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Health Headlines - January 14, 2013

14 Jan 2013

More Providers Form Accountable Care Organizations; Growth in Medicare Spending Continues to Decrease – On January 10, 2013, HHS Secretary Kathleen Sebelius announced that 106 new Accountable Care Organizations (ACOs) have formed and begun participating in the Shared Savings Program as of January 1, 2013.  She also announced the release of a new report linking Affordable Care Act provisions, including the Shared Savings Program, to continued reductions in the growth rate of Medicare spending per beneficiary.

According to Secretary Sebelius, the 106 new ACOs include “a diverse cross-section of physician practices across the country [and] approximately 20 percent of [them] include community health centers, rural health centers and critical access hospitals that serve low-income and rural communities.”  Of the new ACOs, fifteen are Advance Payment Model ACOs.  The Advance Payment Model is designed for smaller ACOs comprised of physician and rural providers that receive up-front payments, as well as monthly payments, that can be used to make investments in care coordination infrastructure. 

To date, HHS reports over 250 ACOs are participating in the Shared Savings Program.  The Program was established by the Affordable Care Act with the purpose of encouraging physicians and other providers of Medicare-covered services and supplies to integrate and be held accountable for improving health care quality.  ACOs share with Medicare any savings generated from lowering the growth of health care costs and meeting standards for quality of care.  The next application period for organizations wishing to participate in the Shared Savings Program beginning January 2014 is summer 2013. 

It appears that the efficiencies achieved through ACOs may be paying off for the Medicare program.  HHS’s Assistant Secretary for Planning and Evaluation (ASPE) Office of Health Policy released a report dated January 7, 2013 attributing reductions in the growth of Medicare spending per beneficiary to Affordable Care Act provisions, such as the Shared Savings Program.  Among other things, HHS’s report shows that expenditures per Medicare beneficiary increased by only 0.4% in fiscal year 2012, which is substantially below the 3.4% increase in per capita GDP.  It notes further that both the Congressional Budget Office (CBO) and CMS Office of the Actuary (OACT) now project Medicare spending per beneficiary to grow at approximately the rate of growth of per capita GDP over the next decade.  The reduction in growth over the past few years and “projections of spending growth at GDP+0 for 2012-2022 is unprecedented in the history of the Medicare program.”

HHS indicated that, while more work needs to be done and other factors contribute to the reduction in growth rate, the Affordable Care Act has been an important factor contributing to reductions in the rate of growth in Medicare spending per beneficiary in 2011 and 2012 and “is the primary cause of the projections of continued slow growth over the next decade.”  Indeed, in this regard, the report reflects HHS’s belief that the growth of ACOs and other innovative delivery and payment models authorized by the Affordable Care Act (e.g., Medical Homes, bundled payments, etc.) “have the potential for reducing expenditure growth below projected levels.” 

More information regarding the new ACOs and the new report regarding the reduction in Medicare spending per beneficiary can be accessed here.

Reporter, Tracy Weir, Washington, D.C., +1 202 626 2923,

National Provider Call on FY 2014 Medicare DSH Changes – On January 8, 2013, CMS hosted a National Provider Call to discuss the changes to Medicare disproportionate share hospital (DSH) payments under section 3133 of the Affordable Care Act.  Beginning in FY 2014, Medicare DSH payments will be cut to 25% of the amount expected to have been paid under the preexisting methodology.  The remaining 75% will be reduced by a factor based on the percent change since 2013 in the under-65 uninsured population.  What money remains will form the available “pool” for an additional payment to be redistributed according to each hospital’s proportion of the estimated, aggregate amount of uncompensated care.  Thus, the two main unknowns driving the reduction and redistribution of Medicare DSH payments are how CMS will measure (1) the change in the uninsured population; and (2) each hospital’s share of uncompensated care.  During the call, a number of issues were raised by listeners with respect to each of these factors.  Providers will have to wait for the FY 2014 Hospital IPPS Proposed Rule for answers.  Stakeholders are invited to submit formal comments on the implementation of section 3133 via email to by January 15th for consideration in the Proposed Rule.

The presentation was made jointly by Dobson DeVanzo & Associates, LLC and KNG Health Consulting, LLC, two consultants commissioned by CMS to provide technical assistance as CMS implements the revised Medicare DSH policy.  The consultants’ scope of work includes analyzing definitions and potential data sources for measuring the change in the uninsured population and levels of uncompensated care.

Change in the Uninsured

This part of the presentation focused on evaluating and comparing the available measurement tools—5 different national surveys—which CMS can use to measure the size of the uninsured population in FYs 2018 and beyond.  For 2013 through 2017, CMS is required to use CBO estimates to measure the non-elderly uninsured population. 

For 2013, CMS is statutorily required to use CBO’s March 20, 2010 estimate of the uninsured population.  For 2014 through 2017, the statute also requires CMS to use a CBO estimate, but there is a lack of clarity regarding which CBO estimate(s) CMS must use.  The statute arguably specifies that CMS must use this same March 20, 2010 estimate to determine the size of the uninsured population in 2014 through 2017.  However, due to decisions by many states, in the wake of the Supreme Court’s ruling, to opt out of Medicaid expansion under the Affordable Care Act, there are real reasons to doubt the continued accuracy of CBO’s original estimates.  During the call, CMS declined to clarify whether CMS will use the 2010 CBO estimate or more recent CBO estimates to measure the change in the size of the under-65 uninsured population in 2014 through 2017.  An answer is expected in the FY 2014 Hospital IPPS Proposed Rule.

Level of Uncompensated Care

The presentation next considered possible definitions of “uncompensated care” and available data sources to measure each hospital’s proportion of aggregate uncompensated care for purposes of divvying up what remains of the 75% “pool” after it is reduced according to the change in the uninsured population.  As a threshold matter, the statute arguably suggests that these “additional payments” are to be distributed among all subsection (d) hospitals that furnish uncompensated care, rather than being apportioned among DSH hospitals only.  CMS repeatedly declined to take a position on this issue, and indicated that it will address this point in the FY 2014 Proposed Rule.  Based upon the author’s own interpretation of CMS officials’ responses to repeated questions from listeners, however, it certainly seems possible that CMS will propose that the additional payments not be limited to DSH hospitals.

The consultants’ presentation concluded, based on literature review and stakeholder interviews, that the most common definition of “uncompensated care” includes charity care (defined according to hospitals’ internal charity care policies) plus bad debt.  Many stakeholders take the position, however, that governmental and/or commercial payer payment shortfalls should also be included in CMS’s measurement of providers’ uncompensated care levels.  Such shortfalls are included in certain states’ Medicaid definitions of “uncompensated care,” and are incorporated into ratings by Standard & Poor and PricewaterhouseCoopers.

After examining a number of potential data sources, including, e.g., IRS Form 990 data and Medicaid DSH audit data, the consultants concluded that Worksheet S-10 of the new Medicare cost report (CMS-2552-10) is the “only publicly available data source that contains the required variables to capture uncompensated care” (described as charity care plus bad debt).  Certain listeners questioned the general availability of S-10 data.  According to the presentation, only 50% of providers reported S-10 data for FY 2010, increasing to 75% in FY 2011.  S-10 reporting levels for FY 2012 are not yet known. 

“Uncompensated care” measurement and definitional issues identified for further consideration by CMS include:  (1) inclusion of all uncompensated and unreimbursed costs for Medicaid, SCHIP, and state and local indigent care programs in the definition of “uncompensated care”; (2) inclusion of charity care write-offs for services provided outside the reporting period; and (3) inclusion of GME costs in the calculation of providers’ cost-to-charge ratios used to determine charity care and bad debt costs.  Again, CMS is expected to address these issues in the FY 2014 Proposed Rule.

Payment Mechanics

Listeners asked CMS how the DSH payment changes would be effectuated and whether the changes would be reflected in the PPS Pricer, the data base used by contractors to determine the price upon which to base payment for a particular claim.  The Pricer includes provider-specific payment data including the DSH percentage used in the current DSH calculation.  Providers have requested confirmation from CMS that the “additional payment” under the new DSH methodology—i.e., each provider’s share of what remains of the 75% “pool” after it is reduced according to the change in the uninsured population—will also be reflected in the Pricer.  This would help ensure that Medicare Advantage plans contracted to pay the “Medicare rate” will pay an appropriate amount going forward.  CMS responded to these comments by saying that it would address payment mechanics in the Proposed Rule.

A copy of the presentation is available by clicking here.  A call transcript and audio recording should also be made available on the same website in the coming weeks.

Reporter, Susan Banks, Washington, D.C., +1 202 626 2953,

OIG: Cardiac Catheterization Arrangement Between Hospital and Physicians Not Subject to Sanctions – On January 7, 2013, HHS OIG published a favorable advisory opinion on a management arrangement between a hospital and a cardiology group related to the provision of certain cardiac catheterization services at the hospital.  OIG concluded that the contractual arrangement, under which the cardiology group receives certain performance-based payments, will not trigger sanctions even though it might constitute an improper payment to limit services provided to government health program beneficiaries and could potentially generate prohibited remuneration under the anti-kickback statute (AKS).  The opinion is consistent with OIG’s position, reflected in previous advisory opinions, that certain hospital-physician “gainsharing” arrangements (similar to the one at issue) are not subject to sanctions if properly structured.

According to OIG, the party that requested the opinion is a large acute care hospital in a medically underserved rural area.  The hospital operates four cardiac catheterization laboratories on its main campus—which are considered a provider-based department of the hospital pursuant to 42 C.F.R. § 413.65—and there are no other labs providing the same services within fifty miles of the hospital.  The hospital provides staffing and equipment for the labs and oversees non-professional fee billing and collections.  The physicians who deliver cardiac catheterization services at the labs are members of a cardiology group.  Apart from the physicians in the group, the hospital has no other cardiologists on its medical staff.  The group bills its services to Medicare Part B, does not provide cardiac catheterization services anywhere but at the hospital’s labs, and refers patients to the hospital for inpatient and outpatient care. 

The arrangement at issue, OIG said, is a three-year co-management agreement, in writing, between the hospital and the cardiology group. Pursuant to the agreement, the hospital pays the group a fee in exchange for the group’s provision of certain management and medical direction services at the labs.  This fee consists of two parts: (i) an annual fixed payment and (ii) an annual performance-based payment that, if earned, cannot exceed a certain percentage of the fixed-payment component.  The performance-based payment is calculated based on the following four measures, which are each tied to certain benchmarks set out in the agreement: employee satisfaction, patient satisfaction, quality of care, and cost savings.

OIG evaluated whether the parties’ performance-based arrangement violates federal health care statutes, specifically the civil monetary penalty (CMP) provisions of the Social Security Act and the AKS.  With regard to the CMP provisions, OIG noted that arrangements like the one at issue—particularly ones with incentives for cost containment—can detrimentally influence medical judgment and lead to the reduction in the provision of services to Medicare and Medicaid beneficiaries.  OIG concluded, however, that it would not impose sanctions in this case because the co-management agreement has adequate safeguards.  Those safeguards include, among other things, the hospital’s use of a third-party utilization review agent to monitor patient care, and limits on the duration (three years) and scope (subject to an annual cap) of the performance-based payment.

With regard to the AKS, OIG noted that while the co-management agreement did not fall within the statute’s personal services/management contract safe harbor (because payment to the group is not an aggregate amount set in advance), the facts and circumstances surrounding the arrangement supported a conclusion that the arrangement poses a low risk of abuse and does not trigger sanctions.  According to OIG, those facts and circumstances include the following:

  • The cardiology group’s compensation was deemed to be fair market value for the services provided and payments do not fluctuate based on the number of referrals to the hospital;
  • The hospital is the only provider with cardiac catheterization labs within a fifty-mile radius;
  • The performance-based payment is tied to specific benchmarks (e.g., quality measures based on nationally recognized standards), demonstrating it is designed to reward improvements in the provision of cost-effective care, not to induce referrals; and
  • The co-management agreement is in writing and has a fixed three-year term.

Nevertheless, OIG noted its concern that the arrangement and others like it could be used to impermissibly reward or induce physician referrals, as they could encourage the physicians to admit Medicare and Medicaid beneficiaries—who would generate Medicare Part B professional fees—to the hospital. 

OIG’s advisory opinion is available by clicking here. 

Reporter, Greg Sicilian, Atlanta, +1 404 572 2810,

Ohio Hospital and Heart Center to Pay $4.4 Million to Resolve FCA Allegations – The U.S. Attorney’s Office for the Northern District of Ohio announced that EMH Regional Medical Center (EMH), a non-profit community hospital system located in Lorain County, Ohio, and North Ohio Heart Center, Inc. (NOHC), an independent physician group that practiced at EMH, agreed to pay approximately $4.4 million to resolve allegations under the False Claims Act that EMH and NOHC performed unnecessary cardiac procedures between the years 2001 and 2006.  EMH will pay will pay nearly all of the $4.4 million—$3,863,857—with NOHC paying the remaining $541,870.  United States ex rel. Loughner v. EMH Regional Medical Center, et al., Case No. 1:06-cv-2441 (N.D. Ohio).

Kenny Loughner, the former manager of EMH’s catheterization and electrophysiology laboratory, initiated the matter by filing a qui tam or “whistleblower” complaint in 2006 (the Complaint).  According to the Complaint, NOHC cardiologists performed unnecessary, excessive and/or improper medical procedures—namely angioplasties—at EMH’s facility, thereby providing pecuniary benefit to EMH since it provided the facilities for the allegedly over-prescribed procedures.  Among other allegations, Loughner claimed that NOHC’s cardiologists maintained a practice of performing an angiogram procedure without being prepared to immediately perform an angioplasty if shown to be necessary from the angiogram, contrary to the standard of care.  Instead, according to Loughner, the cardiologists would perform the angiogram, and then schedule the patient for a subsequent angioplasty procedure, which effectively “unbundled” the procedures.  In addition, for patients requiring multiple stents, Loughner claimed that the cardiologists would insert fewer than necessary stents during one procedure, which allowed the cardiologists to schedule “serial angioplasties.”  Loughner will receive $660,859 as a result of the settlement.

The U.S. Attorney’s Office for the Northern District of Ohio, the Justice Departments’ Civil Division, the HHS OIG, and the Federal Bureau of Investigation jointly handled the investigation.

Reporter, Kerrie S. Howze, Atlanta, +1 404 572 3594,

OIG Report Calls for More Fraud and Abuse Investigations of Medicare Advantage Plans – The HHS OIG has released a report recommending that CMS grant the Medicare Drug Integrity Contractor (MEDIC) wider latitude in pursuing potential fraud and abuse by Medicare Advantage plans.  The report found that the MEDIC, which is responsible for investigating fraud and abuse by Medicare Advantage plans and Part D drug plans, as well as by providers participating in such plans, devoted nearly all of its investigations to Part D plans.  The MEDIC conducts its own investigations and refers its findings to law enforcement agencies such as OIG and the Department of Justice.  More than 90 percent of the MEDIC’s referrals from April 2010 through March 2011 involved Part D plans.  OIG believes that structural reforms in the MEDIC program are necessary to pursue what OIG believes are unearthed instances of fraud and abuse by Medicare Advantage plans, such as misrepresenting enrollment or encounter data to increase payments, receiving duplicative copayments or premiums from beneficiaries, and submitting claims for services not provided.

Among its recommendations, OIG believes that the MEDIC should commence investigations of Medicare Advantage plans at its own initiative, rather than relying on referrals and tips from external sources—CMS, other law enforcement agencies and Medicare Advantage plans themselves.  OIG believes that the MEDIC should use “proactive methods” to initiate investigations, including reviewing claims data in real time for questionable billing patterns.  To that end, OIG recommends that the MEDIC have access to a “centralized Part C data repository” rather than continuing its current practice of requesting encounter data directly from Medicare Advantage plans.  (The MEDIC has a centralized data source of Part D encounter and billing data.)  Second, OIG recommends that the MEDIC have a greater ability to share its specific findings with other program integrity contractors, such as ZPICs.  Unlike with law enforcement, the MEDIC is only able to share “information about fraud schemes and summary data with other program integrity contactors.”  The report notes that the MEDIC “is prohibited from sharing specific details, such as a beneficiary’s or a provider’s billing history.”  Third, OIG recommends that CMS develop administrative mechanisms to recoup overpayments from Medicare Advantage plans when law enforcement agencies do not pursue the MEDIC’s referrals.  Under the current system, the MEDIC simply refers potential investigations to other law enforcement agencies.  If those agencies do not accept the case, or close the case without ordering a recoupment, the MEDIC must close its investigation.  OIG believes that CMS should institute other methods for recovering overpayments from Medicare Advantage plans when law enforcement agencies do not pursue a case.  Finally, OIG also recommends that CMS amend its regulations to compel Medicare Advantage plans to refer potential fraud and abuse by providers to the MEDIC when the plans learn of such incidents.  OIG finds that CMS’s current instruction that plans “are encouraged—but not required—to refer incidents” is insufficient.

An appendix to the report includes CMS’s official response to OIG’s recommendations, with which CMS mostly agreed.  CMS agreed that it would establish a central Part C data repository and provide the MEDIC with access to it.  CMS also stated that it would clarify its policies about when the MEDIC may share specific details regarding its investigations with other program integrity contractors and State Medicaid agencies.  CMS did not agree with the recommendation that the MEDIC have the ability to recommend collection of Medicare Advantage overpayments.  Given the nature of Medicare Advantage plan payments (i.e., on a capitation basis rather than a claim-specific basis), CMS believes that overpayment recoupment as currently conducted by Medicare contractors and other administrative agencies is inapplicable to Medicare Advantage plans.  Rather, CMS will continue its oversight and review of Medicare Advantage plans to identify fraud and abuse.  CMS also did not agree with OIG’s recommendation that CMS require Medicare Advantage plans to report potential instances of provider fraud and abuse to the MEDIC, noting that the agency’s current policy is likely sufficient in light of the additional workload burdens an express requirement would impose.

The OIG report is available by clicking here.

Reporter, Christopher Kenny, Washington, D.C., + 1 202 626 9253,

King & Spalding’s IP Team Named Law360’s IP Group of the Year – King & Spalding LLP’s Intellectual Property (IP) team was named the 2012 IP Group of the Year by Law360.  Among other 2012 victories, the team successfully defended Google Inc. in the high-profile mobile device patent and copyright infringement suit brought by Oracle Corp.  Law360 also highlighted the team’s representation of McKesson Technologies Inc. in its patent infringement lawsuit against Epic Systems Corp.  Along with life sciences and healthcare, IP remains a strategic area of focus for King & Spalding LLP.  The Law360 article is available by clicking here.

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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