Translate this page RSS Share this page Print this page


Health Headlines – January 13, 2014

13 Jan 2014

January 28th Appeal Deadline for Medicare 0.2 Rate Cut Approaching – We want to be sure that all of our Health Headlines subscribers are aware of the approaching January 28th deadline by which to file appeals challenging CMS’s 0.2 percent downward adjustment of the FY 2014 IPPS rates.  We have written about this Medicare reimbursement issue before and of the group appeal that King & Spalding has organized to address it.  We provide more information about the opportunity below and invite your participation.  We also repeat and give emphasis to our advice that hospitals should file such appeals no later than January 28th (180 days after CMS published the FY IPPS final rule on August 2, 2013) in order to preserve their appeal rights for reasons we explain below.  

As you are probably aware, when CMS adopted the FY 2014 IPPS final rule, it instituted a 0.2 percent rate cut. CMS justified this rate cut as necessary in order to ensure that the application of the new “two-midnight” rule did not lead to an aggregate increase in yearly IPPS payments for the Medicare program.  In fact, based on our analysis, there was no substantial evidence to support this conclusion, making the rule legally invalid.  King & Spalding has been engaged to assist several hospital systems in filing IPPS hospital group appeals to seek a reversal of the 0.2 percent rate cut and to seek an increase in IPPS rates.

Here’s the background.  During the notice and comment period for the FY 2014 IPPS rule, King & Spalding was the only party to identify the statistical errors underlying CMS’s calculations that supported the rate cut and submitted detailed comments opposing CMS’s proposal.  CMS justified the rate cut on the basis that the two-midnight rule (which presumes that hospital inpatient stays of two days are longer are medically necessary) would lead to a net increase of 40,000 inpatient cases per year.  We hired FTI, a well-respected healthcare consulting firm, to assist in conducting an analysis of CMS’s own data to determine if the data supported CMS’s conclusions.  They did not.  In fact, our analysis showed that the two-midnight rule would lead to a substantial decrease in inpatient stays and a large increase in outpatient encounters.  (Many hospital systems have analyzed the impact on their own reimbursement and have reached the same conclusion.)  In other words, the financial impact of the two midnight rule on providers should result in a payment increase.  Our group appeals will both challenge the rate cut in Federal court and seek a rate increase.

A summary of the fee structure for this work is as follows:

  • A $5,000 per organization upfront fee (plus $1,000 per IPPS hospital in the organization) to partially defray certain initial appeal costs (with discounts for larger hospital organizations);
  • No hourly billing for professional fees;
  • A 10 percent contingency on any amounts hospitals recover as a result of either the reversal of the 0.2 percent rate cut or a rate increase.

We have attached a memo that provides more detail on the basis for the group appeal and our fee structure.  If you wish to join the group appeal, we will need some basic information from you for your filing, and so some time should be allowed for that work.  If you are not employed by a hospital organization or do not have that direct responsibility, please feel free to pass along this group appeal opportunity to any party you believe may have an interest learning more and possibly joining.

Some hospitals have asked whether they could file an appeal at a later date by listing the rate challenge as a protested item on a future cost report.  While hospitals have been able to pursue rate challenges in this way in the past, there is no guarantee that the government will not take the position that hospitals only have one means of pursuing a rate-making challenge which is to file an appeal within 180 days of the notification of the IPPS rule itself.  Indeed, we are aware of at least one recent circumstance in which a fiscal intermediary has filed a jurisdictional challenge making this very argument in an appeal asserting that Medicare rates were flawed for the reasons identified in Cape Cod v. Sebelius (raising the rural floor/budget neutrality issue).  We have been seeing increasingly aggressive positions taken by CMS and the Department of Justice in healthcare industry litigation in recent years.  The only way to eliminate this possible line of argument is to file no later than January 28, 2014.

If you are in a hospital or hospital system that has not already joined this group appeal, your organization is invited to join this group appeal.  Please do not hesitate to contact Dennis Barry (at, +1 202 626 2959) or Mark Polston (at, +1 202 626 5540) if you would like to review the full engagement letter, or if you have any questions about this email or the group appeal opportunity.

Dennis Barry and Mark Polston

U.S. District Court Grants in Part, Denies in Part Halifax Hospital’s Summary Judgment for Relator’s Non-Intervened FCA Claims – On January 8th, a United States District Court in the Middle District of Florida granted in part, denied in part summary judgment in favor of Halifax Hospital Medical Center and certain other defendants (collectively, Halifax Hospital) in connection with the non-intervened claims brought by Relator Elin Baklid-Kunz (Relator) under the False Claims Act (FCA).  As reported in our November 18, 2013 Health Headlines Newsletter, the court previously ruled on certain of Relator’s claims in which the government has elected intervened.  At issue in this order was whether a triable issue of fact existed as to Relator’s non-intervened claims based on the allegations that Halifax Hospital: (i) violated the Anti-Kickback Statute (AKS) by paying neurosurgeons, oncologists, and psychiatrists for referrals, (ii) admitted certain patients whose inpatient admissions were not medically necessary, (iii) violated the Stark Law by submitting claims for designated health services (DHS) referred by two psychiatrists and a medical director with whom the hospital had financial relationships, and (iv) conspired with other defendants to violate the FCA. 

With respect to Relator’s AKS claim, the court held that Relator failed to raise a fact issue regarding the applicability of the AKS bona fide employment exception of the AKS to Halifax Hospital’s financial arrangements with the neurosurgeons, oncologists, and psychiatrists.  Relator contended that these physicians were independent contractors of Halifax Hospital, rather than employees.  However, applying the common law agency test for employment, the court concluded that “[n]one of the evidence on which the Relator attempts to rely suggests (a) that these physicians were actually controlled by Halifax Staffing rather than Halifax Hospital or (b) that they were otherwise independent contractors.”  The court also found that Relator’s failure to identify any referrals by the medical director with whom Halifax Hospital had an improper financial relationship in violation of the Stark Law was grounds for dismissal of that claim as well.  As a result, the court granted summary judgment in favor of Halifax Hospital on Relator’s AKS claims and Stark Law claim related to the medical director. 

The court, however, concluded that Relator’s remaining claims should survive Halifax Hospital’s motion for summary judgment.  First, as to Relator’s improper inpatient admissions claim, the court held that Relator’s expert’s report provided sufficient evidence to establish the existence of a genuine issue of material fact as to the medical necessity of at least some of the inpatient admissions at issue in the case. 

Second, the court held that Halifax Hospital’s employment arrangement with the two psychiatrists, from whom Halifax Hospital admitted that it had received DHS referrals, did not qualify for protection under the Stark Law’s bona fide employment exception.  Although the court found that the psychiatrists’ employment was for identifiable services and that the psychiatrists’ compensation was commercially reasonable and fair market value, the court, with little explanation, held that the psychiatrists’ incentive payments—equal to 100 percent of the hospital’s gross collections less the amount of their salary and Halifax Hospital’s cost for billing—took into account the volume or value of referrals.  The court reasoned that “[t]his arrangement would have allowed [the psychiatrists] to increase their incentive payments by making additional referrals for DHS to Halifax Hospital.  Because the remuneration would vary with the amount of referrals, the Bona Fide Employment Exception to the Stark Law would not apply to these compensation agreements.”  As a result, the court refused to dismiss Relator’s Stark Law claim related to the psychiatrists.

Lastly, the court found that Relator’s conspiracy claim should continue to trial because Relator’s underlying improper inpatient admissions and Stark Law claims as to the psychiatrists survived summary judgment.

The court’s order may be read here.

Reporter, Adam Robison, Houston, + 1 713 276 7306,

CMS Publishes Proposed Changes to Medicare Parts C and D – CMS recently published a proposed rule covering a number of policy changes to the Medicare Advantage (Part C or MA) and the Medicare Prescription Drug Benefit (Part D) Programs.  The proposed rule, which generally would affect plans beginning in 2015, is estimated to save $1.3 billion between 2015 and 2019, according to CMS. Comments on the proposed rule must be received no later than 5 p.m. on March 7, 2014. 

Among the major changes, CMS proposes to:

  • Establish U.S. citizenship and lawful presence as eligibility requirements for enrollment in MA and Part D plans;
  • Implement new criteria for covered drug categories or classes of clinical concern;
  • Implement the Affordable Care Act requirement that MA organizations and Part D sponsors report and return identified Medicare overpayments;
  • Restrict prescription drug plan sponsors to offering no more than two Part D plans in the same service area;
  • Require that physicians or non-physician practitioners who write prescriptions for covered Part D drugs be enrolled in Medicare for their prescriptions to be covered under Part D; and
  • Revise the definition of “negotiated prices” such that all price concessions from pharmacies are reported by Part D sponsors in a more uniform manner, which will benefit competition.

Currently, Part D sponsors are required to include on their formularies all or substantially all drugs in the following six classes or categories: antidepressants; antipsychotics; anticonvulsants; immunosuppressants for transplant rejection; antiretrovirals; and antineoplastics.  The Affordable Care Act required that those classes or categories remain in place until the Secretary established new criteria to identify drug categories or classes of clinical concern.  In the proposed rule, CMS noted concerns that this type of open coverage of certain drug categories and classes is (i) financially disadvantageous, limiting the ability of Part D sponsors to negotiate price concessions in exchange for formulary placement of drugs in these categories or classes and (ii) potentially facilitating of overutilization of drugs within the protected categories or classes, both of which can lead to increased Part D costs. 

CMS now proposes generally to limit protected classes or categories to “those for which access to all drugs in a category or class for a typical individual with a disease or condition treated by the drugs in such class is required within 7 days and more specific formulary requirements would not be sufficient to meet the host of specific applications of the drugs within the category or class.”  With guidance from a panel convened by CMS, CMS has proposed to (i) require formulary inclusion of all drugs within the antineoplastic, anticonvulsant, and antiretroviral drug classes (subject to proposed exceptions), (ii) no longer require all drugs from the antidepressant and immunosuppressant drug classes to be on all Part D formularies, and (iii) although they do not meet CMS’s criteria for clinical concern, retain antipsychotics in a protected class through 2015 while CMS continues its evaluation of these drugs to determine, among other things, whether additional transition is needed for individuals taking these medications.

Comments on the proposed rule must be received no later than 5 p.m. on March 7, 2014.  A CMS Fact Sheet on the proposed rule is available here, and a summary of CMS’s proposals in the rule to combat Part D fraud and abuse is available here

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

OIG Report Recommends CMS Implement Program Integrity Practices to Address Vulnerabilities Associated with the Use of EHRs – According to a recent report from the Department of Health and Human Services Office of Inspector General (OIG), CMS has done little to address potential vulnerabilities associated with the use of electronic health records (EHRs), though the use of EHR technology may enhance certain opportunities to perpetrate fraud through the use of copy-pasting functionality, or “cloning,” and overdocumentation, among other things.

Specifically, OIG found that CMS and its contractors generally had not adjusted techniques for identifying improper payments and investigating potential fraud, as few contractors were reviewing EHRs any differently than paper records.  OIG based its findings on the results of an online questionnaire it administered to CMS Medicare Administrative Contractors (MACs), Zone Program Integrity Contractors (ZPICs) and Recovery Audit Contractors (RACs) that queried the contractors’ policies, procedures, and experiences with EHR fraud and Medicare claims, as well as a review of guidance documents and policies from CMS and its contractors. 

Only two of the eight MACs and two of the six ZPICs surveyed reported that they took additional steps beyond those included in an ordinary paper review, such as confirming electronic signatures and requesting information about the providers’ EHR technology, and only three of the eighteen total contractors surveyed reported using audit log data.  The contractors reported varying ability to identify inappropriately copied language and overdocumentation, with more contractors reporting the ability to identify overdocumentation than inappropriate copy-pasting due to the nature of the records review (i.e., copy-pasting may not be evident within a single claim, and may require the same reviewer to examine multiple records).  With respect to CMS guidance, MACs and RACs reported receiving limited guidance, while ZPICs reported receiving no guidance.         

The OIG recommended that CMS provide guidance to its contractors on detecting fraud associated with the use of EHRs and direct its contractors to use audit log data.  CMS concurred with the first recommendation, stating that it has been actively considering the issue and intends to develop appropriate guidelines to ensure appropriate use of the copy paste feature in EHRs, and will consider whether additional guidance tools are needed to help detect fraud associated with the use of EHRs.  CMS partially concurred with the second recommendation, stating that audit logs are one of several tools in ensuring authentic information, though they may not be an appropriate tool in every instance, and, thus, should only be one part of a comprehensive approach to EHR review.    

For a copy of the OIG report, please click here

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

OIG Releases Study on MAC Performance – On January 8, 2014, OIG released a study of Medicare Administrative Contractors’ (MAC) performance between September 2008 and August 2011.  The OIG found that while MACs met the majority of quality assurance standards reviewed by CMS, they did not satisfy all such standards, and the OIG identified other areas for performance improvement. 

The purpose of the OIG’s study was to describe the “extent to which [MACs] met or did not meet performance standards reviewed by CMS” and “to determine the extent to which CMS assessed and monitored MACs’ performance.”  To conduct the study, OIG evaluated thirteen MACs (9 A/B MACs and 4 DME MACs), and reviewed their two most recent performance periods for which the required performance reviews had been completed. 

OIG found that “MACs met the majority of quality assurance standards reviewed by CMS.”  However, OIG also found the following issues:

  • MACs did not meet 26% of all quality assurance standards reviewed by CMS (including failing to meet 51% of provider enrollment standards, 45% of Medicare secondary payer standards, and 43% of appeals process standards);

  • CMS did not always include areas determined to be problematic by quality assurance reviews as metrics in MACs’ award fee plans;

  • MACs had unresolved issues with 27% of unmet standards;

  • CMS failed to require action plans for 12% of unmet standards, which were almost four times more likely to have issues go unresolved;

  • Two MACs consistently underperformed across numerous CMS reviews; and

  • CMS’s performance reviews of MACs were not always completed in a timely manner, running the risk that information gathered by the performance reviews may not be available to evaluate future award decisions.

As a result, OIG recommended that CMS take the following affirmative steps to resolve these outstanding issues:

  • Require action plans for all unmet quality assurance standards;
  • Use quality assurance review results to aid the selection of award fee metrics for review;
  • Meet timeframes for completing quality assurance reports and award fee determinations;
  • Establish sensible timeframes for issuing contractor performance reports; and
  • Seek legislation increasing the time between MAC contract competitions to allow CMS more flexibility in awarding new contracts when MACs do not meet CMS requirements.

CMS concurred with all of OIG’s recommendations.

Reporter, Katy Lucas, Atlanta, +1 404 572 2822,

OMHA Imposes 24-Month Stay for New ALJ Assignments; Announces Medicare Appellant Forum – The Office of Medicare Hearings and Appeals (OMHA) has issued a Memorandum to OMHA Medicare appellants announcing a temporary stay, effective for cases filed on or after July 15, 2013, in the assignment of new requests for Administrative Law Judge hearings.  Citing a 184 percent increase in Medicare claims and entitlement appeals from 2010 to 2013 and resulting backlog of over 460,000 claims, OMHA stated that it does not expect general ALJ assignments to resume for a period of at least 24 months. Notably, information on OMHA’s Website references possible assignment delays of up to 28 months for appeals filed after April 1, 2013.  In its Memorandum, OMHA also announced that it will hold an Medicare Appellant Forum on February 12, 2013 from 10:00 a.m. to 5:00 p.m., and it subsequently published a Notice of Meeting in the January 3, 2014 Federal Register. Additional clarity on the length of the temporary stay as well as the effective date may be made at the Forum.  For more information on how to register for the Forum, and to obtain a copy of the proposed agenda, and other attendee information, please visit the OMHA Medicare Appellant Forum Website.   

Please click here for a copy of OMHA’s Memorandum to OMHA Medicare Appellants.  To access the Notice of Meeting published in the January 3, 2014 Federal Register, click here.

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

Also in the News

CMS’s Final Rule To Reduce Regulatory Burden on Providers Arrives at OMB – On January 9, 2014, CMS delivered a final rule, titled Part II—Regulatory Provisions To Promote Program Efficiency, Transparency, and Burden Reduction (CMS-3267-F), to the Office of Management and Budget (OMB).  The final rule purports to implement reforms in Medicare regulations that CMS has identified as unnecessary, obsolete, or excessively burdensome on health care providers and beneficiaries.  For more information, please see OMB’s List of Regulatory Actions Under Review for the Department of Health and Human Services.

Sara Kay Wheeler To Become President of HCCA/SCCE – We are proud and pleased to announce that at a recent meeting of the Health Care Compliance Association (HCCA) and the Society for Corporate Compliance and Ethics (SCCE), King & Spalding Partner, Sara Kay Wheeler was elected to the officer position of Second Vice President.  The HCCA/SCCE Second Vice President serves on the Executive Committee of the Board and will automatically transition to First Vice President and President over the course of the next two years.  Ms. Wheeler is expected to serve as the HCCA/SCCE President beginning on November 1, 2015.  The HCCA is the largest nonprofit trade association serving ethics and compliance professionals in the health care industry and has over 10,000 members.  SCCE is a trade association serving ethics and compliance professionals in various industries and has over 2500 members.

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.

>> Back to Top