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Health Headlines - February 11, 2013

11 Feb 2013

CMS Publishes Annual Update On Recovery Audit Activity, Says Program Returned Nearly $490 Million to Medicare Trust Fund in 2011 – On February 5, 2013, CMS sent Congress a report summarizing developments related to its Medicare recovery audit program for fiscal year (FY) 2011.  According to the report (titled Recovery Auditing in the Medicare and Medicaid Programs for Fiscal Year 2011), recovery auditors corrected $939.3 million in improper Medicare fee-for-service (FFS) payments in FY 2011.  This total includes both overpayments and underpayments, and represents a significant increase over CMS’s reported total for FY 2010, which was $92.3 million.  The report also notes, however, that after accounting for underpayments, appeals, costs and other adjustments, recovery auditors returned $488.2 million to the Medicare Trust Fund.  (CMS’s report for FY 2010 did not contain a similar statistic.)  This is CMS’s second such report, which the agency is required to prepare and present pursuant to the Affordable Care Act and other federal law.

CMS tasks its recovery auditors—four private contractors each operating within a defined region of the country—to conduct post-payment reviews to ensure Medicare claims are paid correctly.  Recovery auditors therefore identify and recover improper Medicare FFS payments, such as payments for non-medically necessary items or services, payments for incorrectly coded items, and payments for services lacking adequate supporting documentation.  Among other things, CMS’s report provides an overview of the structure of the FFS Recovery Audit Program following its national rollout in 2010 and provides data tracking program expenditures and recoveries.  CMS notes, for instance, that it spent $124.4 million to run the program in FY 2011.   Of that amount, CMS paid $81.9 million in contingency fees to recovery auditors, which, for each contractor, are typically calculated as a set percentage of recovered improper payments.

Notably, the report also states that FY 2011 was the first year that recovery auditors “actively” reviewed short-stay inpatient hospital admissions.  The report adds that improper short-stay admissions represent a substantial portion of the reported Medicare FFS error rate and overpayment collections for the year.  While CMS does not provide detailed short-stay data, its aggregate claim-type correction statistics would appear to bear out the recovery auditors’ efforts in this regard:  of the $797.4 million in total collected overpayments, $677.2 million (or about 85 percent) represented inpatient hospitalization claims. 

Other FY 2011 highlights of CMS’s report include:

  • Medicare providers appealed 6.7 percent of all claims deemed to be an overpayment (totaling 60,717 appealed claims).  Of the appealed claims, 43.6 percent (26,469 claims) were overturned.  CMS suggests, however, that a successful appeal does not always mean that the RAC’s initial determination was incorrect.
  • CMS intends to conduct a demonstration program limited to eleven states in which recovery auditors would conduct a prepayment review of, among other things, short-stay inpatient claims.
  • Following an analysis of comments received from a December 2010 Request for Information published in the Federal Register, CMS plans to award its Medicare Part C Recovery Audit Contractor program contract in the summer of 2013.
  • CMS launched its Electronic Submission of Medical Documentation (or esMD) system, which allows health care providers to send requesting contractors documentation electronically.  CMS also introduced “semi-automated” reviews which allow providers to view initial claim determinations and submit supporting documentation.

A copy of CMS’s report is available by clicking here.

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

CMS’s Innovation Center Announces New Initiative on Comprehensive ESRD Care – On February 4, 2013, CMS’s Innovation Center announced a new initiative to test a payment and service delivery model for beneficiaries with end-stage renal disease (ESRD).  The initiative, named Comprehensive ESRD Care (CEC), calls for the creation of ESRD Seamless Care Organizations, or ESCOs—entities consisting of dialysis facilities, nephrologists and at least one other Medicare supplier or provider.  Interested applicants are required to file non-binding letters of intent by March 15, 2013.  Applications to participate in the model are due May 1, 2013.

In announcing the initiative, CMS noted that ESRD beneficiaries constitute 1.3 percent of Medicare beneficiaries, but account for an estimated 7.5 percent of Medicare spending, totaling over $200 million in 2010.  It is generally acknowledged that ESRD beneficiaries often have disease complications and multiple co-morbidities that lead to high rates of hospital admission and readmission as compared to the rest of the Medicare population.  The purpose of the CEC initiative, according to CMS, is to improve outcomes while lowering the total per capita Medicare expenditure for ESRD beneficiaries.  Specifically, the CEC initiative will test whether financial incentives through shared savings among dialysis facilities, nephrologists and other Medicare providers, organized together in one legal entity, will lead to collaborative and comprehensive efforts to address the healthcare needs of ESRD beneficiaries.  The initiative will test whether the financial risk arrangements, with guaranteed discounts to the Medicare program, will improve disease management, clinical outcomes (such as transplantation rates and disease complications), and beneficiary quality of life, functioning status and care transitions while reducing emergency department usage and hospital admissions and readmissions.

The Innovation Center held an open door forum on February 5, 2013 to provide more details about the CEC initiative.  A slide deck from the open door forum is available here.  Parties interested in participating in the CEC initiative must create an ESCO, composed of at least a dialysis facility and a nephrologist (or nephrology group practice) as co-owner participants, plus one other Medicare provider or supplier (including physicians, but not DME or ambulance suppliers).  ESCOs must be created as separate legal entities, and they must have a minimum of 500 ESRD beneficiaries matched to the ESCO in order to be selected to participate in the initiative.  The creation of an ESCO as a legal entity is not required prior to the filing of a letter of intent (due March 15, 2013) nor prior to being selected as an applicant, although 50 percent of the proposed ESCO participants must be identified in the letter of intent and 100 percent must be identified in the application. 

ESCOs will be eligible to share in savings to the Medicare program, but will also be expected to share in losses as well.  Savings (or losses) will be calculated by the creation of an expenditure baseline from Medicare Part A and Part B fee-for-service expenditures for beneficiaries matched to the ESCO for the three-year period preceding the performance period.  This baseline will be compared yearly with the ESCO’s actual performance year average per capita expenditures to calculate Medicare savings (or losses) in which the ESCO will share.  ESCOs must agree to participate in the program for at least three years. 

Reporter, Mark Polston, Washington, D.C., +1 202 626 5540,   

Judge Approves Two-Year Delayed Prosecution of WakeMed – A Federal district court judge issued a February 8, 2013 order granting a delayed prosecution against Raleigh, NC-based WakeMed Health and Hospitals for allegedly submitting false inpatient bills to Medicare.  The government’s case against WakeMed  alleged that the hospital submitted inpatient claims for cardiac patients that did not actually stay overnight in the hospital.  The court’s order states that in many cases, physician orders specifically directed that patients be treated on an outpatient basis, but hospital billing staff altered those orders to indicate an inpatient admission.  WakeMed’s Zone Program Integrity Contractor (ZPIC) reviewed a sample of these claims and alleged that WakeMed received at least $1.2 million in improper Medicare reimbursement. 

As part of a settlement, WakeMed entered into a five-year corporate integrity agreement (CIA) and paid an $8 million civil False Claims Act penalty.  The government agreed to delay prosecution of the remaining felony fraud charges against WakeMed for fear that a conviction—and exclusion from the Medicare program—would lead to the hospital’s closure.  The district court’s order approves the settlement between the parties to delay prosecution for two years.  The government agreed that it would drop its criminal prosecution at such time if WakeMed remained in full compliance with its CIA and has not “committed further serious federal crimes related to its billing practices.”  The court’s order is available by clicking here.

Reporters, John Richter, Washington, D.C., + 1 202 626 5617, and Christopher Kenny, Washington, D.C., + 1 202 626 9253,

CMS Requests Comments on Redundant Reporting of Clinical Quality Measures – CMS is seeking input regarding ways in which eligible professionals might use clinical quality measures (CQM) data reported to medical boards, specialty societies, regional health care quality organizations or other non-federal reporting programs to satisfy the requirements of the Physician Quality Reporting System (PQRS) and the Electronic Health Record (EHR) Incentive Program.  CMS is seeking this input to assess how alignment of certain requirements of both federal and non-federal CQM reporting programs could eliminate redundancies, thereby reducing the burden on eligible professionals and accelerating quality improvements.  Specifically, CMS is requesting comments on the following:

  • Similarities and differences between current PQRS and 2014 EHR Incentive Program reporting requirements and those already established for the American Board of Medical Specialties (ABMS), specifically those requirements that are duplicative and whether these reporting programs can be integrated;
  • Examples of other non-federal programs under which eligible professionals report quality measures data;
  • Benefits and shortcomings of allowing third-party entities to report quality data to CMS on behalf of physicians and other eligible professionals;
  • What entities have capacity to report quality data similar to those reported under PQRS, Value-Based Payment Modifier and/or EHR Incentive Programs, and what requirements CMS should include to ensure high quality data if these entities were to report such data to CMS; and
  • How CMS should change/evolve these quality reporting programs over time to reduce the reporting burden on eligible professionals while still receiving robust clinical quality data.

In addition to those high level areas, CMS is also seeking responses to specific questions regarding registry reporting requirements for entities that report via a registry under the PQRS for 2014 and subsequent years or the EHR Incentive Program if registry reporting is established as a reporting method for that program in future years.  For a copy of the February 7, 2013 Federal Register Notice, please click here

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

CMS Proposes Changes to Overly Burdensome Rules – On February 4, 2013, CMS proposed certain reforms to Medicare regulations that would eliminate or change rules seen as unnecessary, obsolete, or excessively burdensome on hospitals and other health care providers.  The proposed rule is in line with President Obama’s call on federal agencies to reduce regulatory burdens on business.  All told, CMS projects its proposals would save $676 million annually, and $3.4 billion over five years.

Among the key changes proposed are the following:

Ambulatory Surgery Centers (ASCs): The proposed rule would reduce regulatory requirements that ASCs must meet in order to provide radiological services, and provide greater flexibility in the types of physicians who may supervise such services in an ASC.  Currently, ASCs must satisfy full hospital requirements for furnishing radiological services.  The proposed rule would only require compliance with the standard governing safety for patients and personnel and with certain personnel and records requirements.  If adopted, the proposed rules would also permit an MD/DO who is qualified by education and experience and ASC policy to supervise the provision of radiologic services.  Currently, a radiologist must supervise the provision of radiological services in an ASC.

Hospitals: The proposal includes several changes to the hospital conditions of participation (COPs).  The changes would impact the COPs addressing governance, medical staff, food and dietetic services, nuclear medicine services, outpatient services, and classification of swing bed services. For example, under the proposed rule,

  • The hospital no longer would need representatives of the medical staff to sit on the governing body.  The governing body would need to consult periodically with the individual responsible for the organized medical staff of the hospital.
  • The hospital would be required to have an organized and individual medical staff, distinct to the individual hospital, that operates under the bylaws of the governing body, and which is responsible for the quality of medical care provided to patients of the individual hospital.
  • The food and dietetic services COP would be changed to include that a therapeutic diet may be ordered by a qualified dietician, as authorized by the medical staff and in accordance with State law.
  • The COP for nuclear medicine services would be changed to allow for in-house preparation of radiopharmaceuticals by, or under the supervision of, an appropriately trained registered pharmacist or an MD or DO.  CMS, therefore, is proposing to remove the direct supervision requirement for the in-house preparation of radiopharmaceuticals.
  • CMS is proposing the addition of a new standard governing orders for outpatient services.  Orders for outpatient services may be made by any practitioner who is responsible for the care of the patient; licensed in the State where he or she provides care to the patient; acts within the scope of practice under state law; and is authorized in accordance with the policies adopted by the medical staff and approved by the governing body to order applicable outpatient services.  The standard would apply to all practitioners appointed to the hospital’s medical staff and who have been granted privileges to order outpatient services.  It also applies to practitioners not appointed to the medical staff, but who satisfy the criteria for authorization by a hospital for ordering outpatient services for their patients.
  • CMS has proposed moving the COPs for swing bed services from Subpart E (requirements for specialty hospitals) to Subpart D, which provides COPs for optional services.  The change would allow compliance with swing bed requirements to be evaluated during routine accrediting organization surveys.  Thus, CMS would no longer require a separate, additional survey specifically for swing bed approval.

Transplant Centers: CMS is proposing changes to the COPs governing transplant programs.  Specifically, the rule would eliminate redundant data submission requirements and provide greater flexibility in the re-approval cycle. 

Long-Term Care Hospitals: CMS is proposing providing a process for LTCH’s to apply for a deadline extension for the requirement to have an automatic sprinkler system installed in the building by August 13, 2013.

Rural Health Providers: CMS makes various proposals affecting the COPs for critical access hospitals (CAHs), rural health clinics (RHCs), and federally-qualified health centers (FQHCs).  For example, CMS would eliminate the need for a CAH to develop its patient care policies with at least one member who is not a member of the CAH’s staff.  It would revise RHC/FQHC rules to eliminate the requirement that a physician be onsite at least once every two weeks.  CMS also is soliciting comments on whether other possible changes might be appropriate to reduce barriers to service, such as in the area of telehealth services, hospice services, and home health services.

In addition to the above, CMS is proposing changes to the Clinical Laboratory Improvement Act (CLIA) regulations.  These changes would provide greater clarity to the treatment of proficiency testing samples, provide an exception to CMS’s long standing interpretation of what constitutes an “intentional” referral of proficiency testing samples, and provide new definitions for reflex testing, confirmatory testing, and repeat proficiency testing referral. 

Comments on the proposed rules are due no later than 5:00 pm on April 8, 2013.  The proposed rule was published on February 7, 2013 in the Federal Register. To view the proposed rule click here.

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

King & Spalding Client Alert Issued Regarding CMS’s Final Rule to Implement Physician Payments Sunshine Act – On February 4, 2013, King & Spalding issued a Client Alert  regarding CMS’s final rule to implement the federal Physician Payments Sunshine Act.  The Client Alert addressed key provisions of the final rule.  The Client Alert is available by clicking here

King & Spalding LLP to Host Roundtable on February 12, 2013 – King & Spalding LLP will host a Roundtable Webinar entitled Breaches, Business Associates and Beyond:  What You Need to Know About the New HIPAA/HITECH Regulations on February 12, 2013, at 1:00 - 2:30 P.M. Eastern Time.  The Roundtable will focus on the final omnibus HIPAA rule recently released by the Department of Health & Human Services, Office for Civil Rights to implement statutory changes required under the Health Information Technology for Economic and Clinical Health Act (HITECH) and amend the HIPAA privacy, security, enforcement, and breach notification rules.  For more information and to register for the event, click here 

King & Spalding LLP to Host Roundtable on February 15, 2013 – King & Spalding LLP will host a Roundtable entitled Are You Covered? Insurance for Healthcare Regulatory Investigations on February 15, 2013, at 1:00 - 2:30 P.M. Eastern Time in the Atlanta office.  Prompted by the increased pace and complexity of government investigations, qui tam suits, and evolving delivery models, the Roundtable will focus on planning for and pursuing insurance coverage for defense costs and liability arising from such investigations, litigation, or regulatory enforcement actions.  The Roundtable will also be offered as a webinar.  For more information and to register for the event, click 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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