News & Insights


December 2, 2019

Health Headlines – December 2, 2019

CMS Issues Proposed Rule Aimed at Increasing Transparency and Reducing Medicaid Program Spending – On November 18, 2019, CMS published the proposed Medicaid Fiscal Accountability Rule (the Proposed Rule) which, if finalized, would result in dramatic changes to the Medicaid program.  Through the Proposed Rule, CMS aims to reduce Medicaid spending and financing of Medicaid supplemental payments.  The Proposed Rule focuses on four areas: (1) Medicaid fee-for-service (FFS) provider payments; (2) Medicaid disproportionate share hospital (DSH) payments; (3) Medicaid program financing (including supplemental payments) and health care-related taxes; and (4) provider-related donations. Comments to the Proposed Rule are due by January 17, 2020. 

Medicaid FFS Provider Payments

CMS is looking to gather additional data from states to ensure that FFS and other payments are consistent with efficient, economy, and quality of care. Citing a March 2014 report issued by the Medicaid and CHIP Payment and Access Commission, CMS noted that, in certain states, supplemental payments accounted for more than 20% of total computable Medicaid FFS payments to hospitals.  CMS is looking to collect provider-level data on FFS and supplemental payments to “facilitate assessments of Medicaid payments and analysis of the relationship between supplemental payments and access to care, as well as the economy and efficiency of Medicaid payments.”

Certain proposed changes also include (1) allowing CMS to phase out existing and new Medicaid supplemental payment methodologies after three years and (2) requiring states to request CMS approval to continue a Medicaid supplemental payment programs that fall outside of the three-year threshold and submission of an evaluation plan to demonstrate the policy goals and objectives of the supplemental payment program.

Medicaid DSH Payments

CMS makes funding available to hospitals that treat a disproportionate number of low-income patients through Medicaid DSH payments. Medicaid DSH payments are not considered part of the Medicaid base rate or supplemental payments, because such funding is made available to DSH hospitals under a separate, distinct statutory authority. In the Proposed Rule, CMS states that CMS, OIG, and GAO have concerns regarding CMS’s ability to adequately oversee the DSH program.

The Proposed Rule proposes requiring each state to submit an independent certified audit of the state’s DSH program on an annual basis. The Proposed Rule would also require state auditors to quantify the financial impact of any finding, including those resulting from incomplete or missing data, which may affect whether each hospital has received DSH payments for which it is eligible within its hospital-specific DSH limit. The Proposed Rule also “clarifies” that any amounts identified in the audit findings are overpayments that must be reported with the federal government.  Under the Proposed Rule, an overpayment would include any payment in excess of hospital-specific cost limits. Such amounts would have to be reported to the federal government by reporting any overpayments on Form CMS–64.

Medicaid Program Financing

Federal law requires that for purposes of determining the federal matching funds to be paid to a state, the total amount of the state’s Medicaid expenditures must be reduced by the amount of payments the state collects from impermissible health care-related taxes and non-bona fide provider-related donations. Provider taxes used to finance the state’s share may only be imposed on a permissible class of health care items or services.  Also, the tax must be “broad based” (meaning that all non-federal, nonpublic providers and all items and services within a class of health care items or services must be taxed) and “uniform” (meaning that the tax rate must be the same for all health care items or services in a class, as well as providers of such items or services).

In the Proposed Rule, CMS explains that differential treatment, as it relates to a health care tax, occurs when a tax program treats some individuals or entities that are providing or paying for health care items or services differently than (1) individuals or entities that are providers or payers of any health care items or services not subject to the tax or (2) other individuals or entities subject to the tax. CMS states that differential treatment would also result when entities providing or paying for health care items or services are treated differently than other entities also included in the tax. For example, if the state taxes all businesses in the state, but places a higher tax rate on hospitals and nursing facilities than on other businesses, this would result in prohibited differential treatment. CMS is aiming to prohibit state or local units of government from imposing a tax in such a way as to include items or services that are not reasonably related, so that only select health care items or services are included in the tax while others are excluded.

CMS will evaluate taxes based on whether the totality of the circumstances demonstrate that the “net effect” of the arrangement results in a reasonable expectation that the taxpayer will be held harmless for its payment of the tax. Per CMS, a hold harmless arrangement exists “when a state payment is made available to a taxpayer or a party related to the taxpayer… in the reasonable expectation that the payment would result in the taxpayer being held harmless for any part of the tax.”

The Proposed Rule would result in significant changes in a state’s ability to rely on providers to fund the state’s non-federal share. The Proposed Rule would also more narrowly define the allowable sources of the non-federal share and replace references to “public funds” with “state or local funds.” It also purportedly “clarifies” the statutory requirement that intergovernmental transfers (IGTs) must be derived from state or local tax revenues instead of “public funds” from all sources. Further, the Proposed Rule provides that state funds provided as an IGT from a unit of government that are contingent upon the receipt of funds by, or are actually replaced in the accounts of, the transferring unit of government from funds from unallowable sources, would be considered impermissible provider-related donations. 

Provider-Related Donations

A state’s non-federal share may also be funded in part from provider-related donations to the state, but these donations must be ‘‘bona fide.’’ CMS interprets this to mean a “truly voluntary” donation and one that is “not part of a hold harmless arrangement that effectively repays the donation to the provider.” CMS is concerned about states and providers designing financing structures to “mask” allegedly “non-bona fide, provider-related donations.” CMS indicated that states, local governments, and providers are using such structures to “obfuscate” the source of the state’s non-federal share and “avoid the statutorily-required reduction to state medical assistance expenditures.”

The Proposed Rule clarifies the hold harmless definition related to provider-related donations to account for the “net effect” of complex donation arrangements, including where the donation takes the form of the assumption of governmental responsibilities. Under the Proposed Rule, any exchange of value that constitutes a governmental entity reimbursing a private entity for value related to the private entity’s donation need not arise to the level of a legally enforceable obligation but must be considered in terms of its net effect.

CMS will accept public comments through January 17, 2020. If you would like to discuss the potential impact of this proposed rule on your provider organization please contact Adam Robison at or Michelle Huntsman at

Reporter, Michelle Huntsman, Houston, TX,  +1 713 751 3211,

CMS Releases Request for Application for New Direct Contracting Models

On November 25, 2019, CMS released a Request for Application (RFA) describing how organizations can apply to participate in two of three Direct Contracting Model options.  The Direct Contracting Model is a set of voluntary payment models that aim to lower costs and maintain or improve quality for Medicare fee-for-service (FFS) beneficiaries through risk-based contracts.  The application to participate closes on Tuesday, February 25, 2020.  To apply, organizations must first submit a Letter of Intent (LOI), indicating their interest in model participation.  The LOI submission period ends on December 10, 2019. 

Model participants, known as Direct Contracting Entities, collectively take accountability for a Medicare FFS population through a combination of capitation and shared savings and losses. These new payment model options are aimed at providers that were unable to participate in legacy models, such as the Medicare Shared Savings Program or the Next Generation Accountable Care Organization (NGACO) Model or both.  CMS also states that the Direct Contracting Model offers an option for NGACO Model participants after the NGACO Model ends in December 2020.

The two Direct Contracting Model options currently available for participation include:

  • The Professional Option – a lower-risk option with 50 percent shared savings/shared losses and a primary care capitation equal to seven percent of the performance year benchmark for enhanced primary care services; and
  • The Global Option – full risk option with 100 percent shared savings/shared losses and either a primary care capitation or total care capitation.

As CMS explains, the Professional and Global options aim to:

  • Transform risk-sharing arrangements in Medicare FFS by offering both capitated and partially capitated population-based payments that move away from traditional Medicare FFS.
  • Broaden participation in CMS Innovation Center models by allowing model participation by organizations new to Medicare FFS, such as physician managed organizations currently operating exclusively in the Medicare Advantage program.
  • Empower beneficiaries to engage in their care delivery through voluntary alignment and potential benefit enhancements.
  • Reduce health care provider burden to meet health care needs effectively through, for example, a smaller set of core quality measures and waivers to facilitate care delivery.

CMS plans to release more details on the third model, the Geographic option, at a later date.  The Geographic option is a full risk option with 100 percent shared savings/shared losses that will offer an opportunity to assume total cost of care risk for Medicare Parts A and B services for Medicare FFS beneficiaries in a defined target region.

The RFA, which includes more details on the Direct Contracting Model, is available here. CMS’s webpage to submit an LOI is available here

Reporter, Ahsin Azim, Washington, D.C., +1 202 626 9262,

New York Hospital Settles Overlapping Urology Surgery Allegations -- On November 8, 2019, the Department of Justice (DOJ) announced a settlement with a New York hospital for $12.3 million in connection with alleged improper overlapping and concurrent urology surgeries performed by one physician. The settlement also addressed allegations relating to medically unnecessary operating room services as well as alleged Stark law violations involving the physician’s compensation arrangement.

Specifically, the Complaint alleges that from July 2013 through June 2018, the hospital allowed the physician to engage in inappropriate overlapping surgeries when they allowed him to schedule two separate surgeries at the same time, often an endoscopy and a high-risk complex surgery involving a robot. The Complaint further alleges that residents assisting the physician were not supervised in accordance with Medicare requirements and the hospital’s own supervision policy. The Complaint also alleges that the hospital permitted the physician to perform minor procedures in operating rooms, which resulted in the submission of claims for medically unnecessary operating room services. In addition, the Complaint includes allegations that the hospital submitted claims for services in violation of the Stark Law because the physician’s compensation grossly exceeded fair market value as it factored in the value of his referrals of designated health services to the hospital and included compensation for services he did not perform.

As part of the settlement, defendants admitted to certain conduct alleged in the Complaint, including that the hospital practices resulted in the submission of several million dollars of inappropriate claims to Medicare. The DOJ press release is available here.

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

Also in the News

King & Spalding Roundtable: Direct-to-Employer Contracting by Healthcare Providers:  Legal and Practical Considerations

On Friday, December 13, 2019, from 1:00 p.m. ET – 2:00 p.m. ET, King & Spalding will host a webinar titled, “Direct-to-Employer Contracting by Healthcare Providers:  Legal and Practical Considerations.”  The webinar will explore some of the benefits and pitfalls of an emerging “direct-to-employer” trend, including the following: 

  • Best practices for direct provider-employer negotiations;
  • Terms in contracts with major plans and leased network arrangements that must be considered;
  • The role of ERISA; and
  • Key cost reduction drivers:
    • Employer-created narrow networks, tiered networks and branded networks;
    • Reference-based benefit structures;
    • Advanced payment methodologies;
    • Direct contracting with digital health; and
    • Data acquisition, retention and use.

You do not need to be a client to attend, and there is no charge.  To register, please click here.