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June 3, 2019

Health Headlines – June 3, 2019


Supreme Court Delivers Victory to Providers in Allina DSH Part C Case in a Decision with Broad Implications – In a major win for providers that serve a disproportionate share of indigent patients, the Supreme Court today upheld the D.C. Circuit’s earlier decision invalidating CMS’s policy to treat beneficiaries enrolled in Part C managed care plans as nonetheless remaining entitled to benefits under Part A for purposes of calculating Medicare’s disproportionate share (DSH) payments.  Azar v. Allina Health Services, U.S., No. 17–1484, 6/3/19.  Per the government’s own estimates, CMS’s policy reduced payments to providers by $3 - $4 billion over the nine-year period at issue.  In its 7-1 decision, the Court agreed with the D.C. Circuit that the Medicare statute imposes more stringent notice and comment rulemaking requirements than those found under the Administrative Procedure Act (APA).  The Court further held that by failing to properly subject its policy regarding Part C days to notice and comment rulemaking before applying the policy to calculate DSH payments, CMS had violated those more stringent requirements.  This holding has significant implications not just for DSH payments, but for other CMS policies that significantly affect reimbursement but have not been subjected to notice and comment rulemaking.  The Court’s decision is available here.

The Hospitals in Allina argued that CMS was required to subject its policy to treat patients enrolled under Part C as nonetheless being entitled to benefits under Part A to notice and comment rulemaking before applying it.  (The DC Circuit had previously determined that CMS’s attempt to adopt this policy through notice and comment in 2004 was invalid).  For several reasons, including that Part C beneficiaries tend to be proportionally wealthier than traditional Medicare patients, including Part C patients in the Medicare fraction tends to dilute that fraction.  In addition to an argument under the APA’s standard, the Hospitals claimed that the Medicare statute subjects even “statements of policy” to notice and comment rulemaking if those notices of policy create substantive legal standards affecting reimbursement. 

The government, by contrast, argued that the Medicare statute’s notice and comment requirement was virtually identical to the APA’s and contained the same exemption for interpretative rules.

In the decision affirmed by the Supreme Court, the DC Circuit agreed with the Hospitals that the Medicare statute imposes a heightened notice and comment rulemaking standard.  Under that standard, the DC Circuit held, CMS’s Part C policy had to undergo notice and comment rulemaking since it was, at a minimum, a “statement of policy” that “establishes or changes a substantive legal standard governing . . . the payment for services.” 42 USC § 1395hh(a)(2). 

The Supreme Court largely agreed.  Rather than fully defining the contours of the Medicare statute’s notice and comment rulemaking requirement, the Court settled for a more modest holding.  It stated that it was “persuade[d] of at least one thing: The government’s interpretation can’t be right.”  Contrary to the government’s position, the Court held that “the term ‘substantive legal standard’ in the Medicare Act appears to carry a more expansive scope than that borne by the term ‘substantive rule’ under the APA.”  Therefore, the Court continued, the “government’s arguments for reversal [of the D.C. Circuit’s decision] fail to withstand scrutiny.”

Given that this decision represents the end of the road on this issue for CMS, we would expect CMS to take steps to implement the decision soon and to recalculate the SSI fractions during the relevant cost reporting periods that have either been appealed or are still subject to appeal.  Hospitals that have appeals pending in Federal court for this issue should also receive interest on the amount of money owed them by the government. 

In addition, at least some MACs have provided notices to hospitals that the MAC would unilaterally reopen the hospital’s cost report if there was a final decision in Allina that would change the hospital’s DSH payments.  Hospitals that have received such notices, especially those that have not also appealed this issue, should begin reaching out to their MACs asking them to make good on those promises. 

Despite the Court’s refusal to more fully define the contours of the Medicare statute’s notice and comment rulemaking requirements, this case also has clear implications for many other “statements of policy” that substantively effect reimbursement but have never been subject to notice and comment rulemaking, including the many such policies found only in CMS manuals.  To choose one example out of many, much of CMS’s policies governing reimbursement for Medicare bad debts are found only in manuals.  Providers that have been subjected to disallowances based on such policies should give serious consideration to how the Supreme Court’s decision here affects the merits of a potential appeal. 

Reporter, Daniel Hettich, Washington, D.C., +1 202 626 9128, dhettich@kslaw.com.

CMS Releases Final Rule Updating PACE Program – CMS published a final rule today in the Federal Register updating the Program of All-Inclusive Care for the Elderly (PACE).  The updated rule makes several changes intended to expand the flexibilities of the interdisciplinary team (IDT) that comprehensively assesses and provides for the individual needs of each PACE participant.  Key provisions in the final rule include permitting one individual to fill two separate roles on the IDT if the individual has the appropriate licenses and qualifications for both roles and allowing nurse practitioners, physician assistants, and community-based physicians, in addition to physicians, to be the required primary care provider for each IDT.  The final rule also removes the requirement that IDT members serve primarily PACE participants.

Non-physician medical providers are still required to practice within the scope of their state licensure and clinical practice guidelines but now have more flexibility in the roles they can play within the IDT.  For example, a registered nurse cannot fill the role of a master’s-level social worker unless the registered nurse also has a master’s degree in social work.  This final rule marks the first major update since 2007.

The rule acknowledges that changes in the practice of medicine and state laws have expanded the practice of non-physician practitioners, such that these practitioners, in many cases, are able to fulfill the role served by the primary care physician.  Thus, allowing such non-physician providers to serve in the primary provider role in certain circumstances may prove to be more operationally feasible and cost-effective, particularly in rural areas or areas where labor costs are high. 

The PACE program provides comprehensive medical and social services to certain elderly individuals who qualify for nursing home care but can still live safely in the community at the time of enrollment.  Many PACE participants are “dually-eligible beneficiaries,” meaning they are eligible for both Medicare and Medicaid.  The PACE model of care includes, as core services, the provision of adult day health care and IDT care management, through which access to and allocation of all health services is managed.  Physician, therapeutic, ancillary, and social support services are furnished in the participant’s residence or on-site at a PACE center.  Hospital, nursing home, home health, and other specialized services are generally furnished under contract. 

The final rule published in the Federal Register can be found here.

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

Also in the News

King & Spalding Roundtable: Going Global: The Internationalization of the Healthcare Industry – King & Spalding will host a webinar on Thursday, June 20, 2019 from 1:00 to 2:00 p.m. ET discussing how U.S. based health systems are increasingly exploring international operations and foreign investors are making strategic investments in U.S. healthcare and the opportunities and pitfalls these developments create. The webinar will include discussion of:

  • The State of the Market – Explaining the current state of the healthcare industry from U.S. and international perspectives: What factors attract U.S.-based health systems to invest in foreign activities, which areas of the U.S. healthcare industry currently attract international investment, and which segments international investors now avoid (and why).
  • Foreign Ownership Restrictions – Exploring proven structures to deal with foreign ownership restrictions (with a focus on the Middle East) and issues to consider when choosing a local partner.
  • Due Diligence – Reviewing standard questions that should be explored prior to entering a new market (e.g., localization requirements, payment systems, quality control issues, etc.).
  • Matching Mission to the Market – Identifying factors that U.S.-based nonprofit health systems should consider when exploring opportunities for international activities and structures for these activities.
  • New Horizons for Investment – Considering untapped opportunities for investment in healthcare, such as emerging artificial intelligence technology, digital health resources, consumer-facing healthcare, innovation with academic medical centers, and real estate.
  • Lessons Learned – Understanding potential issues from the U.S. and international perspectives that international activities may present.

Registration for the event is available here.

King & Spalding’s Healthcare Industry Practice Recommended by Clients in The Legal 500 2019 – King & Spalding is proud to announce that the firm’s healthcare industry practice has earned a Tier 1 ranking in the nationwide category in The Legal 500 2019.  The prestigious guide bases its rankings on the top work highlights and feedback from clients and determines them by criteria most valued by clients.  They include size of the team, bench strength, quality of work handled, caliber of clients, client feedback, and the reputation of the individual practitioners.  The team was acclaimed for its extensive experience in Medicare reimbursement appeals and other fraud enforcement actions, managed care litigation, compliance, corporate and contract law, as well as M&A and healthcare IT.