News & Insights


October 30, 2017

Health Headlines – October 30, 2017

CMS Extends Deadline for Providers to Submit an Initial or Revised Worksheet S-10 for FYs 2014 and 2015 until January 2, 2018 – Following a second update in less than a year to the instructions for completing Worksheet S-10, CMS has now also provided a further extension for providers to file an initial or revised Worksheet S-10, which is used by providers to report cost data on uncompensated and indigent care. The extension moves the deadline from October 1, 2017 to January 2, 2018 and applies to all inpatient prospective payment system (IPPS) hospitals.

Revised instructions for Worksheet S-10 were issued by CMS on November 18, 2016, via Transmittal 10, and again on September 29, 2017 via Transmittal 11. Transmittal 11, for example,  included new language stating that “discounts given to uninsured patients that meet the hospital’s . . . uninsured discount policy may be used in the calculation of the uncompensated care payment” (emphasis added). A detailed explanation of the revised instructions can be found by clicking here.

The revised instructions were issued against the backdrop of CMS’ announcement in the FY 2018 IPPS rulemaking that the agency will use Worksheet S-10 data to determine how the uncompensated care component of the disproportionate share hospital (DSH) payment will be distributed among eligible hospitals. Specifically, CMS is phasing out the use of Medicaid and Medicare/Supplemental Security Income days and will begin incorporating data from Worksheet S-10 to calculate the third of three factors it uses to determine how DSH payments are distributed amongst eligible hospitals.

While hospitals are not required to submit amended Worksheet S-10s, they may choose to resubmit if they have additional data corresponding to the new instructions. Since Worksheet S-10 data from the FY 2014 and 2015 cost reports will play a significant role in the hospital’s future allocation of DSH payments, hospitals should give serious thought to the potential benefits of amending their cost reports consistent with the new instructions.

If an eligible hospital expects to encounter difficulty in meeting the extended deadline of January 2, 2018, the hospital may reach out to CMS via its Medicare Administrative Contractor (MAC) to request that CMS consider additional time.

Reporter, Amy L. O’Neill, Sacramento, CA, +1 916 321 4812,

Federal District Court Rebukes CMS for Seeking to Remand Case in Which Providers Did Not Protest Unallowable Items on Their Cost Reports – Last week, the United States District Court for the District of Columbia denied CMS’s request to remand to the Provider Reimbursement Review Board (PRRB) the claims of several hospitals who sought expedited judicial review (EJR) in order to challenge in federal court the regulations governing Medicare outlier payments. Bayshore Community Hosp. et al. v. Hargan, case no. 16-cv-2353 (APM) (D.D.C. Oct. 25, 2017). The PRRB had denied the plaintiff hospitals’ request for EJR on the grounds that it lacked jurisdiction over their appeal because the providers had not complied with the regulations set forth at 42 C.F.R. § 405.1835(a)(1)(ii) and self-disallowed the costs at issue.    On appeal, the district court rejected CMS’s remand request as futile and wasteful of the parties and court’s resources and further rebuked CMS for failing to acquiesce more broadly in Banner Heart Hospital, et al. v. Burwell, case no. 14-cv-01195 (APM) (D.D.C. Aug. 19, 2016), which held that the self-disallowance regulation was contrary to the Medicare statute.

The self-disallowance regulation at 42 C.F.R. § 405.1835(a)(1)(ii) was adopted in 2008 and  requires 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 may not grant a hearing to a provider which has not self-disallowed (i.e., protested) unallowable costs and items. CMS abandoned this particular regulation for cost reporting periods that began after January 1, 2016, and self-disallowance is now required for the PRRB or any administrative contractor to reimburse a provider should its legal challenge be successful. 42 C.F.R. § 413.24(j).

But for cost reporting periods that are still covered by the 2008 regulation, neither CMS, administrative contractors, nor the PRRB has the authority to set aside CMS regulations or rule upon their legality. For this reason, the district court in Banner Heart Hospital et al. v. Burwell, concluded that the self-disallowance regulation imposed a futile requirement to present an unallowable claim on a cost report which is inconsistent with the Medicare statutory language that grants an appeal to any hospital provider which is “dissatisfied” with the total amount of its Medicare reimbursement in that cost reporting year.

CMS did not pursue an appeal of the Banner Heart decision and has since failed to withdraw, change, or address the application of the self-disallowance regulation. For this reason, the PRRB concluded in the Bayshore case that it was bound to follow the self-disallowance regulation, and it denied jurisdiction over the providers’ appeal, effectively ending their EJR request and outlier challenge as well. When the providers challenged the PRRB’s denial of jurisdiction in Federal court, CMS stated that, while it continued to disagree with the Banner Heart decision, it would “acquiesce” to its application in the Bayshore case. It then asked the district court to grant an order remanding the case back to the PRRB to take jurisdiction and determine whether EJR was appropriate.

In language which demonstrated that he was clearly frustrated with CMS’s legal maneuvering, Judge Mehta of the D.C. District Court denied CMS’s remand request and retained Federal court jurisdiction over the providers’ claims, granting them an opportunity to amend their complaint in order to challenge the outlier regulations without the need for a return trip to the PRRB to consider and grant EJR. Judge Mehta cited three reasons for his decision: (1) remand would be futile because the PRRB would be required to grant EJR and the case would end up back in the district court; (2) for this reason, remand would only serve to unduly prejudice the plaintiff hospitals by causing unnecessary and extensive delay; and (3) CMS could not provide any legitimate reasons warranting remand and delay. In addition, the court indicated that while it was not prepared to invalidate the self-disallowance regulation for all providers based on the current status of the case, the parties could further brief the issue as the case progresses.

The experience of the plaintiff hospitals in Bayshore mirrors that of other providers who have challenged the 2008 self-disallowance regulation in Federal court after the PRRB has denied jurisdiction over their claims because they were not protested. These providers have found that CMS has determined not to continue to defend the 2008 self-disallowance regulation in Federal court and offers to “settle” the matter by remanding the case to the PRRB with an instruction that the Board recognize jurisdiction over the appeal. This solution works for some providers, but as the Bayshore case illustrates, it does not work in all cases. While the court’s decision in Bayshore underscores the need for CMS to take action and generally acquiesce in the Banner Heart case which struck down the regulation, it also will strengthen the position of providers who do not wish to return to the PRRB in order for the Board to grant EJR when they have not complied with the self-disallowance regulation.

The court’s opinion is available here.

Reporter, Paige Fillingame, Houston, +1 713 615 7632,

Reportedly Leaked White House Policy “Wish-List” Lists “Serious 340B Reform,” Demonstration of Value-Based Payments for Drugs and Devices, Ending Medicaid IMD Exclusion, and Work Requirements for Medicaid Recipients – A While House policy “wish-list,” reportedly leaked on October 19 (Policy Document), identifies what appear to be the Trump Administration’s policy goals for various government programs, including Medicaid, the 340B Drug Pricing Program, and the Center for Medicare & Medicaid Innovation’s (CMMI) initiatives. The bullet points in the document that relate to these programs prescribe “serious 340B reform,” ending the Medicaid Institutions for Mental Diseases (IMD) exclusion, allowing States to use work requirements as a condition of Medicaid eligibility, ending CMMI’s mandatory demonstration programs, and starting demonstrations on value-based drugs and devices. While most of the goals listed in the Policy Document have been previously publicly promoted by the White House, the leaked document appears to highlight the most important priorities with respect to each agency and program listed.

340B Program: “Serious Reform”

With respect to the 340B drug discount program, the Policy Document indicates “serious 340B reform” is among the Trump Administration’s policy goals. Under the 340B program, drug manufacturers provide outpatient drugs to covered entities, such as safety-net hospitals, at significantly reduced prices. While no additional details are provided in the Policy Document, the Administration’s past actions with respect to the 340B Program suggest that such reform would focus on covered entities’ compliance and spending of revenues associated with 340B-discounted drugs.

The 340B Program has been under close scrutiny from the Trump Administration since January 2017. Shortly after President Trump’s inauguration, the Health Resources and Services Administration (HRSA) withdrew its proposed “omnibus guidelines,” drafted during the Obama Administration, which would have provided a comprehensive update to HRSA’s 340B Program guidance. (See February 6, 2017 issue of Health Headlines.)  In June 2017, a reportedly leaked draft of an executive order surfaced in the media, setting forth certain policies to reduce the cost of drugs. The draft executive order instructed HRSA to ensure that the revenue generated by the 340B Program for covered entities is used to benefit lower-income and vulnerable populations, including by rescinding or revising regulations and guidance. In July 2017, CMS proposed to slash Medicare Part B reimbursement for 340B-discounted drugs to hospitals participating in the 340B Program. (See July 17, 2017 Client Alert.)  Additionally, this year, HRSA postponed four times the effective date of a rule establishing the calculation of a drug’s ceiling price and civil monetary penalties for manufacturers in the 340B Program. (See August 21, 2017 issue of Health Headlines.)  Together, the actions taken and statements made by the Trump Administration suggest that the primary concern with respect to the 340B Program is compliance and spending by covered entities, and therefore, any planned reform would focus on these areas.

Center for Medicare & Medicaid Innovation: End Mandatory Initiatives and Start Value-Based Payment Initiatives for Drugs and Devices

While there is no explicit mention of Medicare in the Policy Document, the document addresses CMMI, stating “CMMI: end mandatory demos. Start some demos on VBP for drugs and devices.”  Republican lawmakers have long been critical of CMMI’s mandatory initiatives, arguing that such initiatives overstep CMMI’s authority. The Trump Administration has already taken action to curtail the mandatory initiatives: on August 15, 2017, CMS announced a proposed rule to cancel the mandatory Episode Payment Models and Cardiac Rehabilitation incentive models scheduled to begin January 1, 2018 and to cut the number of Metropolitan Statistical Areas required to participate in the Comprehensive Care for Joint Replacement model, the only remaining mandatory payment demonstration. (See August 21, 2017 issue of Health Headlines.)  It appears that, under the Trump Administration, CMMI may turn to value-based payment demonstrations for drugs and devices instead.

Medicaid: Ending the IMD Exclusion and Permitting Work Requirements

With respect to Medicaid, the Policy Document states: “Medicaid: end the IMD exclusion. 1115s that increase work requirements.”  The “IMD exclusion” is set forth in the Medicaid statute, which excludes “payments with respect to care or services for any individual who has not attained 65 years of age and who is a patient in an institution for mental illness.”  42 U.S.C. § 1396d(a)(29)(B). Since its inception in 1965, the IMD exclusion was modified to exempt children under age 21 and to permit coverage for small (16 beds or fewer) mental health institutions. The Affordable Care Act established a limited demonstration project that permitted Medicaid to pay for certain care in an IMD. Most recently, in April 2016, CMS finalized a rule that permitted Medicaid managed care organizations to pay for members’ short-term stay in an IMD for up to 15 days per month. Thus, over time, the IMD exclusion has been narrowed by both Congress and CMS. However, since the exclusion is statutory, the White House cannot unilaterally “end” it without an amendment by Congress.

The item “1115s that increase work requirements” appears to refer to work requirements as a condition of Medicaid eligibility as part of Section 1115 waivers to States.  In the past year, a number of States have proposed mandatory or voluntary work programs as part of their Section 1115 Medicaid expansion waiver applications. CMS has yet to approve any State’s request to require that Medicaid beneficiaries work as a condition of eligibility. However, on March 14, 2017, CMS sent a letter to State governors, stating, “[i]t is our intent to use existing Section 1115 demonstration authority to review and approve meritorious innovations that build on the human dignity that comes with training, employment and independence.”  Under the current statutory language, there are four general criteria for CMS to consider in reviewing Section 1115 waiver proposals. These criteria pertain to increasing coverage for low-income individuals, increasing access to providers, improving health outcomes, and increasing efficiency. It is not clear which of these criteria a work requirement would fall under. Therefore, if CMS approves a Section 1115 Medicaid expansion waiver application with a work requirement without further statutory change, it may draw a legal challenge by opponents of the policy.

The Policy Document is available here.

Reporter, Igor Gorlach, Houston, +1 713 276 7326,

Congressional Hearing on HHS’s Emergency Preparedness for and Response to 2017 Hurricane Season – On October 24, 2017, the House Energy and Commerce Subcommittee on Oversight and Investigations held a hearing to examine HHS public health preparedness for and response to the 2017 hurricane season. The hearing addressed federal response, impact on patients, and impact on supply of critical medical products. Dr. Michael Burgess (R-TX) and Dr. Raul Ruiz (D-CA), members of the Oversight and Investigations Subcommittee, have each visited Puerto Rico to assess the public health situation. The Energy and Commerce Committee plans to hold a series of hearings on emergency preparedness, as it has jurisdiction over a wide range of response issues in addition to public health, including rebuilding the electric grid, addressing environmental cleanup, and restoring telecommunications.

The subcommittee heard testimony from the following witnesses:

  • The Honorable Scott Gottlieb, M.D. - Commissioner, Food And Drug Administration (FDA)
  • Ms. Kimberly Brandt - Principal Deputy Administrator for Operations at CMS
  • The Honorable Robert Kadlec, M.D. - Assistant Secretary for Preparedness and Response (ASPR), HHS
  • Rear Admiral Upper Half Stephen Redd, M.D. - Director of the Office of Public Health Preparedness and Response, Centers for Disease Control and Prevention (CDC)

Witnesses outlined the extensive emergency response from the nearly simultaneous Category 4 and 5 hurricanes that hit the U.S. mainland and its territories. They outlined how HHS agencies, in coordination with the Federal Emergency Management Agency and the Department of Homeland Security, were able to identify and ensure treatment for Medicare and Medicaid beneficiaries who rely upon life-maintaining services such as dialysis and home-health services. In Puerto Rico, CMS was able to track the operational status of dialysis facilities and ensure sufficient fuel, water, and supplies were delivered to provide treatment for the nearly 6,000 patients on the island.

FDA Commissioner Gottlieb focused his testimony on the impact of Hurricane Maria on Puerto Rico, which has a number of facilities that manufacture medical products. According to Commissioner Gottlieb, more than 50 medical device manufacturing plants on the island produce more than 1,000 different kinds of devices, and 50 of these types of medical devices are both critically important to patient care and are only manufactured in Puerto Rico.   Commissioner Gottlieb commended the 90,000 medical product industry employees on the island who have worked to ensure operations continued, even as their own families were displaced.

Energy and Commerce Committee Chairman Greg Walden (D-OR) noted that on October 20, bipartisan Committee leaders sent a letter to the owner of the Rehabilitation Center at Hollywood Hills, Florida, where 14 elderly residents died after the facility’s air conditioning failed, following Hurricane Irma. Congressman Gus Bilirakis (R-FL) focused his questions on hospital preparedness programs, including the nursing home incident in Hollywood Hills. Ms. Brandt testified that this Rehabilitation Center has been terminated from participation in the Medicare and Medicaid programs due to “a complete management failure” that resulted in “several levels of … immediate jeopardy for patients.”  Last fall, CMS updated and improved the requirement that facilities have an emergency preparedness plan, that they train on that plan, and make sure all employees are aware of it. Ms. Brandt testified CMS will begin surveys on November 15, 2017 to evaluate compliance with these requirements.

A link to the hearing and accompanying documents can be found here.

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

CMS Updates the Medicare Program Integrity Manual Provisions Addressing ALJ Hearings – On October 13, 2017, HHS issued a transmittal change request to update Section 3.9 of the Medicare Program Integrity Manual (MPIM), stating that only one entity (CMS or a CMS contractor) may attend an ALJ hearing as a party, although additional entities may be non-party participants and may file position papers and/or written testimony or be called as a witness by CMS or a CMS contractor who is a party to the hearing. The ALJ also has discretion to grant leave for additional entities to attend the hearing.

The Transmittal and the changes to Section 3.9 of the MPIM follow HHS’s January 17, 2017 final rule revising the procedures that HHS follows at the ALJ level for appeals of payment and coverage determinations for items and services furnished to Medicare beneficiaries (Final Rule), set forth at 42 C.F.R. §§ 405.1010, 405.1012, and 423.2010.

Revised Section 3.9 of the MPIM, to take effect November 14, 2017, describes the contractors’ role in the ALJ hearing as a party, a participant, and as a witness for CMS or another CMS contractor that is a party to the hearing. The revised Section 3.9 also describes the process by which contractors will select cases for participation and decide their role (i.e., as a party, participant, or witness). It also describes the process for pre-hearing coordination if multiple entities are participating in a hearing.

The Transmittal is available here.

Reporter, Kristin M. Roshelli, Houston, TX, + 1 713 751 3263,

Also in the News:

CMS to Increase Medicare Payments to Renal Care Facilities – In a Final Rule issued last Friday, October 27, CMS revealed that payments furnished to end-stage renal disease (ESRD) facilities under the Medicare prospective payment system during calendar year 2018 will increase by approximately $60 million, an increase of approximately 0.5 percent. This amount is less than the $100 million increase that CMS originally proposed last summer. The final amount was adjusted downward due to a change in the base rate update factor. CMS also projected that co-insurance payments for 2018 will increase by approximately $10 million, which represents an increase of $25 per person for the roughly 400,000 ESRD beneficiaries. A copy of the Final Rule, which will be published in the Federal Register on November 1, is available here.

King & Spalding Providing Three-Part Political Law Compliance Bootcamp Series – On October 31, 2017, King & Spalding will provide the second installment of its three-part political compliance bootcamp for lawyers and others involved in corporate government affairs. The series covers lobbyist registration and reporting, lobbyist ethics, and campaign finance issues. For additional information and to register, click here.

King & Spalding to Host Annual Pharmaceutical University on November 9 – King & Spalding will hold its tenth annual Pharma U event in Philadelphia on November 9, 2017. Join us for a full day of presentations on subjects critical to drug and biologics manufacturers, their in-house counsel, managers, and executives. The three-track symposium will address regulatory, enforcement, intellectual property, commercial, corporate, litigation, international trade, and political issues. Participants are eligible for up to seven hours of CLE credit. Additional details, including registration and a program agenda, are available here.

Upcoming King & Spalding Life Sciences and Healthcare Roundtable – On November 15, 2017, King & Spalding LLP will host a Roundtable titled, “Telemedicine and Telehealth Reimbursement: History, Legal Constraints, Predictions and Opportunities.”  The Roundtable will take place from 1:00-2:30 pm ET and will be available only by webinar. To register, please click here.