News & Insights


September 8, 2020

Health Headlines – September 8, 2020

CMS Issues Medicare IPPS and LTCH Final Rule for FY 2021 – On September 2, 2020, CMS issued the fiscal year (FY) 2021 final rule for the hospital inpatient prospective payment system (IPPS) and long-term care hospital (LTCH) prospective payment system (the Final Rule).  This article provides an overview of the key changes in the Final Rule.  The Final Rule goes into effect on October 1, 2020.  However, as discussed below, some of the changes in the Final Rule apply retroactively to cost reporting periods beginning before October 1, 2020.

Payment Rates Overview

IPPS payment rates are expected to increase by approximately 2.9 percent in FY 2021 relative to FY 2020 for acute care hospitals that participate in the Hospital Inpatient Quality Reporting (IQR) Program and are meaningful electronic health record (EHR) users.  This increase is the result of a 2.4 percent market basket update and a 0.5 percent point adjustment required by legislation.  CMS projects that IPPS operating payments per discharge will increase by approximately 2.5 percent for urban hospitals and 2.2 percent for rural hospitals in FY 2021 compared to FY 2020.  Overall payments to acute care hospitals are expected to increase by $3.5 billion in FY 2021. 

CMS projects that overall LTCH payments will decrease by 1.1 percent ($40 million) in FY 2021.  For hospitals that continue to be paid under the LTCH PPS, payments are expected to increase by 2.2 percent per discharge due to an increase in rates of 2.3 percent.  LTCH PPS payments are expected to decrease by 24 percent for hospitals that complete the statutory transition to the site neutral rate. 

CMS Set to Change Methodology in Setting MS-DRG Relative Weights

Through the Final Rule, CMS instructs hospitals to include on their cost reports a calculation of their median payer-specific negotiated inpatient services charges for Medicare Advantage (MA) organizations.  Hospitals will calculate and report these medians on the basis of the negotiated prices for items and services that they are required to disclose under the agency’s November 2019 price transparency rule.  CMS will begin collecting this data for the cost reporting periods ending on or after January 1, 2021.  CMS will use these reimbursement rates that hospitals negotiate with MA organizations as the basis for calculating MS-DRG relative weights, beginning in Fiscal Year 2024.  Currently, CMS utilizes a cost-based methodology when estimating the appropriate weight for each MS-DRG.  The current cost-based methodology relies upon hospital charges from MedPAR claims data and cost report data from the Healthcare Cost Report Information System to establish the MS-DRG relative weights.  In the Final Rule, CMS indicates its intent to utilize a more “market-based approach” in calculating MS-DRG relative weights by using payer-specific negotiated charges between hospitals and MA organizations, as the agency believes that these charges are generally well-correlated with Medicare IPPS payment rates.  The adjustment of relative weights will continue to be performed in a budget-neutral fashion, as it is under current law.

Medicare Wage Index

In the Final Rule, CMS adopted the revised labor market area delineations based on the latest core-based statistical areas reflected in OMB Bulletin No. 18-04 issued September 14, 2018.  As a result of these changes, 34 urban counties will become rural, 47 rural counties will become urban, and 19 counties are moving from one CBSA to another.  

To ease the transition to the revised labor market area delineations, CMS has placed a 5 percent cap on any decrease in a hospital’s wage index in FY 2021 relative to its FY 2020 wage index.  This means that a hospital’s wage index for FY 2021 cannot go below 95% of its wage index from FY 2020.  To offset the cost of this policy, CMS will make a downward adjustment to the standardized amount.

CMS also continued its low wage index hospital policy that it first adopted in FY 2020.  Under this policy, CMS makes upward adjustments to the wage indices of hospitals with a wage index value below the 25th percentile nationally.  The adjustment for each eligible hospital is equal to half of the difference between the otherwise applicable final wage index value for the hospital and the 25th percentile wage index value for all hospitals that same year.  For FY 2021, the 25th percentile wage index value will be 0.8457.  To fund these adjustments, CMS has applied a budget neutrality adjustment to the standardized amount. 

Uncompensated Care

In the Final Rule, CMS finalized the three factors that will be used to determine uncompensated care payments in FY 2021. 

Factor 1 is equal to 75 percent of CMS’s estimate of the amount of disproportionate share hospital (DSH) payments that hospitals would receive during the year under the DSH payment methodology that existed prior to FY 2014.  As in years past, CMS calculated Factor 1 for FY 2021 based on the most recent Medicare hospital cost reports with Medicare DSH payment information.  Based on data from FY 2017, CMS estimated that total DSH payments to hospitals under the pre-FY 2014 methodology would have been $14.004 billion.  CMS updated that number by a factor of 1.0437 for a result of $15.171 billion.  Factor 1 for FY 2021 is equal to 75% of that number, or $11.378 billion. 

Factor 2 is equal to 1 minus the percent change in the percent of uninsured individuals between 2013 and the most recent year for which data is available.  In the Final Rule, CMS estimated that the number of uninsured individuals was approximately 10.2 percent accordingly the latest data.  Accordingly, the Factor 2 for FY 2021 is 72.86 percent.  The product of Factors 1 and 2 is a payment pool of $8.290 billion.  The payment pool was $8.350 billion in FY 2020. 

Factor 3 is equal to the ratio of each hospital’s own amount of uncompensated care costs relative to the uncompensated care costs of all other hospitals nationally.  In the Final Rule, CMS finalized its proposal to use Worksheet S-10 data from FY 2017 to calculate Factor 3.  CMS also indicated that it intends to use the most recently audited Worksheet S-10 data to calculate Factor 3 in subsequent FYs. 

Graduate Medical Education

The Medicare statute limits the number of resident trainees that hospitals can claim for reimbursement from Medicare under the Graduate Medical Education (GME) rules.  One exception to the limit applies to hospitals that train “displaced residents” who were previously training at a hospital or program that closed before they could complete their training programs. 

Under current GME rules, a “displaced resident” is defined as a resident training at a hospital or in a program the day before the hospital or the program closes.  This rule has proven problematic for displaced residents seeking to transition to other hospitals or programs.  To address this problem, in the Final Rule, CMS changed the definition of “displaced resident” to (1) residents who were training at the hospital or in the program on the day that the closure was publicly announced, or (2) residents who had been accepted to train at the hospital or program but had not yet begun training by the day that the closure was publicly announced. 

Bad Debt Policies

In the proposed rule for FY 2021, CMS proposed to amend its existing bad debt regulations to incorporate the agency’s bad debt policies reflected in Chapter 3 of the Provider Reimbursement Manual (PRM).  CMS also proposed that most of these changes would apply retroactively to prior cost reporting periods.  King & Spalding submitted comments in opposition to several of CMS’s more controversial proposals.  A copy of the comment letter is available here.  As a result of these comments, CMS modified many of its proposals in a manner favorable to providers. 

Bad Debt of Non-Indigent Beneficiaries

In the Final Rule, CMS amended its bad debt regulation to specify the timeframe by which a hospital must issue a bill in order for the collection effort to qualify as reasonable.  For cost reporting periods beginning prior to October 1, 2020, hospitals are required to issue a bill “shortly after” discharge or death of the beneficiary.  For cost reporting periods beginning after October 1, 2020, hospitals must issue a bill within 120 days after the later of (1) the date of the Medicare remittance advice, (2) the date of the remittance advice from the beneficiary’s secondary payer, or (3) the date of notification that the beneficiary’s secondary payer does not cover the services furnished to the beneficiary. 

CMS also established a timeframe by which a hospital can write off a debt as uncollectible.  For cost reporting periods beginning before, on or after October 1, 2020, hospitals may not write off a bad debt until at least 120 days have passed since the issuance of the bill.  The 120-day period will reset each time the hospital receives a partial payment. 

CMS also amended its regulation to require hospitals to employ similar collection efforts between Medicare and non-Medicare beneficiaries.  Providers will also be required to maintain and furnish upon request (1) their bad debt collection policies, (2) the patient account history, and (3) the beneficiary’s file with copies of bills and follow up notices.  Both of these changes will apply to cost reporting periods beginning before, on or after October 1, 2020.

Bad Debt of Beneficiaries Determined Indigent under Provider’s Financial Assistance Policy

Under current CMS policy, if a provider determines that a patient is eligible for assistance under its Financial Assistance Policy (FAP), i.e., the patient is indigent, the provider need not attempt reasonable collection efforts before claiming the debt for reimbursement from Medicare.  In the proposed rule for FY 2021, CMS proposed requiring hospitals to consider a patient’s “total resources” such as income, assets, expenses and liabilities in determining indigency.  CMS also proposed adopting this policy retroactively and prospectively to cost reporting periods beginning before, on or after October 1, 2020.  This proposal posed a significant threat to hospitals who have for years determined indigence without considering all four of the factors identified in the proposed rule. 

King & Spalding strongly opposed this proposal in its comment letter.  King & Spalding argued that the Medicare statute prohibits CMS from adopting these specific proposals retroactively.  In addition, King & Spalding pointed out that it does not make sense to require hospitals to consider expenses and liabilities because this would simply increase the number of beneficiaries eligible for financial assistance, thereby increasing the amount of bad debt hospitals would claim from Medicare.

In response to these comments, CMS modified its proposal in two important respects.  First, CMS decided that hospitals will not be required to consider expenses and liabilities in determining a patient’s eligibility for financial assistance.  Instead, hospitals will only be required to consider income and assets.  Second, CMS decided against adopting this policy retroactively.  Instead, hospitals will only be required to consider income and assets for cost reporting periods beginning on or after October 1, 2020.  These two modifications to CMS’s proposals represent a significant victory for the provider community. 

Bad Debt of Dual-Eligible Beneficiaries

Providers are also excused from attempting to collect debt from beneficiaries who are eligible for both Medicare and Medicaid.  Bad debts attributable to dual-eligible beneficiaries is known as crossover bad debt.  In the Final Rule, CMS amended the bad debt regulations to require providers to attempt to bill the applicable state Medicaid program and submit remittance advice to the MAC before claiming reimbursement from Medicare for crossover bad debts.  In cases where a State does not process a Medicare crossover claim and issue a Medicaid remittance advice to providers, CMS will allow providers to submit alternative documentation that includes: (1) State Medicaid notification evidencing that the State has no obligation to pay the beneficiary’s Medicare cost sharing; (2) documentation setting forth the State’s liability or lack thereof for the beneficiary’s Medicare cost sharing; and (3) documentation verifying the beneficiary’s eligibility for Medicaid on the date of service.  These policies are effective for cost reporting periods beginning on, before or after October 1, 2020.

Contractual Allowance Accounts

In the proposed rule, CMS proposed prohibiting providers from claiming bad debt that is written off to a contractual allowance account in their financial accounting statements.  Effective October 1, 2020, providers would only be permitted to claim bad debt written off to a bad debt expense account.

King & Spalding commented that requiring hospitals to write off bad debts to an expense account does not make sense because CMS has proposed to define bad debts as reductions to revenue that must be recorded in revenue accounts instead of expense accounts.  CMS acknowledged this error in the Final Rule and will now require providers to write off bad debt to a revenue account instead of an expense account. 

However, whether by accident or design, CMS pulled a switcheroo in the Final Rule.  CMS decided that for cost reporting periods beginning before October 1, 2020, hospitals would be required to report bad debts to a bad debt expense account.  This new rule contradicts the public announcement CMS made in an MLN matters article issued on April 4, 2019, in which CMS said it would not require hospitals to report bad debt to a bad debt expense account for cost reporting periods beginning prior to October 1, 2019. 

CMS Created a New MS-DRG For CAR T-Cell Therapies

During the Fiscal Year 2021 IPPS/LTCH PPS proposed rule, CMS discussed the various requests received for a new Medicare Severity Diagnostic Related Group (MS-DRG) for procedures involving Chimeric Antigen Receptor (CAR) T-cell therapies in the inpatient setting.  Requestors commented there would likely be a reduction in the overall payments for cases involving these therapeutics, as cases involving CAR T-cell therapies were no longer eligible for new technology add-on payments in Fiscal Year 2021.  Other requestors opined that without the creation of a new MS-DRG for procedures that utilized CAR T-cell therapies, outlier payments would increase significantly.  After consideration of public comments received, CMS elected to create a new MS-DRG for cases involving CAR T-cell therapies to provide for more predictable payments to be made to hospitals paid under the IPPS.

CMS Expanded the NTAP Pathway for Antimicrobial Products

Due to concerns and impacts resulting from antimicrobial resistance, CMS has expanded the alternative NTAP pathway for antimicrobial products approved in accordance with the FDA’s Limited Population Pathway for Antibacterial and Antifungal Drugs (LAPD pathway).  To enable new technology add-on payments for antimicrobial products to occur more quickly, CMS is additionally adopting a policy providing conditional approval for antimicrobial products that otherwise meet the NTAP alternative pathway criteria but have not received FDA approval in time for consideration in the final rule.

Twenty-Four Technologies Are Eligible to Receive New Technology Add-On Payments

CMS additionally approved a total of 24 New Technology Add-on Payments (NTAPs) for Fiscal Year 2021.  The NTAP program provides for additional payment to hospitals for cases involving eligible new and relatively high cost technologies utilized during inpatient hospital stays.  CMS plans to additionally continue NTAPS for 10 out of 18 technologies currently receiving the add-on payments.  Overall, CMS predicts that Fiscal Year 2021 Medicare spending on NTAPs will be approximately $874 million, approximately an 120% increase over the Fiscal Year 2020 spending.

The Final Rule is available here, and a CMS fact sheet is available here

Reporters, Alek Pivec, Washington D.C., +1 202 626 2914,, and Jennifer Siegel, Los Angeles, +1 213 443 4389,

CMS Proposes to Codify the Definition of “Reasonable and Necessary” and to Establish a New Medicare Coverage Pathway – On September 1, 2020, CMS published a proposed rule that would define “reasonable and necessary” for purposes of coverage under Part A and Part B of the Medicare program, and that would establish a new expedited Medicare coverage pathway for FDA-designated breakthrough devices (the Proposed Rule). The proposed definition of “reasonable and necessary” would codify the current definition in the Medicare Program Integrity Manual (MPIM), but would also establish a new, alternative basis for determining whether an item or service is appropriate for Medicare patients, based on whether the item or service is covered by commercial insurers. The deadline for submitting comments is November 2, 2020.

Definition of “Reasonable and Necessary”

Under existing law, with limited exceptions, Medicare Part A and Part B will not pay for any expenses incurred for items or services that “are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.” 42 U.S.C. § 1395(a)(1)(A). To date, CMS has never defined the “reasonable and necessary” standard in a regulation. Instead, the factors that Medicare Administrative Contractors consider when making Local Coverage Determinations are specified in Chapter 13 of the MPIM, available here.

Under the Proposed Rule, CMS would codify the MPIM definition of “reasonable and necessary,” and would incorporate a new, alternative basis for determining whether an item or service is “appropriate for Medicare patients.” As proposed, an item or service would be considered “reasonable and necessary” if it is:

  • Safe and effective;
  • Not experimental or investigational; and
  • Appropriate for Medicare patients, including the duration and frequency that is considered appropriate for the item or service, in terms of whether it:
    1. Meets all of the following criteria:
      • Furnished in accordance with accepted standards of medical practice for the diagnosis or treatment of the patient’s condition or to improve the function of a malformed body member;
      • Furnished in a setting appropriate to the patient's medical needs and condition;
      • Ordered and furnished by qualified personnel;
      • One that meets, but does not exceed, the patient's medical need; and
      • At least as beneficial as an existing and available medically appropriate alternative; OR
    1. Is covered by commercial insurers, unless evidence supports that the difference between Medicare beneficiaries and commercially insured individuals are clinically relevant.

The alternative, commercial insurance-based test is a new method for determining whether an item or service is “appropriate for Medicare patients,” and is not found in the MPIM. Otherwise, the proposed definition mirrors the existing definition in the MPIM. In assessing the commercial market, CMS would examine the coverage policies of non-governmental entities that sponsor health insurance plans, and would exclude Medicaid managed care, Medicare Advantage, and other government-administered healthcare coverage programs. 

CMS is seeking comment on several issues, including whether the agency should limit its consideration of commercial plan offerings or covered lives to a subset of the commercial market. The agency suggests that such subsets might be based on geography, number of enrollees, plan type (HMO, PPO, etc.), or might even utilize a singular plan. CMS is also considering an alternative approach, under which it would cover an item or service only if it is covered by a certain proportion (e.g., a majority or a plurality) of covered lives amongst plans, or a certain proportion of plan offerings in the commercial market. CMS also seeks comment on the sources of data that the agency could be used to implement its assessment of commercial coverage policies, and whether the agency should make this information public and transparent. 

Medicare Coverage of Innovative Technology Pathway

Under existing law, CMS uses several coverage pathways for items and services, including medical devices. These coverage pathways include National Coverage Determinations (NCDs), LCDs, claim-by-claim adjudications, NCD 310.1 (Routine Costs in Clinical Trials), and parallel review by FDA and CMS. CMS observes that none of these existing coverage pathways are readily available to provide immediate and predictable coverage concurrently with FDA market authorization.     

Under the Proposed Rule, CMS would create a new Medicare Coverage of Innovative Technology (MCIT) pathway that would provide immediate national coverage for breakthrough devices for a time-limited period, beginning on the date of FDA market authorization and continuing thereafter for up to four years. The MCIT pathway would be voluntary and would be initiated when a manufacturer notifies CMS of its intention to utilize the pathway. CMS explains that under the new pathway, an item or service that receives breakthrough device designation from the FDA would be considered “reasonable and necessary” for purposes of Medicare coverage because such devices have met the FDA’s unique criteria and are innovations that serve unmet needs.

Medical Device Eligibility

The MCIT pathway would be available only to medical devices that are:

  • Designated by the FDA as “breakthrough devices”;
  • FDA market authorized at most two years prior to the effective date of the final rule and thereafter;
  • Used according to their FDA approved or cleared indication for use;
  • Within a Medicare benefit category;
  • Not the subject of an NCD; and
  • Not otherwise excluded from coverage through law or regulation.

Coverage of Items and Services

Unless otherwise excluded from coverage, covered items and services furnished within the MCIT pathway could include:

  • The breakthrough device;
  • Any reasonable and necessary procedures to implant the device;
  • Reasonable and necessary costs to maintain the device;
  • Related care and services for the breakthrough device; and
  • Reasonable and necessary services to treat complications arising from the use of the breakthrough device.

Coverage Period

The coverage period established under the MCIT pathway would begin on the date the breakthrough device receives FDA market authorization. The coverage period would continue thereafter for up to four years, but would terminate earlier if: (i) a manufacturer withdraws the device form the pathway; or (ii) the device becomes the subject of a NCD or otherwise becomes noncovered through law or regulation.

The Proposed Rule is available here, and the CMS fact sheet is available here.

Reporter, Kyle Gotchy, Sacramento, +1 916 321 4809,

Assisted Living Facilities Eligible for Provider Relief Fund Phase 2 General Distribution – On September 1, 2020, HHS announced that assisted living facilities (ALFs) that do not bill Medicare or Medicaid may now apply for funding under the Provider Relief Fund Phase 2 General Distribution allocation.  HHS has developed a curated list of the tax identification numbers (TINs) of these private-pay ALFs.  Like other providers applying for Phase 2 funding, eligible ALFs will receive 2 percent of their annual revenue from patient care.   

Additionally, on September 1, 2020, HHS released new Frequently Asked Questions to assist ALFs in preparing their application.  Importantly, HHS explains that it developed its curated list from state licensing boards/organizations, the American Health Care Association, National Center for Assisted Living, Argentum, Brookdale, Leading Age, and other assisted living groups.  If a TIN is not on the curated list of ALFs, HHS will conduct additional analysis related to the TIN and any currently operating ALFs associated with the TIN.   This validation process might involve the State or other third-party sources to determine if the provider is a known provider that was not captured initially.

The application deadline is September 13, 2020.  For providers awaiting additional analysis and TIN validation, if the TIN is subsequently marked as valid, the provider will be notified to submit data into DocuSign, even if validation occurs after the September 13 deadline.

The complete FAQ document is available on the HHS website here, and the HHS announcement is available here.

Reporter, Ahsin Azim, Washington, D.C., +1 202 626 9262,

HHS Announces Details of $2 Billion in Performance-Based Payment Distributions for Nursing Facilities from the CARES Act Provider Relief Fund 010 – On September 3, 2020, HHS announced the details of a $2 billion Provider Relief Fund (PRF) performance-based incentive payment distribution to qualifying nursing facilities.  Unlike previous distributions to nursing facilities through the CARES Act, the payments are tied to performance metrics based on COVID-19 data submitted to CDC.  Nursing facilities are not required to apply to receive the PRF incentive payments, which will be issued over four monthly performance periods based on data from September through December 2020.

To qualify for the PRF incentive payments, nursing facilities must have an active state certification as a nursing home or skilled nursing facility and receive reimbursement from CMS.  Facilities must also report data to at least one of the following federal databases: Certification and Survey Provider Enhanced Reports, Nursing Home Compare, or Provider of Services.

HHS will evaluate nursing facilities’ eligibility for the PRF incentive payments based on data from the CDC’s National Healthcare Safety Network LTCF COVID-19 module, which CMS began requiring nursing facilities to provide data to in May 2020.  HHS will consider two data points in determining eligibility: 1) the facilities’ ability to keep new COVID-19 infection rates low among residents, and 2) the facilities’ ability to keep COVID-19 mortality low among residents.  HHS will measure these two data points against a baseline level of COVID-19 infections in the community where each facility is located based on data from the CDC.   

The $2 billion PRF incentive payments are a portion of the $5 billion distribution authorized by the CARES Act to support nursing homes struggling with the impacts of COVID-19 that HHS announced last month.

The full September 3, 2020 press release from HHS is available here.

Reporter, Nicholas Kump, Sacramento, +1 916 321 4817,

Manufacturers Push Back on the Use of Contract Pharmacies by 340B Covered Entities – Manufacturers and providers participating in the 340B Drug Pricing Program have entered into a new phase of tensions this summer, as manufacturers push back on the use of contract pharmacies by providers.  At least one major manufacturer published a letter stating that providers will be able to purchase the manufacturer’s drugs only when shipped to an in-house pharmacy, prompting HRSA to consider regulatory action against the manufacturer.  Additionally, beginning in June, some manufacturers sent letters to providers, directing them to upload contract pharmacy claims data for 340B-eligible prescriptions to the vendor 340B ESP to minimize duplicate discounts for claims that are submitted to Medicaid, Medicare Part D, and commercial payors.  340B administrator entities responded by sending communications to the same providers, reminding them of the confidentiality and data privacy obligations governing the claims data, and refusing to provide authorization to disclose data for payors other than Medicaid.

One manufacturer’s announced refusal to sell drugs for shipment to contract pharmacies is the strongest stance on this issue so far.  This announcement will require a response from HRSA (the agency endorsed the use of contract pharmacies in a 2010 regulatory notice), which may ultimately lead to a court battle on the question whether the use of contract pharmacies is permissible under the 340B Program. 

Manufacturers’ demand for claims data may also ultimately lead to litigation.  The June letters from manufacturers explained that sharing contract pharmacy data with vendors such as 340B ESP would minimize inadvertent duplicate discounts for claims that are submitted to Medicaid, Medicare Part D, and commercial payors.  The letters did not point to any legal authority authorizing or requiring the sharing of the claims through a vendor, or the legal authority prohibiting duplicate discounts for payors other than Medicaid.  Neither did the letters discuss the confidentiality or data privacy considerations involved in sharing the claims data.  Some of the letters threatened to take further, potentially more burdensome, action if providers refused to cooperate.

The responses from the 340B administrators aim to counter the manufacturer requests and block the disclosure of data.  These letters remind providers that the data requested is governed by the terms of the agreements between the providers and the 340B administrators and stake the administrators’ position on the disclosure.  The issue invites HRSA to opine on whether the use of a verification vendor is permissible or required and whether duplicate discounts from payors other than Medicaid are permissible within the 340B Program. 

Reporters, Travis Jackson, Los Angeles, +1 213 443 4374,, and Igor Gorlach, Houston, +1 713 276 7326,

Medicare Payment Advisory Commission Estimates Hospital Industry Losses During Pandemic – On September 3, 2020, the Medicare Payment Advisory Commission (MedPAC) released analysis that estimates hospital losses for April to be between $20 billion and $30 billion due to federal CARES Act grants and facility cost reductions. MedPAC’s research showed that some large for-profit hospital systems actually profited in the second quarter due to federal grants and estimates that federal grants and payment increases will steer nearly $92 billion to hospitals this year. 

MedPAC took a sample of three large nonprofit hospital systems and four large for-profit systems that collectively represents approximately 10% of the all acute care hospital revenue to demonstrate how hospitals are withstanding the pandemic. For the for-profit systems, the total reduction in patient care revenue in the second quarter was $3.5 billion compared to 2019, but the systems also reduced expenses by $2.3 billion and obtained federal grants totaling roughly $2 billion.  In total, the for-profit systems’ operative profits increased by $634 million and all four for-profit systems saw an increase in profits relative to the prior year.   By contrast, for the nonprofit systems, the total operating income declined by $621 million compared to 2019, but after accounting for the CARE Act grants, the operating profit margins for the three systems ranged from a negative 13% to a positive 5% for the quarter.

Also on September 3, 2020, the American Hospital Association (AHA) released a statement noting, “Hospitals do not receive extra funds when patients die from COVID-19. They are not over-reporting COVID-19 cases. And, they are not making money on treating COVID-19.” The AHA has previously reported that financial strain experienced by hospital systems will continue through the end of 2020 and patient volume will remain well below baseline levels. A June 2020 AHA report estimates that the total losses for health systems will be at least $323 billion in 2020 and may underrepresent the full financial losses hospitals will face as the report does not account for increasing case rates in certain states.  

A copy of the September 3, 2020 MedPAC presentation can be found here. A copy of the September 3, 2020 AHA statement can be found here, and a copy of AHA’s June 2020 report can be found here.

Reporter, Kathryn T. Han, Los Angeles, +1 213 443 4336,


OIG Issues Two New FAQs Regarding Enforcement of Arrangements Connected to the COVID-19 Public Health Emergency – On September 3, 2020, OIG added two FAQs and responses to its COVID-19 enforcement FAQs.  OIG stated that, while the COVID-19 public health declaration is in effect, OIG would consider an arrangement to present a low risk of fraud and abuse where a home health agency provides free blood draw services to federal health care program beneficiaries who are not the agency’s patients and who reside in an assisted living facility, if such services are within the scope of practice of the person performing the services and are not contingent on referrals during or after the COVID-19 Declaration.  OIG also identified circumstances under which it considers it permissible for a Federally Qualified Health Center (FQHC) to use the proceeds of a grant to distribute gift cards to federal health care program beneficiaries.

HHS Releases Rural Action Plan – On September 3, 2020, HHS released a Rural Action Plan.  The Plan lists a four-point strategy intended to support rural providers, and lists several proposed, planned, and ongoing policies, grants, and awards that affect rural providers.  The items listed in the Plan include, among others, elevation of HHS’s Office for the Advancement of Telehealth, funding the Rural Healthcare Providers Transition Project, supporting an HHS Health Challenge to improve screening and management of post-partum depression for women, and providing grant funding for the Telehealth Network Grant Program to provide emergency care consults via telehealth.