News & Insights


August 1, 2016

Health Headlines – August 1, 2016

CMS Proposes New Bundled Payment Models for Cardiac and Orthopedic Care – On July 25, 2016, CMS posted a proposed rule that would create three new Medicare Parts A and B episode payment models for patients admitted for care for a heart attack, bypass surgery or surgical hip/femur fracture treatment under its section 1115A authority to test innovative payment and delivery models (the “Proposed Rule”).  As described in more detail below, for the three conditions, hospitals would be accountable for the cost and quality of care provided during both the inpatient stay and for the 90 days following discharge.  The Proposed Rule would also implement a model for testing the use of cardiac rehabilitation services for patients hospitalized for heart attacks or bypass surgeries, amend provisions relating to the Comprehensive Care for Joint Replacement Model (the “CJR Model”) and propose new pathways for physicians who participate in bundled payment models to qualify for financial rewards in Advanced Alternative Payment Models under the proposed Quality Payment Program established by MACRA.

How the Payment Would Work Under the Three New Episode Payment Bundles

Payment to hospitals under the three new proposed episode payment models would be calculated as follows.  CMS would set target prices annually for each condition based upon: (i) the historical costs for treating the condition during the hospitalization and for the 90 days post-discharge; (ii) the complexity of the patient’s condition; (iii) for heart attack patients, whether the patient was managed with medications or treated with surgery; and (iv) a blend of hospital-specific data and regional historical data initially based more upon hospital-specific data and gradually phasing to regional data only for performance years 4 and 5. 

Each hospital’s target price would then be adjusted by its quality performance.  The target prices of hospitals providing higher quality care would be subject to a lower discount, and the target prices of hospitals with lower quality performance would be subject to a greater discount, ranging from 1.5 percent  to 3 percent.   In other words, CMS is going to hold hospitals financially accountable for achieving at least a 1.5 percent reduction in Medicare spending from the date of admission through 90 days post-discharge.   A hospital’s discount for quality would be measured based upon quality metrics appropriate to each episode that are already required measures in other programs or in development and testing. 

The target price minus the hospital’s quality discount would then be compared against the hospital’s average costs for the entire year for that episode.  If the target price minus the discount exceeds the hospital’s average cost, then the hospital would receive the difference in savings per patient from Medicare.  This potential gain would be phased in over 5 years, with the potential gain capped at 5 percent for performance years 1 and 2, 10 percent for performance year 3 and 20 percent for performance years 4 and 5.  If the target price minus the discount is less than the hospital’s average cost for the year, then the hospital may be subject to repayment and obligated to repay Medicare the per-patient difference.  This downside risk would be phased in over time, with no repayment obligation in performance year 1 or the first quarter of performance year 2, and the downside risk capped at 5 percent for the remainder of performance year 2, 10 percent for performance year 3 and 20 percent for performance years 4 and 5 (caps for rural hospitals are substantially lower).  Performance year 1 would run from July 1, 2017 through December 31, 2017, with performance years 2 through 5 aligning with the subsequent calendar years.

Hospital Participants Under the New Episode Payment Bundles

There would not be an application process.  For the new hip/femur fracture bundle, hospitals would be located in the same 67 metropolitan statistical areas as the CJR Model.  Hospital participants in the two new cardiac bundles would be located in 98 randomly-selected MSAs.  Rural counties would be excluded, and financial risk for any remaining rural hospitals in MSAs would be limited.  CMS proposes to provide the hospital participants with tools to assist with coordination and quality improvement.  For example, CMS proposes to allow participants to enter into financial arrangements with Medicare ACOs and other provider types to share payments, cost savings and downside risk. 

Cardiac Rehabilitation Incentive Payments

The purpose of this model would be to test the effects of cardiac rehabilitation services during the 90 days post-discharge on Medicare beneficiaries who have been hospitalized for a heart attack or bypass surgery.  Hospital participants would continue to be paid standard Medicare payments for cardiac rehabilitation services.  However, CMS proposes paying an additional retrospective incentive payment in the amount of $25 per cardiac rehabilitation service for the first 11 services paid for by Medicare and $175 per cardiac rehabilitation service for each service after the first 11 services, subject to limitations set forth in the Proposed Rule.

This model would be in effect during the same five-year period as the three new bundled payment models and would be available in 90 geographic areas (45 of which were selected for the new cardiac care bundled payment models and 45 of which were not).

Click here to view CMS’s Fact Sheet regarding the Proposed Rule, and here to view the display copy of the Proposed Rule.  Comments are due 60 days after the proposed rule is published in the Federal Register.  Not only has CMS recognized that “[s]takeholder input is vital for the success of these proposals,” but raising issues in comments may also be a pre-requisite for the filing of an appeal from the final rule of that issue.  While CMS has claimed that most aspects of the proposed programs are shielded from administrative and judicial review, we have assisted clients in filing challenges to CMS’s authority under the Center for Medicare and Medicaid Innovation to enact such sweeping, mandatory changes to the prospective payment system. 

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

Payments to SNFs, Hospices and IRFs to Increase Under CMS Final Rules – On July 29, 2016, CMS released three separate final rules updating the fiscal year 2017 payment rates for skilled nursing facilities (SNFs), hospices and inpatient rehabilitation facilities (IRFs).  Payments will increase under all three payment systems ‒ $920 million, or 2.4 percent for SNFs; $350 million or 2.1 percent for hospices; and $145 million or 1.9 percent for IRFs.  In addition, CMS finalized several new quality measures for each payment system as described below.  The regulations under all three final rules take effect on October 1, 2016.

In addition to updating the payment rates for SNFs, CMS finalized changes to the SNF Quality Reporting Program (QRP) by adopting four new measures.  Three of those measures are for the fiscal year 2018 payment determination and subsequent years to meet the resource use and other measure domain:

(1) Medicare Spending Per Beneficiary – Post-Acute Care (PAC) SNF QRP;

(2) Discharge to Community – PAC SNF QRP; and

(3) Potentially Preventable 30-Day Post-Discharge Readmission – SNF QRP. 
The remaining measure is for the fiscal year 2020 payment determination and subsequent years to meet the medication reconciliation domain:  Drug Regimen Review Conducted with Follow-Up for Identified Issues.  CMS also finalizes additional policies related to the SNF Value-Based Purchasing (VBP) Program.  For example, CMS specifies the SNF 30-Day Potentially Preventable Readmission Measure (SNFPPR) as the all-cause, all-condition risk-adjusted potentially preventable hospital readmission measure, which assesses the facility-level risk standardized rate of unplanned, potentially preventable hospital readmissions for SNF patients within 30 days of discharge from hospitals paid under the IPPS, critical access hospitals or psychiatric hospitals.  For a CMS Fact Sheet with more on the SNF final rule, click here.

In addition to updating the payment rates for hospices as described above, CMS finalizes changes to the Hospice Quality Reporting Program (QRP) in the hospice final rule.  Specifically, CMS provides a description of the Hospice CAHPS Experience of Care Survey, including details such as the model of survey implementation, survey respondents and eligibility criteria for the sample, and outlines participation requirements for the fiscal years 2019 and 2020 annual payment updates.  CMS also finalizes two new quality measures: (1) Hospice Visits When Death Is Imminent, which will assess hospice staff visits to patients and caregivers in the last three to seven days of life; and (2) Hospice and Palliative Care Composite Process Measure, which will assess the percentage of hospice patients who received care processes consistent with guidelines.  For a CMS Fact Sheet with more on the hospice final rule, click here.    

In addition to updating the payment rates for IRFs as described above, CMS finalizes changes to the IRF Quality Reporting Program (QRP) by adopting five new measures.  Three of those measures are finalized for the fiscal year 2018 payment determination and subsequent years to meet the resource use and other measure domains:
(1) Medicare Spending Per Beneficiary – Post-Acute Care (PAC) IRF QRP;

(2) Discharge to Community – PAC IRF QRP; and

(3) Potentially Preventable 30-Day Post-Discharge Readmission – IRF QRP.
One measure is for the fiscal year 2020 payment determination and subsequent years to meet the medication reconciliation domain – Drug Regimen Review Conducted with Follow-Up for Identified Issues.  The final measure is Potentially Preventable Within Stay Readmission for IRFs, which will be for the fiscal year 2018 payment determination and subsequent fiscal years.  For a CMS Fact Sheet with more on the IRF final rule, click here

All three final rules are scheduled to be published in the Federal Register on August 8, 2016. 

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

CMS Issues Pay Increase for Inpatient Psychiatric Facilities – On July 28, 2016, CMS issued a notice updating the prospective rates for Medicare inpatient hospital services provided by inpatient psychiatric facilities.  Beginning in fiscal year 2017, inpatient psychiatric facilities will receive an estimated 2.2 percent, or $100 million, increase in Medicare reimbursement, which is more than the 1.5 percent increase in reimbursement those facilities received this fiscal year.  The notice also updated the Inpatient Psychiatric Facilities Prospective Payment System (“IPF PPS”) per diem rate from $743.73 to $761.37 for providers that reported quality data for FY 2017 payment. 

In addition to the change in reimbursement rates to inpatient psychiatric facilities, the notice included the most recent Office of Management and Budget's area delineations, which were finalized in the 2016 IPF PPS final rule.  Due to the adoption of the new area delineations, some inpatient psychiatric facilities’ statuses changed from rural to urban, which means those facilities will lose the 17percent pay increase that rural providers receive.  Under the 2016 IPF PPS final rule, CMS implemented a policy to phase out that rural pay adjustment for the affected inpatient psychiatric facilities.  The affected inpatient psychiatric facilities will receive two-thirds of the rural adjustment this year, one-third of the rural adjustment next year, and no adjustment starting in 2018.

CMS waived the notice and comment procedure for the updates contained in this notice, stating:  “We find it unnecessary to undertake notice and comment rulemaking for this action because the updates in this notice do not reflect any substantive changes in policy, but merely reflect the application of previously established methodologies.” 

Reporter, Brittany Strandell, Atlanta, +1 404 572 2796,

University of Mississippi to Pay $2.75 Million for Alleged HIPAA Violations – On July 21, 2016, the Office for Civil Rights (OCR) at the Department of Health and Human Services (HHS) announced a settlement with the University of Mississippi Medical Center (UMMC), stemming from a 2013 breach of electronic personal health information (ePHI) affecting approximately 10,000 patients.  The terms of the settlement require UMMC to pay a $2.75 million fine for alleged violations of the Health Insurance Portability and Accountability Act of 1996 (HIPAA), as well as implement a three-year corrective action plan to reform its privacy and data security protocols.

This investigation originated from a March 2013 incident in which a laptop containing patient information was reported missing from UMMC’s intensive care unit.  The university believes that the computer was probably stolen by a hospital visitor who had previously asked to use it.  OCR determined that UMMC lacked several critical institutional policies and infrastructural protections to prevent or mitigate harm caused by data breaches, ranging from the use of unsophisticated, generic usernames and passwords to log on to workstations, no firewall to prevent individuals with basic access to those laptops from reaching the patient database and other sensitive files on UMMC’s network, and no effective tracking mechanism to identify when and by whom data has been accessed.  In addition, HHS found that UMMC’s method of notifying the approximately 10,000 patients whose data was available on the missing laptop was inadequate – instead of sending individual notifications regarding the data breach and the risk of potentially compromised PHI to affected persons, UMMC relied on use of local media and a posting on its website to notify the public of the incident.

During its investigation, OCR also determined that UMMC had knowledge of risk factors and vulnerabilities in its data security and privacy policies as early as 2005, but had not taken sufficient action to institute procedures that would bring the medical center into compliance with the HIPAA Privacy, Security, and Breach Notification Rules “due largely to organizational deficiencies and insufficient institutional oversight.”

This settlement is the second HIPAA enforcement action announced by OCR in recent weeks.  On July 18, the agency also announced its intent to settle an investigation of potential HIPAA violations at the Oregon Health & Science University (OHSU).  In that settlement, the university agreed to pay a $2.7 million fine and institute a three-year corrective action plan after OCR determined that four breaches from 2012-2013, resulting from improper access to laptops and USB drives that were ultimately lost or stolen, compromised PHI of more than 3,000 individuals.

OCR’s press release regarding the UMMC settlement can be found here.  The terms of the settlement, including the corrective action plan, can be found here.

Reporter, C’Reda Weeden, Washington, D.C., + 1 202 626 5572,


CMS Provides Update Regarding Patient Status Review Delay – On July 27, 2016 CMS posted an update regarding Quality Improvement Organization (QIO) reviews of patient status claims, which are currently paused.  CMS notes that it believes that the QIO review pause will be lifted within 90-120 days. In addition, CMS clarified the instructions and look-back period for QIO review of claims impacted by the review pause. The CMS update is available here, and an FAQ is available here.

Second Chance to Watch the King & Spalding Roundtable Online on Provider-Based Status Changes and OPPS/MPFS Proposed Rules -- On July 21, 2016, King & Spalding hosted a Life Sciences & Healthcare Roundtable on the major provisions of CMS’s CY 2017 Outpatient PPS and Physician Fee Schedule Proposed Rules. The OPPS Proposed Rule includes CMS’s attempt to implement Section 603 of the Bipartisan Budget Act of 2015, which directs CMS to pay for most items and services furnished in new off-campus provider-based departments at the applicable non-facility payment rate.  Because of the strong demand for the original Roundtable, we are now providing access to an on-demand Webcast. There are no restrictions on who may register, and there is no charge. This Webcast will be available until August 15.  More information is available here. 

Watch Sessions of the King & Spalding Health Law and Policy Forum Online! – King & Spalding is pleased to share sessions from its Health Law and Policy Forum by video through August 15, 2016.  Currently, we are offering the keynote address by the distinguished associate editor of The Washington Post, Bob Woodward, as well as sessions on hospital consolidation, hot topics and trends in healthcare antitrust enforcement, and opportunities and obstacles in healthcare delivery innovations. Find out more and register here.