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Health Headlines – March 10, 2014

10 Mar 2014

Halifax Settles Stark Damages for $85 Million – Halifax Hospital Medical Center and Halifax Staffing, Inc. (collectively, “Halifax”) have agreed to pay $85 million to settle allegations that Halifax compensated a group of physicians in a manner not permitted by the Stark Law, including that three neurosurgeons were allegedly paid in excess of fair market value and that six oncologists allegedly received bonuses based on the oncology department’s operating volume. The parties announced the settlement to the U.S. District Court for the Middle District of Florida last Monday, March 3, just minutes before jury selection was scheduled to get underway, and filed a copy of the final settlement agreement today.  Pursuant to the terms of the settlement agreement, Halifax must pay the settlement amount by March 20, 2014, and enter into a Corporate Integrity Agreement with the HHS OIG.  The Relator will receive 24.5% of the settlement amount—or approximately $21 million—from the United States upon receipt of payment by Halifax. 

A separate trial focusing on allegations that Halifax engaged in a decade-long practice of admitting patients to the hospital for unnecessary short-stays, and then billing federal healthcare programs for such admissions, is slated to begin in July.  The Department of Justice has not intervened in this second portion of the case.  For prior coverage of the Halifax case in Health Headlines, please click here and here

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

HHS Reports First HIPAA Settlement with a County Government – According to a HHS press release issued last Friday, Skagit County, Washington, has agreed to a $215,000 settlement with the agency to resolve allegations that the county’s HIPAA compliance program was deficient.  The Skagit County HIPAA settlement is the first that the agency has entered with a county government. 

Skagit County is located in Northwest Washington and is home to approximately 118,000 residents.  The Skagit County Public Health Department provides essential medical services to many of the county’s residents who cannot otherwise afford care. 

According to the agency, HHS’s Office for Civil Rights (“OCR”) opened an investigation of Skagit County upon receiving a breach report that money receipts with electronic protected health information (ePHI) of seven individuals were accessed by unknown parties after the ePHI had been inadvertently moved to a publicly accessible server maintained by Skagit County.  OCR’s investigation revealed a broader exposure of protected health information involved in the incident, which included the ePHI of 1,581 individuals.  Many of the accessible files involved sensitive information, including protected health information concerning the testing and treatment of infectious diseases.  OCR’s investigation further uncovered general and widespread non-compliance by Skagit County with the HIPAA Privacy, Security, and Breach Notification Rules, the agency’s press release explains.

The Deputy Director of Health Information Privacy at OCR said, “This case marks the first settlement with a county government and sends a strong message about the importance of HIPAA compliance to local and county governments, regardless of size.”  She also noted that “[t]hese agencies need to adopt a meaningful compliance program to ensure the privacy and security of patients’ information.”

As part of the settlement, Skagit County agreed to implement a corrective action plan (which is attached to the Resolution Agreement) to ensure that it has in place written policies and procedures, documentation requirements, training, and other measures to comply with the HIPAA Rules.  The corrective action plan also requires Skagit County to provide regular status reports to OCR.

View a copy of HHS’s press release by clicking here and a copy of the Resolution Agreement by clicking here.

Reporters, Ramsey Prather, Atlanta,+ 1 404 572 4624,, and Constance F. Dotzenrod, Atlanta, + 1 404 572 3585,

FY 2015 Budget Request Includes Reductions and Reforms to CMS Spending – President Obama has released the administration’s FY 2015 budget request, and it includes investments and proposals for HHS that are estimated to save $355.6 billion over 10 years.  The FY 2015 budget estimate for CMS is $897.3 billion in mandatory and discretionary outlays, which is a net increase of $54.3 billion from FY 2014, and includes proposed reforms to the Medicare and Medicaid programs that are estimated to save $414.5 billion over the next 10 years.  

HHS, in a summary of the budget, detailed the following proposed reforms, among others, to begin in 2015:

  • Reducing bad debt payments to 25 percent over 3 years for all providers who receive bad debt payments;

  • Reducing payments to hospitals for the indirect costs of medical education by 10 percent;

  • Reducing the rate paid to CAHs to 100 percent of reasonable costs;

  • Preventing hospitals that are within 10 miles of another hospital from maintaining a CAH designation and receiving the enhanced rate and instead paying such hospitals under the appropriate PPS;

  • Reducing market basket updates for IRFs, LTACHS, and HHAs by 1.1 percentage points in each year through 2024 (but payment updates would not fall below zero) and for SNFs beginning with a -2.5 percent update in FY 2015 tapering down to a -0.97 percent update in FY 2022;

  • Implementing bundled payments for post-acute care providers;

  • Adjusting the standard for classifying a facility as an IRF from the current requirement of 60 percent of patient cases meeting specific criteria to 75 percent; and

  • Lowering payment rates under the Clinical Laboratory Fee Schedule by -1.75 percent every year from 2016 through 2023.

Similarly, a number of reforms were proposed in the budget with respect to the Medicaid program, including (i) expanding the enhanced rate of payment paid to Medicaid primary care providers through December 31, 2015, while also expanding the eligibility for higher payment to mid-level providers; (ii) providing authority for the Secretary to implement a more closely aligned appeals process for Medicare and Medicaid enrollees, as the processes currently have different requirements with respect to timeframes, amounts in controversy, and levels of appeals; and (iii) implementing policies to lower drug costs.

The budget also reiterates that fraud prevention and control remain top priorities of the administration and includes a total of $428 million to be invested in a new Health Care Fraud and Abuse Control Program and Medicaid program integrity funds.  Additionally, the budget includes $17 million for the 340B program, an increase of $7 million, to establish a cost recovery fee to improve program integrity and oversight.  In total, the HHS portion of the Budget provides for $1 trillion in outlays and proposes $77.1 billion in discretionary budget authority, a reduction of $1.3 billion from FY 2014. 

The budget is unlikely to be enacted by Congress in its current form but will serve as a basis for discussions and negotiations between the parties. 

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

Bill to Address Issues with Two-Midnight Rule – On March 6, Senators Robert Menendez (D-NJ) and Deb Fisher (R-NE) introduced S. 2082, the Two-Midnight Rule Coordination and Improvement Act of 2014, to remedy several issues with the two-midnight rule. 

The bill directs the Secretary to develop criteria for short inpatient hospital stays in consultation with hospitals, physicians, and other experts.  The bill also requires the Secretary to develop a payment methodology for these short inpatient stays.  According to the sponsors, the bill “codifies the enforcement delays CMS has already imposed” and would therefore prohibit the Secretary from enforcing provisions of the two-midnight rule for admissions occurring before October 1, 2014. 

The bill is supported by the American Hospital Association, the Nebraska Hospital Association, the New Jersey Hospital Association, the Greater New York Hospital Association, America’s Essential Hospitals, and the Association of American Medical Colleges.  Bill text can be found here.      

Reporter, Allison Kassir, Washington, D.C., +1 202 626 5600,

Also in the News

GAO Evaluating Underperforming State Exchanges – On March 5, 2014, the Government Accountability Office (GAO) announced that it will examine certain underperforming state-run health insurance exchanges created under the Affordable Care Act.  While the GAO’s investigation will center on Oregon’s state exchange website, it has been reported that the agency will expand its review to other states.  The GAO’s March 5, 2014 letter is available 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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