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Health Headlines - August 5, 2013

05 Aug 2013

CMS Releases FY 2014 Hospital IPPS Final Rule – On August 2, 2013, CMS released the annual Hospital Inpatient Prospective Payment System Final Rule for FY 2014 (the “Final Rule”), effective for discharges occurring on or after October 1, 2013.

The Final Rule increases Inpatient Prospective Payment System (IPPS) rates for FY 2014 by 0.7 percent after factoring in inflation and other adjustments mandated by law which accounts for the market basket adjustment of 1.7 percent minus a 0.8 percent documentation and coding “case mix” adjustment, and a 0.2 percent reduction in the standardized amount (and hospital-specific rates) to offset additional IPPS expenditures expected under the policy change announced in this Final Rule relating to inpatient admission criteria (the “2-midnight” rule, discussed below). 

CMS also refined the MS-DRG relative weight calculation for new cost centers related to Implantable Devices, MRIs, CT scans and cardiac catheterization that were created in the FY 2009 and FY 2011 final rules.  This will increase the total number of cost-to-charge ratios used to calculate the FY 2014 relative weights from 15 to 19.

CMS projects that in FY 2014, the Final Rule would increase overall hospital payments by $1.2 billion and long-term care hospitals (LTCHs) PPS payments by nearly $72 million or 1.3 percent.

Hospital Value-Based Purchasing (VBP) Program

The Final Rule updates value-based incentive payments available under the VBP Program and details the FY 2014 process required to fund this program including an increase in the applicable percent reduction to base operating Diagnosis Related Group (DRG) payment amounts by 1.25 percent.  CMS also finalizes the proposal to add new measures in FY 2016 including influenza immunization for hospital staff, catheter-associated urinary tract infection (CAUT), and surgical site infection (SSI).  The Final Rule also adopts performance standards, including achievement thresholds and benchmarks for the FY 2016 program including “floors” for all eight Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) dimensions.  The total estimated amount available for VBP incentive payments is $1.1 billion.

Hospital-Acquired Condition (HAC) Reduction Program

CMS sets forth the framework for the new HAC Reduction Program, starting in FY 2015.  Under section 3008 of the Affordable Care Act, as amended, CMS is required to create a program for IPPS hospitals to improve patient safety by implementing financial penalties on hospitals that perform poorly with respect to HACs.  HACs are conditions that patients develop during their hospital stays that they did not have prior to being admitted.  Pursuant to the HAC Reduction Program, hospitals that rank in the lowest-performing quartile of HACs will be reimbursed 99 percent of what they otherwise would have been paid under IPPS. 

The Final Rule identifies the quality measures and the scoring methodology to determine the lowest-performing quartile, in addition to the process hospitals will use to review and correct their data.  For the first year of the program in FY 2015, CMS will use measures that are part of the Inpatient Quality Reporting Program and is proposing to use a scoring methodology like the achievement scoring methodology currently used in the Hospital Value Based Purchasing Program scoring methodology.

Hospital Inpatient Quality Reporting (IQR) Program

Annual payment updates for hospitals that do not successfully participate in the Hospital IQR program are reduced by 2.0 percentage points, and starting with FY 2015, hospitals that do not participate in the Hospital IQR Program will lose one-quarter of the percentage increase in their payment updates.  The number of quality measures hospitals are required to report under the Reporting Hospital Quality Data for Annual Payment Update is reduced under the Final Rule from 59 to 57 measures for FY 2015 and FY 2016.

Measures reported under the Hospital IQR Progam are published on the Hospital Compare Website, and may later be adopted for use in the Hospital VBP Program.  For the FY 2016 payment determination and later years, the Final Rule eliminates seven hospital IQR measures and will suspend one measure.  The rule also implements changes to the Medicare Electronic Health Record (EHR) Incentive Program including an expansion of the submission period for reporting clinical quality measures electronically.  

Hospital Readmissions Reduction Program

For FY 2014, the maximum possible penalty under the Hospital Readmissions Reduction Program increases to 2 percent of a hospital’s base operating DRG payments.  In the Final Rule, CMS establishes additional exclusions for additional planned readmissions for each of the three existing readmissions measures—pneumonia; acute myocardial infarction; and heart failure.  CMS also adds two new readmissions measures for FY 2015—chronic obstructive pulmonary disease (NQF #1891); and total hip arthroplasty/total knee arthroplasty (NQF # 1551). 

Readmission ratios for FY 2014 are based on MedPAR claims with discharge dates during the July 1, 2009 to June 30, 2012 period.  Of the 3,359 hospitals subject to the readmissions reduction program for FY 2014, 2,225 hospitals will receive some readmissions penalty.  171 of these hospitals will receive a readmissions penalty greater than 1 percent, and 18 will receive the maximum penalty of 2 percent.  The final readmissions adjustment factors for FY 2014 are available from the CMS website by clicking here.

Outlier Threshold

Under the Final Rule, the outlier threshold for FY 2014 will increase to $21,748 (reduced from $24,140 in the Proposed Rule).  The final outlier threshold for FY 2014 is slightly lower than the FY 2013 threshold of $21,821.  CMS estimates that outlier payments in FY 2014 will equal 5.1% of total Medicare DRG payments.

Changes to Disproportionate Share Hospital (DSH) Payments and Provision of Additional Payments for Uncompensated Care

Under section 3133 of the Affordable Care Act, as amended, Medicare DSH payments to qualifying hospitals for discharges in FY 2014 will be reduced to 25 percent (the “empirically justified” portion) of the amount that the hospitals otherwise would have received under the current statutory formula.  The remaining 75 percent of what otherwise would have been paid as Medicare DSH payments will be reduced to reflect the decline in the under-65 uninsured population since 2013, and the remainder will form a “pool” from which additional uncompensated care payments are made to eligible hospitals. 

CMS has finalized its proposal that only those hospitals that receive “empirically justified” DSH payments are eligible to receive an additional payment for uncompensated care.  Uncompensated care payments will be paid on a periodic basis rather than on a per-discharge basis.  CMS will determine eligibility for interim uncompensated care payments on the basis of each hospital’s estimated DSH status for the relevant fiscal year (using the most recently available SSI ratios and Medicaid fractions prior to the beginning of the payment year), and interim payments will be subject to cost report settlement.  The payment methodology for the empirically justified DSH payments will remain unchanged from the existing DSH payment process, with the 75 percent reduction applied on a per-claim basis.

Additional payments for uncompensated care are the product of three factors:

  1. The “Pool”—i.e., the leftover 75 percent of total DSH payments that otherwise would have been paid out under the current statutory formula;

  2. Adjustment factor reflecting the decline in the under-65 uninsured population since 2013; and

  3. Each DSH-eligible hospital’s share of total uncompensated care furnished by all DSH-eligible hospitals.

CMS has finalized its proposal to estimate the 75 percent of DSH payments that otherwise would have been paid under the current DSH formula (Factor 1) using the projections of total Medicare DSH payments prepared in July of each year by the Office of the Actuary.  CMS estimates this amount to be approximately $9.579 billion for FY 2014 (up from $9.2535 billion in the proposed rule).

CMS has also finalized its proposal to use the most recent CBO estimates available and to include unauthorized immigrants in its estimate of the uninsured under-65 population for purposes of determining the adjustment factor to account for the decline in the uninsured population under the Affordable Care Act (Factor 2).  In the Proposed Rule, CMS had proposed to calculate Factor 2 by comparing CBO’s March 20, 2010 estimate of the “Insured Share of the Nonelderly Population Including All Residents” for 2013 (18 percent uninsured) with its February 5, 2013 estimate for 2014 (16 percent uninsured).  This would have resulted in Factor 2 equaling 0.888 (88.8 percent) for FY 2014.  In the Final Rule, however, CMS has employed CBO’s May 2013 and July 2013 revised estimates to calculate the estimated uninsured population for 2014.  Since the CBO estimates are calendar year estimates, CMS has weighted the CBO estimates for CY 2013 (as estimated in May 2013) and CY 2014 (as estimated in May 2013 and updated in July 2013) to determine the estimated uninsured population in fiscal year 2014.  According to the methodology adopted in the Final Rule, Factor 2 equals 0.943 (94.3 percent) for FY 2014, resulting in an increase in the available pool for uncompensated care payments of more than $815 million over the proposed rule estimate.

In order to determine each DSH-eligible hospital’s share of total uncompensated care (Factor 3), CMS has finalized its proposal to employ insured low-income days as a proxy for uncompensated care costs during an interim period while CMS reviews the instructions for Worksheet S-10 and considers what revisions and clarifications might be necessary.  CMS has reiterated its intent to propose that Worksheet S-10 be used to determine Factor 3 “within a reasonable amount of time.”  Factor 3 will be calculated on the basis of each eligible hospital’s proportion of low-income insured days (Medicaid and Medicare SSI patient days) relative to the low-income insured days for all hospitals projected to receive DSH payments.  CMS will calculate Factor 3 for all subsection (d) hospitals, including those that are projected to be ineligible to receive DSH payments, so that in the event that such hospitals are later determined eligible, they can receive uncompensated care payments at the time of cost-report settlement.  CMS projects that there will be 2,437 DSH-eligible hospitals in FY 2014.

A number of commenters expressed concern that not including the uncompensated care payments in the Medicare PRICER would result in MA Plans not paying those amounts even though they had contracted to pay Medicare rates.  CMS has agreed to state the DSH uncompensated care payments on a per-discharge basis which will make it much simpler for MA Plans to determine what amounts they should pay.

Finally, in reaction to ongoing litigation, CMS has finalized its proposal to “readopt” its policy of counting Medicare Advantage patient days as patients who are “entitled to benefits” under Part A in the Medicare fraction of the disproportionate patient percentage (DPP) calculation.

Changes Affecting Direct and Indirect Graduate Medical Education (GME) Payments

CMS has finalized its proposal to include labor and delivery days as inpatient days in the Medicare utilization calculation for purposes of direct GME payments, effective for cost reporting periods beginning on or after October 1, 2013.  This will have the effect of reducing direct GME payments by an estimated $19 million for FY 2014 (up from $15 million estimated in the proposed rule). 

CMS announces the closure of four teaching hospitals.  Applications for available resident slots are due August 29, 2013 (Round 5) and October 31, 2013 (Round 6). 

CMS has finalized its proposed policy that an IPPS teaching hospital may not count resident time spent training at a CAH and may not be reimbursed for such time, even if the teaching hospital incurs the training costs.  Effective October 1, 2013, a CAH does not qualify as a “nonprovider site” for purposes of direct GME or IME payment. 

Finally, the “freeze” that has been in effect for per-resident amounts (PRAs) that exceeded the ceiling expires beginning in FY 2014.  For cost reporting periods beginning on or after October 1, 2013, the full CPI-U update will apply to all PRAs for direct GME purposes.

Part B Inpatient Billing

CMS finalized its proposal that a hospital may be paid for Part B services furnished during an inpatient admission for which payment is denied by a Medicare review contractor that determined that the inpatient admission was not reasonable and necessary.  Under a new policy announced in Ruling 1455-R (March 13, 2013), if Part A payment is denied on medical necessity grounds (and the patient in question is enrolled in Medicare Part B), the hospital may bill Part B services that would have been reasonable and necessary if the beneficiary had been treated on an outpatient basis. 

The Ruling applied to Part A denials that occurred while the Ruling was in effect (i.e., after issuance of the Ruling and prior to the effective date of this Final Rule), or that occurred prior to the effective date of the Ruling and for which the period for appeal had not yet expired or for which there was an appeal pending.  Under the Ruling, associated claims for Part B services were not subject to the timely filing restrictions as long as the underlying Part A claims had been submitted timely.  Under the policy adopted in the Final Rule, however, the timely filing restrictions, which require all claims for Part B services to be filed within 1 year from the date of service, will apply going forward, unless (1) the Part A claim denial was one to which the Ruling originally applied; or (2) the inpatient admission date is before October 1, 2013 and the Part A claim is denied after September 30, 2013 on the grounds that although the care furnished was reasonable and necessary, the inpatient admission was not.  This is a liberalization of CMS’s proposed timing restrictions.

Observation services, outpatient diabetes self-management training services, and hospital outpatient visits are excluded from Part B inpatient payment.  Part B inpatient services will be paid under the OPPS or the respective Part B fee schedules for OPPS-excluded services.  The hospital is also permitted to bill any Part B outpatient services furnished during the 3-day payment window preceding the denied inpatient admission.

Admission and Medical Review Criteria for Inpatient Hospital Services

CMS has finalized its proposal to require a physician order for hospital inpatient admission as a condition of payment for inpatient services under Medicare Part A.  The formal admission order must be documented in the patient’s medical record (at or before the time of inpatient admission) and must be supported by the physician admission and progress notes.  The order must be signed by a qualified, licensed practitioner with admitting privileges who is responsible for the patient’s care.  CMS states that a verbal admission order is not a substitute for a properly documented and authenticated order for inpatient admission.  A verbal order must be properly countersigned by the practitioner who gave the order.  CMS has stated that it will further develop its requirements regarding verbal orders for inpatient admission in subregulatory guidance. 

CMS has also clarified that the statutory certification requirement, which requires a physician to certify that services must be furnished on an inpatient basis, applies to all inpatient admissions (not just extended stays).  In addition to the inpatient admission order, the reason(s) for continued hospitalization must be documented in the medical record in order for inpatient services to be paid under Medicare Part A.  Certification statements must be signed and documented in the medical record prior to discharge (except for recertifications of extended stays, which are required earlier).

CMS has finalized its proposed “2-midnight” benchmark for the medical necessity of an inpatient stay.  Under the modified inpatient admission guidelines adopted in the Final Rule, Part A payment is “generally inappropriate” unless the patient is admitted based on the physician’s expectation that the patient will require a hospital stay that crosses at least 2 midnights (or the planned procedure is on the inpatient-only list).  The physician’s expectation of time and determination of need for inpatient care must be supported by “complex medical factors such as history and comorbidities, the severity of signs and symptoms, current medical needs, and the risk of an adverse event.”  If the physician cannot reliably predict that the beneficiary will require a stay that transcends 2 midnights, CMS states that the physician should continue to treat the beneficiary as an outpatient until such time as a 2-midnight stay is anticipated.  Under the Final Rule, the starting point for the 2-midnight estimate begins with the patient’s initial outpatient service.  If the patient has already passed 1 midnight as an outpatient, admission would be considered appropriate if the physician expects the patient to require at least 1 additional midnight in the hospital.  (This is a change from the Proposed Rule, which would have started the “2-midnight” clock beginning with the time the beneficiary is moved from an outpatient area to an inpatient bed.)

Situations in which the admitting physician properly includes prior outpatient time in the 2-midnight assessment may nevertheless be scrutinized by Medicare review contractors.  CMS has finalized a “2-midnight presumption” for purposes of medical review of inpatient admissions.  Inpatient hospital stays are presumed to be generally appropriate for Part A payment if they cross 2 midnights after the formal admission order.  Review efforts by Medicare review contractors will focus on inpatient stays that cross only 1 midnight or less after the formal admission order is written.  In these situations, review contractors will evaluate (a) the physician admission order and physician certification; (b) documentation supporting the physician’s expectation that care would span at least 2 midnights; and (c) documentation supporting the decision that it was reasonable and necessary to keep the patient at the hospital to receive such care.  In evaluating claims, Medicare review contractors will “apply the 2-midnight benchmark to all time spent within the hospital receiving medically necessary services.”

CMS estimated that 360,000 cases would move from inpatient to outpatient status as a result of the “two midnight” presumption, but that 400,000 cases would move from outpatient to inpatient status, with a net cost to the Medicare program.  This is why CMS reduced the IPPS update by 0.2 percent.  Commenters had pointed out that CMS’s estimate of cases moving from inpatient to outpatient status does not match the data it reported in the Proposed Rule regarding the number of one-day stays.  CMS continued, however, with its proposal to reduce the IPPS rate to reflect what it continued to claim would be a net cost to the Medicare program.

The Final Rule is available from the Office of the Federal Register website by clicking here.  The Final Rule is scheduled to be published in the August 19, 2013 Federal Register.

Reporters, Susan Banks, Washington, D.C., +1 202 626 2953,, and Juliet McBride, Houston, +1 713 276 7448,

ARB Issues Reconsideration Decision in OFCCP v. Florida Hospital of Orlando – On July 22, 2013, the Administrative Review Board (ARB) of the Department of Labor (DOL) held that a network participation agreement entered into by Florida Hospital with Humana Military Health Services (HMHS) for the provision of health care services to TRICARE beneficiaries constitutes a federal subcontract and, therefore, the DOL’s Office of Federal Contract Compliance Programs (OFCCP) has jurisdiction over Florida Hospital to assess the hospital’s compliance with the affirmative action and equal employment opportunity requirements of the Federal Acquisition Regulations (FAR).  The issue of jurisdiction, however, is not yet settled.  To the extent that TRICARE payments constitute federal financial assistance, OFCCP’s jurisdiction would be barred.  The ARB concluded that the record was insufficient to render a decision on this issue and, therefore, remanded the case back to an Administrative Law Judge for further factual and legal findings.

The decision arises from a request for reconsideration by the OFCCP of the ARB’s October 19, 2012 decision in which it held that the Florida Hospital / HMHS agreement was not a federal subcontract.  Under applicable regulations, a “subcontract” includes any agreement or arrangement between a contractor and any person (in which the parties do not stand in the relationship between employer and an employee):

Prong One: for the purchase, sale or use of personal property or nonpersonal services which, in whole or in part, is necessary to the performance of any one or more contracts;

Prong Two: under which any portion of the contractor’s obligation under any one or more contracts is performed, undertaken or assumed.

In its prior decision, the ARB found that the Florida Hospital / HMHS agreement did not constitute a federal subcontract under prong two and could not independently qualify under prong one. 

At issue on reconsideration was whether the two prongs of the regulatory definition of the term “subcontract” are necessarily tied, or whether each prong may stand alone as a basis for concluding that an agreement or arrangement constitutes a federal subcontract for purposes of determining OFCCP jurisdiction.  During the course of the proceedings, the OFCCP conceded that it did not have jurisdiction under prong two; however, it argued that prong one provides an independent basis for asserting that the agreement constitutes a federal subcontract.  The ARB, on reconsideration, agreed and proceeded to analyze the Florida Hospital / HMHS agreement under prong one alone. 

The ARB’s analysis under prong one focused first on whether the health care services furnished by Florida Hospital constituted “nonpersonal services” purchased by HMHS.   The ARB determined that nonpersonal services are the type of services that are not subject to kind of supervision and control that usually exists between an employer and employee.  The key, therefore, to determining whether the Florida Hospital services were “nonpersonal” would depend on the “degree of control resulting from the terms of a service contract or the manner in which the contract is administered.”  Finding that neither HMHS nor TRICARE had any involvement, direction or control over the provision of health care services by Florida Hospital, the ARB concluded that such services were “nonpersonal services.” 

The ARB then proceeded to conclude that Florida Hospital performed medical services that were essential to (i.e., necessary to the performance of) the prime HMHS / TRICARE contract because the provision of such services was clearly TRICARE’s goal in creating (through its contract with HMHS) an integrated health care delivery system. 

Left unresolved for now is the issue of whether OFCCP jurisdiction is barred because the TRICARE payments received by Florida Hospital constitute federal financial assistance.  Important to the analysis, which will need to be developed on remand, are whether or not (1) the TRICARE programs, medical services, beneficiaries and corresponding federal funding source(s) relate to the medical services furnished by Florida Hospital; and (2) Congress intended TRICARE payments to be federal financial assistance.

A copy of the reconsideration decision is available here.

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

OIG Reports on Observation Stays and Short Inpatient Stays for Medicare Beneficiaries – The Office of Inspector General (OIG) recently published the results of a study regarding hospitals’ use of observation stays and short inpatient stays for Medicare beneficiaries, citing CMS concerns as one of the reasons for the study.  CMS’s concerns, as noted by the OIG, included beneficiaries spending long periods of time in observation stays without inpatient admission; beneficiaries potentially paying more as outpatients than if admitted as inpatients; beneficiaries who are not admitted as inpatients not qualifying under Medicare for skilled nursing facility (SNF) services following discharge from the hospital; and short inpatient stays (i.e., stays lasting fewer than two nights). 

The OIG’s study reviewed (1) paid Medicare Part A and Part B hospital claims from the National Claims History file with dates of service in 2012; and (2) SNF Part A claims for beneficiaries who received hospital services in 2012.  Hospitals not paid under both the OPPS and the IPPS, such as long-term care hospitals, critical access hospitals, and hospitals in Maryland that are paid under different systems, were excluded from the study.  The OIG found that:

  • Hospitals provided observation services to Medicare beneficiaries in approximately 1.5 million stays, during which hospitals determined after short term treatment and assessment that the individuals did not need to be admitted as inpatients.  For another approximately 600,000 stays, observation services led to inpatient admissions.

  • Beneficiaries in observation stays were most often treated for chest pain, with the second most common reason for treatment being digestive disorders.

  • In 55 percent of observation stays, beneficiaries spent one night in the hospital; in 26 percent of stays, beneficiaries spent two nights; and in 11 percent of stays, beneficiaries spent at least three nights.

  • Medicare beneficiaries had almost 1.4 million outpatient stays that lasted at least one night, but were not coded as observation stays, with most of the stays resulting in one night in the hospital.

  • In 2012, Medicare beneficiaries had more than 1.1 million short inpatient stays, which are stays lasting fewer than two nights.  For 90 percent of these stays, beneficiaries spent one night in the hospital, while beneficiaries spent less than one night in the hospital for the remaining 10 percent of stays.  Like beneficiaries in observation stays, those in most short inpatient stays were first treated in the emergency department and often had the same reasons for admission as those in observation status, such as chest pain.

  • Medicare paid $5.9 billion for short inpatient stays, an average of $5,142 per stay, but paid $2.6 billion for observation stays, an average of $1,741 per stay.  Beneficiaries also paid more for short inpatient stays than for observation stays.

  • Beneficiaries had 617,702 hospital stays that lasted at least three nights, but did not include three inpatient nights; these beneficiaries did not qualify for SNF services under Medicare.

As noted in the OIG study, CMS had earlier proposed policy changes via a Notice of Proposed Rulemaking (NPRM) that would substantially affect how hospitals bill for these stays.  78 Fed. Reg. 27485, 27644-50 (May 10, 2013).  In the NPRM, CMS proposed that contractors would presume hospital stays lasting two nights  (i.e., encounters crossing two midnights) or more were reasonable and necessary and therefore qualified for payment as inpatient admissions.  For stays shorter than two nights, contractors would presume the stay should be paid as an outpatient stay, rather than as an inpatient admission, unless there was clear physician documentation in the medical record supporting the physician’s order and expectation that the beneficiary required care spanning at least two midnights even though that did not ultimately occur.

In general, CMS adopted the above proposals as final in the FY 2014 Hospital IPPS Final Rule.  CMS clarified that the time the beneficiary spent as an outpatient before the inpatient admission order is written will not be considered inpatient time, but may be considered during the medical review process for the limited purpose of determining whether the two-midnight benchmark was met.  However, CMS noted that such time may not be retroactively included as inpatient care for skilled nursing care eligibility or other benefit purposes.  CMS also stated that its actuaries continue to estimate that there will be approximately $220 million in additional expenditures resulting from the “two midnights” policy due to some patient encounters spanning more than two midnights moving to the IPPS from the OPPS and some encounters spanning fewer than two midnights moving from the IPPS to the OPPS.

The OIG report may be read here.  A more detailed discussion on the two midnights policy may be read in the summary of the FY 2014 Hospital IPPS Final Rule in this edition of Health Headlines.

Reporter, Christina A. Gonzalez, Houston, +1 713 276 7340,

CMS Releases FY 2014 Medicare Payment Regulations for Inpatient Psychiatric Facilities – On July 29, CMS released a notice updating the prospective payment rates for Medicare inpatient services provided by inpatient psychiatric facilities (IPFs) effective October 1, 2013, for the 2014 fiscal year.  CMS estimates that Medicare payment rates for 1,624 IPF facilities will rise approximately 2.3 percent in the 2014 fiscal year.

CMS’s Rehabilitation, Psychiatric, and Long Term Care market basket index, which reflects changes in the prices of goods and services in IPFs, inpatient rehabilitation facilities and long term care hospitals, projected a 2.6 percent price increase.  However, the market basket increase was reduced by a 0.5 percent multifactor productivity adjustment and an additional 0.1 percent adjustment, both required by the Affordable Care Act.  In addition, the high cost outlier threshold for Fiscal Year 2014 resulted in a 0.03 percent increase.  Accordingly, the actual payment increase will be approximately 2.3 percent.  CMS estimates that it will spend an additional $115 million for inpatient psychiatric care because of the payment rate increase.

CMS noted that it waived the notice and comment rulemaking process because this notice does not reflect any substantive changes in policy, only the application of previously established methodologies.  CMS expects to recalculate the IPF Federal per diem base rate and the patient-and facility-level adjustments in the Fiscal Year 2015 rulemaking process.

To view the payment update notice, click here.

Reporter, Lauren Slive, Atlanta, +1 404 572 3592,

CMS Releases FY 2014 Medicare Final Inpatient Rehabilitation Facility Payment Regulations and Rates – On July 31, CMS released a final rule that will increase Medicare  payments to Inpatient Rehabilitation Facilities (IRFs) by an estimated 2.3 percent, or $170 million, in Fiscal Year 2014.  The final rule also clarifies coverage requirements for inpatient rehabilitation services and revises the list of diagnosis codes that are used to determine presumptive compliance under the “60 percent rule.”

To read the final rule, click here.

Reporter, Lauren Slive, Atlanta, +1 404 572 3592,

CMS Releases FY 2014 Medicare Final Skilled Nursing Facility Payment Regulations and Rates – On July 31, CMS released a final rule that will increase payments to skilled nursing facilities (SNFs) by 1.3 percent, or $470 million, in Fiscal Year 2014.  The increase is due to a 2.3 percent SNF market basket increase, reduced by a 0.5 percent forecast error correction and reduced by a 0.5 percent productivity adjustment.  CMS will also revise and rebase the SNF market basket index base year to reflect more recent data.

To read the final rule, click here.

Reporter, Lauren Slive, Atlanta, +1 404 572 3592,   

CMS Imposes Six-Month Moratoria on New Enrollments of Home Health Agencies and Ambulance Suppliers in Three Fraud “Hot Spots” – Last week, CMS announced temporary moratoria on the enrollment of new home health providers and ambulance suppliers in Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP) in three fraud “hot spots.”  The Affordable Care Act granted the Secretary of CMS the authority to impose a temporary moratorium on the enrollment of new fee-for-service Medicare, Medicaid, or CHIP providers and suppliers if the Secretary determines that a moratorium is necessary to prevent or combat fraud, waste, or abuse under these programs, but this is the first time that CMS has exercised this authority.

The temporary enrollment moratoria apply to newly-enrolling home health agencies in the Miami and Chicago metropolitan areas and newly-enrolling ground ambulance suppliers in the Houston metropolitan area.  According to CMS, existing providers and suppliers in these areas can continue to deliver and bill for services under the moratoria, but new provider and supplier applications will not be approved in these areas. 

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

Reporter, Ramsey Prather, Atlanta, + 1 404 572 4624,

CMS Announces New Unified Program Integrity Contractors – CMS recently announced plans to implement a new Medicare and Medicaid program integrity contractor, Unified Program Integrity Contractors (UPICs).  According to a request for information (RFI) released by CMS, the implementation of the UPICs is designed to “integrate the program integrity functions for audits and investigations across Medicare and Medicaid, and to ensure that [the Center for Program Integrity’s] national priorities for both Medicare and Medicaid are executed and supported locally.”  

CMS further explained that “the scope of the UPICs will encompass functions that are currently performed by several contractors,” including: Zone Program Integrity Contractors (ZPICs), including their Medicare-Medicaid Data Match (Medi-Medi) responsibilities; Program Safeguard Contractors (PSCs);, and the Medicaid Integrity Contractors (MICs).   UPICs will operate based on regional jurisdictions, with a single contractor conducting Medicare and Medicaid program integrity audits and investigations.

To view the RFI click here.

Reporter, Stephanie F. Johnson, Atlanta, +1 404 572 4629,  

Northwestern University Settles Cancer Research False Claims Act Lawsuit – On July 30, 2013, the United States Attorney’s Office for the Northern District of Illinois announced that Northwestern University entered a settlement agreement to pay the United States $2.9 million to settle False Claims Act claims related to the alleged misuse of cancer research grant funds by a former researcher and physician at the university’s cancer center.  The allegations were made in a civil suit filed under seal by a former employee and whistleblower, Melissa Theis, who worked as a purchasing coordinator in hematology and oncology at Northwestern’s Feinberg School of Medicine. 

Theis alleged that Northwestern and certain of its researchers submitted false claims related to National Institutes of Health (NIH) and other federal grant funds for goods and services that did not meet applicable NIH and government grants guidelines.  The settlement covers claims that one of the Northwestern principal investigators (Dr. Bennett) submitted improper claims for reimbursement from the federal grants for professional and consulting services, subcontracts, food, hotels, travel, and other expenses that benefited the investigator, his friends, and family from January 1, 2003, through August 31, 2010.  The U.S. Attorney’s office reports in its July 30, 2013 news release that Northwestern fully cooperated during the investigation and did not admit liability as part of the settlement.  Under the settlement agreement, Northwestern is released from the claims made in the whistleblower lawsuit.  The case remains pending against Dr. Bennett individually.

The complaint was unsealed on July 30, 2013 and is available here, and the settlement agreement is available here.

Reporter, Juliet M. McBride, Houston, +1 713 276 7448,

HRSA Issues Final 340B Orphan Drug Exclusion Rule – On July 23, 2013, the Health Resources and Services Administration (HRSA) issued a final rule clarifying the orphan drug exclusion for certain covered entities created by the Affordable Care Act, which will become effective on October 1, 2013.  The King & Spalding Client Alert on the new rule is available by clicking here.

A Conversation With A Healthcare Fraud Defense Team:  Current Issues Facing Healthcare Providers – On Friday, August 23, 2013, at 1:00-2:30 p.m. Eastern Time, King & Spalding will host an Atlanta-based Roundtable focused on healthcare fraud and abuse enforcement issues that have arisen in the past year.  The Roundtable is prompted by the increased pace and complexity of government investigations and qui tam suits and evolving areas of interest by regulators. This environment requires careful thought about areas of exposure and opportunities to mitigate risk. Thoughtful and effectively designed compliance initiatives can go a long way in reducing risk, and the panel will discuss lessons learned from recent developments and practical ways to apply this knowledge.

The Roundtable will include the following topics:

  • Trends in Stark enforcement emerging from Tuomey and Halifax.

  • Overview of significant enforcement trends identified from OIG guidance, recent settlements, and CIAs.

  • Discussion of the recent evolution of litigation of False Claims Act cases, including increased assertiveness by relator's counsel, complicated issues arising from privilege waiver and disclosures during responses to government subpoenas, and the rise of corporate whistleblowers.

  • Outline of the changing nature of quality of care False Claims Act theories, viewed in context of various federal initiatives linking payment to quality.

  • In-person attendance is limited, so please register soon to reserve seats for your organization. You do not have to be a client to attend, and there is no charge.  We are also offering a Webinar option.

You can register to attend in person or by Webinar by visiting  If you are attending in person, lunch will be provided between 12:00 p.m. and 1:00 p.m. if you would like to arrive early for that.  We hope you will be able to join us.

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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