Long Term Ramifications of Supreme Court Decision on Health Care Reform – A divided Supreme Court issued its decision upholding most provisions of the Patient Protection and Affordable Care Act (PPACA) on Thursday, June 28, 2012. As most everyone may by now be aware, the Supreme Court upheld the individual mandate of PPACA under Congress’s taxing power. While most media reports focused on the top line holding, a closer reading of the opinion reveals several important points. While President Obama’s primary legislation from the beginning of his term was upheld, the Supreme Court’s analysis and holdings offered several key limitations on the power and scope of the federal government.
Most importantly, Chief Justice Roberts joined with the four more conservative justices (forming a majority) to reject the key argument advanced by the Obama administration, namely that Congress had the power to impose the individual mandate under the Constitution’s Commerce Clause. Roberts held (and by virtue of the fact that the four dissenting justices agreed with his analysis on this point, formed a majority for the proposition) “[t]he proposition that Congress may dictate the conduct of an individual today because of prophesied future activity finds no support” in constitutional law, and, therefore, “[t]he commerce power . . . does not authorize the mandate.” (Slip Opinion at 26, 30). Chief Justice Roberts then decided that the mandate could be justified as a tax. Chief Justice Roberts (in a bit of inside baseball for constitutional lawyers) included important language making his Commerce Clause interpretation binding law by indicating that he could not have upheld PPACA under the taxing power without first deciding the commerce clause question: “Without deciding the Commerce Clause question, I would find no basis to adopt” the analysis that the individual mandate was authorized under Congress’s taxing power. (Slip Opinion at 44). Thus, Chief Justice Roberts’ Commerce Clause analysis was necessary to his decision, not dicta, and, therefore, it is binding law on the lower courts. This could have important ramifications for any future attempts by Congress to justify legislation under its Commerce Clause Power.
Second, by a 7-2 majority of the justices, the Supreme Court narrowly interpreted certain provisions related to PPACA’s Medicaid expansion. The Court’s interpretation will, as a practical matter, provide states that do not want to expand the Medicaid program with additional flexibility. Under the Court’s decision, states may choose not to expand their Medicaid programs and still continue to participate in Medicaid as it exists pre-PPACA. This holding could have significant ramifications for any number of areas in which Congress conditions funds provided to the States, from environmental programs to educational programs.
In conclusion, while PPACA was upheld for the most part, the decision was by no means a clear “victory” for the administration. A copy of the opinion is available here. A copy of our firm’s more detailed client alert about the opinion is available here.
Reporter, Thomas H. Hawk, III, Atlanta, +1 404 572 4704, thawk@kslaw.com.
IRS Issues Proposed Regulations for Charitable Hospitals Regarding Section 501(r) Financial Assistance and Other Requirements – On June 26, 2012, the Internal Revenue Service (IRS) published in the Federal Register proposed regulations and a detailed preamble regarding the Internal Revenue Code (IRC) Section 501(r) requirements for charitable hospital organizations relating to financial assistance policies, emergency medical care policies, limitations on charges for care provided to individuals eligible for financial assistance, and hospital billing and collection activities.
Charitable hospitals’ financial, billing and compliance personnel will need to review these requirements carefully. The Section 501(r) requirements addressed by the proposed regulations are in effect now. Accordingly, even though these proposed regulations are not final regulations and, in that sense, are not effective, they nonetheless represent the Treasury Department’s and the IRS’s current interpretation of the existing Section 501(r) requirements. Therefore, it may be prudent for charitable hospitals to begin complying with the proposed regulations as soon as reasonably possible. Further, if a hospital uses a third party to perform any billing or collection functions, the hospital would be wise to ensure, through contract or otherwise, that each such vendor also complies with the proposed regulations with respect to services performed on behalf of the hospital, as the hospital will be held responsible for any non-compliance with Section 501(r). Hospitals may rely on the proposed regulations until final or temporary regulations are issued.
By way of background, Section 9007 of the Patient Protection and Affordable Care Act, enacted into law on March 23, 2010, added new Section 501(r) to the IRC. Section 501(r) requires hospitals to satisfy four specific additional requirements in order to qualify for tax-exempt status under IRC Section 501(c)(3):
- Conduct community needs assessments and implement a strategy to address identified needs;
- Have and widely communicate written financial assistance policies;
- Limit charges for indigent patients; and
- Comply with certain billing and collection practices.
In July 2011, the Treasury Department and the IRS issued Notice 2011-52, which provided guidance regarding the Section 501(r) community health needs assessment (CHNA) requirement. The Treasury Department and the IRS are in the process of drafting proposed regulations regarding the CHNA requirements. The new June 2012 Section 501(r) proposed regulations do not provide guidance regarding the CHNA requirements but, instead, address the remaining three categories of requirements of Section 501(r).
The new proposed regulations also do not address the consequences of a hospital’s failure to satisfy the requirements of Section 501(r). The preamble to the proposed regulations states that the Treasury Department and the IRS are continuing to consider comments on this topic and will address the issue in separate guidance.
Some of the key areas addressed by the new Section 501(r) proposed regulations and the related preamble include:
- Definition of “hospital facility.” This is important because Section 501(r) requires a hospital organization to satisfy the requirements of Section 501(r) separately with respect to each hospital facility it operates.
- Written Financial Assistance Policies (FAPs). The proposed regulations require a hospital facility’s FAP to include: (1) eligibility criteria for financial assistance, and whether such assistance includes free or discounted care; (2) the basis for calculating amounts charged to patients; (3) the method for applying for financial assistance; (4) in the case of an organization that does not have a separate billing and collections policy, the actions the organization may take in the event of nonpayment; and (5) measures to widely publicize the financial assistance policy within the community served by the hospital facility. The proposed regulations and preamble provide detailed guidance regarding each of these requirements.
- Emergency Medical Care Policy. The proposed regulations require a hospital to establish a written policy that requires the hospital to provide, without discrimination, care for emergency medical conditions (within the meaning of the Emergency Medical Treatment and Labor Act (EMTALA)), regardless of whether the individual is eligible for financial assistance under the hospital facility’s FAP.
- Limitation on Charges. The proposed regulations provide that a hospital satisfies the requirements of Section 501(r)(5) if the hospital limits the amount charged for any emergency or other medically necessary care it provides to FAP-eligible individuals to not more than the “amounts generally billed” to individuals with insurance covering that care.
- Calculation of “Amounts Generally Billed.” The proposed regulations provide detailed specifications regarding how the maximum allowable charge for an FAP-eligible individual may be calculated. In particular, the proposed regulations provide two methods of determining the “amounts generally billed.” One is a “look back” method, in which a hospital determines receipts for Medicare patients, or Medicare patients and all other insureds, for the previous year and divides by gross charges for those patients’ services. This percentage and the method by which it is calculated must be made available to the public. The second method is a “prospective Medicare method,” pursuant to which the hospital determines how much fee-for-service Medicare (and the Medicare beneficiary) would pay for the services in question, and that amount is the maximum amount that can be charged to the FAP-eligible patient.
- Billing and Collection Activity. The proposed regulations provide that a hospital satisfies the requirements of Section 501(r)(6) if the hospital does not engage in “extraordinary collection actions” against an individual before making “reasonable efforts” to determine whether the individual if eligible for financial assistance. The proposed regulations address two key aspects of the core Section 501(r)(6) limitations on a hospital’s collection practices. First, the regulations provide a multi-step process, with time frames, for making “reasonable efforts” to determine whether an individual is FAP-eligible before the hospital may engage in “extraordinary collection actions” against that individual. Second, the regulations provide a non-inclusive list of actions that may constitute “extraordinary collection actions” for purposes of Section 501(r)(6). Notably, this list includes reporting to credit agencies and selling debt.
- State Law Billing and Charge Restrictions. Section 501(r) and the proposed regulations do not preempt state laws or requirements concerning patient billing and charge practices. Such specific requirements, which may be more stringent, must be meshed with the specific federal requirements.
In the preamble to the proposed regulations, the Treasury Department and the IRS request comments on many aspects of the proposed regulations. The comment period ends on September 24, 2012.
King & Spalding plans to host a free educational Roundtable presentation, available via webinar, on July 31, 2012 regarding the new proposed regulations. Further information about the Roundtable, including how to register, will be available in the near future.
A copy of IRS Notice 2011-52 (regarding CHNA guidance) is available by clicking here. The new proposed Section 501(r) regulations and preamble are available by clicking here.
Reporter, Constance F. Dotzenrod, Atlanta, +1 404 572 3585, cdotzenrod@kslaw.com.
CMS Clarifies Guidance on Single Dose/Single Use Medications to Prevent Infection – On June 15, 2012, the Office of Clinical Standards and Quality/Survey & Certification Group at CMS issued a memorandum regarding the CMS regulatory and policy requirements for repackaging single-dose vials or single-use vials (SDVs) of drug products into smaller dose quantities.
Under the United States Pharmacopeia compounding standards, specifically USP General Chapter 797 (USP 797), healthcare providers may repackage drug products from SDVs into smaller doses so long as the individual, repackaged doses are intended for use with single patients, and very careful environmental and use controls are applied. USP 797 sets forth standards and conditions that providers must follow to re-package SDVs in a manner that controls potential contamination (both from the repackaging process itself, and due to common lack of antimicrobial preservatives). CMS reiterated its expectation “that medications labeled as SDVs must not be used directly for multiple patients, due to the risk of spreading infections. CMS’s “policy is to cite the reuse of a SDV for multiple patients as an infection control deficiency, since this practice of reuse is in conflict with nationally recognized standards.”
The policy clarification comes in response to an increase in the number and severity of drug shortages. Healthcare providers may seek to avoid wastage of SDV medication that exceeds the needed dose for a single patient.
The CMS memorandum acknowledges this current concern and describes the protocol for providers to follow:
[W]hen previously unopened SDVs are repackaged consistent with aseptic conditions under the requirements of USP <797>, and subsequently stored consistent with USP <797> and the manufacturer’s package insert, it is permissible for healthcare personnel to administer repackaged doses derived from SDVs to multiple patients, provided that each repackaged dose is used for a single patient with applicable storage and handling requirements.
(Emphasis in original.) The distinction, CMS explains, is between proper “repackaging” and inappropriate “reuse.”
The CMS Memorandum is available by clicking here.
Reporter, Jesica M. Eames, Atlanta, +1 404 572 2821, jeames@kslaw.com.
NQF Upholds Endorsement of Challenged All-Cause Readmissions Measure – Measure 1789: Hospital-wide all-cause readmission measure (the “CMS/Yale measure”), originally endorsed by NQF on April 24, 2012 for purposes of evaluating hospital performance, was challenged by seven hospitals and health systems that expressed concerns regarding the measure’s approval process, its validity, and usefulness. On June 25, 2012, the NQF Board voted to uphold its original decision to endorse the measure, which NQF says “will result in a single summary risk-adjusted readmission rate for conditions or procedures that fall under five specialties: surgery/gynecology, general medicine, cardiorespiratory, cardiovascular, and neurology.” Measure 1789 is designed to estimate “the risk-standardized rate of unplanned, all-cause readmissions to a hospital for any eligible condition within 30 days of hospital discharge for patients aged 18 and older.”
The American Hospital Association (AHA) has expressed procedural concerns about NQF’s use of the expedited review process in its approval of Measure 1789. In addition, AHA strongly urged the incorporation of socioeconomic factors into the measure and raised serious concerns regarding the measure’s usefulness in informing improvement or patient decision-making. As AHA explained in a January 20, 2012 letter:
[T]he existing condition-specific readmission measures create a large category of hospitals that are deemed to be no different in performance from the average, and hospitals find it confusing when they cannot replicate the readmission rate calculated for them. Many factors contribute to this inability to replicate the readmission rate. One of them is the same reason that makes it hard for consumers and purchasers to distinguish among hospitals, and that is the methodology essentially substitutes the national average for the hospital’s own rate except to the extent there is enough data to allow one to say that the hospital’s specific rate is different from the national norm in a statistically reliable way. This means that, for most hospitals, their readmission rate is not wholly their own, but is rather a blend of their own performance and the national average. For smaller hospitals, the calculated rate is predominantly the national average. As hospitals get larger, the rate becomes more their own and less of the national average.
Measure 1789 was formally appealed (through the NQF endorsement process) by seven NQF-member hospitals and health systems, which echoed AHA’s concerns with the measure. The providers noted in their appeal that “less than 20% of the more than 400 NQF members voted on this measure and a disproportionate number of Health Professional and Provider Organization members voted ‘No.’” They argued in favor of a “more robust forum for dialogue and consensus” before the measure is adopted by CMS for public reporting and payment decisions.
In its June 29, 2012 Press Release announcing its decision to uphold its endorsement of Measure 1789, NQF explained that during the endorsement process it “thoroughly vet[s] the proprieties of a measure,” but does not advise on the “best use of measures in payment and public reporting programs.” This is the role of the Measure Applications Partnership (MAP), which has been asked to convene a special session this Summer to consider “how to use this new measure as part of a broader set of care coordination measures applicable to all types of providers.” NQF explained that “CMS [has] agreed to defer use of this particular readmission measure in the new CMS Readmissions Reduction Program until MAP had deliberated and recommended back to CMS its advice on the measure’s optimal use.”
Measure 1789 is described on NQF’s website, available by clicking here. Documentation related to the providers’ appeal (see Attachment A), including AHA’s January 20, 2012 letter to NQF regarding Measure 1789 (see Attachment D), is available by clicking here. The NQF’s June 29, 2012 Press Release announcing the Board’s decision to uphold its endorsement of Measure 1789 is available by clicking here.
Reporter, Susan Banks, Washington, D.C., +1 202 626 2953, sbanks@kslaw.com.
Supreme Court to Review D.C. Circuit Tolling Decision – On June 25, 2012, the Supreme Court granted a petition for writ of certiorari filed by the government in the case of Sebelius v. Auburn Regional Medical Center, No. 11-1231. At issue in the case is whether the 180-day deadline for filing an appeal with the Provider Reimbursement Review Board (PRRB) following a fiscal intermediary’s final Medicare payment determination is subject to equitable tolling, i.e., whether the deadline can be extended when the hospitals did not know that they had been underpaid.
42 U.S.C. § 1395oo(a)(3) requires that a provider appeal a fiscal intermediary’s final determination to the PRRB within 180 days. Nonetheless, a group of hospitals that receive disproportionate share hospital (DSH) payments filed an appeal with the PRRB in 2006 alleging that they had been underpaid DSH payments from fiscal years 1987 through 1994. The hospital plaintiffs acknowledged that their appeal was outside of the 180-day time limit, but they argued that the deadline should be equitably tolled because the hospitals did not know that they had been underpaid until Baystate Medical Center’s lawsuit, which led to the D.C. Circuit Court of Appeal’s decision in Baystate Med. Ctr. V. Leavitt, 545 F. Supp. 2d 20, amended in part, 587 F. Supp. 2d 37 (D.D.C. 2008). They alleged that CMS had known but failed to disclose to providers that its DSH payments had been too low.
The PRRB found that it lacked jurisdiction to hear the hospitals’ appeal because it did not have the authority to toll the 180-day deadline and the hospitals’ appeal was untimely. The District Court held that it did not have jurisdiction to hear the case because the PRRB’s decision was not a “final decision” and that the statutory deadline could not be equitably tolled. The D.C. Circuit reversed the District Court’s decision on June 24, 2011, holding that the PRRB’s decision constitutes a “final decision” that is subject to appeal and finding that the statutory deadline may be equitably tolled. The D.C. Circuit remanded the case to the District Court to determine whether the facts support equitable tolling of the 180-day deadline in the case at issue. The Supreme Court will hear the case during its next term beginning in October 2012.
A copy of the Secretary’s petition for a writ of certiorari is available by clicking here and the Supreme Court’s order granting certiorari is available by clicking here.
Reporter, Kate Stern, Atlanta, +1 404 572 4661, kstern@kslaw.com.
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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