News & Insights


January 22, 2019

Health Headlines – January 22, 2019

Hospitals Challenge CMS’s Site-Neutral Payment Policies for Excepted Off-Campus Provider-Based Departments – On January 18, 2019, a group of nearly 40 hospitals filed a lawsuit in the United States District Court for the District of Columbia challenging CMS’s rate cut to evaluation and management (E/M) services furnished by excepted off-campus provider-based departments (PBDs). The rate cut, effective January 1, 2019, is forecasted to reduce Medicare payments for hospital outpatient department services by $300 million in 2019 alone—and even more in future years when the E/M rate cut is fully implemented. The hospitals allege that the rate cut exceeds CMS’s authority and unlawfully violates the express will of Congress, which specifically excepted certain off-campus PBDs from such rate reductions.

Off-campus PBDs that existed prior to November 2, 2015, were specifically “excepted” by Congress from Section 603 of the Bipartisan Budget Act of 2015 (BBA 2015), which attempted to equalize payment rates for services,regardless of whether they are provided in a physician’s office or in a hospital department that is located away from or “off” the main campus of the hospital. Excepted PBDs continue to be paid at the higher Outpatient Prospective Payment System (OPPS) rate. Nevertheless, CMS issued a rate cut—promulgated in the 2019 OPPS Final Rule—that set payments for E/M services provided in excepted PBDs at the lower rate.

The hospitals argue that Congress was clear when it excepted off-campus PBDs and any attempt by CMS to circumvent Congress’s mandate expressed in Section 603 is beyond the legal authority of the agency. In addition, the hospitals argue that even if CMS had the authority to cut E/M rates, such an adjustment must be made in a budget-neutral manner, which CMS failed to do so.  Numerous comment letters in response to CMS’s initial proposal stated that the rate cut is expected to have a detrimental impact on the ability of off-campus PBDs to continue providing a full range of services that are not typically offered by physician offices but are needed in the community.

The hospitals are represented by King & Spalding partners Mark Polston, Christopher Kenny, and Nikesh Jindal.  The complaint is available here.

Reporter, Michael L. LaBattaglia, Washington, D.C., +1 202 626 5579, 

CMS Announces New Part D Modernization Model and Updates to Medicare Advantage Value-Based Insurance Design Model – On January 18, 2019, CMS’s Center for Medicare and Medicaid Innovation (CMMI) announced a new payment model aimed at lowering drug prices in Medicare Part D, named the Part D Payment Modernization model (the Part D Model). In conjunction with the Part D Model, CMMI also announced changes to an existing payment model applicable to Medicare Advantage plans, called the Value-Based Insurance Design model (the VBID Model). HHS Secretary Azar commented that both models will “create new incentives for plans, patients, and providers to choose drugs with lower list prices, and new ways to meet the unique healthcare needs of specific populations.”

The Part D Model is designed to address incentives in the Part D “catastrophic phase,” which is when a patient’s prescription drug spending is sufficiently high for Medicare to become responsible for 80 percent of drug costs.  CMMI points out that, despite the proliferation of generic medications, “overall Part D spending has almost doubled from 2010 to 2016 . . . [and] the high list price of new specialty and branded medications . . . has led to a six-fold increase in Part D catastrophic phase spending relative to 2006.”  The President’s FY 2019 budget, MedPAC, and others have cited issues of Part D plans having limited responsibility in the catastrophic phase and the related lack of incentives to curtail high list prices.

Through the Part D Model, CMMI is testing addressing the high list price of drugs with the introduction of two-sided risk. Part D Plans who participate in the model will take on more risk for spending in the catastrophic phase but can share in the savings generated with CMS.  CMS will calculate savings by estimating what governmental spending would have been without the incentives of the Part D Model and will compare that to actual spending.  If actual spending is lower than the target, Part D Model participants will have an opportunity to share in the savings. Conversely, if they exceed the target, Part D Model participants will also share in the losses.

CMMI implemented the VBID Model in 2017 in a select number of states, and it plans to expand the model to more states.  CMMI also announced changes to the VBID Model to address service delivery approaches for Medicare Advantage plan beneficiaries beginning in the 2020 plan year.  Changes announced by CMMI include, among others:

  • Allowing plans to provide reduced cost-sharing and additional benefits to enrollees in a more targeted fashion, including customization based on chronic conditions, socioeconomic status, or both, and even for benefits not primarily related to health care, such as transportation;
  • Bolstering the rewards and incentives programs that plans can offer beneficiaries to take steps to improve their health; and
  • Increasing access to telehealth services by allowing plans to use access to telehealth services instead of in-person visits.

CMMI intends to announce further details on the application process in the coming weeks for both models.  Those interested in the Part D Model or VBID Model should stay tuned for announcements regarding the application period from CMMI by clicking here and here.  CMS’s press release can be found here.

Reporter, Matthew W. Horton, Washington, D.C., +1 202 626 9256,

HHS Leverages NIST Cybersecurity Framework in Voluntary Health Sector Guidelines – In its most recent cybersecurity initiative, HHS released Health Industry Cybersecurity Practices: Managing Threats and Protecting Patients, described as a set of “practical, understandable, implementable, industry-led, and consensus-based” voluntary cybersecurity guidelines, including best practices, methodologies, procedures, and processes, and intended to reduce cybersecurity risks for health care organizations of all kinds. The guidance consists of a main document, two volumes of technical information, and resources and templates.  Click here to access King & Spalding’s Data, Privacy, and Security Client Alert.

Reporter, Robert Hudock, Washington, D.C., +1 202 626 5521,

Pennsylvania Federal Judge Blocks Religious and Moral Exceptions to the Affordable Care Act’s (ACA’s) Contraceptive Mandate – A Pennsylvania federal judge granted Pennsylvania and New Jersey a nationwide preliminary injunction blocking two Trump administration final rules.  The two final rules create exemptions for moral and religious objections to the ACA’s contraception coverage mandate.

Over a year ago, Judge Wendy Beetlestone issued an injunction blocking religious and moral exemptions to the ACA’s contraceptive coverage on similar grounds.  The initial set of interim final rules – the religious exemption rule and moral exemption rule – were published without following the notice and comment procedure that is normally required for issuing federal rules. In addition to procedural defects, the rules broadened the scope of exemptions to the contraceptive mandate.

The moral exemption rule permitted for-profit entities that were not publicly traded to object based on “sincerely held moral convictions.”  The religious exemption rule expanded the religious exemption to include non-profit and for-profit entities that were closely held or publicly traded instead of limiting it to closely held corporations.

After Judge Beetlestone issued the first injunction, the agencies published two new rules – the final religious exemption rule and final moral exemption rule – after a notice and comment period.  The new rules mirrored the old rules with a few technical changes.

To be granted a preliminary injunction, a plaintiff must show that she is likely to succeed on the merits, she is likely to suffer irreparable harm, the balance of equity weighs in her favor, and that the injunction is in the public interest.  Accordingly, Judge Beetlestone indicated that she will likely find the two new rules invalid based on procedural and substantive grounds.  First, the new rules will likely be tainted because the agencies promulgated the initial rules without following the notice and rulemaking procedures.  Second, the agencies likely exceeded the scope of their authority under the ACA to propose contraceptive mandate guidelines by creating broad exemptions to the mandate.  Finally, the government’s argument that the Religious Freedom Restoration Act (RFRA) enabled the agencies to issue the rules will likely fail because the scope of RFRA is determined by the courts, not the agencies. Notably, Judge Beetlestone’s rulings do not permanently block the policy, but the preliminary injunction does stop the policy from going into effect while legal challenges are pursued.

The court granted the nationwide injunction, instead of a local injunction, because it concluded that anything short of a nationwide injunction would afford no relief for Pennsylvania and New Jersey citizens working for out-of-state employers and out-of-state students attending school in Pennsylvania and New Jersey.

Reporter, Taylor Whitten, Sacramento, +1 916 321 4815,

Eighth Circuit Rules that Cross-Plan Offsetting of Payments Is Unreasonable – On January 15, 2019, the U.S. Court of Appeals for the Eighth Circuit issued an order affirming a lower court’s ruling that UnitedHealth’s interpretation of ERISA plan documents to authorize cross-plan offsetting was unreasonable.  The Eighth Circuit’s decision is available here.

The named plaintiffs in the class action lawsuit were out-of-network medical providers. The plaintiffs alleged that UnitedHealth Group (United) – who is responsible for administering thousands of health insurance plans – maintained a practice of recovering overpayments made to “out-of-network” providers from one plan by taking an offset for the overpayment from a different plan. This practice is known within the industry as cross-plan offsetting. The action was brought under the Employee Retirement Income Security Act of 1974 (ERISA), with plaintiffs arguing that the relevant ERISA plan documents did not authorize United to engage in this practice of cross-plan offsetting. 

U.S. District Judge Patrick J. Schiltz for the District of Minnesota, entered partial judgment to the class plaintiffs on the issue of liability, finding that United’s interpretation that the plan documents which allowed for this practice was unreasonable. While the court noted that United had broad authority to interpret and implement the plan, the Eighth Circuit ultimately agreed with plaintiffs that United’s practice of cross-plan offsetting exceeded its discretion to reasonably interpret plan terms as an ERISA administrator. Notably, the Eighth Circuit recognized that none of the plans explicitly authorized cross-plan offsetting. The Eighth Circuit further stated that the practice of cross-plan offsetting implicates United’s separate fiduciary duties to each plan since it arguably amounts to failing to pay benefits owed under one plan in order to recover from another. 

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


OIG Approves Routine Waiver of Cost-Sharing Amounts in Connection with a Charitable Pediatric Clinic – On January 14, 2019, OIG published an Advisory Opinion permitting a charitable pediatric clinic’s routine waiver of patient cost-sharing amounts. While OIG noted that the waiver program did not meet the regulatory exception for permitted waivers of cost-sharing under the Civil Monetary Penalties Law, it decided to not impose sanctions based on several safeguards and mitigating factors.  Specifically, OIG acknowledged that the pediatric clinic does not advertise the program, provider compensation is not based on the volume or value of referrals and the pediatric clinic does not shift the waived cost-sharing amounts to other payors.

King and Spalding to Host a Life Sciences & Healthcare Roundtable on January 31, 2019: What’s Next for the ACA after Texas v. U.S.? - The District Court for the Northern District of Texas recently issued a ruling declaring the Patient Protection and Affordable Care Act (ACA) unconstitutional in its entirety. The court did not enjoin any of the ACA’s provisions, and the Trump administration has announced that the ACA will remain in effect while appeals are pending.  Nonetheless, the decision creates uncertainty in the U.S. healthcare system. This webinar will:

  • Provide a background on the ACA, with a focus on the individual mandate, leading to the decision in Texas v. U.S.;
  • Analyze the district court’s reasoning in finding the ACA unconstitutional, including its finding that the individual mandate is not severable from the rest of the ACA’s provisions;
  • Discuss the potential healthcare reform provisions put in place by the ACA that could be in jeopardy because of this ruling;
  • Describe the potential outcomes on appeal; and
  • Explore the likelihood that Congress will respond legislatively, beyond requesting permission to intervene in the case, to “defend the validity of the ACA.”

The roundtable will be held as a webinar on January 31, 2019, from 1:00 P.M. ET to 2:00 P.M. ET.  There is no charge to attend.  Click here to register.

Joel McElvain Joins King & Spalding’s Healthcare Team in Washington, D.C. – Joel McElvain, former Assistant Branch Director with the Federal Programs Branch of the U.S. Department of Justice (DOJ), joined the firm as a partner on the Healthcare team in the Government Matters practice group.  McElvain has more than 20 years of litigation experience at the DOJ.  In his role as Assistant Branch Director, McElvain supervised the defense of HHS in relation to challenges to Medicare, Medicaid, and the Affordable Care Act.  McElvain received his law degree from Harvard Law School and his undergraduate degree from Williams College.