News & Insights


September 20, 2021

Health Headlines – September 20, 2021

OIG Issues Favorable Advisory Opinion on Critical Access Hospital’s Warranty-Like Arrangement for Certain Joint Replacement Procedures – On September 15, 2021, OIG posted Advisory Opinion 21-12, regarding a proposed arrangement involving a program to offer certain free items and services to patients who experience specific complications after undergoing certain joint replacement procedures.  The requestor, a not-for-profit critical access hospital, proposed to offer an arrangement similar to a warranty for specific joint replacement procedures performed by employed orthopedic surgeons.  Specifically, for qualified patients, the requestor would not bill the patient or the patient’s insurer, including federal healthcare programs, for certain items and services provided to treat complications that occur within 90 days of the procedure.  OIG determined it would not impose administrative sanctions in connection with the Anti-Kickback Statute or the Beneficiary Inducements Civil Monetary Penalty (CMP) provision.

The proposed arrangement would only apply to patients who (1) received certain types of surgical procedures (such as a primary total knee, total hip, or partial knee arthroplasty) from one of the critical access hospital’s two employed orthopedic surgeons; (2) experienced complications associated with 60 specific diagnosis codes (such as peri-prosthetic infections or peri-prosthetic fractures) within 90 days of the surgery; and (3) met certain clinical criteria (such as a body mass index within a certain range and adherence to post-surgical follow-up appointment schedules).  For qualifying patients, the requestor would furnish items and services worth up to $50,000 in total charges to treat the covered complications without billing either the patient or the insurer.  These items and services would include, for example, a revision surgery, a replacement prosthesis, anesthesia and associated services, drugs, operating room fees, supplies, an inpatient stay, physical therapy, and occupational therapy.

The requestor would not shift the burden of financial losses stemming from the proposed arrangement to payors and patients.  To ensure this, the requestor would allocate the costs of the covered items and services as a separate line item under non-allowable costs on federal and state cost reports.  The requestor certified it would take similar actions related to commercial payors.  The requestor would also submit no-pay claims for the covered items and services for patients who are federal healthcare program beneficiaries. Additionally, the employed surgeons would be compensated for performing the covered items and services the same way they are paid for other services provided at the facility. 

OIG noted that the proposed arrangement would not be protected under the warranties safe harbor, 42 C.F.R. § 1001.952(g), because that safe harbor protects remuneration provided by manufacturers and suppliers, whereas the proposed arrangement involved remuneration provided by a healthcare provider.  Overall, however OIG concluded the proposed arrangement would present a minimal risk of fraud and abuse under the federal Anti-Kickback Statute and OIG, in its discretion, would not impose sanctions under the Beneficiary Inducements CMP. 

OIG found several safeguards in the arrangement that supported this decision, including that:

  • the proposed arrangement seemed designed to promote quality of care and better outcomes by incentivizing the critical access hospital to reduce its financial exposure by attempting to prevent complications;

  • the surgeons, due to their compensation structure as salaried employees, would not have a direct financial stake in the program, would not be negatively impacted by the provision of free covered items and services, and thus would not be incentivized to “cherry pick” or “lemon drop” patients;

  • the critical access hospital would implement oversight mechanisms such as evidence-based protocols, a quality improvement program, and review of joint replacement procedures by an interdisciplinary team, that reduced the likelihood of diminished quality of care;

  • although the program would be advertised to prospective surgical patients, patients would only be eligible for surgery based on the surgeon’s independent medical judgment; and

  • the potential for steering potential orthopedic surgical patients to the requestor was reduced because the requestor was a critical access hospital located in a rural area more than 40 miles from the nearest hospital. 

OIG Advisory Opinion 12-21 is available here.

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

CMS Proposes Cancelling Automatic Medicare Coverage for Breakthrough Devices On September 15, 2021, CMS published a proposed rule to repeal a final rule that would have allowed Medicare to automatically cover certain medical devices as soon as they receive FDA approval (the Proposed Rule). The final rule, entitled “Medicare Program: Medicare Coverage of Innovative Technology (MCIT) and Definition of ‘Reasonable and Necessary’” (the MCIT Final Rule) was originally published in the Federal Register in January 2021.  Although the MCIT Final Rule was set to take effect on March 15, 2021, CMS issued a series of extensions, which culminated in last week’s Proposed Rule to repeal the MCIT Final Rule altogether.  Comments on the Proposed Rule are due by October 15, 2021.

As discussed in further detail in a King & Spalding Client Alert published on March 26, 2021, the MCIT Final Rule would have granted four years of Medicare coverage for certain medical devices designated by the FDA as breakthrough devices beginning immediately upon FDA market authorization. In addition, the MCIT Final Rule would have codified a regulatory definition of “reasonable and necessary” under section 1862(a)(1)(A) of the Social Security Act for all items and services furnished under Medicare Parts A and B. Notably, the definition would have codified regulatory language giving CMS authority to review and consider commercial insurance coverage policies in certain circumstances.

In the Proposed Rule, CMS explains that “[w]e believe that the finalized [MCIT Final Rule] is not in the best interest of Medicare beneficiaries because the rule may provide coverage without adequate evidence that the Breakthrough Device would be a reasonable and necessary treatment for the Medicare patients[.]” As for the section of the MCIT Final Rule that would codify the “reasonable and necessary” definition, CMS notes that “[e]xpanding the reasonable and necessary definition to systematically consider commercial insurer coverage presents implementation and appeals process challenges that would likely persist.”  However, CMS is requesting comments on whether it should repeal only the commercial insurance aspects of the “reasonable and necessary” definition while leaving the remainder of the definition in place.

The Proposed Rule is available here. For a copy of the MCIT Final Rule, please click here.

Reporter, J. Gardner Armsby, Atlanta, +1 404 572 2760,
House Members Urge CMS Not to Finalize CY 2022 Physician Fee Schedule Due to Cuts in Reimbursement for Critical Services – Last week, over seventy bipartisan members of the U.S. House of Representatives signed a letter urging CMS to reverse proposed cuts in the CY 2022 Medicare Physician Fee Schedule (PFS) proposed rule (the PFS Proposed Rule) that would decrease reimbursement for certain critical services by approximately 20 percent.  The cuts would impact services furnished under the PFS on or after January 1, 2022. House members are concerned the cuts will cause the closure of PFS providers’ practices, weaken the national healthcare system’s response to the pandemic, and undermine the Biden administration’s other health equity efforts.

The lawmakers assert that the main driver of these cuts is the budget-neutrality requirement of a CMS proposal to update clinical labor data.  The budget neutrality provision requires that pay increases in the PFS be offset by payment reductions of equal amounts elsewhere.  With the incorporation of new clinical labor data, the PFS budget neutrality requirement would result in cuts of 15 to 23 percent in reimbursement rates for certain radiation oncology, kidney failure, uterine fibroid, peripheral artery disease, and venous ulcer treatments.  The letter urges CMS not to finalize the 2022 PFS.

The legislators said in the letter that President Biden’s FY 2022 budget contained provisions to address health inequity through the elimination of disparities in healthcare, but there is concern that the 2022 PFS Proposed Rule may undermine some of the initiatives.  For example, legislators are concerned these cuts would conflict with HHS’s efforts to promote health equity by directly impacting specialists who treat cancer, kidney failure and artery disease—diseases that disproportionately impact communities of color.  In addition, they emphasize that the lower rates could lead to the closure of independent physician practices.  The legislators stated that since reimbursement is already higher in vertically integrated health systems than in solo practices, they are concerned that this change will further exacerbate increased consolidation in the healthcare market.  The lawmakers also highlight the potential impact of the lower reimbursement rates on the nation’s ongoing pandemic response.  The lower rates, they emphasize, could ultimately lead to an increase in hospitalization for non-COVID-19-related diseases at the same time hospitals are dealing with a virus surge.  Legislators stated that office-based care under the PFS provides services to the sickest patients—including those with cancer, end-stage renal disease, coronary disease, and other post-acute issues—that are critical to keeping these patients alive and out of the hospital.

The letter from members of Congress to Dr. Meena Seshamani, Deputy Administrator and Director of the Center for Medicare, is available here.  The PFS Proposed Rule is available here.
Reporter, Rebecca Gittelson, Atlanta, +1 404 572 4679,


King & Spalding 30th Annual Health Law & Policy Forum
Join us for our 30th Annual Health Law & Policy Forum focusing on the foremost legal and political developments impacting the healthcare industry. Given public health developments in our area, we have elected to move our conference to a fully virtual format over a three-day period. The Health Law & Policy Forum consists of a series of webinars between 11:00 am and 1:00 pm ET each day, with the first being held today, and the remaining two webinars in the series being held on Wednesday, September 22, 2021, and Friday, September 24, 2021.  Registration is available here.