News & Insights


July 3, 2017

Health Headlines – July 3, 2017

CBO Scores Senate ACA Repeal and Replace Bill; Senate Postpones Legislative Action Until After July 4 – On June 27, 2017, Senate Republican leaders postponed a planned vote on the motion to proceed to debate on the Better Care Reconciliation Act of 2017 (BCRA), legislation to repeal and replace the Affordable Care Act, until after Congress’s July 4 recess week. A day earlier, the Congressional Budget Office (CBO) released its score for BCRA. According to the CBO, BCRA would result in 22 million more Americans uninsured by 2026 as compared to current law, would decrease Medicaid spending by $772 billion from 2017-2026, and would reduce the Federal deficit by $321 billion from 2017-2026.

By way of comparison, CBO projected that the House-passed American Health Care Act of 2017 would result in 23 million more uninsured by 2026, would decrease Medicaid spending by $834 billion, and would reduce the Federal deficit by $119 billion over the 2017-2026 time period. At the request of Senate Democrats, who noted that some of the more stringent spending limits occur beyond the ten-year time period that CBO typically analyzes, CBO provided an additional analysis projecting the longer term implications of the legislation. CBO find that Medicaid spending under BCRA as compared with current projections would be 26 percent lower in 2026, rising to 35 percent lower by 2036.

Under the rules of budget reconciliation, Senate Majority Leader Mitch McConnell (R-KY) can only lose the support of two Republican senators and still have the 50 votes necessary—with Vice President Pence casting the tie-breaking vote—for BCRA to pass the Senate. Negotiations have continued in an effort to find agreement on health care reform legislation that could garner 50 votes.

Senate Republicans had agreed to add $45 billion to address the opioid crisis. Governor John Kasich (R-OH), who represents a State that expanded Medicaid, responded to this addition that “it’s like spitting in the ocean. It’s not enough.”

Several additional proposals under discussion are expected to be sent to the CBO to be analyzed over the recess. These include maintaining the ACA net investment income tax to assist lower-income earners afford insurance, and expanding pre-tax health savings accounts so that they could be used to pay insurance premiums. Another proposal advocated by Senators Ted Cruz (R-TX) and Mike Lee (R-UT) would create two health insurance markets—one for individuals with preexisting conditions and providing essential health benefits, and one without.

Senator Rand Paul (R-KY) has cautioned that Senate Republicans remain “at an impasse.” He further noted: “The bill is just being lit up like a Christmas tree full of billion-dollar ornaments, and it’s not repeal.” President Trump, along with Senators Paul and Ben Sasse (R-NE), have advocated a two-step process: repeal first, then work on a replacement. Senator Sasse urged President Trump to call on the Senate, if it cannot reach an agreement on health care legislation by the time Congress returns on Monday, July 10, to repeal first and work through the August recess to pass a replacement health care plan. According to Politico, Senator David Perdue (R-GA) joined other Senators in sending a letter to McConnell, urging Congress to scale back or cancel its August recess to work on health care, a tax overhaul, and other issues.

Reporter, Allison Kassir, Washington, D.C., +1 202 626 5600,

GAO Releases Report on Evaluation Methodology in Hospital Value-Based Purchasing Program – On June 30, 2017, the Government Accountability Office (GAO) released a report on the Hospital Value-Based Purchasing (HVBP) program, which evaluates hospital performance on quality and efficiency measures, and provides incentives for participating hospitals to improve their quality of care and to become more cost efficient. Over the past five years, CMS has made modifications to its evaluation methodology to attempt to achieve a balance between quality and cost efficiency. GAO concludes that rather than achieving this balance, CMS’s methodology has resulted in bonuses for some lower-quality hospitals because the cost efficiency score is having a disproportionate effect on the total performance score. The GAO report focuses on the evaluation methodology and proposes action for CMS to take to ensure that lower-quality hospitals do not qualify for bonuses.

The HVBP program was enacted as part of the Patient Protection and Affordable Care Act (PPACA) and provides payment adjustments—bonuses and penalties—to about 3,000 participating hospitals based on performance on quality and efficiency (i.e., Medicare spending per beneficiary) measures. In general, safety-net hospitals, which serve a high proportion of low-income patients, scored lower in quality than other participating hospitals, whereas small rural and small urban hospitals (100 or fewer acute-care beds) scored higher on efficiency than other participating hospitals. Moreover, safety-net hospitals consistently received a smaller percentage of bonuses and paid a greater share of penalties than small rural and small urban hospitals.

The GAO report found that some hospitals with high efficiency scores received bonuses even though they had low quality scores. In addition, the methodology resulted in hospitals that were missing one or more quality scores being more likely to receive bonuses than hospitals with complete scores, because the efficiency score had a disproportionate effect on the total score.

To ensure that the HVBP program achieves a balance of quality and efficiency and minimizes payment of bonuses to hospitals with lower quality scores, GAO recommended that CMS:

  • Revise the methodology for calculating hospitals’ total performance score, or take other actions so that the efficiency score does not have a disproportionate effect on the total performance score; and
  • Revise the practice of proportional redistribution used to correct for missing domain scores so that it no longer provides lower-quality scoring hospitals with bonuses.

In response to the GAO report, CMS indicated that it would examine these issues and consider revising these methodologies. The GAO report is available here.

Reporter, Jennifer S. Lewin, Atlanta, + 1 404 572 3569,

Pacific Alliance Medical Center to Pay $42 Million to Settle False Claims Act Lawsuit – PAMC Ltd. and Pacific Alliance Medical Center, Inc., both of which own and operate Pacific Medical Center (PAMC), agreed to pay $42 million to settle a lawsuit brought under the qui tam whistleblower provisions of the Federal and California False Claims Acts based on allegations of improper arrangements with physicians.

According to the False Claims Act complaint, brought by a former manager of one of the defendants, the defendants allegedly defrauded Medicare and California Medicaid by providing services to patients who had been referred by physicians with whom PAMC had improper financial relationships in violation of the Anti-Kickback Statute and the Stark Law. The Department of Justice’s press release stated that the improper financial relationships “took the form of (1) arrangements under which the defendants allegedly paid above-market rates to rent office space in physicians’ offices, and (2) marketing arrangements that allegedly provided undue benefit to physicians’ practices.” The complaint alleges that these compensation arrangements were made in exchange for an agreement by each of the referring physicians to make a target number of referrals/admissions to PAMC each month. As alleged in the relator’s complaint, these improper relationships violated the Anti-Kickback Statute and the Stark Law and by extension the Federal and California False Claims Acts.

The defendants agreed to pay $31.9 million to the U.S. and $10 million to California. The relator will receive approximately $9.2 million as the relator’s share of the settlement.

Reporter, Brittany Strandell, Atlanta, +1 404 572 2796,

FTC Challenges North Dakota Healthcare Provider Merger – On June 22, 2017, the FTC and the North Dakota Attorney General filed a complaint challenging the merger of North Dakota providers, Sanford Health, Sanford Bismarck, and Mid Dakota Clinic, P.C. The FTC’s administrative complaint identifies a geographic market of the four-county Bismarck metropolitan statistical area, and alleges that the combination would substantially lessen competition in several healthcare markets, by creating “by far the largest—and, in one case, the only—group of physicians offering these services” in the region. The two current FTC Commissioners voted unanimously to issue the complaint. For additional information, please refer to King & Spalding’s client alert, the FTC’s press release, and the FTC’s administrative complaint.

Reporter, John Carroll, Washington, D.C., +1 202 626 2993,


Medicare Proposes 0.8 Percent Increase to ESRD PPS Payment Rates – In its CY 2018 end-stage renal disease prospective payment system (ESRD PPS) proposed rule, released on June 29, 2017, CMS proposed to increase 2018 payments to renal care facilities for chronic maintenance of dialysis services by 1 percent for hospital-based ESRD facilities and 0.8 percent for freestanding facilities, resulting in a 0.8 percent increase in payments overall. CMS also included in the proposed rule a request for information on Medicare flexibilities and efficiencies, inviting commenters to submit ideas to “make the health care system more effective, simple and accessible,” including the following: payment system redesign, elimination or streamlining of reporting, monitoring and documentation requirements, aligning Medicare requirements and processes with those from Medicaid and other payers, operational flexibility, feedback mechanisms and data sharing that would enhance patient care, support of the physician-patient relationship in care delivery, and facilitation of individual preferences. The pre-publication version of the proposed rule is available here. Comments are due by August, 28, 2017.