News & Insights


January 21, 2020

Health Headlines – January 21, 2020

Home Health Provider Must Repay More Than $12 Million to Medicare Following Fifth Circuit Decision Affirming HHS Extrapolation of the Alleged Overpayment – On January 15, 2020, the U.S. Court of Appeals for the Fifth Circuit upheld HHS’s extrapolation method for calculating overpayments made to a home health provider.  As a result, the home health provider, Palm Valley Health Care, Inc. (Palm Valley), will have to repay more than $12 million to HHS.  The Fifth Circuit’s decision in Palm Valley Health Care, Inc. v. Azar can be found here.
The Fifth Circuit reasoned that, because “Medicare is the largest recipient of federal funds after Social Security and defense,” Congress created an administrative process that Medicare can use to recover overpayments made to providers.  This process allows Medicare to investigate a select sample of claims from a provider rather than auditing each claim.  If the audit of the sample reveals “a sustained or higher level of payment error,” Medicare can extrapolate the overpayment rate to a larger pool of similar claims. 
After determining that Palm Valley had an unusually large number of claims involving five or more consecutive home health episodes, HHS randomly sampled 54 claims from a universe of 10,699 claims submitted by Palm Valley to Medicare.  The audit showed a significant percentage of the sample claims failed to meet Medicare coverage requirements. 
For home health services to qualify for Medicare reimbursement, they must be provided to a beneficiary who is under the care of a physician, in need of skilled services, under a plan of care, and homebound.  The sample audit revealed that 29 of the beneficiaries in the 54-claim sample were either not homebound or did not need skilled care.  The overpayment for the sample amounted to $81,681.03, which, when extrapolated, amounted to a total repayment demand of $12,589,185.
During Palm Valley’s administrative appeals process, the Administrative Law Judge (ALJ) concluded that 2 of the 29 claims initially flagged as overpayments were in fact properly paid.  The Medicare Appeals Council (MAC) affirmed the ALJ’s decision in large part but concluded that the claims for two additional beneficiaries previously found to be uncovered were in fact eligible claims.  The number of ineligible claims was thus reduced from 29 to 25.
On appeal to the Fifth Circuit, Palm Valley argued that HHS violated due process by failing to meet statutory deadlines at each stage of the administrative process.  The court noted that a “violation of a statutory deadline does not automatically mean a lack of due process; the Constitution, not statutes, determines the minimum procedures that due process requires.”  The court further found that Palm Valley failed to establish substantial prejudice from delays in the administrative appeals process.
Palm Valley also argued that HHS’s statistical methods were inappropriate.  Specifically, Palm Valley claimed that HHS’s extrapolation methodology runs afoul of Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), because the methodology had not been peer reviewed or generally accepted in the relevant scientific community.  The court found that Daubert does not apply in agency proceedings because Federal Rule of Evidence 702 and the federal rules of evidence do not govern agencies.  Further, the court stated that the “procedural ‘gatekeeping’ aspects of Daubert, aimed as they are at preventing the jury from being tainted by unreliable evidence, do not translate to agency proceedings for the same reason they do not fully translate to bench trials: in reaching a decision, a judge will only rely on evidence the judge deems reliable.”
Additionally, the Fifth Circuit rejected Palm Valley’s argument that the sample used in the Medicare audit was too small.  Noting the practical constraints imposed by conflicting demands on limited public funds, the court stated that “[t]he extrapolation methodology may be imperfect,” but that it is the “product of a complex balance of interests.  At a minimum, it constitutes substantial evidence in support of the agency’s decision.”  In affirming HHS’s overpayment, the Fifth Circuit also rejected Palm Valley’s argument that HHS lacked substantial evidence for its findings because HHS, the ALJ, and the MAC all relied too heavily on interviews to determine whether the beneficiaries audited were homebound. 
Reporter, Elizabeth Han, Houston, +1 713 276 7319,

2020 Brings Moderate Expansion of Medicare Coverage for Telehealth Services – The new year brings changes of interest to those who are monitoring the expansion of telehealth. The expansions, announced in the Calendar Year (CY) 2020 Physician Fee Schedule (PFS) final rule published November 15, 2019, were designed to address one of the most publicized social concerns of our time – the opioid crisis.  The prerequisites to coverage dramatically limit the significance of the final rule for telehealth providers, particularly compared to the CY 2019 PFS final rule.

In 2019, the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act (the SUPPORT Act) (Pub. L. 115-271) allowed telehealth services for treatment of a diagnosed substance use disorder (SUD) or co-occurring mental health disorder to be furnished to individuals at patients’ homes regardless of geography. This was possibly the most dramatic expansion of Medicare coverage for telehealth services to date–all brought about by the extraordinary need to address the nation’s substance abuse and mental health crises. 

In 2020, CMS is focusing on the nation’s opioid public health emergency by announcing it will cover opioid use disorder (OUD) treatment services furnished by Opioid Treatment Programs (OTPs) under specified circumstances. The Medicare and dual-eligible populations have the fastest growing prevalence of OUD compared to the general adult population.

As of January 1, 2020, CMS makes bundled payments for an expanded list of OUD treatment services, some of which may be provided via telehealth. Of course, several conditions apply:

  • First, the services must be provided by qualified OTPs. OTPs must be fully certified by the Substance Abuse and Mental Health Services Administration (SAMHSA) and accredited by a SAMHSA-approved accrediting body to enroll in the Medicare program. Once enrolled, they may open their doors to Medicare patients who may use the OTP benefit to cover their OUD treatment services.  Medicare will not accept provisional SAMHSA certifications during the Medicare enrollment process. Medicare Advantage plans, which must include the OTP benefit as of January 1, 2020, may only use OTP providers that meet the above requirements 
  • Second, of the services included in the bundle, the services provided via telehealth are limited to substance use counseling, individual therapy, and group therapy. The other services include previously controversial coverage for FDA-approved opioid agonist and antagonist medication assisted treatment (MAT) medications, dispensing and administration of MAT medications, toxicology testing, intake activities, and periodic assessments. 
  • Third, to be covered, the telehealth services must be delivered as all Medicare telehealth services must be, i.e., via two-way interactive audio-video communication technology, as clinically appropriate.
  • Fourth, but perhaps most limiting, these services are not payable if the patient is located at home.  Patients must be located at a qualifying originating site, i.e., offices of physicians or practitioners, hospitals, critical access hospitals, rural health clinics, federally qualified health centers, hospital-based critical access hospital-based renal dialysis centers (including satellites), skilled nursing facilities, and community mental health centers and located in certain types of geographic areas (either a rural health professional shortage area or a county outside of a Metropolitan Statistical Area), or a site that is participating in a federal telemedicine demonstration project approved by (or receiving funding from) the Secretary of Health and Human Services, as set out in section 1834(m)(4)(C)(ii) of the Social Security Act, 42 U.S.C. 1395m(m).

Reporter, Marcia L. Augsburger, Sacramento, + 1 916 321 4803,

OIG Issues Advisory Opinion that Provision of Discounted Training Programs to Fire Department Personnel Did Not Constitute Anti-Kickback Violation – On January 8, 2020, OIG issued Advisory Opinion No. 20-01, concluding that a hospital’s provision of discounted training to fire department personnel at the hospital’s training facility did not constitute a violation of the federal anti-kickback statute.  OIG based its decision, in part, on the notion that the public benefit from the discount reduced the risk that the discount is intended to be renumeration to induce referrals.

The OIG opinion concerned a nonprofit healthcare system which operates a training facility in addition to several hospitals and other healthcare facilities (the Hospital).  The training facility provides clinical training programs to healthcare professions and emergency personnel. 

The Hospital offers discounted training sessions, which the Hospital determines are in furtherance of its charitable mission and statutorily required duties to provide community benefits and charity care.  This includes discounted training services to paramedics that work for the local fire department, which operates an emergency medical services system that provides emergency medical care and transportation in the area. 

This raises potential anti-kickback concerns because the fire department maintains a fleet of ambulances that furnish emergency ambulance services.  Thus, the discount runs to an organization that has some potential control over patient placement. 

OIG clarified that any arrangement for provision of free or below-market items to potential referral sources implicate the federal anti-kickback statute.  However, OIG determined the training facility discount at issue “presents a low risk of fraud and abuse under the anti-kickback statute.” 

Several considerations drove OIG’s determination:

  • First, OIG felt there was little risk that the training facility discount agreement would impact federal program utilization or costs since the number of beneficiaries who require emergency transport and the treatment they may receive are unrelated to the discount.
  • Moreover, there was low risk of improper steerage as a result of the discount agreement.  OIG noted that the fire department had implemented transport protocols that set forth objective factors that drove hospital destination discussions, such as urgency of care, the specific care needed by the patient, the status of hospital diversions, and patient preference.
  • The discount itself was unconnected to the volume or value of referrals.  OIG noted that the Hospital certified that there were no significant changes to the fire department’s transport protocols, or to transport volume to the Hospital since implementation of the training facility discount.
  • OIG noted that the discount arrangement might benefit the community by improving the quality of emergency ambulance services in the area.  OIG further felt that the “remuneration” being analyzed under the anti-kickback statute, the training facility discount, provides a public benefit because it reduces the public funds which must be allocated for training fire department personnel. 

This advisory opinion reflects one of few situations in which OIG considers public benefit in determining whether renumeration appears intended for an appropriate purpose.  According to OIG, the fact that the public received the financial benefit of the renumeration “reduces the risk that the [discount] is improper renumeration … to induce referrals.” 

A copy of OIG Advisory Opinion No. 20-01 can be found here.

Reporter, Jonathan Shin, Los Angeles, + 1 213 443 4334,

DOJ and FTC Release New Vertical Merger Review Guidelines for Public Comment – On January 10, 2020, the DOJ’s Antitrust Division and the Federal Trade Commission (FTC) issued draft new guidelines for the agencies’ review of vertical mergers (the Guidelines). Vertical mergers involve the combination of firms operating at different levels of the same supply chain, such as a manufacturer acquiring its supplier or its distributor. The Guidelines are intended to provide businesses with guidance regarding the circumstances in which the agencies might decide to challenge a vertical merger. The Guidelines are currently open for public comment.  More information about the Guidelines is available in the King & Spalding Client Alert here.


Supreme Court Declines Petition to Expedite Review of the Constitutionality of the ACA – On January 21, 2020, the U.S. Supreme Court rejected requests from the House and 20 states and the District of Columbia seeking expedited review of the constitutionality of the ACA.  As previously reported, the House filed a petition for writ of certiorari on January 3, 2020, asking the Supreme Court to review the Fifth Circuit’s decision to send the case challenging the Affordable Care Act (ACA) back to the district judge who struck it down as well as a petition asking the Court to consider its petition for writ of certiorari on an expedited timeline.  Also, as previously reported, a coalition of 20 states and the District of Columbia, led by California Attorney General Xavier Becerra, petitioned the Supreme Court for a writ of certiorari to review the Fifth Circuit’s decision on January 3, 2020, as well.  Although the January 21, 2020 order said the Court would not review on an expedited schedule, it did not rule out full review of the case at a later date.

King & Spalding Life Sciences & Healthcare Webinar: A Review of the Practical and Legal Challenges Posed by CMS’s New Hospital Price Transparency RuleOn Tuesday, January 22, 2020, from 1:30 PM ET to 2:30 PM ET, King & Spalding LLP will host a webinar on CMS’s controversial Price Transparency Final Rule, which requires public disclosure of payment rates that hospitals have negotiated with commercial payers.  Topics for discussion include:

  • How CMS defines the items and services and the various rates for such services that must be disclosed;
  • The extent to which hospitals must disclose negotiated rates for employed or affiliated physicians;
  • The implications of the rule for hospitals that are paid under capitated rates or other innovative payment models; and
  • Potential areas of tension between the price transparency rules and hospitals’ other legal obligations, such as antitrust compliance.

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

King & Spalding Washington Insight Webinar Series: Congress 2020: The Year Ahead
On January 30, 2020, from 12:00 PM ET to 1:00 PM ET, King & Spalding LLP will host the first in a series of webinars designed to provide participants with knowledge about what is happening in Washington. In Congress 2020: The Year Head, members of King & Spalding’s Government Matters and Trial and Global Disputes groups will provide an overview of what to expect in the current session of Congress, including:

  • U.S.-Mexico-Canada Agreement (USMCA)
  • Drug Pricing
  • Impeachment
  • Tax Reform
  • Big Tech and Privacy
  • 2020 Election

Join us for this interactive webinar and get early insights into what 2020 will bring from Washington.  You do not need to be a client to attend, and there is no charge.  For more information and to register, please click here.