News & Insights


May 22, 2017

Health Headlines – May 22, 2017


Senators Continue Negotiations on American Health Care Act (AHCA) - Senate Republicans have been meeting in private to find a path to 50 votes to support legislation to repeal and replace the Affordable Care Act (ACA), following the House passage of the AHCA on May 4.   Senate Majority Leader Mitch McConnell (R-KY) appointed a 13 member working group to develop the legislation but acknowledges that all 52 Senate Republicans are critical to this effort.  As Senator Roy Blunt (R-MO) notes, developing a bill that 46 or 47 Senators can support is “pretty easy,” but “getting to 50 [is] a challenge.” 

Once the Congressional Budget Office (CBO) releases its score of the AHCA on May 24, the Senate Republicans will begin writing a bill in earnest.  The Senate Parliamentarian will use the CBO score to review the legislation to determine whether it complies with “Byrd rule” requirements for budget reconciliation legislation.

Named for its author, the late Senator Robert Byrd (D-WV), the “Byrd rule” disallows “extraneous matter” from being included in a reconciliation bill.  “Extraneous matter” broadly means provisions that do not relate to the deficit reduction goals of the budget reconciliation process. 

According to Senator Orrin Hatch (R-UT), chairman of the Senate Finance Committee, discussions are underway to keep much of the ACA in place until 2020, including keeping many of the taxes, retaining the individual mandate, and continuing cost-sharing reductions through 2018, to ensure insurers do not abandon individual markets. 

Perhaps the biggest challenge to a Senate repeal and replace bill is how such legislation treats the Medicaid program.   The House-passed AHCA cuts $800 billion over 10 years from the program and phases out Medicaid expansion beginning in 2020.  Of the 20 Senate Republicans who represent states that expanded Medicaid under the ACA, Senators Rob Portman (R-OH), Lisa Murkowski (R-AK), Shelley Moore Capito (R-WV), and John McCain (R-AZ) have each signaled concerns with the House approach.  Alternate proposals include a more gradual phase out of Medicaid expansion, phasing out over five years starting in 2020, or potentially less severe Medicaid cuts. 

Certain other ACA provisions, including retaining protections for individuals with pre-existing conditions, are critical to the support of other Republican Senators.  Senator Bill Cassidy (R-LA), a gastroenterologist, has stated that he cannot support a bill that results in individuals with pre-existing conditions unable to afford health insurance. 

Senators Cassidy and Susan Collins (R-ME) have coauthored an alternative repeal and replace proposal, which would repeal the individual and employer mandates and give state more flexibility to build their own health care systems.  They have engaged in discussions with moderate Democratic Senators to determine whether there might be an opportunity for a bipartisan opportunity for health care legislation.

While state governors are divided on the AHCA approach to Medicaid, several governors are working to make bipartisan recommendations to address the individual health insurance market.  Governors John Kasich (R-OH) and John Hickenlooper (D-CO) are leading the effort to propose a consensus approach to stabilize the individual market and give states more control.  To the extent that these solutions do not relate to budget deficit reduction goals of the reconciliation process, and would be ruled by the Senate Parliamentarian as “extraneous matter,” they would need to be considered outside of the budget reconciliation process to repeal and replace the ACA, and accordingly would require support from Democrats to pass the Senate.  

Also related to the short term stability of the individual market, today the Trump Administration and the U.S. House of Representatives jointly requested an additional 90-day delay in the lawsuit related to ACA insurance subsidies, now House v. Price (formerly House v. Burwell) available here.  While this filing does not give insurers the certainty they have been seeking, it is positive that the Administration did not immediately stop payment of the subsidies, as President Trump had suggested.  A HHS spokesperson noted that “Congress could resolve any uncertainty about the payments by passing the AHCA and reforming Obamacare's failed funding structure.”

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

CMS Updates the Medicare Program Integrity Manual to Reflect Patient Status Reviews Under the Two Midnight Rule   Although the Two Midnight Rule became effective on  October 1, 2013, CMS had not updated manual guidance to incorporate the Two Midnight Rule until recently. As previously reported here, CMS updated the Medicare Benefit Policy Manual earlier this year to incorporate the Two Midnight Rule and its revisions to inpatient admission order requirements. Most recently, CMS updated the Medicare Program Integrity Manual (MPIM) to reflect contractor reviews of patient status claims under the Two Midnight Rule, to be effective June 13, 2017.

On May 12, 2017, CMS issued Change Request 10080 that updates the MPIM to clarify the medical review requirements for Part A payment of short stay hospital claims under the Two Midnight Rule for Medicare contractors. In an accompanying Medicare Learning Network (MLN) article, CMS notes that currently, patient status reviews are mainly overseen by Quality Improvement Organizations (QIOs).

The MPIM updates are generally consistent with prior CMS guidance, and do not offer significant substantive changes or new guidance. For example, the MPIM updates incorporate instructions that CMS has previously provided to its contractors with respect to patient status reviews, including concepts known as the Two Midnight Presumption and the Two Midnight Benchmark. CMS also addresses contractor review of cases involving “inpatient only” procedures, as well as cases involving unforeseen circumstances interrupting an otherwise reasonable expectation that a patient’s hospital stay will span two midnights.  In addition, CMS incorporates updates in connection with the recently expanded case-by-case exception to the Two Midnight Rule that permits Part A payment in certain cases based on the admitting practitioner’s judgment that the beneficiary required hospital care on an inpatient basis despite the lack of a two midnight expectation, as previously reported here. However, CMS did not take this opportunity to provide any additional guidance or case examples regarding the case-by-case exception. 

Change Request 10080 is available here, and the CMS MLN article on the update is available here.

Reporter, Lauren Gennett, Atlanta, + 1 404 572 3592 ,

Supreme Court Rules Federal Arbitration Act Preempts Kentucky State Law – On May 15, 2017, the U.S. Supreme Court overturned a Kentucky Supreme Court decision and sided with a nursing home operator regarding an attorney-in-fact’s ability to bind principals to arbitration clauses.  The U.S. Supreme Court determined that Kentucky state law, which required an explicit reference to arbitration in the power-of-attorney agreement, was preempted by the Federal Arbitration Act.

The plaintiffs, two relatives of individuals who died in nursing homes, sought to bring suit against the nursing home operator, Kindred Nursing Centers, L.P., for wrongful death.  Each plaintiff held a power of attorney on behalf of their family member, affording them broad authority to manage that patient’s affairs.  As attorneys-in-fact, the plaintiffs had completed the paperwork required to move their principals (the named family member) into the nursing home and had both signed an arbitration agreement.  

The Kentucky Supreme Court previously held that the arbitration agreements were invalid because neither power of attorney specifically entitled the representative to enter into an arbitration agreement.  The Kentucky Supreme Court decided that the rights of access to courts and trial by jury were “sacred” and “inviolate” and thus an agent could only deprive a principal of such rights if expressly provided in the power of attorney agreement. 

The U.S. Supreme Court found that the Kentucky Supreme Court’s ruling violated the Federal Arbitration Act by singling out arbitration agreements for disfavored treatment.

To view the U.S. Supreme Court’s opinion, click here.

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

OIG Faults CMS for its Medicare and Medicaid Improper Payment Rates – Under the Improper Payments Information Act of 2002, as amended, the Department of Health and Human Services (HHS) is required to annually report on improper payments and meet certain improvement metrics.  In a report released last fall, HHS identified approximately $96.9 billion in gross improper payments in fiscal year (FY) 2016.  Improper payments are payments that should not have been made or were made in an improper amount (either overpayments or underpayments).  Of the $96.9 billion, just over $7 billion were underpayments, with the other nearly $90 billion in overpayments.  On May 16, 2017, the HHS Office of Inspector General (OIG) released a report examining these improper payments to determine HHS’s compliance with the statute.  In violation of the statute, the improper payment rates for both Medicare fee-for-service and Medicaid exceeded 10 percent in FY 2016.  The OIG also found that HHS did not meet its improper payment reduction goals for the Medicare Advantage program and the Children’s Health Insurance Program (CHIP).

HHS identified an improper payment rate of 11 percent for Medicare fee-for-service, mainly related to insufficient documentation and medical necessity errors.  This amounted to over $41 billion in improper payments.  Documentation errors for home health were particularly high (over 42 percent), as were inpatient rehabilitation facility claims (over 62 percent).  Medicaid payment errors were just slightly over the target at 10.48 percent, with over $35 billion in improper payments.  HHS identified states’ noncompliance with program integrity provisions as the primary causes (e.g., requiring ordering/referring providers to be enrolled in Medicaid, requiring risk-based screening of providers prior to enrollment and requiring National Provider Identifiers to be submitted with all electronic institutional claims).  For both Medicare fee-for-service and Medicaid, the OIG recommended that “HHS focus on the root causes of the improper payment percentage and evaluate critical and feasible action steps” to decrease the rates.

In addition, Congress required HHS to meet certain improper payment reduction targets with each program, which it failed to do for Medicare Advantage and CHIP.  The error rate for Medicare Advantage was 9.99 percent (target was 9.14 percent), which HHS attributed mainly to documentation issues by third parties, resulted in nearly $11.5 billion in improper payments.  The OIG recommended that HHS communicate with providers and plans on documentation requirements and monitor adherence throughout the year.  The CHIP error rate was 7.99 percent (target was 6.81 percent), totaling almost $740 million in improper payments, which HHS attributed to administrative errors made by state and local agencies.  The OIG recommended that HHS work with states to bring their respective systems into compliance.

The OIG also noted that HHS failed to calculate the FY 2016 improper payment rate for Temporary Assistance for Needy Families (TANF) altogether and failed to enumerate a TANF corrective action plan as required.  HHS also failed to meet the improper payment reduction goals for the Foster Care program.  Lastly, contrary to statutory requirements, HHS failed to secure a Medicare Advantage Recovery Audit Contractor.

HHS responded that it concurred with the OIG’s findings.

The OIG’s report – U.S. Department of Health and Human Services Met Many Requirements of the Improper Payments Information Act of 2002 but Did Not Fully Comply for Fiscal Year 2016 – is available here.  HHS’s most recent Agency Financial Report is available here.

Reporter, Elizabeth Swayne, Washington, D.C., +1 202 383 8932, 

HHS Further Delays Effective Dates of Final Rules for 340B Drug Pricing Program and Cardiac, Orthopedic Bundled Payment Models – On May 19, 2017, HHS further delayed the effective dates concerning two final rules issued during the Obama administration.  First, HHS delayed until October 1, 2017 the effective date of a January 5, 2017 final rule for the 340B Drug Pricing Program.  This final rule addresses the calculation of drug ceiling prices and imposes civil monetary penalties on drug manufacturers who knowingly and intentionally charge a covered entity more than the ceiling price for a covered outpatient drug.  Second, HHS further delayed until January 1, 2018 the effective dates for several new Episode Payment Models (EPMs) (treatment for heart attack, bypass surgery, and hip/femur fracture), the Cardiac Rehabilitation Incentive Payment (CR) Model, and changes to the Comprehensive Care for Joint Replacement (CJR) Model from a final rule issued December 20, 2016. 

Further Delay of Effective Date for 340B Drug Pricing Program

As previously reported here, the Health Resources and Services Administration (HRSA) published a final rule on January 5, 2017, updating the price structure that drug manufacturers participating in the 340B Drug Pricing Program may charge to covered entities purchasing drugs under the Program.  HRSA also established in the final rule a maximum $5,000 civil monetary penalty per instance for manufacturers that knowingly and intentionally charge a covered entity more than the ceiling price for a covered outpatient drug.  The final rule was to become effective on March 6, 2017.  As previously reported here, HHS then delayed the effective date to March 21, 2017, and subsequently to May 22, 2017, in accordance with a January 20, 2017 executive order that froze the imposition of new federal regulations.

In the May 19, 2017 final rule, HHS delayed the effective date for the third time to October 21, 2017.  HHS explained that it was further delaying the effective date in response to comments from stakeholders regarding the challenges of complying with the January 5, 2017 final rule.  HHS determined that the delay was necessary to provide adequate time for compliance and to mitigate implementation concerns.  A copy of the May 19, 2017 final rule is available here.

Further Delay of Effective Date for New EPMs, CR Model, and Changes to CJR Model

As previously reported here, CMS issued a final rule on December 20, 2016 implementing three new Medicare Parts A and B episode payment models for patients admitted for treatment for heart attack, bypass surgery, or hip/femur fracture under its Section 1115A authority to test innovative payment and service delivery models.  For the three conditions, hospitals will be accountable for the quality and cost of care provided during hospitalization and virtually all care within 90 days of hospital discharge.  The final rule also implemented a cardiac rehabilitation incentive payment model and made adjustments to the CJR Model. 

HHS subsequently issued an interim final rule in March of 2017 that delayed the effective date of the EPMs, CR Model, and changes to the CJR Model from July 1, 2017, to October 1, 2017, and proposed a further delay until January 1, 2018, to align the payment year with the calendar year.    

In the May 19, 2017 final rule, HHS finalized the delay of the EPMs, the CR Model, and changes to the CJR Model from October 1, 2017 to January 1, 2018.  After receiving feedback from commenters, HHS determined that delaying the EPM and CR Model’s start date will ensure that CMS has adequate time to undertake notice and comment rulemaking, if modifications are warranted.  HHS also delayed the CJR changes until January 1, 2018 to align these changes with the EPMs.  A copy of the May 19, 2017 final rule is available here

Reporter, John Whittaker, Sacramento, +1 916 321 4808,

Medicare Payment Advisory Commission Studying Payments To Stand-Alone Emergency Departments – Mark Miller, MedPAC’s Executive Director, testified before the House Ways and Means Committee last week to discuss MedPAC’s Annual Report to Congress, Medicare Payment Policy, which was released March 15, 2017.  In his testimony (available here), and in Chapter 3 of the Annual Report (available here), MedPAC addressed the growth in stand-alone emergency departments (EDs).  The number of hospitals with an off-campus emergency department increased by 97% between 2008 and 2016, and by 2016, there were over 500 stand-alone EDs.  Roughly 65% of these are hospital affiliated off-campus emergency departments.  Mr. Miller noted that “the mix of patients served by stand-alone EDs more closely resembles the mix of patients treated at urgent care centers than the mix of patients treated in on-campus hospital EDs.”  MedPAC’s concern is that because Medicare pays the same rate to stand-alone EDs as it does to on-campus hospital EDs, Medicare might be overpaying for services.  Mr. Miller also explained that these stand-alone EDs are not tracked by CMS, and nothing in the claim differentiates whether the care was provided at a stand-alone ED or an on-campus ED.  Thus, MedPAC recommended that hospitals be required to add a modifier on claims for services provided at a stand-alone ED to allow CMS to track payments to these facilities.

Reporter, Scott Cameron, Sacramento, CA, +1 916 321 4807,  

Senate Finance Committee Approves CHRONIC Care Act – On May 18, 2017, the Senate Finance Committee passed the Creating High-Quality Results and Outcomes Necessary to Improve Chronic (CHRONIC) Care Act of 2017, a bipartisan bill focused on improving care for chronically ill Medicare beneficiaries.   The Senate Finance Committee approved the CHRONIC Care Act unanimously by a vote of 26-0.

Key provisions of the CHRONIC Care Act include:

  • Extending by two years the Independence at Home (IAH) program, which establishes home-based primary care teams for Medicare patients with multiple chronic conditions;
  • Allowing reimbursement for additional social services;
  • Giving Medicare Advantage plans and accountable care organizations greater flexibility to offer telehealth services; and
  • Expanding access to telehealth for home dialysis and stroke assessments.

In a statement, Senate Finance Committee Chairman Orrin Hatch said that “[a]s the first major bipartisan health care bill introduced in the 115th Congress, the CHRONIC Care Act will improve disease management, lower Medicare costs and streamline care coordination services – all with bipartisan solutions and without adding to the deficit.  I commend Ranking Member Wyden and Senators Isakson and Warner for their leadership on this issue and look forward to continuing to work with them to ensure this legislation is enacted into law.”

A draft of the bill can be found here.

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

Also in the News

King & Spalding Roundtable on CMS’s Proposals for the 2018 Inpatient and Long Term Care Prospective Payment Systems – Please join us for on Thursday, May 25, 2017 from 1:00  p.m. to 2:15 p.m. ET for a Roundtable webinar that will explore the recently released proposed rules updating Medicare’s Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospital Prospective Payment System (LTCH PPS).  The webinar will analyze the impact of the proposed updates to DSH/UCC Payments, the Two-Midnight Rule, and Pay-for-Performance, among others.  In addition, this webinar will help participants interested in submitting comments to CMS by the June 13, 2017 deadline effectively advocate their positions.  There is no charge to participate, and you do not have to be a client to attend.  To register, please click here.

King & Spalding Roundtable on New Reporting Requirements and Implications for the Updated Final Rule – King & Spalding invites you to join us on Wednesday, May 31, 2017 from 1:00 – 2:30 p.m. EDT for our next Life Sciences & Healthcare Roundtable:  “ – Navigating the New Rule and the Expansion of Public Disclosure of Your Clinical Trial Data.”  During this webinar, we will discuss the Clinical Trials Registration and Results Information Submission final rule, which became effective on January 18, 2017.  In this webinar, we will clarify the definition of “Applicable Clinical Trials” that must be registered,  discuss changes in registration information that must be submitted, and review the amended timelines for submission. We will also discuss the major new requirement for the submission of results and adverse events for clinical trials of drugs and medical devices that have not yet been authorized for marketing for any use.  Finally, we will consider the broader implications of expanded public disclosure of clinical trial data, including the potential ramifications for SEC-related disclosures.  This presentation is free of charge, and you do not have to be a client to attend.  Find out more information and register for the webinar here.

Save the Date: King & Spalding Reception at the 2017 BIO International Convention – Please join King & Spalding at a reception during the 2017 BIO International Convention in San Diego. The reception will be held at Analog Bar on Tuesday, June 20, 2017, from 5:30 - 8:30 p.m. Please click here to register.