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Health Headlines – November 18, 2013

18 Nov 2013

CMS Letter to State Insurance Commissioners Offers Transitional Policy to Prevent Health Insurance Issuers from Cancelling Plans for 2014 – On November 14, 2013, the CMS Center for Consumer Information and Insurance Oversight issued a letter to State Insurance Commissioners  announcing a “transitional policy” to permit health insurance issuers to continue plan coverage for individuals and small businesses that was in effect on October 1, 2013, that otherwise would have been terminated or cancelled in 2014 for failure to comply with “specified market reforms” adopted under the Affordable Care Act.  These policies that are renewed starting between January 1, 2014 and October 1, 2014, will not be deemed by the agency to be out of compliance with such “specified market reforms,” which include, among other sections of the Public Health Service Act, the requirements relating to fair health insurance coverage, guaranteed availability of coverage, and the prohibition of pre-existing condition exclusions or other discrimination based on health status with respect to adults (except with respect to group coverage). 

CMS states that its policy not to enforce certain provisions in the Affordable Care Act for a transitional period is in response to the situation in which many individuals and small businesses are “dissuaded from immediately transitioning” to coverage under the health insurance exchange because they are finding that such coverage is more expensive than their current coverage.

Many health plan issuers had already planned to terminate or cancel plans starting in 2014 that would have been out of compliance with the Affordable Care Act and in many cases had already informed enrollees of such.  If issuers wanted to continue offering current plans, it is thus unclear whether they will have enough time to go through the necessary steps to continue to offer such coverage (such as negotiating 2014 rates with providers) that would begin in less than two months.  Moreover, as a condition for continuing coverage under an existing plan, issuers are required to send a notice to all small businesses and individuals who either already received a termination or cancellation notice or would otherwise would have received such a notice informing them: (i) of any changes in the options available to them; (ii) which of the market reforms would not be reflected in the existing plan that would continue; (iii) their potential right to enroll in a qualified health plan offered through the exchange and notice of potential financial assistance; (iv) how to access such coverage through the exchange; and (v) their right to enroll in coverage outside of the exchange that complies with the “specified market reforms.” 

There is also concern in the industry that this transitional policy will drive sicker individuals to plans in the exchange while healthier individuals will remain in their existing plans for 2014.  CMS seems to address this concern by reminding issuers that “the risk corridor program should help ameliorate unanticipated changes in premium revenue.  We intend to explore ways to modify the risk corridor program final rules to provide additional assistance.” 

Finally, in acknowledgement of the role of state insurance regulators with respect to action by insurers under the transitional policy, the CMS letter notes that state agencies responsible for enforcing these market reforms are "encouraged" to adopt the same transitional policy.

A copy of CMS’s letter to the State Insurance Commissioners is available here.

Reporter, Kate Stern, Atlanta, +1 404 572 4661,

U.S. District Court Finds Halifax Hospital Violated the Stark Law in Summary Judgment − A United States District Court in the Middle District of Florida recently granted partial summary judgment in favor of the United States in connection with its motion against Halifax Hospital Medical Center (Halifax Hospital), finding that Halifax Hospital’s submission of claims for designated health services (DHS) referred by certain medical oncologists violated the Stark Law.  The court, however, held that there was insufficient summary judgment evidence to establish the amount of the Stark Law damages and that a genuine issue of material fact remains as to whether Halifax Hospital’s conduct also violated the False Claims Act.

Halifax Hospital had an undisputed financial relationship with six medical oncologists who had employment agreements with Halifax Staffing, Inc. (Halifax Staffing), an instrumentality of Halifax Hospital that employs individuals who work in the hospital.  Halifax Hospital pays the expenses and obligations of Halifax Staffing, including payroll.  In 2005, the medical oncologists became eligible to receive a bonus pursuant to their employment agreements with Halifax Staffing, which established a bonus pool equal to 15% of Halifax Hospital’s operating margin for its outpatient oncology program.  The operating margin included fees for DHS that were not personally performed by the oncologists, such as fees for outpatient prescription drugs and other outpatient services.  The pool was to be divided between the six oncologists based on each individual oncologist’s personally performed services.  The oncologists received a  bonus in fiscal years 2005 – 2008. 

Because of the established financial relationship, Halifax Hospital had the burden of showing that the compensation arrangement with the medical oncologists fit within one of the Stark Law’s exceptions.  Halifax Hospital argued that the compensation arrangement fit within the employment exception.  However, the government argued, and the court agreed, it did not, noting that the pool from which each bonus was drawn took into account the volume or value of DHS referrals by the medical oncologist.  The court found that the bonus did not qualify for the exception for productivity bonuses based on personally performed services because, although the bonus pool was “divided up” based on services personally performed by the medical oncologists, it was “based on factors in addition to personally performed services – including revenue from referrals made by the [m]edical [o]ncologists for DHS.”  Thus, not meeting a Stark exception, the medical oncologists were prohibited from making referrals to Halifax Hospital for DHS, and Halifax Hospital was prohibited from submitting Medicare claims for services furnished pursuant to such referrals.

To prove that the oncologists made such referrals and that Halifax Hospital made claims for services furnished pursuant to such referrals, the government relied on claims forms submitted by Halifax Hospital, contending that the claims on which the medical oncologists appeared as attending, operating, or other physician identified the medical oncologists as the referring physician.  Halifax Hospital argued that the fact that one of the medical oncologist is identified as the attending or “other” physician on a Form UB-92 or as attending or operating provider on a Form UB-04 was not evidence that that physician made the referral for which the claim was submitted, the prerequisite for a violation of the Stark Law.  Although the court noted that Halifax Hospital did not have the burden of proof on the issue and was not required to produce evidence on the point, the court found it relevant that Halifax Hospital did not present rebuttal evidence, such as medical records, showing that the medical oncologists were not the referring physicians for the claims.  The court concluded that the claims forms relied on by the government were undisputed evidence of referrals for DHS made by the oncologists during the time period the bonus was in effect and evidence that Halifax Hospital submitted claims to Medicare for DHS furnished pursuant to such referrals, all in violation of the Stark Law.

However, for various reasons, the court found that the United States had failed to produce sufficient evidence to establish the number or value of the claims submitted by Halifax Hospital in violation of the Stark Law.  Accordingly, the court denied summary judgment as to the extent of the Stark Law violations involving the medical oncologists.  The court also denied partial summary judgment on the United States’ False Claims Act claim because there was insufficient evidence to establish that the hospital acted “knowingly.”  

The court’s order may be read here

Reporters, Adam Robison, Houston, +1 713 276 7306, and Christina A. Gonzalez, Houston, +1 713 276 7340,

OIG Report Calls for Increased Scrutiny Over Medicare Hospital Outlier Payments – The OIG recently issued a report concluding that Medicare hospital outlier payments warrant increased scrutiny by CMS.  Outlier payments are supplemental payments to hospitals that are designed to protect hospitals from significant financial losses resulting from cases that involve extraordinarily high costs.  The OIG report examined all hospital claims processed through Medicare’s Inpatient Prospective Payment System (IPPS) during 2008-2011 and analyzed, among other things, the amount and volume of outlier payments and each hospital’s outlier payments as a percentage of its total IPPS payments. 

The OIG report found that during the four year period, nearly all hospitals reviewed received at least one outlier payment, and Medicare paid approximately $15.8 billion in outlier payments.  The report also found that 158 hospitals out of 3,028 hospitals received a much higher proportion of reimbursement from outlier payments.  For example, these high-outlier hospitals received an average of $25.9 million in outlier payments during the four years studied, compared to $3.9 million on average for the other hospitals.  These high-outlier hospitals tended to be larger and located in urban areas, and were more likely to be teaching hospitals.

In addition, the OIG report concluded that certain Medicare Severity Diagnosis Related Groups (MS-DRGs) triggered outlier payments more frequently than all other MS-DRGs.  Sixteen MS-DRGs accounted for more than 41 percent of outlier payments, with MS-DRG 003 (tracheostomy with required ventilation) being the MS-DRG associated with the most outlier payments ($1.3 billion, or 8.3 percent).  The report noted that high-outlier hospitals charged Medicare substantially more for the same MS-DRGs, compared to all other hospitals, yet had similar lengths of stay.  According to OIG, this suggests that high charges are not necessarily associated with more patient care.

As a result of its findings, OIG recommends that CMS:

  • Instruct Medicare contractors to increase monitoring of outlier payments.  OIG suggests CMS develop certain thresholds—for example, for charges, estimated costs, percentage of MS-DRGs that result in outlier payments, and the ratio of outlier payments to all IPPS payments—that, if exceeded, would prompt further review by contractors.

  • Publicly report information about hospital outlier payments to promote greater transparency with respect to Medicare payments to hospitals.  OIG also suggests CMS include information about outlier payments in PEPPER reports issued to individual hospitals.

  • Examine whether coding changes may be warranted for the MS-DRGs associated with high rates of outlier payments.

The OIG report, “Medicare Hospital Outlier Payments Warrant Increased Scrutiny,” is available here.

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

CMS Announces Bonuses and Penalties for 2014 VBP Program Ranging from +0.88% to -1.14% – CMS posted a list on its website of the 2014 bonuses and penalties applicable to each subsection (d) hospital participating in the value-based purchasing (VBP) program.  The posted rate increases or reductions are effective for discharges beginning on or after October 1, 2013.  The highest bonus awarded to a hospital is 0.88% (Arkansas Heart Hospital) and the largest penalty assessed is 1.14% (Indian Medical Center).  The average penalty for hospitals nationwide is 0.26%, which is an increase from the prior year’s 0.21% average penalty. 

There was significant state variations in performance, however, with at least 60% of hospitals in Maine, Massachusetts, Nebraska, New Hampshire, North Carolina, Utah and Wisconsin receiving higher Medicare payment while at least two thirds of hospitals in California, Connecticut, Nevada, New Mexico, New York, North Dakota, Washington and Wyoming will experience decreases in Medicare reimbursement.

The VBP program is a budget-neutral pay-for-performance program in which virtually all subsection (d) hospitals start with a 1.25% reduction in payments for 2014 but those withholdings are then redistributed, in a budget-neutral manner, to hospitals that perform well on various quality measures.  The total amount of money being redistributed in 2014 is about $1.1 billion.  The up-front reduction, currently at 1.25%, will increase by 0.25% each year until 2017, at which point it will top out at a redistribution of 2% of total Medicare reimbursement.

CMS’s chart displaying each provider’s 2014 VBP rate is available here. Kaiser Health News has an interactive chart showing how individual hospitals fared under both the VBP program and the readmission reduction program available here.

Reporter, Daniel J. Hettich, Washington D.C., +1 202 626 9128,

Federal District Court Rules that Provider Can Challenge Recoupment Activity Under ERISA − The United States District Court for the Northern District of Illinois recently granted summary judgment in favor of a chiropractor who alleged that Anthem VA, a Virginia-based subsidiary of WellPoint, Inc., violated the Employee Retirement Income Security Act (ERISA) when it attempted to recoup more than $100,000 it had paid to the chiropractor for spinal decompression and other services rendered to beneficiaries.  In Pennsylvania Chiropractic Association v. Blue Cross Blue Shield Association, No. 09-5619 (N.D. Ill. Nov. 7, 2013) (order granting partial summary judgment), the district court reasoned that the chiropractor had standing to challenge the recoupment under ERISA as a beneficiary of a benefits plan because the chiropractor had obtained assignments from his patients.  The court then ruled that, because the chiropractor could potentially seek repayment from his patients for the recouped amounts, the patients—and therefore the chiropractor—had suffered adverse benefit determinations under ERISA, which triggered the statute’s notice and appeal requirements.  Because  it was undisputed that the health plan had failed to provide the chiropractor with these procedural protections, the district court granted summary judgment against Anthem VA regarding liability under ERISA. 

Although the ruling turned on the particular facts at issue before the district court, the decision has potential significance in light of recent reports that insurers are stepping up recoupment activity against providers.  To the extent that providers are found to have standing based on patient assignments, they may be able to invoke the procedural safeguards of ERISA when challenging the recoupment efforts.

Review the court’s order by clicking here

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

CMS Instructs Contractors Not to Conduct Patient Status Reviews for Claims with Dates of Admission Through December 31, 2013 – On November 15, 2013, CMS issued Transmittal 1315, a One-Time Notification (CMS Transmittal), instructing Medicare Administrative Contractors (MACs), Recovery Auditors and the Supplemental Medical Review Contractor not to conduct post-payment “patient status reviews” for inpatient claims with dates of admission between October 1, 2013, and December 31, 2013.  It defines “patient status reviews” as those reviews analyzing compliance with CMS’s final rule published on August 19, 2013, that is commonly known as the “two-midnight rule.”  CMS instructs the contractors that they may continue other types of inpatient hospital reviews during this time and claims with evidence of systematic gaming, abuse or delays in the provision of care in an attempt to surpass the 2 midnight presumption. 

CMS has issued Transmittal 1315 as part of the “Probe and Educate” reviews announced by CMS on September 26, 2013, and explained in additional guidance published in early November 2013.  Under the Probe and Educate program, MACs will conduct probe samples (of between 10 to 25 claims) of hospital inpatient stays to determine the extent to which hospitals are in compliance with the new inpatient order requirement, physician certification requirement and the two midnight admission standard.  MACs will educate providers on the result of these probe samples.  The initial set of probe samples will be drawn from inpatient claims with dates of admission between October 1, 2013, and December 31, 2013.  CMS confirmed during an Open Door Forum on November 12, 2013, that the cessation of patient status reviews for inpatient claims with dates of admission between October 1, 2013, and December 31, 2013, will be permanent; MACs and RACs will not be able to conduct patient status reviews of these claims after the Probe and Educate program is complete. 

The CMS Transmittal available here does not reflect CMS’s most recent guidance extending the “grace period” for patient status reviews for claims with dates of admission through March 31, 2014.  This guidance is available here.

Reporter, Kate Stern, Atlanta, +1 404 572 4661,

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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