News & Insights


June 13, 2016

Health Headlines – June 13, 2016


CMS Releases Final Shared Savings Program Rule – On June 6, 2016, CMS issued a final rule (Final Rule) establishing a phased approach for incorporating regional FFS expenditures into calculations for resetting, adjusting, and updating Accountable Care Organizations’ (ACOs’) rebased historical benchmarks for ACOs that continue their participation in the Medicare Shared Savings Program (MSSP) after an initial three-year agreement period.  CMS believes that, as a result of the changes in the Final Rule, the methodology for determining the rebased historical benchmark will reflect an ACO’s performance in relation to other providers in the same regional market, rather than just evaluating the ACO against its own prior performance. The integration of regional factors into calculating ACO benchmarks will begin for second or subsequent agreement periods beginning in 2017. 

For the first agreement period, CMS will continue to establish an ACO’s historical benchmark based on the Parts A and B FFS expenditures for beneficiaries who would have been assigned to the ACO in each of the three years prior to the start of the ACO’s agreement period.  However, the Final Rule revises the methodology for national FFS calculations to use assignable Medicare FFS beneficiaries, rather than all FFS beneficiaries.  This methodology will be applied to (1) all ACOs with agreement periods beginning in 2017 and subsequent years, and (2) to ACOs with 2014, 2015, and 2016 agreement start dates that are in the middle of an agreement period. 

For second or subsequent agreement periods, CMS is revising its approach for resetting (or rebasing) an ACO’s benchmark for these periods beginning on or after January 1, 2017.  Among other changes, CMS will:

  • Replace the national trend factor with regional trend factors for establishing the ACO’s rebased historical benchmark and remove the adjustment to explicitly account for savings generated under the ACO’s prior agreement period; 

  • Make an adjustment when establishing the ACO’s rebased historical benchmark to reflect a percentage of the difference between the regional FFS expenditures in the ACO’s regional service area and the ACO’s historical expenditures;

  • Annually update the rebased benchmark to account for changes in regional FFS spending, replacing the current update, which is based solely on the absolute amount of projected growth in national FFS spending; and

  • Adjust an ACO’s rebased historical benchmark prior to the start of the performance year, including re-determining the regional adjustment, to account for changes in the ACO’s certified ACO Participant List during the agreement period.

Additionally, the Final Rule adds a participation option to encourage ACOs to transition to performance-based risk arrangements and also develops timeframes and other criteria for reopening shared savings or shared losses under the program.  Pursuant to the Final Rule, re-openings for good cause will be limited to four years.  Re-openings for fraud or similar fault can occur at any time.

In response to the Final Rule, some ACO stakeholders have indicated that, while they support aspects of the Final Rule, additional modifications to benchmarking methodologies are needed.  For example, the National Association of ACOs (NAACOS) continues to urge CMS to exclude ACO beneficiaries from the regional reference population for benchmark calculations.  

To view the Final Rule, click here.  To view CMS’s fact sheet, click here.

Reporter, Isabella E. Wood, Atlanta, + 1 404 572 3527,

OIG Recommends that CMS Require States to Use Claim Modifier on Medicaid Claims to Identify 340B Drug Claims – On June 8, 2016, OIG issued a report in which it recommended that CMS require states to use a claim-level method to identify 340B claims in order to prevent duplicate discounts for drugs and unclaimed rebates to which states are entitled (the “OIG Report”).  CMS did not concur with OIG’s recommendation.  OIG also recommended that the Health Resources and Services Administration (HRSA), which is responsible for administering the 340B Drug Pricing Program (the “340B Program”), clarify its existing guidance on preventing duplicate manufacturer discounts in order to reflect the additional recommended requirement.  Unlike CMS, however, HRSA concurred with OIG’s recommendation but noted that it would need to review public comments before implementing the recommendation.

The Medicaid Drug Rebate Program (the “Rebate Program”) in essence requires manufacturers to pay rebates to states on covered outpatient drugs paid for by Medicaid.  The Rebate Program initially only applied to FFS drugs, but the Affordable Care Act expanded the requirement on manufacturers to pay rebates to states for drugs paid for by Medicaid managed care organizations (MCOs) as well.  In order to collect their rebates owed, states must determine the total number of units of each drug paid by Medicaid, including MCOs, for each quarter and send invoices to the manufacturers. 

The 340B Program requires manufacturers to discount drugs to certain eligible health care providers who have registered with HRSA (“covered entities”).  Covered entities then bill their patients’ insurance companies, which may include Medicaid, for the 340B drugs that they dispense or administer.  The Rebate Program and 340B Program can result in duplicate discounts if manufacturers discount the drugs to covered entities initially under the 340B Program and then pay the states a rebate on the same drugs when the states submit invoices later under the Rebate Program.

According to OIG, the states’ role is important in preventing duplicate payments because they can identify 340B claims in their data and exclude them before they send the Rebate Program rebate invoices to manufacturers.   States identify 340B drugs in FFS claims because the claims are submitted directly by providers to the states, and states can use HRSA’s exclusion file to identify 340B drugs FFS claims.  However, with respect to MCO claims, providers submit claims for MCO drugs to the MCOs, and in turn, states calculate rebates owed from drug claims data submitted by MCOs.  In December 2014, HRSA issued a notice stating that its exclusion file is only for identifying 340B drugs in FFS claims and not in MCO claims.

According to the OIG Report, states generally use one of two methods, or a combination of these two methods to identify 340B drugs in MCO claims.   The first general method is a provider-level method whereby the states identify covered entities and then exclude drug claims billed by those covered entities from the data.  This first method, however, is not as accurate because it designates all of a covered entities’ claims as either 340B claims or non-340B claims, but a covered entity may submit both 340B drug claims and non-340B drug claims.  The second general method is a claims-level method whereby the states exclude individual drug claims that covered entities have identified as 340B claims.  According to OIG, this method is more accurate because it is claim-specific and accounts for the fact that a covered entity may submit both 340B and non-340B drug claims.

Accordingly, OIG recommends that CMS should require states to use claims-level methods to identify 340B drugs, but suggests that CMS could grant states flexibility in complying with the requirement.  In this way, states could require spreadsheets to identify 340B claims, or states could use claims-level indicators to identify 340B claims.  CMS did not concur with OIG because CMS does not believe that the statute contemplates requiring claims-level identification of 340B drug claims.  Rather, according to CMS, states are afforded the opportunity to develop their own methods for complying with the requirement to prevent duplicate manufacturer drug discounts.  In August 2015, HRSA issued a proposed rule in which it sought public comments on creating a new exclusion file for MCO patients of covered entities to better identify MCO drug claims.  HRSA concurred with OIG’s recommendation but noted that it needs to analyze OIG’s recommendation in conjunction with its review of public comments received in response to its proposal.

Please click here to access the OIG Report. 

Reporter, Kate Stern, Atlanta, +1 404 572 4661,

GAO Issues Recommendations To Improve Medicare Appeals Backlog – On June 9, 2016, the Government Accountability Office (GAO) publicly released a report published May 10, 2016, regarding the continuing challenges surrounding the backlog of the administrative appeals process for Medicare fee-for-service claims.  In evaluating the four administrative levels of review from fiscal years 2010 to 2014, the GAO noted a significant growth of appeals at the third level of review, which increased from 41,733 to 432,534 (936 percent) mainly as the result of increased program integrity efforts.  The GAO specifically evaluated the following:  (1) appeal trends for fiscal years 2010-2014; (2) HHS’s use of data to monitor the appeals process; and (3) HHS’s efforts to reduce the number of outstanding appeals filed and backlogged.

In its report, the GAO analyzes certain of the factors that have contributed to the significant backlog resulting in most appeal decisions remaining undecided well beyond the statutory timeframes and recommends key actions that HHS should implement to improve the consistency and efficiency of the administrative appeals process.  In declining only one of the GAO’s five recommendations, HHS generally concurs with the following four GAO recommendations:

  • Modify Medicare appeals data systems to collect information on the reason for appeal decisions at level 3 (the ALJ level);

  • Modify the Medicare appeals data systems to capture the amount, or an estimate, of Medicare allowable or payable amounts at issue instead of the provider’s billed charges to more accurately measure the amount in controversy;

  • Modify the Medicare appeals data systems to collect consistent data across systems, including appeal categories and appeal decisions; and

  • Implement a more efficient way to adjudicate certain repetitive claims, such as by permitting appeal bodies to reopen and resolve appeals.

HHS declined the GAO’s fifth recommendation, which was to determine the costs and benefits of delaying CMS’s collection of overpayments until after a level 3 decision is made, and if the benefits exceed the costs, request such authority from Congress.  In declining this recommendation, HHS noted that delaying the collection of debts until after level 3 would increase the number of appeals filed at this level and result in more challenges in reducing the backlog of appeals at levels 3 and 4.  The GAO agreed that the proposed change would increase the number of filed appeals and declined to include the recommendation in its final report.

Senate Finance Committee Chairman Orrin Hatch (R-Utah), Ranking Member Ron Wyden (D-Ore.), and Finance Committee member Richard Burr (R-N.C.) commented on the GAO’s report in a press release issued on June 9, 2016 (available here) and noted a bipartisan Finance Committee bill aimed at reforming the process, the Audit & Appeal Fairness, Integrity, and Reforms in Medicare (AFIRM) Act of 2015, S. 2368.  Additional information about the AFIRM Act is available here.

The GAO report and an overview are available here.

Reporter, Juliet M. McBride, Houston, +1 713 276 7448,

OIG Releases Report on Washington State’s Health Benefit Exchange - The OIG recently released findings that Washington’s Health Benefit Exchange (the “Washington Exchange”) needs to be improved to fully comply with federal requirements and to protect personally identifiable information (PII).  The full report is available here.  

The Washington Exchange’s website offers residents side-by-side comparisons of qualified health plans; tax credits or other financial help to pay for health insurance premiums and copayments; and customer support online.  In addition, the Washington Exchange uses a database to store PII.  According to the OIG’s report, as of  June 30, 2015, the Washington marketplace had received more than 1.1 million unique applications from individuals and more than 750 unique applications from employers.

The OIG reviewed the Washington marketplace's information security controls in place as of May 2015 and found many security controls were implemented, including policies and procedures, to protect PII on its web site and database.  However, the OIG found that security did not always comply with the CMS requirements for state health insurance exchanges (Minimum Acceptable Risk Standards for Exchanges including NIST SP 800-53).  Specifically, the Washington Exchange had not adequately secured its web site and database and had not performed a vulnerability scan in accordance with federal requirements.  In addition, the Washington Exchange's plan of action and milestones did not meet some of the CMS minimum requirements for protection of exchange systems.  Fortunately, the OIG did not find any evidence that the vulnerabilities it identified had been exploited, although unsecured systems could have resulted in the disclosure of PII.

The OIG recommended that the Washington Exchange implement detailed recommendations to address the findings that it identified related to the website and database, the vulnerability scan, and the plan of action milestones.  The Washington marketplace concurred with all of the OIG’s recommendations and described actions that it has taken or plans to take to implement those recommendations.

This is just the most recent example of weak electronic security in health insurance exchanges.  For example, in a report released earlier this year, the Government Accountability Office (GAO) identified security gaps in some of the technical safeguards implemented by CMS for the federal health exchange web site, Along with insufficiently restricted administrator privileges for data hub systems, the GAO found that there was also inconsistent application of security patches. The GAO also found insecure configuration of an administrative network. The federal website is subject to multiple federal laws and regulations; NIST SP 800-53 was used to evaluate security of the data hub.

While the federal standards for health insurance exchanges do not apply to all entities maintaining PII, the reports highlight steps that can be taken to improve information security of databases and data hubs:

  • Conduct periodic vulnerability scanning to identify and mitigate security vulnerabilities;

  • Apply security patches to avoid technical safeguard failures;

  • Restrict administrator privileges to the minimum necessary; and

  • Use secure network configurations.

Reporter, Lara Compton, Los Angeles, +1 (213) 443-4369,


House Approves Relief Package for Hospitals -- Last week the House approved a bill (H.R. 5273) by voice vote that would provide financial relief to certain outpatient hospitals.  Specifically, the bill contains a provision that would permit hospitals that are in the process of building off-campus outpatient centers at the time of last year’s budget deal to be exempt from the bill’s site-neutral payment policy, which would result in lower reimbursement.  The bill also contains several other Medicare policy changes.  The bill is available here.  For prior Health Headlines articles discussing recent OPPS proposals for off-campus provider-based departments, click here and here.

Election 2016: What Every Health Industry Attorney Must Know About Political Activity At The Workplace – Please join King & Spalding on Tuesday, June 21, from 1:00 P.M. – 2:00 P.M. Eastern Time, for our webinar presentation Election 2016: What Every Health Industry Attorney Must Know about Political Activity At The Workplace.  In this election year, corporations and their employees will be faced with historic opportunities to engage in the political arena. Deciding whether and how to do so, however, must be done carefully and based on a thorough understanding of the relevant law. This presentation will provide the guidance that corporate counsel need when their employing entities contemplate engaging in the political process.  This is an especially critical area for attorneys who work for a 501(c)(3) organization, such as a not-for-profit hospital. In addition to the laws regulating political activity of all corporations, there are Internal Revenue Code regulations that further regulate the political activities of not-for-profit organizations. These regulations are complex and non-intuitive and the penalties for violating them can be significant, including the loss of exempt status.  We hope that you will be able to join us.  You do not have to be a client to attend, and there is no charge.  To register for the webinar, please click here.

King & Spalding Client Alert on  New Form FDA 3926 and Final Guidance for Its Use –On June 2, 2016, the Food and Drug Administration (FDA) issued final guidance “Individual Patient Expanded Access Applications: Form FDA 3926,” which explains how licensed physicians may use the simplified application process of new Form FDA 3926 to request FDA approval for expanded access to investigational drugs for treatment use for individual patients. To view King & Spalding’s detailed Client Alert on the final rule, click here

Watch Sessions of the King & Spalding Health Law and Policy Forum Online! – King & Spalding is pleased to share sessions from its Health Law and Policy Forum by video. These will be offered in coming weeks with individual registration and viewing opportunities.   Currently, we are offering the keynote address by the distinguished associate editor of the Washington Post, Bob Woodward. Mr. Woodward has won nearly every American journalism award, and his work has won two Pulitzer Prizes. He is the author of sixteen books, including twelve that reached number one on the non-fiction NYT Best Sellers list.  In this hour long session, Mr. Woodward shares his personal insights on the nature of the Presidency, on lessons learned from past Presidencies and on his past interactions with Hillary Clinton. He relates this to the current Presidential election and to barriers to knowing who the two current leading candidates are as people. He comments on healthcare, the current state of foreign policy, the media and secret government.  Find out more and register here.

You're Invited! King & Spalding to Host Reception at AHLA Annual Meeting – Please join King & Spalding on June 28, 2016 from 5:30-7:30 p.m. in the Club Room of the Brown Palace Hotel during the AHLA Annual Meeting. Please RSVP by June 17 by clicking here. We hope to see you in Denver!