Health Headlines – April 25, 2016

FEATURED ARTICLES

CMS Proposes to Reverse 0.2 Percent IPPS Rate Reduction After Two-Midnight Rule Litigation Loss – In the FY 2017 IPPS Proposed Rule, CMS announced that it would reverse the 0.2 percent IPPS  rate cut that was imposed in FY 2014 (and re-adopted in subsequent years) related to the Two Midnight Rule and increase the standardized amount for FY 2017 by 0.8 percent.  This reversal comes on the heels of a September 2015 decision from the U.S. District Court for the District of Columbia ordering CMS to provide the public with an opportunity to comment as to whether CMS’s assumption regarding the rate reduction was reasonable.  On behalf of over 200 hospitals, King & Spalding challenged CMS’s decision based on the comment letter it submitted identifying CMS’s incomplete and undisclosed assumptions that formed the basis of the rate reduction.  Rather than continue to defend its original analysis, CMS has decided to reverse the rate reduction altogether. 

King & Spalding submitted comments in response to the 0.2 percent rate cut when it was proposed in FY 2014, pointing out that Medicare’s own data showed that total Medicare payments would go up, not down, as a result of the Two Midnight Rule.  In response to those comments, CMS revealed for the first time that it had assumed that the Two Midnight Rule would only apply to inpatient cases involving surgeries, which account for only 25 percent of inpatient cases and which also means CMS ignored the impact of the Rule on nearly 75 percent of all inpatient cases.  When CMS finalized its rate reduction based on this previously undisclosed basis, King & Spalding challenged the agency’s action as a violation of the Administrative Procedure Act.

In September 2015, the United States District Court for the District of Columbia agreed with King & Spalding and ordered CMS to provide the public with an opportunity to comment as to whether CMS’s assumption regarding surgical cases was reasonable.  The public comment period ended in February 2016, and CMS was under court order to publish its response in the Federal Register on March 18, 2016.  The agency asked the court for more time to finalize its response, which was due at the end of April 2016.  Ultimately CMS decided against continuing with the litigation and instead reversed the FY 2014 0.2 percent Two Midnight rate cut by proposing a one-time 0.6 percent increase in FY 2017 to address the effects of the rate cut in FYs 2014-2016 and eliminating the 0.2 percent factor prospectively, resulting in a 0.8 percent increase in the IPPS rate for FY 2017. 

King & Spalding continues to evaluate CMS’s proposal and plans to submit comments on providers’ behalf as the agency works toward the final FY 2017 IPPS Rule.

Reporters, Mark Polston, Washington, DC, + 1 202 626 9253, mpolston@kslaw.com; Christopher Kenny, Washington, DC, + 1 202 626 9253, ckenny@kslaw.com.

CMS Releases Hospital Inpatient PPS and Long-Term Care Hospital PPS Proposed Rule –CMS released updates to the Hospital Inpatient Prospective Payment System (Hospital IPPS) and Long-Term Care Hospital Prospective Payment System (LTCH PPS) in a proposed rule on April 18, 2016 (Proposed Rule).  The Proposed Rule is scheduled to be published in the Federal Register on April 27, 2016.  Comments are due by June 16, 2016. 

Proposed Changes to IPPS rates

CMS  has proposed an overall 0.9 percent increase in operating rate payments to acute care hospitals for Fiscal Year 2017. The 0.9 percent increase is a net of the following positive and negative adjustments: a positive hospital market basket update of 2.8 percent;   negative adjustments of 0.75 percent  and 0.5 percent required by the Affordable Care Act;  and a 1.5 percent reduction to compensate for prior  documentation and coding overpayments as required by the American Taxpayer Relief Act of 2012.  And finally, the payment update also includes a proposed increase of 0.8 percent to offset cuts implemented in FYs 2014 – 2016 related to the Two Midnight policy. 

The 0.9 percent increase in payment rates applies to hospitals that satisfy CMS requirements for the Hospital Inpatient Quality Reporting (IQR) Program and meaningful use for electronic health records.  Those hospitals that do not participate fully in those programs will see a 0.25 percent reduction to the market basket update related to the Hospital IQR Program, and a 0.75 percent reduction to the market basket update if the hospital does not participate in the EHR meaningful use program.  If finalized as proposed, the standardized operating payment rate to hospitals in FY 2017 would  be $5,511.79; the current payment rate for FY 2016 is $5,467.39.  CMS has also proposed a fixed-loss threshold for outlier payments of $23,681 for FY 2017, which represents a slight increase compared to the FY 2016 threshold of $22,539.

In addition to the standardized rate updates described above, CMS has proposed a number of adjustments related to uncompensated care payments and a number of patient safety and quality performance programs, as described below.  CMS estimates that that total Medicare spending on inpatient hospital services will increase by about $539 million in FY 2017.

IPPS Adjustments Related to the Two-Midnight Rule

In this rule, CMS proposes to permanently end the 0.2 percent reduction the agency implemented in FY 2014 to offset the alleged increase in IPPS expenditures that CMS predicted would be brought about by the Two-Midnight rule.  The 0.2 percent negative rate adjustment was proposed and adopted in FY 2015 and FY 2016 as well.  The 0.2 percent negative adjustment was challenged by King & Spalding on the basis that it was inconsistent with Medicare data.  In September 2015, the United States District Court for the District of Columbia relied upon King & Spalding’s comments  in response to the FY 2014 IPPS proposed rule and held that CMS failed to disclose significant assumptions to the public when describing the 0.2 percent rate cut. 

The district court ordered CMS to provide an additional round of notice and comment rulemaking.  Rather than litigate further, CMS now proposes to retroactively reverse the effects of the three-year rate cut and permanently retire the 0.2 percent rate cut prospectively.  Accordingly, CMS has proposed a one-year 0.6 percent increase in payments for inpatient stays as well as permanently eliminating from the standardized rate the factor that was used to implement the 0.2 percent downward adjustment in FY 2014. 

Medicare DSH and Uncompensated Care Payments

CMS is proposing to distribute roughly $6.0 billion in uncompensated care payments in FY 2017, a decrease of $400 million from the FY 2016 amount.  Based on the policies enacted under the Affordable Care Act, disproportionate share hospitals (DSHs) will continue to receive 25 percent of the amount they previously would have received under the statutory formula for Medicare DSH payments (otherwise known as “empirical DSH payments”) and an additional, hospital-specific payment for the cost of uncompensated care (known as “uncompensated care” or “UCC” payments) which is awarded on a proportional basis from the national uncompensated care pool.

In order to distribute the pool among hospitals qualifying for UCC payments, CMS proposes to continue using the formula based on “insured low income days,” which include inpatient days for patients eligible for Medicaid and inpatient days for patients entitled to Medicare and Supplemental Security Income (SSI), with two proposed changes to this methodology.   First, CMS plans to move from using one-year of data to three years to better account for yearly fluctuations in uncompensated care.  In addition, CMS proposes to substitute 14 percent of Medicaid days as a proxy for Medicare SSI inpatient days in Puerto Rico, where residents are not eligible for SSI benefits.

The most significant proposal involving UCC payments relates to the proposal regarding S-10 data.  Starting in FY 2018, CMS intends to incorporate uncompensated care cost data from Worksheet S-10 of the Medicare Cost report into the methodology for distributing uncompensated care funds, proposing to use S-10 data only for the uncompensated care calculation by FY 2020.  CMS proposes to define uncompensated care costs as the costs of charity care and non-Medicare bad debt; insured low income day data from the preceding two years will be averaged with uncompensated care cost data. 

Hospitals should review their S-10 Worksheets for FY 2014 to make sure that information related to uncompensated care costs are accurate, as this data will be used to determine uncompensated care payments in the near future.

Hospital Acquired Conditions Reduction Program (HRRP)

CMS has proposed a number of changes to the Hospital-Acquired Condition (HAC) Reduction Program in the FY 2017 rule.  For example, CMS proposes to use a new scoring methodology for the FY 2018 Hospital-Acquired Condition Reduction Program based on how hospitals perform relative to the national average rather than the previously used decile performance system.  CMS has also proposed new data submission requirements for newly opened hospitals; has shortened the window needed to incorporate “complete data” for Domain 1 measures from 24 months to 12 months; and has proposed to adopt the refined PSI 90: Patient Safety and Adverse Events Composite measure, which reflects not only the volume of each patient safety or adverse event, but also the relative harm associated with those events.

Hospital Readmission Reduction Program

CMS is not proposing any changes to the hospital readmission reduction measures in this rule, but has proposed changes to reporting timelines intended to align the HRRP with other quality reporting programs.   Specifically, CMS is proposing to update the public reporting policy so that excess readmission rates will be posted to the Hospital Compare website as soon as feasible following the hospitals’ preview period.  For FY 2017 and future years, the HRRP reduction will be based on a hospital’s risk-adjusted readmission rate during a three-year period for acute myocardial infarction (AMI), heart failure (HF), pneumonia, chronic obstructive pulmonary disease (COPD), total hip arthroplasty/total knee arthroplasty (THA/TKA), and, effective for FY 2017, coronary artery bypass graft (CABG).

Notification for Observation Services

CMS proposes to institute a standardized written notice, known as the Medicare Outpatient Observation Notice (MOON)  to implement the 2015 Notice of Observation Treatment and Implication for Care Eligibility (NOTICE) Act, which requires acute care and critical access hospitals to provide notification to Medicare patients receiving observation outpatient care for more than 24 hours.  The MOON will inform patients and their families of the reason the individual is an outpatient receiving observation services and the implications of observation services on cost sharing and post-hospitalization eligibility for Medicare coverage of skilled nursing facility (SNF) services.  Hospitals are required to provide oral explanations of the MOON to Medicare beneficiaries and receive signature verification that the beneficiary or their representative has received and understood the notice.

CMS anticipates that the MOON will need to be provided to almost one million beneficiaries annually.  The proposed MOON notice will be posted on the CMS website for a 60-day public comment period prior to implementation.  

Hospital Inpatient Quality Reporting (IQR) Program

In the Proposed Rule, CMS proposes changes to the Hospital IQR Program reporting measures, but the agency does not propose changes to any Hospital IQR Program policies.  CMS proposes to remove 14 measures entirely from the FY 2019 payment determination and payment determinations in subsequent years and one measure, VTE-6 Incidence of Potentially Preventable Venous Thromboembolism, from the electronic from.  Two of the measures removed are structural measures, participation in a systematic clinical database registry for general surgery and participation in a systematic clinical database registry for nursing sensitive care.  Two of the measures are being removed in their chart-abstracted form because they are “topped-out,” meaning that CMS has determined that measure performance among hospitals is so high and unvarying that meaningful distinctions and performance improvements cannot be made.  Thirteen of the 15 measures are electronic clinical quality measures (eCQMs). 

CMS also proposes to refine the following two claims-based measures: (1) PH Payment:  Hospital-Level, Risk-Standardized 30-Day Episode-of-Care Payment Measure for pneumonia and (2) PSI 90:  Patient Safety and Adverse Events Composite.  CMS also requests comments on updating the MORT-30-STK measure to include the NIH Stroke Scale as a measure of stroke severity in the risk adjustment.  Finally, the Proposed Rule would add four new measures for the FY 2019 payment determination and subsequent years, three of which are clinical episode-based payment measures and one of which is a required outcome measure.

Hospital Value Based Purchasing (VBP) Program

The Hospital VBP Program was established by the Affordable Care Act.  The program reduces base DRG payment amounts for inpatient hospital services by a certain percentage each year and redistributes that total amount to inpatient hospitals based upon each hospital’s performance under certain metrics.  CMS proposes to refine several measures for the FY 2019 program year and proposes new measures and other refinements for the FY 2021 program year and subsequent years.  Moreover, whereas previously CMS has adopted a new baseline and performance period for each program year for each domain, in the Proposed Rule, the agency proposes some baseline and performance periods to be used for all future years.  The Proposed Rule also proposes revisions to existing performance standards and new performance standards.

Finally, CMS proposes to change the criteria for determining hospitals that are excluded from the Hospital VBP Program.  Specifically, a section (d) hospital is excluded from participation with respect to a fiscal year if during the performance period of the fiscal year, the Secretary has “cited for deficiencies that pose immediate jeopardy to the health or safety of patients.”  CMS proposes to amend the regulatory definition of “cited for deficiencies that pose immediate jeopardy” by increasing the number of surveys from two to three on which a hospital must be cited for deficiencies that pose immediate jeopardy during the performance period.  Additionally, with respect to EMTALA-related immediate jeopardy citations, CMS proposes to change its policy with respect to the date of the immediate jeopardy citation from the survey end date generated in ASPEN to the date that CMS issues the final Form CMS-2567 to the hospital. 

Moreover, where one hospital onsite survey results in immediate jeopardy citations as well as EMTALA immediate jeopardy citations, CMS proposes that the survey end date would be the default date for potential exclusion from the Hospital VBP Program.

PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program

The Affordable Care Act established a new quality reporting program for PPS-exempt cancer hospitals, or “PCHs,” known as the PCHQR Program.  CMS proposes to update one measure and to add one new measure to the PCQHR Program, Admissions and Emergency Department Visits for Patients Receiving Outpatient Chemotherapy.  Among other proposed changes to the PCHQR Program, the agency also proposes criteria to be used for determining whether to remove or retain criteria.

Inpatient Psychiatric Facility Quality Reporting (IPFQR) Program

As with the Hospital VBP Program and the PCHQR Program, the Affordable Care Act also established the IPFQR Program.  Under the IPFQR Program, the Secretary is required to reduce any annual update to an inpatient psychiatric hospital or psychiatric unit paid under Medicare’s IPF PPS by two percentage points that fails to comply with the quality data submission requirements.  Failure to report can result in payment rates being less than the preceding year.  CMS proposes to retain 15 and update one of the previously adopted reporting measures.  The Proposed Rule proposes to add the following two measures:  Third-Day All-Cause Readmission Following Psychiatric Hospitalization in an IPF, and SUB-3:  Alcohol & Other Drug Use Disorder Treatment Provided or Offered at Discharge.

LTCH PPS Changes

Starting with FY 2016, the Pathway for SGR Reform Act made the LTCH PPS a dual payment rate system.  Discharges that meet the statutory criteria for exclusion from the site neutral payment rate are paid at the LTCH PPS rate, referred to as the “LTCH PPS standard Federal payment rate case.”  Discharges that do not meet the statutory criteria for exclusion are paid at the site neutral payment rate, referred to as the “site neutral payment rate case.”  For FY 2017, CMS proposes to rebase and revise the LTCH-specific market basket to reflect a 2013 base year.  CMS estimates that overall LTCH PPS payments will decrease by 6.9 percent for FY 2017, but that LTCH PPS standard Federal payment rate cases will increase by approximately 0.3 percent.

LTCH Quality Reporting Program (LTCH QRP)

As with the other Quality Reporting Programs described above, the LTCH QRP was also established by the Affordable Care Act and applies to all Medicare-certified LTCHs.  Under the Program, the payments of any LTCH that fails to submit the requisite data are reduced by two percentage points.  CMS does not propose to change its policies with respect to the retention and removal of measures, but the agency does propose to add four new measures.  One measure, Drug Regimen Review Conducted with Follow-Up for Identified Issues, is assessment-based, and the following three new measures are claims-based:  Discharge to Community – Post Acute Care (PAC) LTCH QRP, Medicare Spending Per Beneficiary (MSPB) – PAC LTCH QRP, and Potentially Preventable 30 Day Post-Discharge Readmission Measure for LTCHs.     

A display copy of the Proposed Rule is available here.

Reporters, Kate Stern, Atlanta, +1 404 572 4661, kstern@kslaw.com, and C’Reda Weeden, Washington D.C., +1 202 626 5572, cweeden@kslaw.com. 

OIG Issues Revised Policy Statement Regarding Permissive Exclusion – On April 18, 2016, the Office of Inspector General of the United States Department of Health and Human Services (“OIG”) issued a revised policy statement containing the new criteria that OIG intends to use in implementing its permissive exclusion authority under 42 U.S.C.A. § 1320a-7(b)(7).  The revised policy statement supersedes and replaces a policy statement that OIG published in December 1997 concerning the manner in which OIG exercises its permissive exclusion authority.

Significantly, while continuing to acknowledge that “OIG presumes that some period of exclusion should be imposed against a person who has defrauded Medicare or any other Federal health care program,” the revised policy statement also recognizes that the “presumption in favor of exclusion is rebuttable in certain situations.”  According to OIG, the revised policy statement “sets forth circumstances in which the presumption may be rebutted and the non-binding factors that OIG will use to make such a determination.”  Additionally, OIG explains in the revised policy statement that it “evaluates health care fraud cases on a continuum” and that “resolution of OIG’s exclusion authorities is based on OIG’s assessment of future risk to the Federal health care programs.” 

Background

Federal law permits OIG to exclude “[a]ny individual or entity that the Secretary determines has committed an act  which is described in section 1320a-7a [Civil Monetary Penalties for improperly filed claims or payments], 1320a-7b [Criminal Monetary Penalties for false statements and illegal remuneration], or 1320a-8 [Civil Monetary Penalties for false statements or  representation of material facts regarding the right to receive or continue to receive certain Social Security benefit payments].”  42 U.S.C.A. § 1320a-7(b)(7).  Conduct that subjects a person to liability under the False Claims Act, 31 U.S.C. §§ 3729–3733, will generally also subject that person to liability under section 1128(b)(7).

In December 1997, OIG issued non-binding guidelines that it used to assess whether to impose permissive exclusion in accordance with 42 U.S.C. 1320a-7(b)(7).  See Criteria for Implementing Permissive Exclusion Authority Under Section 1128(b)(7) of the Social Security Act, 62 Fed. Reg. 67392 (December 24, 1997).  Under those guidelines, “[t]here is a presumption that some period of exclusion should be imposed against an individual or entity that has defrauded Medicare or other Federal and State health care programs”  Id. at 67393.  The guidelines list four general criteria that OIG will consider.  Several specific factors are included within each criterion.  The criteria are:

1. The Circumstances of the Misconduct and Seriousness of the Offense.  Considerations relevant to this criterion include whether a criminal sanction was imposed, whether there was physical or mental harm to patients, whether health care programs incurred financial losses, and whether the misconduct was part of a pattern.  Id. at 67,393.
   
   
2. Defendant’s Response to Allegations/Determination of Unlawful Conduct.  This criterion includes the entity’s acknowledgement of the misconduct, willingness to cooperate, payment of restitution and penalties, and the adoption of remedial measures and a general change in behavior.  Id.
   
   
3. Likelihood that Offense or Some Similar Abuse Will Occur Again.  Considerations include whether the conduct was the result of unique circumstances that are not likely to recur, the robustness of the company’s compliance program, whether there was any voluntary disclosure regarding the alleged wrongdoing, and whether the company has agreed to implement adequate compliance measures, including institution of a corporate integrity plan.   Id. at 67,393-94.
   
   
4. Financial Responsibility.  OIG will also consider whether an entity could continue to “operate without a real threat of bankruptcy and without a real threat to its ability to provide quality health care items or services” if “permitted to continue program participation.”  Id. at 67, 394.

Revised Policy Statement

OIG has several administrative options, and it uses a risk spectrum to determine which options, including exclusion, are appropriate.

OIG’s revised policy statement emphasizes that, in addition to permissive exclusion authority, OIG “has a range of administrative options it can exercise.”  Indeed, OIG outlines that “depending on the facts and circumstances presented,” OIG will usually pursue one of the following approaches with respect to a person when settling a civil or administrative health care fraud case:

1. exclusion;
2. heightened scrutiny (e.g., implement unilateral monitoring);
3. integrity obligations;
4. take no further action; or
5. in the case of a good faith and cooperative self-disclosure, release 1128(b)(7) exclusion with no integrity obligations.

OIG goes out of its way in the revised policy statement to explain the circumstances in which permissive exclusion is not necessary.  For example, OIG stated that it “often concludes that exclusion is not necessary to protect Federal health care programs if the person agrees to appropriate integrity obligations,” and OIG will provide an exclusion release in exchange for integrity obligations.   Additionally, the revised policy statement explains that OIG will often choose not to exercise its permissive exclusion authority or demand integrity obligations when, absent a showing of patient harm, the financial harm to Federal health care programs is relatively low and the provider is a successor owner.  Moreover, OIG emphasized that it will affirmatively release a provider from potential exclusion liability and refrain from demanding integrity obligations in two circumstances: (1) when the person self-discloses the fraudulent conduct, cooperatively and in good faith, to OIG; or (2) when the person agrees to robust integrity obligations with a State or the Department of Justice and OIG determines these obligations are sufficient to protect the Federal health care programs.

OIG will consider numerous factors in determining where a provider falls on the risk spectrum.

The revised policy statement includes a list of the factors that OIG will consider and the questions that it will ask to determine where a provider falls on the risk spectrum.  This analysis is significant given that “[a]t the Highest Risk end of the spectrum, OIG will pursue exclusion,” while “[a]t the Lower Risk end of the spectrum (cooperative and good faith self-disclosures), OIG will provide an exclusion release without integrity obligations.”  The factors for consideration are grouped into four broad categories:

1. Nature and circumstances of conduct;
2. Conduct during the Government’s investigation;
3. Significant ameliorative efforts; and
4. History of compliance.

The detailed list of factors that OIG will consider in determining where a provider falls on the risk spectrum and whether exercising OIG’s permissive exclusion authority under 42 U.S.C. § 1320a-7(b)(7) is appropriate can be found in the revised policy statement. 

Reporter, Ramsey Prather, Atlanta, + 1 404 572 4624, rprather@kslaw.com.

FDA Issues Three Draft Guidance Documents For Drug Compounders – On April 15, 2016, the U.S. Food and Drug Administration (“FDA”) issued three new draft guidance documents related to human drug compounding under the Food, Drug, and Cosmetic Act (“FD&C Act”), as amended by Title I of the Drug Quality and Security Act, that apply to both outsourcing facilities and compounders seeking to operate under section 503A.

According to the FDA’s release, the draft guidance documents outline the FDA’s proposed policies concerning: (1) the prescription requirement in section 503A of the FD&C Act; (2) how the FDA intends to apply the prescription requirement in section 503A to compounding in a hospital or health system pharmacy; and (3) the definition of “facility” in section 503B of the FD&C Act. 

The FDA’s new three draft guidance documents are included below, along with a summary of what each guidance document addresses:

1. Draft Guidance: Prescription Requirement Under Section 503A of the Federal Food, Drug, and Cosmetic Act.  The FDA’s draft guidance describes its proposed policies concerning certain prescription requirements for compounding drug products for identified individual patients under section 503A of the FD&C Act.  The guidance document addresses compounding after the receipt of a prescription for an identified patient, compounding before receipt of a prescription for an identified patient, and compounding for office use.
   
   
2. Draft Guidance: Hospital and Health System Compounding Under the Federal Food, Drug, and Cosmetic Act.  Pharmacies located within a hospital or standalone pharmacies that are part of a health system frequently provide compounded drug products for administration within the hospital or health system.  The FDA’s draft guidance notes that some of these compounders have registered with the FDA as outsourcing facilities under section 503B of the FD&C Act and others are state-licensed pharmacies subject to section 503A.  The guidance document describes how the FDA intends to apply section 503A of the FD&C Act to drugs compounded in state-licensed hospital or health system pharmacies for use within the hospital or health system.

   The FDA’s draft guidance on this issue may have important implications for hospital-based pharmacies.  The FDA’s guidance document explains that some hospital pharmacies compound drugs only for use in the hospital, while other hospital and health system pharmacies compound and distribute their compounded drugs to other facilities within their health system.  See FDA’s release. 

   Section 503A of the FD&C Act describes the conditions under which compounded drug products by pharmacies are entitled to exemptions from certain provisions of the FD&C Act regarding (1) new drug approval, (2) labeling with adequate directions for use, and (3) current good manufacturing practice (“CGMP”) requirements.  One of the conditions that must be met to qualify for the 503A exemptions is that the drug must be compounded for an identified individual patient, either after receipt of a valid prescription, or in limited quantities in advance of receipt of a prescription for an identified individual patient (and the drug must be distributed after receipt of the prescription). 

   Under section 503B, a compounder may elect to register with the FDA as an outsourcing facility.  Drugs compounded by an outsourcing facility under section 503B are entitled to exemptions from provisions of the FD&C Act regarding new drug approval, labeling, and drug supply chain security.  These outsourcing facilities may or may not receive prescriptions for identified individual patients, but they are subject to CGMP requirements.  See FDA’s release.

   The FDA’s new draft guidance provides that the FDA does not intend to take action if a hospital pharmacy distributes compounded drug products without first receiving a patient-specific prescription or order provided that:

   1. The drugs are distributed only to facilities owned and controlled by the same entity that owns and controls the hospital pharmacy and that are located within a one-mile radius of the compounding pharmacy;
      
      
   2. The drugs are only administered within the healthcare facilities to patients within the healthcare facilities, pursuant to a patient-specific prescription; and
      
      
   3. The drugs are compounded in accordance with all other provisions of section 503A, and any applicable requirements of the FD&C Act and FDA regulations.

   The FDA’s draft guidance explains that the one-mile radius is intended to distinguish a hospital campus from a larger health system, noting that certain characteristics of hospital pharmacies distinguish them from conventional manufacturers.  The FDA’s guidance also states, however, that a health system pharmacy that compounds drugs without patient-specific prescriptions for facilities within its health system across a broader geographic area could function as a large manufacturing operation, but without the necessary standards to assure drug quality. 

3. Draft Guidance: Facility Definition Under Section 503B of the Federal Food, Drug, and Cosmetic Act.  Section 503B of the FD&C Act defines outsourcing facility, in part, as “a facility at one geographic location or address.”  The FDA’s draft guidance seeks to answer questions received from outsourcing facilities and other stakeholders about the meaning of the term “facility,” such as whether multiple suites used for compounding drugs at a single street address constitute one or multiple facilities, or whether a single location where human drugs are compounded can be subdivided into separate operations compounding under different standards.

Reporter, John Whittaker, Sacramento, +1 916 321 4808, jwhittaker@kslaw.com

ALSO IN THE NEWS

CMS Extends Participation in Bundled Payments for Care Improvement by Two Years – CMS has offered awardees the opportunity to extend participation in Models 2, 3, and 4 of the Bundled Payments for Care Improvement program through September 30, 2018.  These awardees, who had joined the program when it began in October 2013, were scheduled to end participation on September 30, 2016.  The CMS Blog piece detailing the offer is available here.

Comments on Drug Discounts Penalty Rule Reopened until May 19th – HHS has extended the comment period for the proposed rule entitled “340B Drug Pricing Program Ceiling Price and Manufacturer Civil Monetary Penalties Regulation.”  The proposed rule would establish civil monetary penalties for drug manufacturers that charge safety-net providers too much for medications under a federal discount program.  The comment period now ends May 19, 2016, as reported in the Federal Register.

CMS Postpones Release Of Hospital Star Ratings – Following congressional and industry questions about the methodology CMS used to determine hospital-quality ratings, CMS has reportedly postponed the expected release date for hospital star ratings from April 2016 to July 2016.  One problem identified was the average score ratings received by certain hospitals generally recognized as top-notch hospitals, leading to questions about whether the scores fairly assess the quality of care at hospitals with different patient populations. 

Medicare Issues Proposed Rule on Payment Rates for SNFs – On April 21, 2016, CMS issued a proposed rule that updates the payment rates used under the prospective payment system (PPS) for skilled nursing facilities (SNFs) for FY 2017.  CMS estimates that the economic impact of the proposed rule is an approximate increase of $800 million in aggregate payments to SNFs in FY 2017.  Comments to the proposed rule are due by June 20, 2016. 

Medicare Issues Proposed Rule on Payment Rates for Hospices – On April 21, 2016, CMS issued a proposed rule that updates the hospice wage index, payment rates, and cap amount for FY 2017.  The rule also proposes changes to the hospice quality reporting program and proposes new quality measures.  The overall economic impact of this proposed rule is estimated to be $330 million in increased payments to hospices during FY 2017.  Comments are due by June 20, 2016. 

Medicare Issues Proposed Rule on Payment Rates for Inpatient Rehabilitation Facilities – On April 21, 2016, CMS issued a proposed rule that updates the prospective payment rates for inpatient rehabilitation facilities (IRFs) for FY 2017.  The proposed rule also seeks to revise quality measures and reporting requirements under the quality reporting program.  CMS estimates that the proposed rule will provide approximately $125 million in increased payments to IRFs during FY 2017.  The proposed rule also provides a two percentage point reduction for IRFs not reporting certain quality information.  Comments are due by June 20, 2016.