News & Insights


September 22, 2014

Health Headlines – September 22, 2014


Court Dismisses AHA’s Challenge to CMS Billing Policy – On September 17, 2014, the U.S. District Court for the District of Columbia dismissed a lawsuit brought by the American Hospital Association (AHA), three individual hospitals, and two health care systems that challenged CMS’s “Part B inpatient” billing policies.  Am. Hosp. Ass’n v. Burwell, No. 12-1770-CKK (D.D.C. Sept. 17, 2014).  The court dismissed the case for lack of jurisdiction. 

AHA filed this lawsuit in 2012, challenging a CMS policy that severely restricts hospitals’ ability to bill Medicare Part B for medically necessary services provided to inpatients following the denial of the inpatient stay because, in the CMS contractor’s view, the services should have been provided in an outpatient setting.  AHA challenged CMS’s requirement that hospitals must submit “new” Part B claims after a Part A denial, rather than permitting hospitals to amend or supplement the existing Part A claim.  AHA also challenged CMS’s policy that any “new” Part B claims be filed within one year after the date of service, citing the fact that almost all Medicare contractor denials, especially recovery audit contractor (RAC) denials, come more than a year after the date of service.  AHA argued that CMS’s failure to create a categorical exception to the one-year timely filing requirement under these circumstances was arbitrary and capricious.

The court did not address these challenges on their merits.  Instead, the court held that it did not have jurisdiction under the Medicare statute.  Under the Medicare statute, judicial review is available only “after a[] final decision of the [Secretary] made after a hearing,” and CMS has narrowly defined what constitutes a “final decision,” the most common example of which is a denied claim for Medicare reimbursement.  The court found, however, that CMS’s failure to make an exception to its timeliness policy does not embody an appealable “final decision,” but is rather a “non-exercise of the agency’s discretion.”  Similarly, the court held that the requirement to submit a new Part B claim after a Part A denial, rather than allow for amending the previously filed claim was also a “non-existent decision . . . [and] not one of the categories of final decisions of which judicial review is allowed.”

AHA had argued that if the court did not have jurisdiction under the Medicare statute, then it did have federal question jurisdiction under 28 U.S.C. § 1331.  Generally, the Medicare statute requires that all legal challenges to the agency’s final decisions be channeled through the agency’s five-level administrative appeals process before they can be filed in federal court.  But the Supreme Court has recognized an exception to this channeling requirement “when roadblocks practically cut off any avenue to federal court, . . . [such that] judicial review [is] unavailable as a practical matter.”  Am. Chiropractic Ass'n. v. Leavitt, 431 F.3d 812, 816 (2005) (citing Shalala v. Illinois Council on Long Term Care, 529 U.S. 1, 22-23 (2000)).  Ultimately, AHA could not demonstrate that it met this exception because other hospitals had successfully challenged CMS’s refusal to rebill under Part B and received favorable decisions from the Departmental Appeals Board awarding reimbursement under Part B.  Even if AHA’s member hospitals were unsuccessful in such an appeal, the court reasoned, they could then obtain judicial review of that administrative decision.  The full decision is available here.  The relevant Final Rule regarding CMS policy for Part B rebilling after a RAC denial for Part A claims is available here.  78 Fed. Reg. 50,496, 50,906 (Aug. 19, 2013).

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

OIG Report Reveals Twelve Percent of RHCs Do Not Meet RHC Certification Requirements – On September 12, 2014, OIG released its report regarding CMS’s enforcement of the statutory provisions governing Rural Health Clinics (RHCs).  According to OIG’s report, twelve percent of RHCs no longer meet the location requirements but are still receiving enhanced Medicare reimbursement.

Through a certification process established in 1977, RHCs receive additional reimbursement from Medicare for providing healthcare in rural areas that have a shortage of healthcare providers.  Previously, RHCs could retain their certification indefinitely.  However, the Balanced Budget Act of 1997 (BBA) ended the permanent certification status.  Under the BBA, RHCs must continue to meet the location requirements or be deemed “essential providers.”  The BBA instructed CMS to issue regulations defining “essential providers” no later than January 1, 1999.  CMS issued two proposed rules to define “essential providers,” one in 2000 and one in 2008, but neither was finalized.  Because proposed rules must be finalized within three years of issuance, CMS must now issue a new proposed rule defining “essential providers.”   

In accordance with the BBA, to continue receiving the increased reimbursement associated with RHC status, these providers should have been recognized as “essential providers.”  CMS’s delay in issuing the defining regulations has allowed these providers to continue to receive RHC reimbursement.  According to the OIG, these RHCs received $132 million from Medicare beneficiaries in 2012.  In response to the report, CMS thanked OIG “for their efforts on this issue” and provided no further comment.

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

OIG Reports Medicare Part B Supplying and Dispensing Fees Significantly Higher Than Those Under Part D and Medicaid – According to a recently released report from the HHS OIG, pharmacies are reimbursed significantly more for dispensing drugs under Medicare Part B than they would be for dispensing the same drugs under Medicare Part D and Medicaid.  The OIG recommended that CMS amend current regulations to decrease Part B payment rates for dispensing and supplying fees to make the rates similar to those under Part D and Medicaid. 

In its report, the OIG found that Medicare paid approximately $106 million on dispensing fees and $26 million on supplying fees under Part B in 2011, when it would have paid around $19 million for dispensing fees and $3 million for supplying fees if using Part D rates, and roughly $19 million for dispensing fees and $8 million for supplying fees if Medicaid rates had been used.  Medicare Part B pays a dispensing fee for inhalation drugs administered through durable medical equipment, as well as a supplying fee for immunosuppressive drugs associated with organ transplant, oral anticancer chemotherapeutic drugs, and oral antiemetic drugs used as part of an anticancer chemotherapeutic regimen.

CMS did not concur with the OIG’s recommendation to decrease Part B payment rates to amounts similar to those under Part D and Medicaid.  Instead, CMS stated that, while the information provided by OIG was useful, “pharmacies that dispense and supply significant amounts of immunosuppressive, oral anticancer, oral antiemetic and inhalation drugs to Medicare beneficiaries have argued that higher fees are necessary to support activities that are associated with dispensing drugs to Medicare patients, such as Part B claim submission or the delivery of inhalation drugs.”  CMS suggested that the OIG conduct a study that would “(a) identify the specific activities involved with dispensing inhalation drugs and supplying oral drugs under part B; and (b) collect information about the actual costs directly associated with dispensing these Part B drugs.”  Despite the suggestion, the OIG stated that it would not conduct such as study, as such a study was “unlikely to be a useful deployment of Government resources.”

Reporter, Kerrie S. Howze, Atlanta, +1 404 572 3594,

Healthcare Industry Faces Heightened Criminal Exposure Under New Criminal Division Review Process for Qui Tam Suits – The Assistant Attorney General for the Criminal Division, Leslie Caldwell, announced on September 17, 2014, that criminal prosecutors at the Justice Department in Washington will automatically review all new qui tam (i.e., whistleblower) complaints filed under the civil False Claims Act.  In remarks delivered at a meeting of the Taxpayers Against Fraud Education Fund Conference, AAG Caldwell revealed that the Criminal Division recently implemented a procedure so that all new qui tam complaints will be shared by the Civil Division with the Criminal Division as soon as the cases are filed.

According to AAG Caldwell, “[e]xperienced prosecutors in the Fraud Section are immediately reviewing the qui tam cases when we receive them to determine whether to open a parallel criminal investigation.  Those prosecutors then coordinate swiftly with the Civil Division and U.S. Attorney’s Offices about the best ways to proceed in the parallel investigations.”

Healthcare companies—no stranger to whistleblower complaints—are likely to receive even more of the Criminal Division’s attention going forward.  For some time now, criminal Assistant U.S. Attorneys (through coordination with the Consumer Protection Branch, formerly the Office of Consumer Litigation), have applied close criminal scrutiny to pharmaceutical and medical device companies specifically with respect to putative matters involving the Food, Drug & Cosmetic Act.  But other healthcare companies commonly faced with qui tam complaints have generally avoided the harshest lens of the Government’s criminal microscope to this point.  No longer.

As AAG Caldwell emphasized at the Conference, “We have numerous ongoing corporate health care fraud investigations, and we are determined to bring more.”  Now that an early criminal review by Main Justice will be standard operating procedure in every qui tam matter—in addition to potentially concurrent review by criminal Assistant U.S. Attorneys in the district where the qui tam action is filed—False Claims Act defendants (in the healthcare industry and otherwise) may face a greater threat of prosecution.  This threat extends to individuals, such as corporate officers; it also intensifies the risk of the collateral consequences that can follow from corporate criminal charges, such as suspension, debarment, or exclusion from Government programs. 

Effective immediately, healthcare companies that learn they are under investigation for potential False Claims Act violations should move quickly to evaluate their criminal exposure and take appropriate action to mitigate the distinctive challenges that a criminal investigation can pose.  Strategic measures may now include early engagement with the Criminal Division and criminal Assistant U.S. Attorneys, as companies seek to counter or even preempt relators’ advocacy before the Government with their own advocacy about why a full criminal investigation into the conduct at issue is not warranted. 

A King & Spalding Client Alert on this legal development was published on September 18, 2014.  The Alert is available here.

Reporters: Christopher A. Wray, Washington D.C., +1 202 626 5570,; Jeffrey S. Bucholtz, Washington D.C., +1 202 626 2907,; Amelia R. Medina, Atlanta, +1 404 572 3507,

FTC Continues Aggressive Scrutiny of Hospital Mergers – A recent New York Times article highlighted new developments regarding the Federal Trade Commission’s (FTC) continued focus on hospital mergers.  Although the FTC’s enforcement has been well-documented over the past few years, and in particular since passage of the Affordable Care Act, the article had a number of interesting insights.  For one, according to many, the FTC’s litigation of several hospital mergers has had a chilling effect on provider combinations and may be subverting one of the core purposes of the Affordable Care Act.  In response, Deborah Feinstein, who heads the FTC’s Bureau of Competition, told the Times in an interview that “I don’t think there’s a contradiction between the goals of health care reform and the goals of antitrust.”

Also noteworthy were quotes from a number of hospital officials regarding the FTC’s skepticism of provider consolidation.  For example, Jeffrey C. Kuhn, the general counsel of ProMedica, is quoted as saying: “The government has lots of resources and lots of lawyers.  Their attitude was adversarial.  Our trustees and top executives had to fly to Washington to be deposed.  We were eager to tell our story, but it quickly turned into an inquisition.  We turned over millions of pages of documents, at great expense.”  Others expressed similar views of the FTC process, reminding practitioners that achieving FTC clearance requires much more than explaining the transaction’s rationale, and that the FTC is well-equipped to challenge hospital mergers.  The New York Times article is available here.

Reporter, John Carroll, Washington, D.C., + 1 202 626 2993,


Congressman Sends Letter to Secretary of HHS Urging Her to Retract CMS’s Global Settlement Offer – On September 15, 2014, Congressman Kevin Brady (R-Tex), Chairman of the House Ways and Means Health Subcommittee, sent a letter to the Secretary of HHS urging her to “retract the settlement process CMS posted on its website on Friday, August 29” in which CMS offered a global settlement to hospitals with appeals of denials of inpatient claims.  Congressman Brady questioned whether “HHS has the statutory authority for this settlement process,” as well as how CMS established the proposed 68% settlement amount.

Congress Passes Act Requiring Quality Reporting by Post-Acute Care Providers – Last week, both the House and the Senate passed the Improving Medicare Post-Acute Care Transformation (IMPACT) Act of 2014 (HR 4994).  The legislation, if signed by the President, will require post-acute care providers to report certain resource use statistics, as well as standardized quality data, and for the results to be publicly reported by CMS.

HHS Clarifies that HIPAA Privacy Rule Extends to Same-Sex Spouses – The HHS, Office for Civil Rights, recently issued guidance that addresses the HIPAA Privacy Rule in light of United States v. Windsor, the 2013 Supreme Court decision that struck down a portion of the Defense of Marriage Act (DOMA) as unconstitutional.  The guidance clarifies that the Privacy Rule covers individuals who are in same-sex marriages.  Specifically, in certain circumstances, covered entities may share individuals’ protected health information with same-sex spouses, and health plans are prohibited from using same-sex spouses’ genetic information for underwriting purposes.

Recent MedPAC Meeting – On September 11-12, 2014, MedPAC held a public meeting to discuss various Medicare issues and policy, and to develop and approve reports and recommendations to Congress.  The meeting topics, briefs, and presentation slides are available here

Transcript and Audio Recording Now Available of CMS’s National Provider Call On Its Global Settlement Offer – Last week, we reported that CMS held a Medicare Learning Network (MLN) National Provider Call on September 9, 2014 to discuss its global settlement offer to acute care hospitals with pending appeals of denials for inpatient claims.  The transcript and recording of that MLN call are now available and can be accessed here.

The content of this publication and any attachments are not intended to be and should not be relied upon as legal advice.

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