News & Insights


December 12, 2016

Health Headlines – December 12, 2016

HHS OIG Issues Final Rules Adding New Anti-Kickback Safe Harbors, Expanding CMP Liability – On December 7, 2016, the HHS OIG issued a long-awaited final rule providing additional safe harbors under the federal anti-kickback statute (AKS) and changed the definition of “remuneration” in the civil monetary penalty (CMP) regulations.  The amendment is intended to protect certain payment practices and business arrangements from sanctions under the AKS.  A second final rule amends CMP regulations “to incorporate new CMP authorities, clarify existing authorities, and reorganize regulations on CMPs, assessments, and exclusions to improve readability and clarity.”

The final rules are the culmination of a proposed rule from 2014.  OIG stated that changes to the safe harbor provisions are based on the Congress’s intention “that the safe harbor regulations be updated periodically to reflect changing business practices and technologies in the health care industry.”  OIG stated in the final rule that it incorporated “safe harbors for payment and business practices permitted under the [Medical Prescription Drug, Improvement, and Modernization Act of 2003] and [Affordable Care Act (ACA)], as well as new safe harbors . . . to protect practices [OIG views] as posing a low risk to Federal health care programs.” 

The new safe harbors are found in the amended 42 C.F.R. § 1001.952, and include the following:

  • Protection for certain cost-sharing waivers, including (i) pharmacy waivers of cost-sharing for financially needy beneficiaries and (ii) waivers of cost-sharing for emergency ambulance services furnished by State- or municipality-owned ambulance services;

  • Protection for certain remuneration between Medicare Advantage organizations and federally qualified health centers;

  • Protection for discounts by manufacturers on drugs furnished to beneficiaries under the Medicare Coverage Gap Discount Program; and

  • Protection for free or discounted local transportation services that meet specified criteria.

OIG also changed the definition of “remuneration” in the CMP regulations at 42 C.F.R. Part 1003.  These changes add “copayment” to the existing “coinsurance and deductible amounts,” and also incorporate statutory exceptions for:

  • Copayment reductions for certain hospital outpatient department services;

  • Certain remuneration that poses a low risk of harm and promotes access to care;

  • Coupons, rebates, or other retailer reward programs that meet specified requirements;

  • Certain remuneration to financially needy individuals; and

  • Copayment waivers for the first fill of generic drugs.

The second rule implements provisions of the ACA that allow for civil monetary penalties, assessments, and exclusions for:

  • Failure to grant OIG timely access to records;

  • Ordering or prescribing while excluded;

  • Making false statements, omissions, or misrepresentations in an enrollment application;

  • Failure to report and return overpayments; and

  • Making or using a false record or statement that is material to a false or fraudulent claim.

The civil monetary penalties for failure to report and return overpayments was a notable change from the 2014 proposed rule.  In the earlier version, OIG sought to impose a default penalty of up to $10,000 per day.  The final rule adopts a per-item/service model, which is more consistent with the text of the ACA and reduces the threat of large penalties that may bear no relationship to the underlying overpayment. 

Reporter, Scott Cameron, Sacramento, CA, +1 916 321 4807,

Court Orders HHS to Eliminate Medicare Appeals Backlog by Start of CY 2021 -- As previously reported, the American Hospital Association (AHA) filed suit against HHS in 2014 in connection with the Medicare appeals backlog and requested that the court force HHS to meet its statutory deadline for administrative review of denials of claims for Medicare reimbursement.  As also reported, AHA recently filed a motion for summary judgment requesting that the court direct HHS to implement certain “practicable solutions” to address the appeals backlog or, in the alternative, direct HHS to comply with certain targets and deadlines that would eliminate the appeals backlog by the start of CY 2021.  On December 5, 2016, U.S. District Judge James Boasberg granted AHA’s motion for summary judgment and adopted AHA’s proposed deadlines for reducing the appeals backlog over the next four years.

Specifically, in October 2016, AHA filed a motion for summary judgment requesting that the court direct HHS to implement the following three “practicable solutions” to address the Medicare appeals backlog:

  • Offer reasonable settlements to broad groups of Medicare providers and suppliers;

  • Delay repayment of at least some subset of disputed Medicare claims, and toll the accrual of interest on those claims for waiting times beyond the statutory maximums; and

  • Impose financial penalties on Recovery Auditors for poor outcomes at the administrative law judge level.

In the alternative, AHA proposed that the court should direct HHS to comply with certain targets and deadlines that would eliminate the appeals backlog by the start of CY 2021.  If HHS could not eliminate the backlog by January 1, 2021, AHA proposed that the court enter a default judgment in favor of all claimants whose appeals had been pending for more than a year.

On November 7, 2016, HHS filed its own motion for summary judgment along with its opposition to AHA’s motion for summary judgment.  HHS argued that court intervention was unnecessary to reduce the appeals backlog.  HHS informed the court that it had implemented multiple measures to combat the backlog and that it estimated the backlog would be eliminated by CY 2019 “with a combination of administrative and legislative” actions.

As noted, on December 5, 2016, U.S. District Judge James Boasberg granted AHA’s motion for summary judgment, observing that “[a]lthough the Court is glad to learn that the backlog-reduction projections are better than earlier reported, they are still unacceptably high.”  The court further noted that HHS did “not point to any categorically new administrative actions and, critically, continues to promise the elimination of the backlog only ‘with legislative action’ – a significant caveat.”

The court then adopted AHA’s proposed deadlines that would reduce the appeals backlog over the next four years.  Specifically, the court ordered HHS to:

  • Reduce the appeals backlog by 30 percent by the end of 2017;

  • Reduce the appeals backlog by 60 percent by the end of 2018;

  • Reduce the appeals backlog by 90 percent by the end of 2019; and

  • Completely eliminate the appeals backlog by December 31, 2020.

Should HHS be in default on January 1, 2021, AHA may move for a default judgment or enforce the writ of mandamus.  The court denied AHA’s request that the court automatically enter default judgment in favor of all claimants whose appeals have been pending at the ALJ level without a hearing for more than one calendar year.  Additionally, the court ordered HHS to file status reports with the court every 90 days. 

The court’s order is available here and its opinion is available here.

Reporter, Stephanie F. Johnson, Atlanta, +1 404 572 4629,

CMS Reminds Providers to Identify Off-Campus Provider-Based Departments on Enrollment Forms - In connection with CMS’s implementation of Section 603 of the Bipartisan Budget Act of 2015 (BBA15), which directs CMS to no longer pay hospitals the full OPPS rate for services furnished in non-excepted off-campus provider-based departments (PBDs) beginning January 1, 2017, CMS recently released an article (MLN Article) reminding providers that all off-campus PBDs are required to be correctly identified on a hospital’s enrollment record.  Under BBA15, off-campus PBDs that had been billing under the OPPS prior to November 2, 2015 are excepted, meaning that services provided at such locations will continue to be paid the OPPS rate.  Hospitals are strongly advised to add all excepted off-campus PBDs as practice locations on their CMS 855A enrollment form before the end of CY 2016 in order to ensure timely payment for services furnished at excepted PBDs.

In the preamble to the CY 2017 OPPS Final Rule implementing BBA15, CMS was unclear as to whether PBDs that had been billing under the OPPS prior to November 2, 2015 but were not included on a hospital’s enrollment record would be excepted.  The MLN Article specifies that “[i]f a hospital claim is submitted with a service facility location that was not included on the CMS 855A enrollment form, it will be returned to the provider until the CMS 855A enrollment form and claims processing system is updated” (emphasis added).  This statement suggests that if a provider has an off-campus PBD that is not listed on the hospital’s enrollment record but had been billing under the OPPS prior to November 2, 2015, CMS will pay for services performed at that location – but only after the provider makes the necessary changes to its enrollment record.  

Providers should review their enrollment records to ensure off-campus PBDs are included in their records and work with their Medicare Administrative Contractors to ensure any additional locations are added with the correct effective date (i.e., prior to November 2, 2015) if such location should be an excepted location.  The MLN Article is available here

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

Senate Finance Committee Releases Report on Concurrent and Overlapping Surgeries – On December 6, 2016, Senate Finance Committee Chairman Orrin Hatch (R-Utah) and Ranking Member Ron Wyden (D-Ore.) issued a Committee staff report detailing concurrent and overlapping surgery practices.  The report also offers multiple recommendations for hospitals and regulators to promote patient safety, reduce potential improper payments and improve transparency.

As previously reported, the Committee sent letters to 20 teaching hospitals in February 2016 with questions regarding overlapping surgery practices.  The inquiry came on the heels of an in-depth Boston Globe investigation of concurrent and overlapping surgery practices at Massachusetts General Hospital, which raised concerns about patient informed consent and quality of care.

The Committee report provides an overview of regulatory authority and industry guidance regarding concurrent and overlapping surgeries for both teaching and non-teaching hospitals.  The report also summarizes general arguments for and against the practice of overlapping and concurrent surgeries, noting, however, that little data or research exists on the frequency, effectiveness, or impact on surgical outcomes and patient health.

The Committee encourages providers to, among other things, develop a policy addressing concurrent and overlapping surgeries, develop mechanisms to enforce such policies, and develop processes that ensure patient consent for such procedures. 

The report further details policy and process approaches taken by multiple providers, and offers suggestions for other institutions to consider when reviewing their own approach to such practices.  Notably, the Committee specifically addresses the practice of concurrent surgeries, which occurs when the key or critical portions of two surgical procedures under one primary attending surgeon occur simultaneously.  The report states that, beginning in the first quarter of 2017, The Joint Commission will begin citing hospitals when surveyors determine that a concurrent surgery was performed or that a hospital has no policy in place prohibiting concurrent surgeries.

In addition, the report notes that CMS has not routinely monitored or audited teaching hospitals for conformance with applicable billing rules for overlapping surgeries.  As such, the Committee recommends that HHS OIG evaluate current billing controls.  In addition, the Committee encourages CMS to review current billing rules for teaching institutions to determine whether those requirements should be established for other non-teaching surgical facilities and scenarios.

The report is available here.

Reporter, Lauren S. Gennett, Atlanta, + 1 404 572 3592,

Supreme Court Rejects Automatic Dismissal for False Claims Act Seal Violations – In a unanimous opinion issued December 6, 2016, the U.S. Supreme Court held that violation of the False Claims Act’s (FCA’s) seal requirement is not grounds for automatic dismissal.  The Court declined to provide guidance for when dismissal may be appropriate and instead deferred to the discretion of the district courts.  The case is State Farm Fire & Casualty Co. v. United States ex rel. Rigsby, and the opinion is available here.

In the case, relators alleged that State Farm falsely classified wind damage caused by Hurricane Katrina as flood damage, which would shift payment responsibility to the government under federal flood insurance policies.  The relators’ attorney provided certain filings subject to the seal to national news media outlets in an intentional violation of the FCA’s seal requirement.  The district court allowed the case to proceed, concluding the government was not prejudiced by the publication and given that the attorney violating the seal was removed from the case.  The Fifth Circuit affirmed the district court’s decision, rejecting a prior Sixth Circuit holding that dismissal is mandatory for any violation of the FCA seal.

The Supreme Court examined the structure of the FCA, which does not specify a remedy for seal violations.  However, the Court identified a number of provisions in the FCA that do expressly require dismissal.  The Court concluded that, had Congress intended to require dismissal for a seal violation, it would have included such language.  Noting that defendants’ reputations may be harmed by potential seal violations, the Court stated that district courts have a full range of sanctions available, including dismissal, monetary penalties, and attorney discipline, to address violations. 

In leaving discretion with district courts, the Court indicated that the balancing factors included in the Ninth Circuit’s United States ex rel. Lujan v. Hughes Aircraft Co. opinion “appear to be appropriate” but left the standards to be discussed “in the course of later cases.”  67 F.3d 242 (9th Cir. 1995).  The factors in Lujan include (1) the extent of harm to the government, (2) the severity of the violation, and (3) whether the disclosure was made in bad faith. 

Reporter, Paige Fillingame, Houston, +1 713 615 7632,

HHS OIG Updates Its Interpretation of “Nominal Value” Under CMP to $15 Per Item or $75 Per Patient Per Year – On December 7, 2016, HHS OIG issued a “General Policy Statement Regarding Gifts of Nominal Value to Medicare and Medicaid Beneficiaries” (Policy Statement).  In the Policy Statement, OIG announced that it is changing its interpretation of “nominal value” for the purposes of the civil monetary penalties law (CMP) from no more than $10 per item or $50 in the aggregate per patient in a year to no more than $15 per item or $75 in the aggregate per patient in a year.  OIG reiterated that gifts (except cash or cash equivalents) provided to beneficiaries that are below the nominal value need not satisfy an exception to the CMP.

The CMP (section 1128A(a)(5) of the Social Security Act; 42 U.S.C. § 1320a-7a(a)(5)) provides for the imposition of civil monetary penalties against any person who offers or transfers remuneration to a Medicare or Medicaid beneficiary that the benefactor knows or should know is likely to influence the beneficiary’s selection of a particular provider, practitioner, or supplier of any item or service for which payment may be made, in whole or in part, by Medicare or Medicaid.  “Remuneration” is defined in the statute as, among other things, waivers of copayments and deductible amounts and transfers of items or services for free or for other than fair market value. 

In a 2000 rule implementing the CMP, OIG took the position that “incentives that are only nominal in value are not prohibited by statute. . . .”  65 Fed. Reg. 24400, 24411 (Apr. 26, 2000).  In support of this position, OIG pointed to a Congressional Conference Committee report accompanying the enactment of the CMP, in which Congress expressed its intent that inexpensive gifts of nominal value be permitted.  In the 2000 rule, OIG interpreted nominal value to mean no more than $10 per item, or $50 in the aggregate on an annual basis.  The newly-released Statement Policy adjusts these figures to $15 per item or $75 in the aggregate on an annual basis.

Last year’s advisory opinion 15-01 provides an example of an arrangement that fit within the nominal value exemption.  There, the requestor advertised free diapers and play yards to certain Medicaid beneficiaries to induce the beneficiaries to enroll in a maternal infant health program, choose a particular provider, and participate in billable visits.  OIG concluded that the arrangement would not subject the requestor to sanctions under the CMP in part because the diapers were nominal in value.

Reporter, Igor Gorlach, Houston, +1 713 276 7326,


King & Spalding Issues Client Alert on FDA Scrutiny of Hospitals’ Compliance with Facility User Requirements for Medical Device Reporting – The U.S. Food and Drug Administration (FDA) recently issued a Form FDA 483 to 15 prominent hospitals across the United States following inspections that demonstrated failures to comply with the user facility medical device reporting requirements.  Hospitals are required by regulation to have written procedures to ensure the submission of reports no more than 10 work days after the facility becomes aware of information reasonably suggesting that a medical device has, or may have, caused or contributed to a death or serious injury to a patient.  For details on the inquiry, please read the full Client Alert here.

CMS Releases the Finalized Medicare Outpatient Observation Notice Form – On December 9, 2016, CMS released the final Medicare Outpatient Observation Notice (MOON) form.  The MOON form is a standardized form developed by CMS to facilitate implementation of the Notice of Observation Treatment and Implication for Care Eligibility Act (Notice Act) requirements.  Hospitals and critical access hospitals must begin using the finalized, standard MOON form no later than March 8, 2017.  Importantly, however, the Notice Act requirements were effective August 6, 2016.  The final MOON form and instructions are available here

House’s Suit to Block Affordable Care Act Subsidies Paused Until February – On December 5, 2016, the U.S. Court of Appeals for the District of Columbia Circuit granted the House of Representatives’ motion to pause the House’s litigation against HHS over the payment of Affordable Care Act subsidies to health insurers.  As previously reported, the House petitioned the court to grant a temporary stay to allow the new Administration to consider whether to continue litigating.  The case is currently on appeal after the district court held that the appropriation of funds to pay cost-sharing subsidies to health insurers under the Affordable Care Act was not approved by Congress.  The case will be held in abeyance until February 21, 2017. 

King & Spalding to Host December 14 Roundtable on Graduate Medical Education Reimbursement  – Join us this Wednesday, December 14, 2016 for a webinar-only Roundtable titled “Everything You Wanted to Know About Medicare’s Reimbursement for Graduate Medical Education But Were Afraid To Ask – The Latest Updates, Issues, and Opportunities.” The Roundtable will provide an introduction to the mechanics of graduate medical education reimbursement and will also address complex issues, such as the relationship between new programs, cap adjustments, and affiliation agreements including the practical implications of CMS’s clarified definition of what constitutes a “new” program.  To register, please click here.