News & Insights


June 20, 2016

Health Headlines – June 20, 2016

U.S. Supreme Court Rules on Implied Certification Theory of False Claims Act Liability – Last week, in Universal Health Services v. United States ex rel. Escobar, the Supreme Court for the first time addressed the “implied certification” theory of liability under the False Claims Act (FCA).  The Court held that implied certification is a valid theory of FCA liability and that it is not limited to expressly designated “conditions of payment.”  The Court also emphasized the FCA’s materiality element in ways that seem designed to make that element harder for the government and relators to satisfy.  Under the decision, a contractor that submits claims for payment while not in full compliance with a statutory, regulatory, or contractual requirement can be liable under the FCA where (1) the contractor’s failure to disclose the noncompliance made the contractor’s claims misleading; and (2) the contractor “knew” (in the sense of actual knowledge, reckless disregard, or deliberate ignorance) that it was not in compliance with the requirement at issue and that its noncompliance was “material,” meaning that the government not only could have refused payment based on the noncompliance but probably would have done so. To view King & Spalding’s detailed Client Alert on this decision, click here.

Reporter, Michael Paulhus, Atlanta, +1 404 572 2860,

OIG Recommends Eliminating Provider-Based Designation for Facilities Owned by Hospitals – In a report released on June 17, 2016, OIG renewed its call for CMS to either eliminate the provider-based designation, which allows facilities owned by and integrated with a hospital to bill Medicare as a hospital outpatient department, or to “equalize payment for the same physician services provided in different settings.”  The report details OIG’s findings in connection with a review of 272 hospitals that responded to an OIG request for information on provider-based facilities.  Among other things, OIG found that 39 of the 50 hospitals in its sample that had not voluntarily attested for all of their provider-based facilities owned off-campus facilities that did not meet at least one provider-based requirement.  OIG made several recommendations to CMS, including that CMS (1) implement systems and methods to monitor billing by all provider-based facilities, including unique identification numbers that would enable CMS to determine which services are furnish in on-campus provider-based facilities (as distinguished from hospital outpatient departments that are within the four corners of the provider);  (2) require hospitals to submit attestations for all their provider-based facilities;  (3) ensure that regional offices and MACs apply provider-based requirements appropriately and consistently when conducting attestation reviews, and (4) take appropriate action against hospitals and their off-campus provider-based facilities that OIG identified as not meeting provider-based billing requirements.

CMS agreed that it should work to ensure that regional offices were applying the provider-based requirements uniformly and consistently, and it also agreed that it should increase the instances in which it is taking appropriate action against provider-based facilities that are not meeting the provider-based requirements. 

However, CMS disagreed with  OIG’s recommendation that it adopt a unique coding system in order to identify services that are provided at on-campus facilities, stating that its primary policy concerns were for off-campus facilities. Specifically, CMS is concerned about hospitals acquiring physicians’ offices that are off-campus and making such offices into provider-based departments and billing under OPPS even though “nothing has changed about the services being furnished.”  CMS stated in its comments that it does not have the same policy concerns about on-campus facilities. 

Finally, CMS disagreed with OIG’s recommendation that all hospitals be required to submit provider-based attestations for all of their provider-based facilities.  CMS stated in its comments to OIG that the changes required by section 603 of the Bipartisan Budget Act of 2015, which prevents new off-campus provider-based departments from being paid under the outpatient prospective payment system after December 31, 2016, may limit the vulnerabilities associated with provider-based billing.  CMS stated that it would consider other activities after the changes required by section 603 are implemented.  

A copy of OIG’s report is available here

Reporter, Ramsey Prather, Atlanta, + 1 404 572 4624,

FTC Loses Another Hospital Merger Challenge – On June 14, 2016, Illinois federal judge Jorge L. Alonso denied the Federal Trade Commission (FTC) and state regulators’ efforts to block the merger of Advocate Health Care (Advocate) and NorthShore University Health System (NorthShore).  On June 17, 2016, however, Judge Alonso granted the FTC’s motion to enjoining the proposed merger – Advocate and NorthShore could have consummated the merger three days following the FTC’s loss – pending its emergency appeal to the United States Court of Appeals for the Seventh Circuit. The district court’s decision was a significant blow for the FTC and comes only a month after the FTC lost another hospital merger challenge in Pennsylvania (though that decision is pending appeal) after more than a decade of the FTC’s successfully litigating hospital merger challenges.

Although Judge Alonso’s opinion on the merits has not yet been released, and he stated that there would be no written opinion regarding the court’s granting the FTC’s stay pending appeal, Advocate and NorthShore have said that the geographic market the FTC alleged in the Chicago suburbs was inaccurate, as it did not take into account how people actually get their health care.

Materials related to the litigation are available by clicking here.

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

CMS Overhauls Clinical Laboratory Fee Schedule with Long-anticipated Final Rule – On June 17, 2016, CMS released a long-anticipated final rule revising the Medicare payment system for clinical diagnostic laboratory tests paid under the Clinical Laboratory Fee Schedule (CLFS) (the Final Rule).  In 2018, CLFS rates will be based on the weighted median of private payor rates—a change CMS estimates will cut overall payments by approximately 20 percent compared to the current CLFS.  Additionally, the private payor rate data will be collected and reported by the laboratories themselves, with civil monetary penalties for noncompliance.  Finally, CMS will phase in payment reductions through 2023.

First adopted in 1984, CLFS rates have only been updated to establish payment rates for new tests or for statutory, across-the-board updates.  In the Final Rule, CMS explained its belief that some laboratory tests may no longer be priced appropriately due to the vast expansion in the number of laboratory tests and the advancement of laboratory testing technology since the inception of the CLFS in 1984. 

As required under Section 216(a) of the Protecting Access to Medicare Act of 2014, the Final Rule significantly overhauls the CLFS payment model, such that laboratory tests furnished on or after January 1, 2018, will be paid equal to the weighted median of private payor rates determined for that test.  The revised payment model is a significant change from the current payment model where CLFS rates are based on the local fee schedule amounts established by Medicare contractors. 

Data Collection and Reporting

With limited exception, the Final Rule establishes data collection and reporting requirements that affect many laboratories immediately.  Laboratories will be required to collect and report private payor rate data to CMS, with the first data to be collected January 1 through June 30, 2016 and reported to CMS January 1 through March 31, 2017.  All subsequent data collection and reporting periods will recur similarly every three years, with the exception of advanced diagnostic laboratory tests, which require annualized collection and reporting.  Laboratories will be subject to a civil monetary penalty of up to $10,000 per day for noncompliance with the data collection and reporting requirements. 

However, a majority of independent and physician-owned laboratories will be exempt from the data collection and reporting requirements.  The exemption applies to laboratories that receive fewer than $12,500 from the CLFS during a data collection period, or receive 50 percent or less of their total Medicare revenues from the CLFS and the Physician Fee Schedule.  CMS anticipates that exempt laboratories will not be significantly affected by the new payment model because those laboratories constitute a small percentage of total CLFS spending. 

Payment Reduction

Under the Final Rule, annual payment reduction amounts are capped until 2023.  Payment amounts for a test cannot be reduced by more than 10 percent as compared to the previous year’s payment amount for the first three years after implementation of the new payment system (2017-2020).  Beginning in 2021, payment amounts for a test cannot be reduced by more than 15 percent per year for the subsequent three years (2021-2023). 

To illustrate by example, if an existing test under the CLFS for CY 2017 has a payment rate of $20, but the CY 2017 weighted median private payor rate is $15 for that test, then in 2018, CMS may only reduce payment to $18 ($20 minus $2), the maximum 10 percent reduction allowed from the prior year.  The following year, CMS may only reduce payment by another 10 percent to $16.20 ($18 minus $1.80).  The maximum percentage reduction cap would continue to apply to the prior year’s payment until the amount reaches the weighted median of the private payor rate for that test.  In this scenario, the payment will bottom-out at $15 in the third year. 

The Final Rule is scheduled to be published in the Federal Register on June 23, 2016.  Please click here for a pre-publication copy.  A copy of the CMS Fact Sheet is available here.

Reporter, Michael LaBattaglia, Summer Associate, Washington, D.C., + 1 202 262 2387,

CMS Proposes Updates to Hospital Conditions of Participation -- CMS recently published a proposed rule to update certain of the hospital and critical access hospital (CAH) Medicare and Medicaid conditions of participation (CoPs).  With its goals of modernizing hospital and CAH CoPs, improving quality of care, and supporting HHS and CMS priorities, the updates cover several issues set forth below.

  • Preventing discrimination: While hospitals and CAHs must comply with applicable civil rights requirements prohibiting discrimination, CMS notes in the proposed rule that there is no CoP to prohibit discrimination.  Thus, CMS proposes to establish explicitly in the CoPs that a hospital or CAH may not discriminate on the basis of race, color, national origin, sex (including gender identity), age, or disability and that the hospital must establish and implement a written policy prohibiting such discrimination.  In addition, the proposed CoP will prohibit provider discrimination on the basis of religion or sexual orientation, along with a written policy to that effect. 
  • Licensed Independent Practitioners (LIPs): Currently, the CoPs state that “the use of restraint or seclusion must be in accordance with the order of a physician or other licensed independent practitioner who is responsible for the care of the patient . . . and authorized to order restraint or seclusion by hospital policy in accordance with State law.”  CMS, noting that the current language “severely limits a PA’s scope of practice” and may lead to workforce shortages, is proposing to remove the term “independent” from this provision and elsewhere in the CoPs as necessary.
  • Patient access to medical records:  While the CoPs currently provide for a patient’s right to access his or her medical records in a reasonable time frame, the requirements do not take into account that many records are now maintained electronically or that a patient has a right to his or her records to be provided in an electronic format.  Therefore, CMS is proposing to clarify the CoPs to allow for a patient’s right to his or her records in the form and format requested by the individual, if readily producible in such form and format (including in an electronic form or format when such medical records are maintained electronically).
  • Quality Assessment and Performance Improvement (QAPI) Programs: Under the current CoPs, a hospital must systematically examine the quality of its services and implement specific improvement projects on an ongoing basis, including developing its own QAPI program and monitoring it on an on-going basis.  Noting that hospitals are maintaining quality measure data for programs such as the Value-Based Purchasing Program, CMS is proposing to revise the CoPs to require that hospitals include at least some of that data in its QAPI program.

CMS has provided a fact sheet summarizing the proposed changes to the CoPs, including proposed revisions covering infection prevention and control, creation of a hospital-wide antibiotic stewardship programs, medical record service, and nursing programs, as well as CAH-specific updates.  Comments to the proposed rule must be received no later than 5 p.m. on August 15, 2016.

Reporter, Christina A. McNamara, Houston, +1 713 276 7340,

MedPAC Releases Report to Congress on Medicare and the Health Care Delivery System - In June, the Medicare Payment Advisory Commission (MedPAC) released their final annual report to Congress detailing recommendations on a variety of Medicare payment system issues.

Specifically, MedPAC focuses on nine key issues:

  • Using competitive pricing to set beneficiary premiums in Medicare;
  • Medicare’s new framework for paying clinicians, developing a unified payment system for post-acute care;
  • Developing a unified payment system for post-acute care;
  • Medicare drug spending in its broader context;
  • Medicare Part B drug and oncology payment policy issues;
  • Improving the Medicare Part D prescription drug program;
  • Improving efficiency and preserving access to emergency care in rural areas;
  • Telehealth services and the Medicare program, and issues affecting dual-eligible beneficiaries; and
  • Issues affecting dual-eligible beneficiaries: CMS’s financial alignment demonstration and the Medicare Savings Programs.

Notably among MedPAC’s nine key issues are their recommendations under “Medicare Part B drug and oncology payment policy issues” and “Improving the Medicare Part D prescription drug program Medicare Part D.”

First, in examining the Medicare Part B drug program, MedPAC recommends potential modifications to the way Part B pays for drugs in general, including restructuring the average sales price (ASP) add-on payment, promoting price competition and reducing dispensing and supplying fees.  Currently, payment for Part B-covered drugs is based on ASP plus a six-percent add-on fee.  Although MedPAC acknowledges that no study has been done on the issue, there is concern that this add-on fee may provide an incentive for use of higher priced drugs when a lower priced alternative is available.  Modeling suggests that changing the current six-percent add-on fee to a flat fee would reduce Part B drug spending by 1.3 percent.  While the add-on fee is a concern, the drug pricing itself is still the largest component to Part B payments. Therefore, consideration should also be given to create more incentives for price competition for Part B drugs in general in order to lower the ASP. 

MedPAC also reviewed approaches to improve quality and efficiency of oncology care under Medicare Part B, as more than half of Part B drug spending is associated with anticancer drugs.  The report presents four different approaches on how to improve the efficiency of oncology care.  Two approaches look at the use of clinical pathways and risk-sharing agreements between payors and product manufacturers to improve the value of drug spending, while the other two look at the bundling of Part B oncology drugs with non-oncology services in order to hold providers accountable for the total cost of care.

The report also addresses improving the Medicare Part D prescription drug program, including a plan to give sponsors greater financial incentives and better tools to manage benefits for high-cost enrollees.  Other recommendations for Part D include excluding manufacture discounts on brand-name drugs from counting as enrollees’ true out-of-pocket spending, and moderately increasing financial incentives for those who receive the low-income subsidy to use lower cost drugs and biologics. 

As previously reported, MedPAC discussed these changes and other Part D changes during its March 2016 meeting.

Reporter, Kiel Yager, Sacramento, +1 (916) 321-4811,

AMA Demands Appeals Process for Physician Payment Rates  – On June 14, 2016, during its annual meeting in Chicago, the American Medical Association’s (AMA) House of Delegates approved a resolution recommending the overhaul of CMS’s physician payment rate determination methodologies, arguing that CMS’s process for establishing pay rates for medical procedures is “arbitrary.”  As AMA’s resolution states, “[r]ecent CMS decisions have drastically devalued certain procedures, with the indirect effect of making those procedures less valuable—and it could be argued that the lack of checks and balances in CMS’ relative-value decision making process might potentially enable CMS to foster a two-tiered care system and/or abuse its power in other ways.”

CMS uses the Medicare Physician Fee Schedule to determine payments for physician services. The fee for each service depends on its relative value units (RVUs), which rank the resources used to provide each service.  This process takes into account resource costs, including physician work, physician practice expense and liability insurance costs.  The AMA participates in this process via its AMA/Specialty Society Relative Value Scale Update Committee, which acts as an expert panel in developing relative value recommendations to CMS.  However, during its annual meeting last week, AMA members contended that CMS routinely ignores the committee’s recommendations on setting payment rates.  In its resolution, the AMA argued that the lack of physician appeal rights or right to sue CMS over rate-setting is unfair, and, accordingly, the AMA should seek federal legislation imposing “checks and balances” on CMS’s relative value determinations.  The AMA further recommended the establishment of an appeals process allowing physicians to object to relative values set by CMS.

Materials from the 2016 AMA Annual Meeting are available by clicking here

Reporter, Katy Lucas, Atlanta, +1 404 572 2822,


OMB Reviewing Proposal on Handling of 340B Disputes --  On June 15, 2016, the Office of Management and Budget (OMB) started its review of a proposed rule under the 340B discount program, according to the OMB’s website.  Under the proposed rule, a binding administrative dispute resolution process would be established for claims by covered entities that allege they were overcharged for drugs under the 340B program.  This administrative dispute process also would be available to drug manufacturers.

OMB Completes Review of Proposed Medicare Appeals Rule – Last week the Office of Management and Budget (OMB) completed its review of a proposed rule that would attempt to alleviate the significant Medicare appeals backlog.  As previously reported, the Government Accountability Office (GAO) recently publicly released a report regarding the continuing challenges surrounding the backlog of the administrative appeals process for Medicare fee-for-service claims.

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 clicking here.  We hope to see you in Denver!

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.  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. Find out more and register here.