News & Insights


May 7, 2018

Health Headlines – May 7, 2018

Featured Articles 

CMS Acquiesces to Banner Self-Disallowance Decision – On April 23, 2018, CMS released CMS-1727-R (the Ruling), which announced that it will follow the United States District Court’s decision in Banner Heart Hospital v. Burwell, 201 F. Supp. 3d 131 (D.D.C. 2016).   The Banner court held that CMS’s regulation that required hospitals to protest reimbursement items on their cost reports in order for the Provider Reimbursement Review Board (PRRB) to maintain jurisdiction, even when protesting would be futile, violates the law.  Accordingly, for appeals of cost reporting periods that ended on or after December 31, 2008, began before January 1, 2016, and were pending or filed on or after April 23, 2018, a provider has a right to a PRRB hearing notwithstanding the provider’s failure to follow the self-disallowance regulation, 42 C.F.R. § 405.1835(a)(1)(ii), as long as the Medicare Administrative Contractor (MAC) was bound by the policy being appealed.  

The self-disallowance regulation, 42 C.F.R. § 405.1835(a)(1)(ii), was adopted in 2008 and required providers to protest items on their cost reports that are unallowable under CMS policy in order to challenge the legality of that policy.  Under the regulation, the PRRB lacked jurisdiction over any item for which there was not either an audit adjustment or a protest item, ostensibly because the provider could not prove “dissatisfaction” without one of those items.    (CMS abandoned its policy that an audit adjustment or protest item is a prerequisite for PRRB jurisdiction for cost reporting periods that began after January 1, 2016; instead, CMS has made it a prerequisite for payment in the first instance.) 

In Banner, the district court concluded that, despite the hospital’s failure to comply with the self-disallowance regulation, the PRRB had jurisdiction over the hospital’s challenge to a payment regulation governing outlier payments because protesting the regulation at issue would have been futile.  Accordingly, the court held the 2008 self-disallowance regulation may not be applied to appeals raising a legal challenge to a payment regulation or other policy that the MAC cannot address. 

Although CMS did not pursue an appeal of the Banner decision, CMS had not generally withdrawn, changed, or addressed the application of the 2008 self-disallowance regulation, prior to releasing the Ruling.  Indeed, as previously reported, the District of Columbia rebuked CMS last fall for its failure to acquiesce more broadly to the Banner holding.  

Under the Ruling, that has now changed.  CMS will now follow the Banner decision, and for cost reports starting prior to January 1, 2016, a provider should not be deterred from appealing a CMS policy just because the provider may not have protested that policy on its cost report.   

The Ruling specifically prohibits the PRRB from reopening previous jurisdictional dismissals to apply the new Ruling.   In addition, the Ruling only applies where protesting would have been futile.  If an item could have been claimed and paid but simply was not due to oversight or error, providers should still expect to receive jurisdictional challenges alleging they have failed to meet the “dissatisfaction” requirement since they were paid exactly what they requested.   

To view the Ruling, click here

Reporters, Daniel J. Hettich, Washington, D.C, +1 202 626 9128,, and Isabella E. Wood, Atlanta, + 1 404 572 3527, 

New Georgia Law Promotes Micro-Hospitals, Though CMS’s “Primarily Engaged” Standard Looms – On May 2, 2018, Georgia Governor Nathan Deal signed into law a bill allowing failed rural hospitals to be converted into “micro-hospitals.”  The law comes as a response to a recent string of rural hospital closures and a focus on improving access to rural health care.  The new law expands the definition of a “hospital” to include micro-hospitals and relaxes the certificate of need rules for other hospitals to purchase a failed facility to convert it to a micro-hospital.  While the new Georgia law promotes micro-hospitals, a key element of CMS’s definition of a “hospital” – that a provider be “primarily engaged” in providing inpatient services – could create a barrier to Medicare participation for these new micro-hospitals.

Georgia’s HB 769

The Georgia Code defines “hospital” as “an institution which is primarily engaged in providing to inpatients, by or under the supervision of physicians, diagnostic services and therapeutic services for medical diagnosis, treatment, and care of injured, disabled, or sick persons or rehabilitation services for the rehabilitation of injured, disabled, or sick persons.”  HB 769 expressly added “micro-hospitals” to the list of provider types covered by this definition.  The new law defines a micro-hospital as “a hospital in a rural county which has at least two and not more than seven inpatient beds and which provides emergency services seven days per week and 24 hours per day.” 

The new law also carves out an exception related to state certificate of need requirements.  As in many states, Georgia law requires any new hospital construction or expansion to undergo a state certificate of need review to certify whether the hospital is needed in that particular geographic area.  For newly purchased micro-hospitals, the new law exempts the purchasing hospital from the state’s certificate of need requirements when the two facilities are in the same county.

CMS’s “Primarily Engaged” Standard

Micro-hospitals established under Georgia’s new law could have challenges complying with CMS’s newly clarified definition of a “hospital” that is eligible for enrollment in the Medicare program.  Section 1861(e) of the Social Security Act sets forth the definitional requirements of what it means to be a hospital under the Medicare and Medicaid programs.  Like Georgia’s definition, Medicare requires, among other things, that a hospital be “primarily engaged” in providing inpatient care.

In September 2017, CMS issued guidance to surveyors that detailed how CMS intends to enforce the “primarily engaged” in providing inpatient care standard.  Under the revised guidance, facilities that do not have at least two inpatients at the time of the unannounced site must demonstrate that they have an average daily census (ADC) of at least two inpatients and an average length of stay (ALOS) of at least two midnights, or else those facilities risk termination of their provider agreement with CMS.

If the facility does have at least two inpatients at the time of the site-visit, surveyors will then determine whether or not a facility is “primarily engaged” in providing inpatient care by examining several factors, including ADC, ALOS, the number of off-campus outpatient locations, the number of provider-based emergency departments, the number of inpatient beds related to the size of the facility and scope of services offered, the volume of outpatient surgical procedures compared to inpatient surgical procedures, and staffing patterns that indicate full-time inpatient care.  CMS has threatened to terminate the provider agreement of any facility that fails to satisfy these inpatient-focused benchmarks.

Although Georgia law now includes “micro-hospitals” in the state statutory definition of a “hospital,” that definition could be at odds with CMS’s interpretation of “hospital” under the Medicare statute.  The Georgia law definition, for example, makes no reference to inpatient census or average length of stay, setting up the possibility that Georgia would license a hospital that does not meet the ADC and ALOS standards articulated in CMS’s recent state surveyor guidance.  Because of low-inpatient volume, micro-hospitals are particularly vulnerable to not satisfying CMS’s “primarily engaged” standard.  Although state licensure and accreditation is necessary for a hospital to participate in the Medicare program, the Medicare statute carries its own definition of a “hospital.”  In other words, while a micro-hospital may be considered a “hospital” under Georgia law, it still may not meet the CMS’s standard for participation in Medicare. 

Reporter, Michael LaBattaglia, Washington, D.C., + 1 202 262 5579, 

CMS Issues FY 2019 SNF Proposed Rule – On April 27, 2018, CMS issued a proposed rule that would update the payments rates under the prospective payments system (PPS) for skilled nursing facilities (SNFs).  Additionally, the proposed rule includes proposals for the SNF value-based purchasing (VBP) program and the Resource Utilization Groups that will affect Medicare payment to SNFs.  The proposed changes underscore CMS’s agency-wide “Patients Over Paperwork” initiative, which aims to reduce regulatory hurdles and increase patient access to care. 

As required by the Bipartisan Budget Act of 2018 (BAA), under the proposed rule, SNF payments would increase over FY 2018 levels by 2.4 percent.  The overall economic impact of these payment updates would be an estimated increase of $850 million in payments to SNFs during FY 2019.  Absent the BAA, the SNF market update would have been 1.9 percent. 

The proposed rule also considers replacing the Resource Utilization Groups, Version IV (RUG-IV) model, with a revised case-mix methodology called the Patient-Driven Payment Model (PDPM).  The PDPM is intended to improve patient outcomes by using a holistic approach to patient treatment, rather than focusing on the volume of services.  CMS believes that the implementation of PDPM would reduce administrative burdens currently associated with the SNF PPS and allow providers the ability for more interaction with patients. 

Further, the proposed rule looks to update the SNF VBP program. The SNF VBP program rewards SNFs with incentive payments for the quality of care provided to Medicare beneficiaries.  Changes include reducing the adjusted federal per diem rate applicable to a SNF for services furnished during a fiscal year by 2 percent and adjusting the resulting rate for an SNF by the value-based incentive payment amount based on the SNF’s performance score for that fiscal year under the SNF VBP program.  CMS believes that these change will result in a reduction of $211 million in aggregate payments to SNFs during FY 2019.  The proposed rules also update the baseline period for the FY 2021 program year. 

In addition, CMS suggests adding “Extraordinary Circumstances Exception” (ECE) policies to the SNF VBP program.  ECE policies would allow SNF relief from the program requirements in the event of a natural disaster or other similar circumstances that are beyond the SNF’s control. Specifically, if an SNF demonstrated that an extraordinary circumstance affected patient care it provided, CMS would exclude this performance from the calculation of the measure rate for the applicable baseline and performance periods the calendar months during which the SNF was affected by the extraordinary circumstance. 

CMS is accepting comments on the proposed rules through June 26, 2018.  If approved, the final rules will go into effect on October 1, 2018. 

Reporter, Michelle Huntsman, Houston, +1 713 751 3211, 

Proposal to Create New Medicare Benefit for Long-Term Care – On May 2, House Energy and Commerce Committee Ranking Member Frank Pallone (D-NJ) released a discussion draft of the Medicare Long-Term Care Services and Supports (LTSS) Act of 2018, to establish a new LTSS benefit within the Medicare program.  Upon release of the discussion draft, Representative Pallone commented, “The growing need for long-term care is one of the greatest threats to retirement security for American seniors, and the adult children who care for them.” 

Aimed at providing care for individuals with substantial long-term care costs, the proposed LTSS benefit, or Medicare Part E, would cover anyone eligible for Medicare Part A, as well as those under the age of 65 meeting certain specified Social Security Disability Insurance and disability criteria.  The HHS Secretary would be directed to establish a certification process to make a determination about whether an individual qualifies under the LTSS program, as well as what specific level of benefits would be appropriate for that individual.   This new Medicare Part E program would provide a self-directed cash benefit that could be used for nursing facility care, adult day care programs, home health services, personal care services, transportation, or assistance provided by a family caregiver. 

Representative Pallone was a strong supporter of the Community Living Assistance Services and Supports (CLASS) Act, a long-term care insurance program adopted as part of the Affordable Care Act but never implemented by the Obama Administration and ultimately repealed by Congress in 2013.  Representative Pallone maintains that the importance of having a LTSS program has only increased:  “It’s time to expand Medicare to include a long-term care benefit so that millions of seniors and individuals with disabilities no longer have to face financial ruin before they get assistance.  I’m hoping that this proposal will begin an important discussion, and look forward to getting feedback from interested stakeholders.”  Representative Pallone requests feedback by June 15; comments may be sent to

The text of the discussion draft can be found here, the section-by-section summary can be found here, and a fact sheet on the discussion draft can be found here.

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

Also In The News

King & Spalding’s Healthcare Industry Practice Recommended by Clients in Chambers USA 2018 – King & Spalding is proud to announce that the firm’s healthcare industry practice has earned a Band 1 ranking in the nationwide category in Chambers USA 2018.  The prestigious guide bases its rankings on extensive feedback from clients and determines them by criteria most valued by clients.  They include technical legal ability, professional conduct, client service, commercial astuteness, diligence, and commitment.  Chambers also recognized the practice’s capabilities in three states and highlighted 12 healthcare team members as leading lawyers across the country. They are Glen Reed, Gary Eiland, Stephen L. Goff, Tom Hawk, Robert M. Keenan, Christopher P. Kenny, Michael E. Paulhus, Mark D. Polston, Kathy L. Poppitt, Kim H. Roeder, Phillip Street, and Sara Kay Wheeler. The team was acclaimed for its extensive experience in transactional, regulatory, investigation and litigation matters and for its skill in advising a diverse portfolio of healthcare companies. One client commented, “It is the best legal team I've worked with. They are all exceptionally talented. They meet timelines and they deliver great service." 

CMS Critical of MSSP Track 1 ACO Performance and Issues RFI for New Direct Provider Contracting Models – On February 22, 2018, the National Association of ACOs, along with other organizations, sent a letter to CMS Administrator, Seema Verma, requesting that ACOs participating in Track 1 of the Medicare Shared Savings Program (MSSP) for their second agreement period be permitted to remain in Track 1 for a third agreement period.  CMS regulations currently only permit such ACOs to remain in Track 1 for two agreement periods, after which point they must move to a two-sided risk model to continue participation in the MSSP.  In remarks to the American Hospital Association on May 7, 2018, Administrator Verma made clear CMS’s views on Track 1 ACOs by stating that while “‘two-sided ACOs’ have shown significant savings to the Medicare program while advancing quality,” upside only Track 1 ACOs “are actually increasing Medicare spending” and “may be encouraging consolidation in the market place, reducing competition and choice for our beneficiaries.”  She further stated, perhaps foreshadowing CMS’s future direction with respect to MSSP Track 1 ACOs, “our system cannot afford to continue with models that are not producing results.”  In the meantime, on April 23, 2018, CMS made public the responses it received to its RFI issued in the fall soliciting ideas for new innovation models.  On that same day, CMS also issued another RFI on new Direct Provider Contracting Models.  Comments on the RFI are due by May 25, 2018. 

CMS Releases the FY 2019 Medicare Inpatient Rehabilitation Facility PPS Proposed Rule – On April 27, 2018, CMS released the FY 2019 fiscal year inpatient rehabilitation facility (IRF) proposed rule.  CMS’s proposed rule includes updates to Medicare payment policies and rates under the IRF Prospective Payment System.  Key proposed revisions to the IRF coverage criteria include: 

  • Allowing the post-admission physician evaluation to count as one of the face-to-face physician visits; 
  • Allowing the rehabilitation physician to lead the interdisciplinary team meeting remotely without any additional documentation requirements; and 
  • Removing the admission order documentation requirement in an effort to reduce duplicative documentation requirements.

CMS proposes that these IRF coverage criteria changes become effective for all IRF discharges beginning on or after October 1, 2018.  CMS also included a Request for Information (RFI) to obtain feedback on positive solutions to better achieve interoperability or the sharing of healthcare data between providers.  The proposed rule is available here.  The CMS fact sheet is available here.  The deadline for submitting comments on the proposed rule and the RFI is June 26, 2018.

CMS Releases FY 2019 Inpatient Psychiatric Facility Proposed Rule – On April 27, 2018, CMS issued the FY 2019 proposed rule for the Inpatient Psychiatric Facility (IPF) Prospective Payment System and the IPF Quality Reporting (IPFQR) Program.  CMS recommends the removal of eight measures in the IPFQR Program, beginning with the FY 2020 payment determination.  CMS also proposes updating the IPF wage index for FY 2019.  The proposed rule is available here.  The CMS fact sheet is available here.  The deadline for submitting comments on the proposed rule is June 26, 2018.

CMS Releases the FY 2019 Hospice Proposed Rule – On April 27, 2018, CMS released the FY 2019 hospice proposed rule.  The CMS proposed rule would update the hospice wage index, payment rates, and cap amount for FY 2019.   The rule also proposes changes to the Hospice Quality Reporting Program (HQRP).  In the rule, CMS proposes increasing hospice payments and the hospice cap each by 1.8 percent.  With respect to changes to the HQRP, CMS proposes adding an eighth factor to consider when evaluating measures for removal from the HQRP measure set:  whether the costs associated with a measure outweigh the benefits of its continued use in the program.  As proposed, CMS would remove measures based on this factor on a case-by-case basis.  The proposed rule is available here.  The CMS fact sheet is available here.  The deadline for submitting comments on the proposed rule is June 26, 2018.

King & Spalding Life Sciences & Healthcare Roundtable on Lessons Learned From Government Scrutiny of Opioids: What Every Company Should Know – On Wednesday, May 9, King & Spalding will present a 60-minute Life Sciences & Healthcare Roundtable webinar on Lessons Learned From Government Scrutiny of Opioids: What Every Company Should Know.  Presenters will include King & Spalding partners, John C. Richter, J.C. Boggs, and Gary C. Messplay.  This webinar will focus on the new challenges raised by the opioid litigation and what lessons companies not involved in these actions can learn from them.  The webinar will begin at 1:00 p.m. EDT, and there is no charge to attend.  To register, please click here.

Chris Kenny to Speak at Georgia Healthcare Financial Management Association’s Spring Institute – King & Spalding partner, Chris Kenny, is a featured speaker at the Georgia Healthcare Financial Management Association’s Spring Institute this Thursday, May 10.  Chris will co-present on recent developments concerning the Medicare S-10 cost reporting worksheet and audits of hospital uncompensated care.  He will be joined by Jonathan Skaggs of PYA to discuss this critical component of hospital financial operations.  More information can be found here.

King & Spalding Comments on the Importance of Hospitals Addressing Overlapping Surgeries – Overlapping surgeries can create risk areas for hospitals, which are adopting policies to comply with Medicare guidelines and keeping an eye on pending whistleblower cases.  King & Spalding partner, Sara Kay Wheeler, commented on effective ways that hospitals can implement these changes in a recent Report on Medicare Compliance article published by the Health Care Compliance Association, while King & Spalding associate, Lauren Gennett, summarized what current cases mean for hospitals going forward.  The full article is available here, beginning on page 3.