use, and would add subsequent capabilities necessary to meet the meaningful use criteria for the particular stage in which the provider is seeking incentive payments.  This change will permit providers to upgrade existing certified EHRs for compliance with future stages of meaningful use.  The proposed certification standards rule is available here.

CMS’s Stage 2 meaningful use proposed rule is available here, and a Fact Sheet is available here

Comments on the CMS proposed rule must be received no later than 5 p.m. on the date that is 60 days after date of publication of the proposed rule in the Federal Register, expected to be March 7, 2012.

Reporters, Christina Gonzalez, Houston, +1 713 276 7340, and Christopher Kenny, Washington, D.C., +1 202 626 9253,

CMS Issues Final Rule for Review and Approval Procedures for Medicaid and CHIP Demonstration Projects Under the Affordable Care Act – On February 22, 2012, the Centers for Medicare & Medicaid Services (CMS) issued the final rule implementing provisions of the Patient Protection and Affordable Care Act that pertain to applications for Medicaid and Children’s Health Insurance Program (CHIP) experimental, pilot, and demonstration projects (demonstrations).  CMS received 33 comments on the proposed rule that was published on September 17, 2010.  The final rule will increase the degree to which information about Medicaid and CHIP demonstration applications and approved demonstration projects is publicly available and promote greater transparency in the review and approval of demonstrations.

Demonstrations are provided for under Section 1115 of the Social Security Act and enable states to test novel approaches to eligibility or improving the scope or quality of benefits of Medicaid and CHIP.  The final rule’s aim is to promote public involvement with the demonstration approval process, to increase access to information about these experimental projects, and to facilitate a greater understanding of their effectiveness.

The following are some key aspects of CMS’s final rule on Medicaid and CHIP demonstration procedures:

  • Before submitting a demonstration application to CMS, a state must provide a 30-day public notice and comment period.  The notice must describe the project’s goals and objectives and, if applicable, provide information about the proposed health care delivery system as well as the eligibility requirements, benefit coverage, and cost-sharing required of impacted individuals.  The notice must also provide an estimate of the expected increase or decrease in annual enrollment and in aggregate expenditures.  In addition, at least 20 days before submitting the application to CMS, the state must have conducted at least two public hearings, one of which must be via teleconference or web-conference, to seek public input on the demonstration application.

  • After CMS receives a state’s completed application, CMS will also provide a 30-day public notice and comment period.  To seek public input, CMS will publish the demonstration application and relevant status updates on the CMS website.

  • CMS may waive the state or federal public notice procedures to expedite a decision on a proposed demonstration that addresses a natural disaster, public health emergency, or other sudden emergency that threatens human life.

  • The state must agree to perform periodic reviews of the project’s implementation and must hold a public forum to seek comments on the demonstration’s progress within six months after implementation.  Additionally, the state must evaluate the demonstration and may use a variety of strategies to do so.

  • The state must submit an annual report to CMS that discusses, among other things, any difficulties encountered in operating the demonstration, the project’s impact in providing insurance coverage, outcomes with respect to quality and cost of and access to care, and information on the results of any audits, investigations, or lawsuits impacting the demonstration. 

The final rule on Section 1115 demonstrations is available here.

Reporter, Jennifer Lewin, Atlanta, +1 404 572 3569,

California Medicaid Payment Case Remanded to Ninth Circuit – On February 22, 2012, the Supreme Court issued its decision in Douglas v. Independent Living Center of Southern California, Inc., et al., 565 U.S. _____ (2012), vacating the Ninth Circuit’s opinion and remanding the case for further argument.  The case originated as multiple challenges by California Medicaid providers and beneficiaries to Medicaid payment cuts passed by the state legislature in 2008 and 2009.  The challengers claimed that those California statutes should be void under the Constitution’s Supremacy Clause, because they violated a provision of federal Medicaid statutes (42 U.S.C. § 1396(a)(30)(A)) which requires a state’s Medicaid state plan to provide payments that “are consistent with efficiency, economy, and quality of care and are sufficient to enlist enough providers” to supply adequate Medicaid services. The Ninth Circuit agreed with the plaintiffs and issued preliminary injunctions against implementation of the payment cuts. 

The Court’s opinion noted that parallel to the judicial process, California’s state plan amendments intended to implement the payment cuts had been reviewed by CMS, which had originally disapproved the amendments.  The State of California appealed this decision, and,  following oral argument at the Supreme Court, CMS reversed its decision and approved certain of the state plan amendments as well as their retroactive implementation.

The Supreme Court’s majority opinion acknowledged that CMS’s decision would not render the case moot, but that the posture had changed sufficiently that a remand was warranted.  The Court also noted that the Medicaid providers and beneficiaries could be required to seek a final adjudication of CMS’s action under the Administrative Procedure Act, in lieu of a constitutional challenge under the Supremacy Clause.

Chief Justice John Roberts, along with Justices Scalia, Thomas, and Alito filed a dissent, arguing that the Ninth Circuit’s decisions should have been reversed, since the challenged provision of the federal Medicaid statutes did not provide a private right of action, but committed enforcement to CMS, which had decided in favor of the payment cuts.  In addition, the dissenters noted that the Supremacy Clause could not create such a right of action, since under the Court’s jurisprudence, it is not the source of any federal rights.

The Court’s opinion is available here.

Reporter, Adam Laughton, Houston, +1 713 276 7400,

King & Spalding to Host Roundtable on Proposed Overpayment Rule – On March 9, 2012, we will be hosting an Atlanta-based Roundtable to explore the broad implications of the positions advanced by the Centers for Medicare and Medicaid Services (CMS) in its February 16, 2012, issuance of the Proposed Rule implementing the Patient Protection and Affordable Care Act’s (Affordable Care Act’s) overpayment reporting and refunding requirements. We are also offering a webinar option for this Roundtable. Participating in the Roundtable will be Rick Shackelford and Sara Kay Wheeler of our Atlanta office, Seth Lundy of our Washington, D.C. office, and Greg Etzel of our Houston office. Registration for the Roundtable is available at

21st Annual Health Law and Policy Forum – On March 19, King & Spalding will host its 21st Annual Health Law and Policy Forum at the St. Regis Hotel in Atlanta. This full-day conference focuses on recent developments in the healthcare industry and will feature keynote addresses from Scott Rasmussen of Rasmussen Reports, a nationally known public opinion pollster, and Senator Ron Wyden of Oregon. Additional panels will include attorneys from King & Spalding, as well as representatives of other legal and consulting firms. Participation is in-person only. You may register to attend the Forum at

Three King & Spalding Speakers at March AHLA Meeting – The American Health Lawyers Association will host its annual Institute on Medicare and Medicaid Payment Issues program in Baltimore on March 28-30, 2012.  The meeting will feature more than 50 sessions devoted to Medicare and Medicaid reimbursement with attorneys from across the country, including CMS officials.  King & Spalding will be represented on three panels by Greg Etzel (claims appeals), Daniel Hettich (inpatient Value-Based Purchasing program), and Dennis Barry (Medicare bundled payments).  King & Spalding will also host a reception for conference attendees on Wednesday evening from 6-9pm in the Laurel Ballroom of the Marriott Waterfront Hotel, and all program attendees are welcome. Registration for the program is available at the AHLA website.

This bulletin provides a general summary of recent legal developments. It is not intended to be and should not be relied upon as legal advice.

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