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July 20, 2020

Health Headlines – July 20, 2020


Hospital Associations Appeal Decision Upholding Price Transparency Rule; King & Spalding Price Transparency Working Group Helping Hospitals to Meet Rule’s Requirements – On July 17, 2020, the American Hospital Association and several additional associations and individual hospitals filed their opening brief in their appeal of a decision of the district court, which, had upheld CMS’s price transparency rule.  The plaintiffs seek review in the U.S. Court of Appeals for the D.C. Circuit of a June 23, 2020 decision issued by district court Judge Carl Nichols that held that CMS had both the statutory and constitutional authority to issue the rule.  American Hospital Association v. Azar, No. 1:19-cv-03619, 2020 WL 3429774 (D.D.C. 2020).  The rule, slated to go into effect on January 1, 2021, will require hospitals to publish multiple types of pricing data for each item and service they provide, including the gross charge for the item, the discounted price that the hospital would accept from a cash payer for the item, and the payment rate for the item that was negotiated with any commercial payer  King & Spalding has organized a working group of hospitals that offers legal advice and a variety of practical resources to help hospitals stand up their price transparency regimes, remain in compliance with CMS’s final rule, and adapt to an ever-changing regulatory environment.  More details on participation in the Working Group are described here.

The Affordable Care Act enacted section 2718(e) of the Public Health Service Act (PHS Act), which requires hospitals, under “guidelines” adopted by CMS, to annually publish a list of their “standard charges,” including Diagnosis-Related Groups (DRGs), for every item and service they provide.  CMS announced its first guidelines for section 2718(e) in 2014, stating that hospitals could comply with the provision by annually publishing their chargemasters.  In a 2018 rulemaking, CMS updated its guidelines to require hospitals to post their chargemasters in a machine-readable format. 

On June 24, 2019, President Trump issued an executive order directing the Secretary of HHS to propose a regulation consistent with applicable law that would require hospitals to publish, among other things, “charges and information based on negotiated rates” to “inform[] patients about actual prices.”  Within months after the President’s order, CMS proposed and then finalized a rule to implement section 2718(e) of PHS Act.  The agency reasoned that hospitals’ charges tend to vary by patient population—particularly between self-pay patients and those with third-party coverage, and accordingly redefined “standard charges” to mean “the regular rate established by the hospital for an item or service provided to a specific group of paying patients.” 

The rule requires hospitals to publish five types of standard charges for each item and service: (1) gross charges (i.e., the chargemaster), (2) discounted prices that apply to patients who pay cash, (3) payer-specific negotiated rates, and the de-identified (4) minimum and (5)  maximum charges that a hospital has negotiated with third-party payers.  Hospitals must publish this data in two forms: first, in a machine-readable file, and, second, in a consumer-friendly display for so-called “shoppable” services.   

The plaintiffs presented a series of challenges to the price transparency rule, and Judge Nichols rejected each argument in turn.  The court rejected the notion that CMS had exceeded its authority under the statute.  The court reasoned that the term chargemaster is a term of art in the healthcare industry, and the fact that Congress chose not to use it in section 2718(e) suggests that “standard charges” does not unambiguously mean only chargemaster charges.  Furthermore, the court observed that chargemaster rates are not “standard” because that they only apply to about 10% of patients.  Finally, the court noted that section 2718(e) says that standard charges should include DRGs, which are not in the chargemaster.

The court also ruled that it was not unreasonable for CMS to require hospitals to report multiple forms of pricing data for each line of service given the agency’s finding that charges vary between different patient groups.  Furthermore, the court found that the rule did not violate the First Amendment because agencies can compel commercial speech when doing so is reasonably related to a public interest.  In the court’s view, CMS’s rule advanced the public’s interest in providing consumers with factual price information to facilitate more informed health care decisions.  A copy of the court’s decision is available here.

In their opening brief on appeal, the plaintiffs repeat the arguments that they made to the district court.  They contend that the statutory term “standard charges” cannot reasonably be read to justify requiring hospitals to disclose every individually negotiated payment rate that they negotiate with dozens or hundreds of insurers.  They also contend that the rule violates the First Amendment by requiring the disclosure of confidential pricing information that would not be of assistance to patients.  A copy of the plaintiffs’ opening brief on appeal is available here.

The court of appeals has set a schedule in which the parties will complete their briefing by the end of August.  Oral argument has not yet been scheduled, but the court is likely to hear argument in late September or in October.  Given the timing of the appeal, and the possibility of further judicial review, it is unlikely that the courts will reach a final decision as to the validity of the rule before its January 1, 2021, effective date.  Given that the rule poses a number of technical and legal challenges for providers, hospitals would be well advised to begin their compliance efforts now to avoid unpleasant surprises when the rule goes into effect. 

The uncertainty and timing of this litigation make compliance with CMS’s final rule a more pressing reality for all licensed hospitals.  In addition, CMS has proposed to require hospitals to report the median prices for MS-DRGs (calculated in two different ways) that they have negotiated with commercial payers.  The consequences of violating this reporting requirement are severe as CMS has proposed to make these disclosures a condition for a hospital to receive payment from Medicare.  As a practical matter, it is impossible for a hospital to meet this disclosure requirement if it is not in compliance with the price transparency rules.  For a fixed quarterly fee of $5000, King & Spalding provides members of its Price Transparency Working Group with legal advice and other resources to help hospitals meet the January 1, 2021 effective date.  Persons interested in learning more about the King & Spalding Price Transparency Working Group are encouraged to contact Mark Polston (MPolston@kslaw.com), Christopher Kenny (CKenny@kslaw.com), Joel McElvain (JMcElvain@kslaw.com) or Amanda Hayes-Kibreab (AHayes-Kibreab@kslaw.com) for more details.

Reporter, Joel McElvain, Washington, D.C., +1 202 626 2929, jmcelvain@kslaw.com.

HHS to Distribute an Additional $10 Billion to Hospitals in High Impact COVID-19 Areas – On July 17, 2020, HHS announced it will begin distributing $10 billion through the Health Resources and Services Administration (HRSA) to hospitals in “high impact” COVID-19 areas.  HHS states that it will begin distributing this portion of the Public Health and Social Services Emergency Relief Fund (Provider Relief Fund) this week.  The fund is part of COVID-19 relief provided through the bipartisan Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Paycheck Protection Program and Health Care Enhancement Act.

The recipients of this additional round of funding were chosen based on COVID-19 positive inpatient admissions data for the period spanning January 1, 2020 through June 10, 2020.  The funding was based on a formula for hospitals with over 161 COVID-19 admissions during this time period or that experienced a disproportionate intensity of COVID-19 admissions (exceeding the average ratio of COVID-19 admissions per bed.)  HHS states that hospitals will receive $50,000 per eligible admission.  This relief will be provided to more than 1,000 hospitals across the country. 

HHS Secretary, Alex Azar, stated “[t]he top priority for HHS’s administration of the Provider Relief Fund has been getting support as quickly as possible to providers who have been hit hard by COVID-19.”  He added that this funding is “carefully targeted” so that HHS can make payments to areas “most in need as the pandemic evolves.”

A current list of hospital recipients is available here.

Reporter, Elizabeth Han, Houston, + 1 713 276 7319, ehan@kslaw.com.

IRS Publishes Guidance on Taxation of CARES Act Provider Relief Fund Payments – The IRS announced, through its FAQ page, that for-profit healthcare providers, including hospitals and physician practices, will have to pay federal income taxes on any distributions they receive from the Public Health and Social Services Emergency Relief Fund (Provider Relief Fund).  In contrast, payments from the Provider Relief Fund to nonprofit healthcare providers are generally not taxable.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act appropriated $100 billion for the Provider Relief Fund and the Paycheck Protection Program and Health Care Enhancement Act appropriated an additional $75 billion to the Provider Relief Fund.  However, neither law addressed the taxation of payments from the Provider Relief Fund.  According to the IRS guidance, payments from the Provider Relief Fund should be included in the gross income of recipients and are not excludable as qualified disaster relief payments.  As a result, for corporate taxpayers, these payments are subject to the 21% federal corporate tax rate absent some other exception.   

With regard to nonprofit healthcare providers, the IRS added that, while the payments are generally not taxable, the payments may be subject to tax if the payments reimburse the provider for expenses or lost revenue attributable to an unrelated trade or business. 

Given that many healthcare providers may ultimately return unused payments from the Provider Relief Fund, taxpayers should be conscious of the tax consequences of payments received in one tax-year and returned in another year.  Additionally, the guidance only applies for federal tax purposes so taxpayers should also consider the state and local tax treatment of the payments.  The FAQ does not have the binding authority of law, but it establishes the IRS’ position on the issue.  With Congress leaving the question up in the air, it seems taxpayers’ best hope for future relief is clarification from Congress in future legislation.

Reporter, Nicholas Kump, Sacramento, +1 916 321 4817, nkump@kslaw.com.

House Appropriations Draft Bill Targets Private Equity-Backed Healthcare Entities, Focuses on Pandemic Preparedness – On July 6, 2020, the House of Representatives Committee on Appropriations released its draft Fiscal Year (FY) 2021 funding bill for the Departments of Labor, Education, and HHS (the Bill), which includes several interesting updates for the healthcare industry.  The Bill, which was approved by the Committee on July 13, 2020, provides a total of $196.5 billion in funding, an increase of $2.4 billion from 2020 levels. The Bill also includes $24.4 billion in emergency spending to combat future public health threats like COVID-19.  The draft Bill is available here. The House committee’s report on the draft Bill is here.

Notable among the Bill’s provisions are new restrictions on certain healthcare companies’ access to funds in the Medicare Accelerated and Advanced Payments Program (APP).  For future APP distributions, providers and suppliers must “attest to whether such provider or supplier is owned and controlled by a private-equity entity.”  To obtain APP funds, a healthcare organization must include in the HHS quarterly report an attestation regarding whether it is private-equity backed, in addition to “an accounting of the number of private equity owned and controlled providers (by provider category) and the amount of funding such providers in each category received” by provider number.  Moreover, the Bill suggests that HHS make it a “condition of funding” under the APP that private equity backed hospitals and health systems cannot furlough workers or cut pay or benefits.

Previously, the key eligibility criteria for APP participation were that the provider or supplier must not be in bankruptcy, must not be under active medical review or program integrity investigations, must not have outstanding delinquent Medicare overpayments and the provider must have billed Medicare for claims within 180 days immediately prior to the APP request.

Other major themes in the Bill include appropriations for ramping up emergency preparedness and preparing for or preventing future public health crises, including those related to the flu.  Overall, the Bill provides a total of $96.4 billion for HHS (+$1.5 billion from FY 2020).  The nearly $100 billion appropriation includes, among other items:

  • $47 billion to the National Institutes of Health (NIH) that is, in large part, intended for flu, HIV/AIDS, and Alzheimer’s disease research;
  • $17 billion to the CDC, including funds for emergency preparedness activities to counter future public health emergencies;
  • $7.2 billion for the Health Resources and Services Administration (HRSA), including funds for HIV/AIDS initiatives;
  • $4 billion to CMS for administrative expenses, with a $100 million fund to support the Affordable Care Act (ACA) Navigators program and open enrollment; and
  • $4.5 billion for Biomedical Advanced Research and Development Authority (BARDA) research and development of vaccines and therapeutics to advance public health emergency preparedness, including $705 million for the Strategic National Stockpile.

The Bill also sets up a $5 billion “permanent emergency fund” for HHS to “respond quickly and aggressively to a broad range of” future public health threats.  This HHS emergency fund has been “largely unfunded” for decades, according to the Committee’s report.

The Bill includes healthcare industry-focused policies as well, such as recommendations for Medicaid-related non-emergent transportation and recommendations for compiling weekly inventory reports for the Strategic National Stockpile, after COVID-19 revealed the stockpile “was not prepared for a pandemic response and our nation has very limited domestic production.”

House press releases with additional details and commentary on the draft Bill are available here and here.

Reporter, Lee T. Nutini, Chicago, + 1 312 764 6910, lnutini@kslaw.com.

Federal Government Changes Data Collection System for Reporting Coronavirus Data – HHS has issued new guidance, effective July 15, changing the protocol for how hospitals are required to report COVID-19 data to the federal government.  Previously, hospitals reported data to the Centers for Disease Control and Prevention (CDC) via the National Healthcare Safety Network website.  The new guidance shifts data collection responsibilities to HHS, which has contracted with the company TeleTracking to create the new reporting system.  HHS will use the data to monitor and allocate supplies, treatments, and other resources, including Remdesivir (an antiviral medication used to treat coronavirus).

The HHS guidance requires hospitals to submit daily reports of detailed information, including the number of available beds and ventilators.  Hospitals may report the data directly to the TeleTracking system or to their state government.  Under the CDC data collection system, hospitals could report data to their respective state governments, and the state would submit data to the CDC.  Under the new guidance, hospitals may continue to do so, as long as:

  • they receive a written release from their state;
  • the state has received written certification from their Assistant Secretary for Preparedness and Response (ASPR) Regional Administrator to take over federal reporting responsibilities; and
  • the state has assumed reporting responsibilities. 

The new guidance includes the full list of 32 data points that must be reported and is available here.

Reporter, Rebecca Gittelson, Atlanta, +1 404 572 4679, rgittelson@kslaw.com.

HHS Revises Regulations Protecting the Confidentiality of Substance Use Disorder Patient Records – On July 15, 2020, HHS revised the Confidentiality of Alcohol and Drug Abuse Patient Records regulations, 42 C.F.R. Part 2, to further facilitate better coordination of care in response to the opioid epidemic while maintaining its confidentiality protections against unauthorized disclosure and use.  The revised rule reduces delays and burdens in care coordination by more closely aligning Part 2 with the Health Insurance Portability and Accountability Act (HIPAA), while maintaining privacy protections.

The revised rule changed and clarified several sections of Part 2, including:

  • Treatment records created by non-Part 2 providers and based on their own patient encounters are not explicitly covered by the rule unless the substance use disorder (SUD) records were previously received from a Part 2 program are incorporated into those records;
  • When a SUD patient sends an incidental message to the personal device of an employee of a Part 2 program, the employee will be able to fulfill the Part 2 requirement for “sanitizing” the device by deleting that message;
  • SUD patients may now consent to the disclosure of Part 2 treatment records without naming a specific person as the recipient for the disclosure; and
  • Non-OTP (opioid treatment program) and non-central registry treating providers are now eligible to query a central registry, in order to determine whether their patients are already receiving opioid treatment through a member program.

The revised rule does not alter the prior basic framework for confidentiality protection of SUD patient records created by federally assisted SUD treatment programs. The rule continues to permit a federally assisted SUD program to disclose patient identifying information only with the individual’s written consent, as part of a court order, or under a few limited exceptions.

The HHS fact sheet is available here.  A copy of the Final Rule is available here.

Reporter, Kathryn T. Han, Los Angeles, +1 213 443 4336, khan@kslaw.com.