Health Industry Washington Watch : Washington DC Healthcare Industry Law Firm : Reed Smith : Health Industry Washington Watch : Regulations, Medicare/Medicaid, Governmental Organizations

This post was written by Joseph W. Metro, Robert J. Hill, and Vicky G. Gormanly.

On Friday, January 27, 2012, the Centers for Medicare & Medicaid Services (“CMS”) released its long-awaited proposed rule to implement the provisions of the Affordable Care Act (“ACA”) relating to pharmaceutical manufacturer payment of Medicaid rebates and limits on Medicaid reimbursement to pharmacies. The proposed rule addresses a number of important policy issues relevant to pharmaceutical manufacturers, pharmacies, and other providers, and also would pose significant operational challenges for pharmaceutical manufacturers with respect to the Medicaid Drug Rebate Program (“MDRP”).

The official version of the proposed rule, titled “Medicaid Program; Covered Outpatient Drugs” (the “Proposed Rule”), will be published in the Federal Register on February 2, 2012. Comments on the Proposed Rule are due no later than 5:00 PM EST on April 2, 2012. Notably, the CMS Press Release indicates that CMS plans to issue a final rule in 2013.

We have identified below some of the key items addressed in the Proposed Rule, and we will be issuing a more detailed health care client bulletin in the near future.

MDRP Related Items

• “Build-up” – Manufacturers typically calculate average manufacturer price (“AMP”) by beginning with the universe of wholesaler sales, and then carving out the AMP-excluded sales, which the manufacturer identifies based on chargeback data. In the Proposed Rule, CMS noted that it considered proposing this so-called "presumed inclusion" policy, however ultimately decided against such a proposal and instead is proposing a “build up” approach where only specifically identified retail community pharmacy (“RCP”) sales may be included.

• RCP – CMS is proposing to include specialty pharmacies, home infusion pharmacies, and home health care providers to the definition of retail community pharmacy (“RCP”), as it believes such entities conduct business as wholesalers or RCPs which should be included in AMP. The agency did not propose to define specialty pharmacy, however.

• Baseline AMP Restatements – In light of the significant changes to AMP resulting from the ACA, CMS is proposing to allow manufacturers the option, on a product-by-product basis, to recalculate base AMP in accordance with the new regulatory definition, for a period of four calendar quarters following the publication of the final rule.

• Covered Outpatient Drugs – CMS appears to be suggesting that a product manufactured pursuant to a New Drug Application (“NDA”) automatically falls into the category of an “S” (single-source) or an “I” (innovator multiple source) drug. This appears to contrast with the agency’s historical positions, and may create “brand” rebate liability with respect to pre-1962 drugs which are subsequently approved through expedited procedures in response to FDA’s unapproved drug initiative, even where the products are not innovators in the traditional sense.

• 5-I Drugs – The statute calls for an alternative AMP calculation for inhaled, infused, instilled, implanted, or injected drugs that are not generally dispensed through a RCP. CMS is proposing to adopt a 90% standard for manufacturers’ determinations as to what constitutes “generally” dispensed through a RCP. Unlike the 90% policy related to non-federal average manufacturer price, CMS is proposing that manufacturers make a determination each month and quarter as to whether a drug meets the standard. Such a policy has the potential to raise concerns for manufacturers with respect to the additional rebate (also known as the “inflation penalty”) which is derived from a product’s base AMP.

• Line Extensions / New Formulations – The ACA established an alternative unit rebate amount calculation for line extensions of an S or I drug that is an oral solid dosage form. Although CMS’s discussion on this topic raises a number of new questions, some questions raised by the statutory language itself have been clarified. For example, CMS notes that both the initial and new drugs must be oral solid dosage forms, and also that a new strength does not constitute a new formulation.

• Bona Fide Service Fees (“BFSFs”) – CMS is retaining the traditional definition for BFSFs, while specifically referencing those types of fees described in the ACA. However, the agency expressed concern that certain fees may be “used as a vehicle to provide discounts”, and declined to define “fair market value”, noting that manufacturers should make appropriate reasonable assumptions in this regard.

• “Smoothing” – CMS is proposing that manufacturers be required to use a 12-month rolling percentage to estimate the value of lagged price concessions in their calculations of the monthly and quarterly AMPs.

• Geographic scope – CMS is proposing to add the territories (i.e. the Commonwealth of Puerto Rico, the Virgin Islands, Guam, the Northern Mariana Islands and American Samoa) to the definition of “States” and “United States” for purposes of rebate payments as well as price reporting.

The Proposed Rule also addresses a myriad of other MDRP related items not discussed above, e.g. authorized generics, nominal pricing, bundling, best price, pricing recalculations, penalties for non-compliance, 340B issues as they relate to the MDRP, etc.

State Pharmacy Reimbursement Related Issues

• Actual Acquisition Cost (“AAC”) – CMS is proposing to replace the defined term “estimated acquisition cost” (“EAC”) with AAC in the regulations governing maximum pharmacy reimbursement under State Medicaid programs. The agency is also proposing to replace the defined term “dispensing fee” with “professional dispensing fee”, and proposes to require states to reconsider their dispensing fee methodologies as they change their payment for ingredient cost. The provisions relating to AAC would provide that, when proposing changes to the ingredient cost reimbursement or professional dispensing fee reimbursement, "States must provide [to CMS] adequate data, including, but not limited to, a State or national survey of retail pharmacy providers or other reliable data which reflects the pharmacy's actual or average acquisition cost as a base to support any proposed change in ingredient cost reimbursement." CMS does not elaborate on what "adequate data" means with respect to the professional dispensing fee element. These provisions would govern Medicaid reimbursement for brand drugs—changes which were not mandated by the ACA.

• Federal Upper Limit (“FUL”) Provisions – CMS would establish the FULs governing reimbursement for most generic drugs based upon 175% of monthly AMPs, with no upward adjustment in any situation. According to the Proposed Rule, CMS believes that calculating FULs at weighted AMP times 175% represents “more than adequate reimbursement to the pharmacies.”

• Nationwide Availability – The statute requires that a drug product be “available on a nationwide basis” in order for an FUL to be established. Consistent with its previously released draft FUL methodology, CMS proposes to address this requirement only by disregarding the AMP of a national drug code (“NDC”) which has been terminated, and does not propose to incorporate any provisions to address the issue of drug shortages.

• FUL Smoothing – CMS considered but declined to propose a specific methodology to smooth the FULs. CMS noted that because AMPs are based on prices paid to manufacturers by wholesalers for drugs distributed to RCPs and by RCPs that purchase drugs directly from the manufacturer, they are subject to fluctuations and variances in the generic drug market, which likewise may result in fluctuations in the AMP-based FUL from month to month. CMS asserts that such changes may exist even if a smoothing process is implemented. 

Notably, CMS did not provide any information as to when the AMP-based FULs would be effective. CMS noted that four draft FUL files as well as comments and responses had been posted, yet the agency failed to address most of the important issues that have been raised in publicly available comments submitted to the agency regarding the draft FUL methodology and files.

A number of other items not noted above were also discussed in the Proposed Rule, such as the federal offset of rebates for states, and rebates and utilization relating to Medicaid managed care organizations.

CMS invites comments on many of the issues discussed above. Reed Smith is in the process of conducting a full review of the Proposed Rule and will release shortly a client bulletin providing a detailed analysis of the proposal. In the meantime, please contact Joe Metro (202-414-9284 or jmetro@reedsmith.com), Bob Hill (202-414-9402 or rhill@reedsmith.com), Vicky Gormanly (202-414-9277 or vgormanly@reedsmith.com), or any other member of the Reed Smith Health Care Group with whom you work, if you would like additional information or if you have any questions.

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This post was written by Elizabeth B. Carder-Thompson, Katie C. Pawlitz, Nancy E. Bonifant and Debra A. McCurdy.

On December 19, 2011, the Centers for Medicare & Medicaid Services (“CMS”) published a proposed rule (the “Proposed Rule”) related to section 6002 of the Affordable Care Act, commonly referred to as the “Physician Payment Sunshine Act” (so referenced herein, or as the “Act”). The Physician Payment Sunshine Act requires applicable manufacturers of drugs, devices, biologicals, or medical supplies covered under Medicare, Medicaid, or CHIP to report annually to the Secretary of the Department of Health and Human Services (“Secretary”) certain payments or other transfers of value to physicians and teaching hospitals. Additionally, applicable manufacturers and applicable group purchasing organizations (“GPOs”) must report certain information regarding the ownership or investment interests in them that are held by physicians or their immediate family members.

The Proposed Rule comes more than two months after CMS’s statutory deadline of October 1, 2011. CMS proposes an expansive reading of its statutory authority, arguably extending reporting requirements to manufacturers and payments not contemplated by Congress. Moreover, while offering some much-needed clarification regarding certain tracking and reporting obligations under the Act, it leaves many questions unanswered. Indeed, CMS solicits comments on almost every aspect of the Proposed Rule – 60 topic areas in all. Accordingly, significant ambiguity still remains in terms of compliance with certain aspects of the Act. Comments to the Proposed Rule are due no later than 5 p.m. ET February 17, 2012.

This Client Alert outlines the guidance and proposals included in the Proposed Rule. As further discussed in this Alert, CMS has delayed implementation of tracking requirements under the Physician Payment Sunshine Act, but applicable manufacturers and GPOs still are advised to continue to prepare for implementation of the Act, potentially occurring during this calendar year 2012. Applicable manufacturers and applicable GPOs may do so by taking steps to ensure that tracking and reporting systems conform to the requirements of the Act and the Proposed Rule, to the extent clarity is currently available, and by closely monitoring future CMS guidance in this area.

To read the full Alert, click here.

 

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On January 20, 2012, the Obama Administration posted its Fall 2011 Regulatory Agenda, outlining its planned regulatory initiatives in a number of policy areas. Priorities for the Department of Health and Human Services (HHS) include, among many others:

• Implementing Affordable Care Act (ACA) insurance reforms, including establishing Affordable Insurance Exchanges, establishing risk adjustment criteria for health plans, and expanding Medicaid coverage;
• Improving health care quality and patient safety, including implementing value-based purchasing programs for hospitals and other health care providers and promoting health information technology adoption and electronic health records;
• Improving response to adverse events, including establish a unique identification system to track medical devices
• Advancing scientific research by revising ethical rules governing research on human subjects; and
• Streamlining regulations to reduce regulatory burdens, including Food and Drug Administration (FDA) rules designed to reduce reporting and data submission requirements for drug and medical device manufacturers, and streamlined Medicare conditions of participation for hospitals and other providers.

A listing of specific HHS rules under consideration (including a variety of Medicare payment update rules) also is available.

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The Centers for Medicare & Medicaid Services (CMS) has published a final rule that implements provisions regarding the reporting of gross covered retiree plan-related prescription drug costs and retained rebates by Retiree Drug Subsidy (RDS) sponsors. The rule, which was published January 12, 2012, also addresses the scope of CMS's authority to waive requirements that hinder the design of, the offering of, or enrollment in RDS plans. The rule is effective March 12, 2012.

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On January 10, 2012, HHS published an interim final rule with comment period that implements an ACA provision requiring the adoption of a standard for electronic funds transfers (EFTs). By streamlining standards for the format and data content of EFT transmissions, HHS estimates that health system administrative costs will be reduced by up to $4.5 billion over the next 10 years. For instance, by requiring trace numbers to automatically match EFTs with remittance advice, the rule would eliminate costly manual reconciliation of the records. The regulations are effective January 10, 2012, with a compliance date of January 1, 2014. Comments will be accepted until March 12, 2012.

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In August 2011, HHS published an interim final rule that requires most health plans to furnish certain preventive health services, including contraceptive services, for women without cost sharing under the ACA, effective for plan years beginning on or after August 1, 2012. The rule provided an exemption with regard to contraceptive services for certain religious employers (defined as one that has the inculcation of religious values as its purpose; primarily employs persons who share its religious tenets; primarily serves persons who share its religious tenets; and is a non-profit organization). On January 20, 2012, HHS Secretary Kathleen Sebelius announced that religious employers who currently do not provide contraceptive coverage in their insurance plan will have until August 1, 2013 to comply with the new law if they certify their eligibility and provide notices to their employees of the availability of contraceptive services at clinics and other sites.

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As previously reported, the ACA modified the statutory federal upper limit (FUL) provisions for Medicaid reimbursement for multiple source drugs. While CMS has not yet promulgated regulations to implement this policy, the agency has issued several sets of draft FUL reimbursement files, including the draft methodology used to calculate the FULs in accordance with the ACA and the weighted average of monthly average manufacturer prices (AMP) in a FUL group. The most recent draft FUL prices – which are for review and comment only -- are based on the manufacturer reported and certified October 2011 monthly AMP and AMP unit data. CMS also has posted a modified FUL methodology and data guide. Following a period of releasing the FULs in draft format, CMS plans to publish the final ACA FULs. No timeline has been announced for the final FULs, although CMS sent the proposed rule to the Office of Management and Budget for regulatory clearance in June 2011.
 

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The House Energy and Commerce Health Subcommittee has announced a series of hearings on FDA user fees for prescription drugs, generic drugs, biosimilar drugs, and medical devices. The hearing schedule is as follows: a February 1, 2012 hearing will address reauthorization of the Prescription Drug User Fee Act; on February 7, a Subcommittee hearing will focus on the new Generic Drug User Fee proposal and Biosimilar User Fee proposal; and on February 15, the Subcommittee will hold a hearing on reauthorization of the Medical Device User Fee Act.

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On January 23, 2011, the ACA's Patient-Centered Outcomes Research Institute (PCORI) released its first draft National Priorities for Research and Research Agenda, which will be used to guide funding announcements for comparative clinical effectiveness research. The proposed national priorities for research are as follows:

Comparative Assessments of Prevention, Diagnosis, and Treatment Options -- determining which options work best for distinct populations with specific health problems.

• Improving Healthcare Systems – focusing on ways to improve healthcare services, such as the coordination of care for patients with multiple chronic conditions.
• Communication and Dissemination – examining ways to provide information to patients so that they can make informed healthcare decisions with clinicians.
• Addressing Disparities – assuring that research addresses the healthcare needs of all patient populations since treatments may not work equally well for everyone.
• Accelerating Patient-Centered and Methodological Research – including patients and caregivers in the design of research that is quick, safe, and efficient.

Note that PCORI is not specifying or prioritizing any particular condition or disease for research, although it may do so in the future. Public comments on the priorities and agenda will be accepted until March 15, 2012, or at various public forums planned during the comment period, including a "National Patient and Stakeholder Dialogue" in Washington D.C. scheduled on February 27. After the comment period closes, PCORI will report on the public feedback and the PCORI Board of Governors will vote on the priorities and agenda. PCORI expects to issue its first funding announcements in May.

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The CMS Chicago Regional Office is hosting a webinar on the Medicare Shared Savings Program (MSSP) on January 31, 2012 to provide an overview of the MSSP and explain the application process.

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On December 23, 2011, President Obama signed into law H.R. 3765, the Temporary Payroll Tax Cut Continuation Act of 2011.  Among other things, the law freezes Medicare physician fee schedule (MPFS) rates at 2011 levels through February 2012, temporarily averting a scheduled 27.4% cut under the statutory Sustainable Growth Rate (SGR) formula. The measure also extends for two months certain Medicare policies set to expire December 31, 2011, including: the floor used in the physician work geographic adjustment; the Medicare outpatient therapy cap exceptions process; payment for the technical component of certain physician pathology services; certain ambulance add-on payments; physician fee schedule mental health add-on payment; the outpatient hold harmless provision; minimum payment for bone mass measurement; the Qualified Individual program that reimburses states for certain Part B premiums; and the Transitional Medical Assistance program. The bill also extends for two months the authority for Medicare Modernization Act section 508 hospital reclassifications, with special rules for October and November 2011.  A CMS summary of the law is available here.   Note that the final version of the legislation does not include provisions adopted earlier by the House of Representatives to pay for a 2-year SGR fix through a variety of Medicare, Medicaid, and Affordable Care Act (ACA) cuts.  When Congress reconvenes, Congressional leaders are expected to tackle legislation to address these Medicare policies at least through 2012, although the outcome of such efforts is speculative at this point. Note that given the uncertainties associated with MPFS rates for 2012, the Centers for Medicare & Medicaid Services (CMS) is extending the 2012 Annual Participation Enrollment Period for health professionals through February 14, 2012 (although the effective date for any participation status change remains January 1, 2012 and will be in force for the entire year). 

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A January 4, 2012 Department of Health and Human Services (HHS) notice announces the initial core set of health care quality measures for Medicaid-eligible adults under section 2701 of the ACA. The quality measures are available for voluntary use by state Medicaid programs, health insurance issuers and managed care entities that enter into contracts with Medicaid, and Medicaid providers. The core set includes 26 quality measures addressing: prevention and health promotion, management of acute and chronic conditions, family experiences of care, care coordination, and availability of services.

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On December 21, 2011, CMS published a notice establishing the Independence at Home (IAH) Demonstration, as authorized by the ACA. The IAH Demonstration will test a service delivery model that uses primary care teams to provide services to high-cost, chronically ill Medicare beneficiaries in their homes. CMS will select up to 50 multi-disciplinary practices, which will be accountable for providing comprehensive care to high-need populations at home and coordinating health care across all treatment settings. Participating practices may share in demonstration savings if specified quality measures and savings targets are achieved. Each participating practice must provide services to at least 200 applicable beneficiaries during each year of the demonstration. Applicable beneficiaries are defined as Medicare fee-for-service patients who have at least 2 chronic illnesses, need assistance with 2 or more functional dependencies requiring the assistance of another person, have had a nonelective hospital admission within the last 12 months, and have received acute or subacute rehabilitation services within the last 12 months. Participating practices will make in-home visits tailored to an individual patient’s needs. Each practice must be available 24 hours per day, 7 days a week to carry out plans of care, and practices must use electronic health information systems, remote monitoring, and mobile diagnostic technology. Applications will be accepted until February 6, 2012.

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CMS has released an “Essential Health Benefits Bulletin,” which provides information and solicits comments on the regulatory approach that HHS plans to propose to define essential health benefits (EHB) under the ACA.  Section 1302 of the ACA mandates that EHBs include items and services within at least 10 broad benefit categories: (1) ambulatory patient services, (2) emergency services (3) hospitalization, (4) maternity and newborn care, (5) mental health and substance use disorder services, including behavioral health treatment, (6) prescription drugs, (7) rehabilitative and habilitative services and devices, (8) laboratory services, (9) preventive and wellness services and chronic disease management, and (10) pediatric services, including oral and vision care. To meet this mandate, HHS plans to give states the flexibility to select one of four types of benchmark plans that HHS believes reflects the scope of services offered by a typical employer plan: (1) one of the three largest small group plans in the state by enrollment; (2) one of the three largest state employee health plans by enrollment; (3) one of the three largest federal employee health plan options by enrollment; or (4) the largest HMO plan offered in the state’s commercial market by enrollment. While a plan could modify coverage within a benefit category, it could not reduce the value of coverage. CMS believes that these benchmarks will cover most of the EHBs mandated by the ACA; however, if a state selects a benchmark plan that does not cover all 10 categories, the state may examine other insurance plans to determine the type of benefits that must be included in the EHB package. If a state does not select a benchmark, HHS suggests that the default benchmark will be the small group plan with the largest enrollment in the state. Comments on the bulletin will be accepted until January 31, 2012. CMS notes that cost-sharing for covered services will be addressed in separate rules. 

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On December 23, 2011, CMS issued an informational bulletin on the Medicare, Medicaid, and CHIP provider screening and enrollment provisions in Section 6401 of the ACA. The bulletin addresses procedures for state compliance with the ACA mandate, and includes answers to frequently-asked questions regarding, among other things: the screening process timeline, collection and processing of enhanced provider enrollment/screening information, application fees, the revalidation process, enrollment for ordering and/or referring providers, and moratoria on provider enrollment.  For background information on the ACA screening requirements and implementing regulations, see our previous report. 

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CMS has announced the 32 “Pioneer Accountable Care Organizations” (ACOs) that will begin providing coordinated care services effective January 1, 2012. The Pioneer ACO model is a Medicare Shared Savings Program option designed for health care organizations that are experienced in coordinating patient care in different care settings and that are prepared to enter payment arrangements with financial accountability and performance incentives.

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On January 3, 2012, CMS announced it has selected 73 clinicians, allied health professionals, health administrators, and other individuals for its Innovation Advisors program. The program, which is funded by the ACA, is designed to encourage the testing of new models of care delivery that improve health, improve care, and lower costs in the Advisor’s community.

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The OIG has issued a report entitled “Program Integrity Problems with Newly Enrolled Medicare Equipment Suppliers.” The OIG reviewed 229 suppliers that initially enrolled in Medicare in 2008 (before new ACA enrollment screening provisions went into effect), at which time the National Supplier Clearinghouse (NSC) assigned new supplier applicants a risk rating called the Fraud and Abuse Indicator of Risk (FAIR). According to the OIG, during their first year enrolled in Medicare, 26% high/medium-risk DMEPOS suppliers and 2% of low/limited-risk suppliers required CMS enforcement actions. Some suppliers in the OIG sample received significant Medicare reimbursement before being subject to their first post-enrollment site visit and CMS enforcement action. The OIG also found that some suppliers omitted from their enrollment applications required information regarding ownership, management, criminal histories, or adverse legal actions. While the OIG notes that the ACA strengthened CMS program integrity authorities, “further scrutiny of the riskiest applicants and enrolled suppliers is needed to prevent dishonest individuals from receiving Medicare payment.” The OIG therefore recommends that CMS conduct post-enrollment site visits earlier for new suppliers that receive the most money from Medicare, apply investigative techniques and tools to identify any owners or managers of suppliers who are not reported on supplier applications as required, and take appropriate action regarding suppliers that omit information from applications. CMS concurred with the recommendations.

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CMS has issued guidance to state survey agencies on limitations on new and expanded physician-owned hospitals (PoHs) under the ACA. The memo notes that the ACA provision does not prohibit licensure by the states or Medicare certification by the CMS of new or expanded PoHs. Specifically, survey agency and regional office survey and certification personnel are not required under ACA Section 6001 to investigate whether a hospital seeking Medicare certification is a new PoH or has increased the number of licensed beds or operating/procedure rooms beyond those licensed on the applicable date, or to advise PoHs during the Medicare certification process of the limitations on physician referrals and related billing.

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On January 5, 2012, CMS will host an Open Door Forum to review the Advance Payment ACO Model and a newly-released Advance Payment ACO application template. As previously reported, this initiative will test whether/how pre-paying a portion of future shared saving could increase participation in the Medicare Shared Savings Program. CMS also has announced that Advance Payment  Model applications will be accepted between January 3 and February 1, 2012 for the April 1, 2012 start date, and between March 1 and March 30, 2012 for the July 1, 2012 start date. 

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This post was written by Elizabeth B. Carder-Thompson, Katie C. Pawlitz and Debra A. McCurdy.

The Centers for Medicare & Medicaid Services (“CMS”) released today a proposed rule implementing the physician payment transparency provisions of the Patient Protection and Affordable Care Act (Section 6002), commonly referred to as the "Physician Payments Sunshine Act." Among other things, the Act requires drug, device, biological or medical supply manufacturers to report payments or other transfers of value to physicians and other covered recipients. In addition, the Act requires manufacturers and group purchasing organizations (GPOs) to report certain information regarding ownership or investment interests held by a physician in the manufacturer or GPO.

The official version of the proposed rule, titled “Transparency Reports and Reporting of Physician Ownership of Investment Interests” (the “Proposed Rule”), will be published in the Federal Register on December 19, 2011. Comments on the Proposed Rule are due no later than 5:00 PM EST on February 17, 2011.

Although released later than the statutory deadline for the regulations (October 1, 2011), upon initial review, the Proposed Rule appears to provide important guidance to manufacturers regarding several aspects of the Physician Payments Sunshine Act. Notably, CMS has announced that manufacturers and GPOs will not be required to collect required information until after the final rule is published (rather than the statutory January 1, 2012 deadline). CMS anticipates publishing the final rule “as soon as possible” in 2012.

We are in the process of conducting a full review of the Proposed Rule and will release shortly a Client Alert providing a detailed analysis of the proposal. In the meantime, please contact Elizabeth Carder-Thompson (202-414-9213 or ecarder@reedsmith.com), Katie C. Pawlitz (202-414-9233 or kpawlitz@reedsmith.com), or any other member of the Reed Smith Health Care Group with whom you work, if you would like additional information or if you have any questions.
 

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On December 13, 2011, the House of Representatives approved H.R. 3630, the Middle Class Tax Relief and Job Creation Act of 2011, a wide-ranging bill making payroll tax, unemployment insurance, energy, and other policy changes. Among many other things, the bill would avert a scheduled 27.4% cut in Medicare physician fee schedule (MPFS) payments in 2012 under the statutory Sustainable Growth Rate (SGR) formula and instead provide for a 1% payment update in 2012 and 2013. The costs of the MPFS fix would be offset through a variety of health care policy changes, including reducing funding for the ACA prevention and public health fund and ACA insurance subsidies, cutting Medicare reimbursement for hospital outpatient evaluation and management office visit services; reducing bad debt reimbursement, and rebasing Medicaid disproportionate share hospital allotments. The legislation also would extend: the Medicare outpatient therapy cap exceptions process; certain ambulance add-on payments; the floor used in the physician work geographic adjustment; the Qualified Individual program that reimburses states for certain Part B premiums; and the Transitional Medical Assistance program. In addition, the bill would relax certain restrictions on the expansion of physician-owned hospitals. The measure also would increase Medicare Part B and D premiums for higher-income beneficiaries beginning in 2017.  Note that the Senate is not expected to approve the House bill, and President Obama has announced that he would veto the bill if it does reach his desk. While Congress ultimately is expected to pass an SGR fix, the scope and timing of any such bill is uncertain at this time.

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On December 13, 2011, HHS published a final rule to implement the Consumer Operated and Oriented Plan (CO–OP) program, which was mandated by the Affordable Care Act (ACA) to provide loans to encourage the creation of consumer-governed, private, nonprofit health insurance issuers. CO-Ops will offer qualified health plans to individuals and small businesses through new Affordable Insurance Exchanges (and outside of Exchanges) beginning January 1, 2014. The ACA set aside $3.8 billion to support loans under the CO-OP program, with the goal of having at least one CO-OP in each state. Organizations may apply for two types of low-interest loans under the program: start-up loans to support development of a CO-OP, and solvency loans to help meet state reserve requirements. The final rule: (1) establishes eligibility standards; (2) establishes certain loan terms; and (3) provides basic standards that organizations must meet to participate, including governance requirements. HHS anticipates making initial CO-OP awards in January 2012, and additional applications will be accepted quarterly through December 31, 2012.

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On December 7, 2011, the Centers for Medicare & Medicaid Services (CMS) published a final rule (revising its December 1, 2010 interim final rule) implementing ACA medical loss ratio (MLR) requirements for health insurance issuers. Under the ACA, beginning in 2011, insurance companies in the individual and small group markets must spend at least 80% of insurance premiums collected on medical care and quality improvement activities (the threshold is 85% for insurers in the large group market). Insurers that do not meet the MLR standard must provide rebates to their customers beginning in 2012. The December 7, 2011 rule addresses how insurance companies calculate and report their MLR, and how rebates will be distributed, effective January 3, 2012. Among other things, the rule: provides that MLR rebates will be issued in a way that is tax-free to consumers; expands the MLR information that insurers must provide to consumers; allows certain ICD-10 transition costs to be counted as quality improvement activity; revises MLR rules for “mini-med” plans and expatriate policies; and modifies rules on deducting community benefit expenditures. CMS will accept comments regarding the treatment of ICD–10 conversion costs and certain rebate provisions until January 6, 2012. CMS has posted a fact sheet regarding the rule. Also on December 7, CMS published a separate interim final rule with comment period revising the MLR requirements related to the distribution of rebates by issuers in group markets for non-federal governmental plans.

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CMS has issued a final rule regarding the release and use of standardized extracts of Medicare claims data for qualified entities to measure the performance of providers and suppliers, as mandated by the ACA. Specifically, the rule explains how entities can become qualified by CMS to receive standardized extracts of Medicare Parts A, B, and D claims data and the criteria qualified entities must follow to protect the privacy of Medicare beneficiaries. CMS will evaluate whether an organization is eligible to receive data based on their qualifications in three areas: organizational and governance capabilities (including the ability to accurately calculate quality, efficiency, effectiveness, and resource use measures from claims data); the addition of claims data from other sources; and data privacy and security practices. According to CMS, the final rule improves the June 8, 2011 proposed rule by, among other things: clarifying that qualified entities do not need to be composed of a single legal entity (an applicant may contract with other entities to meet the eligibility criteria); making data less costly for qualified entities (reducing estimated average first year costs from $200,000 to $40,000); giving qualified organizations more flexibility in their use of Medicare data to create performance reports (allowing clinical data to be used in addition to claims data and reducing restrictions on performance measures); and extending the time period for health care providers to confidentially review and appeal performance reports before they become public from 30 to 60 days. The rule is effective January 6, 2012.

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The ERRP was established by the ACA as a temporary program to reimburse employer and union sponsors of participating employment-based plans for a portion of the cost of health benefits for early retirees and their spouses, surviving spouses, and dependents. Payments under the program were capped at $5 billion. Earlier this year, CMS announced it would stop accepting applications for the program as of May 5, 2011, since it expected approved applications to exhaust program funding. On December 13, 2011, CMS published a notice announcing that it will deny ERRP reimbursement requests in their entirety if they include claims that are incurred after December 31, 2011.

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On December 7, 2011, the Food & Drug Administration (FDA) published a notice discussing its proposed recommendations for implementing the ACA’s user fee program for biosimilar biological products for FYs 2013 through 2017. The notice summarizes the four proposed types of fees (Biosimilar Product Development Fees, Marketing Application Fees, Establishment Fees and Product Fees), along with the proposed performance goals and procedures for the user fee program. FDA will accept comments on the proposed recommendations until January 6, 2012. The proposal also will be the subject of a December 16, 2011 meeting. After the public meeting and review of comments, FDA will revise the recommendations as necessary and present them to Congress. 

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HHS and the Departments of Labor and Treasury have recently stated that group health plans are not required to comply with the ACA Summary of Benefits and Coverage and Uniform Glossary requirement until final regulations are issued. 

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CMS has made available a list of quality and efficiency measures being considered for adoption in 2012 under the ACA's pre-rulemaking process for such measures. CMS lists 366 measures under consideration – more than one-third of which would be used in the Physician Quality Reporting System, while others would be used for a variety of other Medicare payment systems and the Medicare and Medicaid EHR Incentive Programs. Note that because the ACA requires CMS to release measures suggested for adoption by the public, “it is a much larger list than will ultimately be adopted for optional or mandatory reporting programs” administered by CMS. Under the ACA pre-rulemaking process, stakeholders may provide input on the list until February 1, 2012. 

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The full Energy and Commerce Committee has approved H.R. 1173, the “Fiscal Responsibility and Retirement Security Act of 2011,” which would repeal the ACA’s Community Living Assistance Services and Supports (CLASS) program. Aspreviously reported, while the CLASS program was intended as a voluntary, self-financed program to provide insurance for long-term care services and supports, the Administration announced it is suspending implementation of the program because an actuarially-sound benefit could not be identified. The legislation now awaits consideration by the full House.

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On December 21, 2011, CMS is hosting a call on per capita cost measures under two Medicare physician policies: (1) the Physician Feedback Program (under which CMS provides confidential feedback reports to physicians and group practices about the resource use and quality of care provided to Medicare patients), and (2) the ACA requirement that CMS apply a “Value Modifier” to physician payments that compares the quality of care furnished to the cost of that care.

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CMS is hosting a series of webinars to discuss its Health Care Innovation Challenge, an initiative designed to test creative ways to deliver high quality medical care and reduce costs. A December 13 presentation will address “Total Cost of Care” and how potential applicants can demonstrate their path to achieving lower costs through improvement, and a December 19 event will discuss how potential innovative proposals can demonstrate measurable impact on better care and better health, in addition to operational planning.

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CMS is hosting an Open Door Forum on the final Medicare Shared Savings/ACO rule on December 7 from  2:00 P.M. – 3:00 EST.   To participate, call 800-837-1935 and reference Meeting ID 32084888.  Note that this CMS event follows a Reed Smith teleseminar on the ACO rule earlier in the day.

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This post was written by Scot T. Hasselman, Paul W. Pitts, Susan A. Edwards and Nancy E. Bonifant.

The Centers for Medicare & Medicaid Services’ (“CMS”) Medicare Shared Savings Program final rule offers potential opportunities as well as risks to health care providers and suppliers interested in forming accountable care organizations (“ACOs”). While the core principle of the Medicare Shared Savings Program is simple—reward improvements in quality and cost containment through a share of the resulting savings—the regulatory and operational requirements associated with the program are much more complex.

Reed Smith attorneys have prepared a comprehensive Client Alert summarizing and analyzing the final rule, focusing on provisions we believe are of greatest interest to health care providers and medical device and pharmaceutical manufacturers. We also summarize companion guidance documents published by various federal agencies, including the Office of Inspector General, the Department of Justice, the Federal Trade Commission, and the Internal Revenue Service. Our Alert details changes from the proposed rule, discusses CMS’s response to public comments, identifies the practical impact of the final rule, and flags questions and concerns associated with the program. 

In addition, Reed Smith will be hosting a teleseminar on this topic Wednesday, December 7, 2011. For more information or to register for this program, please click here.

Click here to read the full Alert (PDF).

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On November 21, 2011, President Obama signed into law of H.R. 674, which repeals a requirement scheduled to take effect in 2013 that the government withhold 3% of certain payments made to private contractors – including Medicare providers -- as a credit against the contractor’s income tax. The law also amends the Affordable Care Act’s (ACA) definition of modified adjusted gross income for purposes of determining eligibility for certain healthcare-related programs. Specifically, the law tightens Medicaid eligibility standards by providing that modified adjusted gross income includes both taxable and non-taxable Social Security benefits to align the definition with other federal subsidy programs.

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The Centers for Medicare & Medicaid Services (CMS) has sent to the White House Office of Management and Budget (OMB) its long-awaited proposed rule to implement the Transparency Reports and Reporting of Physician Ownership of Investment Interests (also called the Physician Payment Sunshine Act) provisions of the ACA. These provisions are intended to encourage greater transparency in the relationships between drug and device companies and physicians by (among other things) requiring covered drug, device, biological or medical supply manufacturers that provide a payment or other transfer of value to a “covered recipient” – a physician or a teaching hospital – to submit detailed reports to the HHS Secretary. In addition, the provision requires certain manufacturers and group purchasing organizations (GPOs) to report to the Secretary certain information regarding ownership or investment interests held by a physician in the manufacturer or GPO. The text of the rule is not available at this stage, but the rule could reach the Federal Register in the near future. As noted in a separate posting, the Senate Aging Committee has scheduled a December 15 hearing on this issue.

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CMS has announced a Health Care Innovation Challenge, under which as much as $1 billion in awards will be made to public and private organizations to test creative ways to deliver high-quality health care services and lower costs for individuals enrolled in Medicare, Medicaid, and the Children’s Health Insurance Program. The ACA-funded program will support projects that can begin within 6 months, and it will give priority to projects that rapidly hire, train and deploy new types of health care workers. CMS expects to make awards ranging from $1 million to $30 million over three years to qualified providers, payers, local governments, community-based organizations, public-private partnerships, and multi-payer applicants. Letters of Intent are due by December 19, 2011, applications are due by January 27, 2012, and the expected award date is March 30, 2012. 

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CMS has announced the first seven sites for the Community-Based Care Transition Program (CCTP) under the ACA. The CCTP is designed to encourage the development of partnerships between hospitals with high readmission rates and community based organizations in order to: improve transitions of beneficiaries from the inpatient hospital setting to other care settings; improve quality of care for Medicare beneficiaries; reduce avoidable hospital readmissions for high risk beneficiaries; and document savings to Medicare. CMS continues to accept applications for this program.

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On November 18, 2011, HHS announced an expanded website to provide small businesses with additional information about health insurance plan options, including details on cost and coverage of plans available in a geographic area.

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HHS has provided updated information on nearly $4.1 billion in payments the ACA Early Retiree Reinsurance Program (ERRP) disbursed to businesses to reduce health plan benefit costs.

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The Supreme Court has granted review of the decision of the Court of Appeals for the 11th Circuit striking down the ACA’s individual health insurance mandate as unconstitutional. The Supreme Court will consider whether the mandate is unconstitutional and, if so, if it may be severed from the remainder of the law, along with whether the challenge to the mandate is premature under the Anti-Injunction Act. In addition, the Court will consider whether the ACA is constitutional because “it coerces States into accepting onerous conditions that it could not impose directly by threatening to withhold all federal funding” under Medicaid. There has been a split in the holdings among the various federal courts of appeals that have opined on the constitutionality of the individual mandate. The Supreme Court has not yet scheduled arguments on the ACA cases, but the decision is expected to be issued in the midst of next year’s Presidential election campaign.

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On November 15, 2011, the Energy and Commerce Health Subcommittee approved by voice vote H.R. 1173, the “Fiscal Responsibility and Retirement Security Act of 2011,” which would repeal the ACA’s Community Living Assistance Services and Supports (CLASS) program. As previously reported, while the CLASS program was included in the ACA as a national voluntary, self-financed program to provide insurance for long-term care services and supports, the Obama Administration announced last month that it was suspending implementation of the CLASS program because it could not identify a benefit plan that was both actuarially sound and consistent with the statutory requirements.

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The Senate Health, Education, Labor, and Pensions Committee recently held a hearing on “Medical Devices: Protecting Patients and Promoting Innovation” (a Reed Smith write-up of the hearing is available here). In addition, a recent House Ways and Means Oversight Subcommittee hearing focused on the ACA’s small business health insurance tax credit. Two hearings are scheduled for November 30: a Senate Special Committee on Aging hearing entitled “Overprescribed: The Human and Taxpayers' Costs of Antipsychotics in Nursing Homes” and a House Oversight and Government Reform Health Care Subcommittee hearing on “Drug Shortage Crisis: Lives Are In The Balance.” The Senate Judiciary Antitrust Subcommittee also is holding a hearing on December 6 to examine the proposed Express Scripts/Medco merger, and the Senate Aging Committee is holding a hearing December 15 entitled “Parting the Clouds: Implementing the Physician Payment Sunshine Act” (this hearing originally was scheduled for Dec. 8). 

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The CMS Atlanta Regional Office is hosting a symposium in Orlando, Florida on December 14 -16, 2011 entitled “Empowering Minorities -- Promoting Better Health, Better Care, Lower Cost for Medicare Beneficiaries in their Communities." The symposium will feature speakers, panels, and breakout sessions covering a wide range of topics such as Medicare Fraud & Abuse Training, the Affordable Care Act, Medicare Provider Enrollment, Quality Care, and DMEPOS issues.

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As previously reported, the ACA modified the statutory FUL provisions for Medicaid reimbursement for multiple source drugs. In short, the ACA directs the Secretary to calculate FULs as no less than 175% of the weighted average (determined on the basis of utilization) of the most recently reported monthly average manufacturer prices (AMP), effective October 1, 2010. CMS has not yet promulgated regulations to implement this policy (although the agency sent the proposed rule to OMB for regulatory clearance in June 2011). In the meantime,CMS has issued three sets of draft FUL reimbursement files, including the draft methodology used to calculate the FULs in accordance with the ACA and the weighted average of monthly AMPs in a FUL group. The most recent draft FUL prices are based on the manufacturer reported and certified September 2011 monthly AMP and AMP unit data. The draft files are being released for review and comment only; while no comment deadline is specified, CMS has urged comments to be submitted as soon as possible to be considered in the final ACA FULs. CMS also has released some of the comments received to date on the previous draft FULs, along with the agency’s response to these comments.

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On November 29, 2011, CMS is hosting a call to provide an overview of the Quality Reporting Program for inpatient rehabilitation facilities, as mandated by the Affordable Care Act.

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Medicare physician fee schedule (MPFS) payments are scheduled to be cut by 27.4% in 2012 under the Centers for Medicare & Medicaid Services’ (CMS) final rule to be published November 28, 2011. The steep reduction is a result of the statutory Sustainable Growth Rate (SGR) formula. While Congress is widely expected to take action to mitigate the SGR cuts, the scope and timing of any such “fix” is uncertain at this time. If the final rule goes into effect as written, however, the conversion factor for 2012 would be $24.6712, down from the current $33.9764. In addition to updating MPFS rates, the sweeping final rule includes numerous policy provisions impacting many types of providers, including the following: 

• CMS has adopted a controversial policy to expand its multiple procedure payment reduction (MPPR) policy for advanced imaging services (computed tomography scans, magnetic resonance imaging, and ultrasound), which now applies to only the technical component (TC) of the service, to the professional component (PC) of the service. Effective January 1, 2012, the advance imaging procedures with the highest PC and TC payments will be paid in full, but the PC payment will be reduced by 25% for subsequent procedures furnished to the same patient, by the same physician -- including physicians in the same group practice -- in the same session on the same day (CMS initially had proposed reducing the PC by 50%). The TC payment will continue to be reduced by 50%.   Note that in the proposed rule, CMS indicated it is considering more expansive MPPR policies in 2013 and beyond, which could include applying the MPPR to the all imaging services (not just advanced imaging studies) or to the technical component of all diagnostic tests (e.g., tests associated with radiology, cardiology, audiology, procedures furnished in the same encounter). CMS did not finalize any such broader expansion in the final rule. 
• CMS is updating certain payment policies for Part B drugs to specify that the average manufacturer price (AMP) substitution policy will apply only when the average sales price (ASP) exceeds the AMP by 5% in two consecutive quarters immediately prior to the current pricing quarter, or three of the previous four quarters immediately prior to the current quarter. CMS will make an AMP substitution only for those situations in which AMP and ASP comparisons are based on the same set of NDCs for a billing code. CMS also is adopting a number of changes to the manufacturer ASP reporting template. 
• CMS is updating a number of physician incentive programs, including the Physician Quality Reporting System, the ePrescribing Incentive Program, and the Electronic Health Records Incentive Program. CMS also is adopting performance measures for a new “value-based modifier,” mandated by the Affordable Care Act (ACA), that will reward physicians for providing higher quality and more efficient care. CMS is using 2013 as the initial performance year for purposes of adjusting payments in 2015.
• CMS is taking a number of steps to address payment for “potentially misvalued codes,” including reviewing the value of high-expenditure codes in each specialty and adopting a new public nomination process under which the public can nominate potentially misvalued codes and submit documentation supporting the need for review. 
• CMS has formally retracted a widely-criticized policy adopted in the 2011 MPFS rule that required the signature of a physician or qualified nonphysician practitioners on a requisition for clinical diagnostic laboratory tests paid under the Clinical Laboratory Fee Schedule. In withdrawing the policy, CMS cites stakeholder concerns about the many negative practical effects of the policy on beneficiaries and providers, including potential adverse impacts on timely patient care. 
• The rule also, among many other things: changes how CMS adjusts payment for geographic variation in practice costs;revises the criteria for updating services available through telehealth; updates the methodology for calculating the productivity adjustment for ambulatory surgical center (ASC), ambulance, clinical laboratory, and durable medical equipment (DME) prosthetics, orthotics, and supplies (DMEPOS) fee schedules; sets the 2012 outpatient therapy cap amount at $1,880; and clarifies the applicability of the “3-day payment window” policy to certain services furnished in a wholly owned or wholly operated physician practice. 

Note that CMS will accept comments on a limited number of provisions in the rule, including the interim final relative value units for new, revised, potentially misvalued codes and the physician self-referral designated health services codes, until January 3, 2012.

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On November 10, 2011, the Senate approved an amended version of H.R. 674, which would repeal a requirement that the government withhold 3% of certain payments made to private contractors – including Medicare providers -- as a credit against the contractor’s income tax. This requirement currently is scheduled to take effect on January 1, 2013. The House of Representatives had approved its version of the repeal bill in October. Before passage, the Senate added language from another House-approved bill (H.R. 2576) to modify the ACA’s definition of modified adjusted gross income for purposes of determining eligibility for certain healthcare-related programs. The Congressional Budget Office has estimated that this change would save $13 billion over ten years, primarily by tightening Medicaid eligibility standards. Specifically, the legislation would provide that modified adjusted gross income includes both taxable and non-taxable Social Security benefits to align the definition with other federal subsidy programs. Beginning in 2014, this income definition would be used to determine financial eligibility for Medicaid and the State Children’s Health Insurance Program, and for premium tax credits and cost-sharing reductions available through Affordable Insurance Exchanges. The Senate also amended H.R. 674 to add tax credits for hiring unemployed veterans. The Senate-approved bill is expected to be considered by the House later this month.

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CMS has provided updated information on certain Medicare Part D Coverage Gap Discount Program issues. Specifically, in an October 28, 2011 memo to plan sponsors and drug manufacturers, CMS discusses its policies regarding invoicing manufacturers for certain low-volume claims, Electronic Fund Transfer requirements for discount payments, and changes to the appeals timeline after an unfavorable third party administrator determination or expiration of the dispute resolution timeframe. Separately, CMS has issued a memo to states on implementation of section 3309 of the ACA, which eliminates Part D cost-sharing for full benefit dual eligible individuals receiving home and community-based services, effective January 1, 2012.  The CMS memo discusses the data that CMS needs from states regarding eligible individuals, and the process for beneficiaries to correct HBCS status.

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A number of Congressional committees have held hearings recently on health policy issues, including the following:

• A House Energy and Commerce Health hearing entitled “Do New Health Law Mandates Threaten Conscience Rights and Access to Care?”; 
• A Senate Judiciary Subcommittee on Privacy, Technology and the Law hearing on “Your Health and Your Privacy: Protecting Health Information in a Digital World”;
• A Senate Special Committee on Aging hearing on Assisted Living Quality and Oversight; and 
• A Senate Health, Education, Labor and Pensions (HELP) Committee hearing on "Improving Quality, Lowering Costs: The Role of Health Care Delivery System Reform.” 

A number of additional hearings and markups have been scheduled, including:

• A November 15 Senate HELP Committee hearing on “Medical Devices: Protecting Patients and Promoting Innovation”; 
• A November 15 House Ways and Means Oversight Subcommittee hearing on the ACA’s small business health insurance tax credit; 
• A December 6, 2011 Senate Judiciary Antitrust Subcommittee hearing on the proposed Express Scripts/Medco merger; and 
• An Energy and Commerce Health Subcommittee markup of H.R. 1173, the "Fiscal Responsibility and Retirement Security Act of 2011," which would repeal the ACA’s Community Living Assistance Services and Supports (CLASS) program. 

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This post was written by Ruth Holzman and Joe Metro.

The IRS has issued updated guidance to drug manufacturers on the Affordable Care Act’s annual fee imposed on covered entities engaged in the business of manufacturing or importing branded prescription drugs. The guidance addresses submission of required information, IRS notification of covered entities of their preliminary fee calculation; submission of error reports for the dispute resolution process, and notification of final fee calculations. Among other things, the guidance provides that:

• Each covered entity that elects to submit a completed Form 8947, “Report of Branded Prescription Drug Information,” for the fee year 2012 (reporting sales for the sales year 2010) must do so by December 15, 2011.
• IRS will mail each covered entity a paper notice of its 2012 preliminary fee calculation by April 2, 2012. This mailing will include an NDC attachment that lists the covered entity's NDCs and the sales data reported to the IRS by each governmental program.
• A covered entity may request a CD-ROM with the NDC attachment in an Excel spreadsheet. The request must be made by March 1, 2012 by telephone or by e-mail.
• If a covered entity wishes to submit an error report regarding its preliminary fee calculation it must do so by May 16, 2012. To file an error report, the covered entity must use the template on a CD-ROM that was mailed to it with its preliminary fee calculation.
• IRS will notify each covered entity of its final fee calculation for 2012 by August 31, 2012.
• The covered entity must pay this fee by September 30, 2012.

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On November 10, 2011, CMS is hosting a meeting in Chicago to discuss the Medicare Shared Savings Program (MSSP)/Accountable Care Organization (ACO) final rule.  CMS also is hosting a national provider conferencecall on November 15, 2011 on the application process for the MSSP and the related Advance Payment Model.

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After extensive debate on the financial sustainability of the ACA’s “community living assistance services and support” – or CLASS – program, HHS Secretary Sebelius has informed members of Congress that she does “not see a viable path forward for CLASS implementation at this time.” By way of background, the CLASS program was included in the ACA as a national voluntary, self-financed program to provide insurance for long-term care services and supports. There have been longstanding concerns, however, that the program would be a financially unsustainable entitlement, since the premiums required to be self-financing could be too high to attract healthy purchasers. The ACA required the Secretary to design an implementation plan for the CLASS program that would be actuarially sound and financially solvent for at least 75 years. On October 14, 2011, the HHS Secretary released its comprehensive analysis of the CLASS program implementation, in which did not identify a benefit plan that the Secretary can certify as both actuarially sound for the next 75 years and consistent with the statutory requirements. Debate continues in Congress on whether or not the statutory provisions implementing the CLASS program should be formally repealed; in spite of the Secretary's determination that the program is not viable, the White House has announced that it is against repeal and is in favor of making CLASS work.

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On October 24, 2011, CMS announced the 500 FQHCs that have been selected in 44 states to participate in the Medicare FQHC Advanced Primary Care Practice demonstration project. This initiative, which was authorized under the ACA, will test how the advanced primary care practice model (also called patient-centered medical home) can improve quality of care, promote better health, and lower costs. The demonstration is expected to pay participating FQHCs an estimated $42 million over three years in care management fees for coordinating care for Medicare patients. The demonstration will run from November 1, 2011 through October 31, 2014.

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CMS is launching a new Innovation Advisors program, which will provide fellowships to up to 200 individuals to test new models of care delivery in their own organizations and communities. CMS is seeking experts in health care economics and finance, population health, systems analysis, and operations research to support the Innovation Center in testing new models of care delivery that support the three-part aim of improving health, improving care, and lowering costs through continuous improvement. Innovation advisors will be expected to commit up to 10 hours per week to the Innovation Advisor Program during the initial six months of their fellowships, with part of that time devoted to the seminars and instruction and the rest devoted to implementing the improvement project proposed in their application. 

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On October 27, 2011, the House of Representatives approved H.R. 674, which would repeal a provision scheduled to take effect on January 1, 2013 requiring the government to withhold 3% of certain payments made to private contractors – including Medicare providers -- as a credit against the contractor’s income tax. The bill was approved on a 405-16 vote. Also on October 27, the House passed H.R. 2576, to modify the ACA’s definition of modified adjusted gross income for purposes of determining eligibility for certain healthcare-related programs. The Congressional Budget Office estimates that the bill would save $13 billion over ten years, primarily by tightening Medicaid eligibility standards. Specifically, the legislation would provide that modified adjusted gross income includes both taxable and non-taxable Social Security benefits to align the definition with other federal subsidy programs. Beginning in 2014, this income definition would be used to determine financial eligibility for Medicaid and the State Children’s Health Insurance Program, and for premium tax credits and cost-sharing reductions available through Affordable Insurance Exchanges. H.R. 2576 was approved by a 262 to 157 vote. Both bills, which were endorsed by the Obama Administration, await Senate action.

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The House Energy and Commerce Health Subcommittee has held a hearing entitled “CLASS Cancelled: An Unsustainable Program and Its Consequences for the Nation’s Deficit.” The panel also has scheduled a November 2, 2011 hearing entitled “Do New Health Law Mandates Threaten Conscience Rights and Access to Care?”

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As previously reported, the ACA modified the statutory FUL provisions for Medicaid reimbursement for multiple source drugs. In short, the ACA directs the Secretary to calculate FULs as no less than 175% of the weighted average (determined on the basis of utilization) of the most recently reported monthly average manufacturer prices (AMP), effective October 1, 2010. While CMS has not yet promulgated regulations to implement this policy, CMS has now issued two sets of draft FUL reimbursement files, including the draft methodology used to calculate the FULs in accordance with the ACA and the weighted average of monthly AMPs in a FUL group. The most recent draft FUL prices are based on the manufacturer reported and certified August 2011 monthly AMP and AMP unit data. The draft files are being released for review and comment only; while no comment deadline is specified, CMS has urged comments to be submitted as soon as possible to be considered in the final ACA FULs. In releasing the files, CMS notes that the ACA requires the FUL amendments to take effect whether or not implementing regulations are issued.

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This post was written by Paul W. Pitts, Susan A. Edwards, and Debra A. McCurdy.

Today the Centers for Medicare & Medicaid Services (CMS) released its long-awaited final rule to implement the Medicare Shared Savings Program as authorized by Section 3022 of the Affordable Care Act (ACA).  The Shared Savings Program is intended to encourage physicians, hospitals, and certain other types of providers and suppliers to form accountable care organizations (ACOs) to provide cost-effective, coordinated care to Medicare beneficiaries.  Under the final rule, an ACO that meets established quality and performance standards and surpasses a minimum savings target will be able to share a percentage of savings (in addition to traditional fee-for-service payments under Medicare Parts A and B).  While the ACA requires CMS to "establish" the Shared Savings Program no later than January 1, 2012, CMS has indicated that it will begin accepting applications for the Shared Savings Program January 1, 2012, but the start date will be later in 2012. In the final rule, CMS made a number of notable changes to the proposed rule, as highlighted after the jump.

 

The final Medicare Shared Savings Program rule responds to comments and concerns raised by the public in response to the April 7, 2011 proposed rule on this subject. The regulation addresses numerous policy and operational issues associated with the Medicare Shared Savings Program, including, among other things: the entities that may form an ACO; beneficiary assignment to an ACO; establishment and measurement of quality standards; and calculation of incentive payments.

In the final rule, CMS made a number of notable changes to the proposed rule, including the following:

• CMS had initially proposed two program “tracks” for calculating savings. In Track 1 an ACO would share in only the saving for the first two years, and would be required to assume the risk for shared losses in the third year. In Track 2 an ACO would share in savings and risk liability for losses beginning in its first performance year, in return for a higher share of the savings it generates. Under the final rule, participating ACOs still will have the choice of two “tracks” with regard to savings, but Track 1 will not have downside risk; that is, Track 1 participants will only share savings, not losses. The final rule stipulates that after the initial agreement period, if an ACO voluntarily continues to participate in the Medicare Shared Saving Program, it must participate in Track 2, which has a higher sharing rate but also has downside risk.
• CMS is also modifying the method of assigning beneficiaries to the ACO for purposes of determining the population of Medicare fee-for-service beneficiaries for whose care the ACO is accountable and for determining whether an ACO has achieved saving. CMS had proposed retrospective assignment based on utilization of primary care services with prospective identification of a benchmark population. Under the final rule, CMS will provide ACOs with a preliminary prospective assignment of beneficiaries that would historically have been assigned to an ACO. CMS will provide ACOs aggregate reports on preliminary prospective assignment quarterly, which will include the names, dates of birth, sex, and health insurance claim numbers of beneficiaries that, based on historical data, would be assigned to the ACO. CMS will conduct a final reconciliation of assigned beneficiaries after each performance year based on actual patient utilization.
• Instead of 65 measures to assess ACO quality in 5 “domains,” the final rule adopts 33 measures in 4 domains. In addition, pay for quality performance will be phased in gradually over the ACO’s first agreement period.
• Under both Track 1 and Track 2, ACOs will share savings with Medicare from the first dollar saved as long as the minimum savings rate has been reached.
• CMS expanded the entities eligible to form and participate in an ACO to include Federally Qualified Health Centers and Rural Health Clinics.
• The first ACO agreements will have start dates of either April 1, 2012 or July 1, 2012, and the first performance “year” will be 18 or 21 months. The final rule does not specify application deadlines; instead, CMS will release sub-regulatory guidance laying out the applicable deadlines. ACOs starting either April 1, 2012 or July 1, 2012 will have the option to receive an interim payment if they report CY 2012 quality measures. All ACOs participating in the Medicare Shared Savings Program with April 1, 2012 or July 1, 2012 start dates must report quality measures for CY 2013 to qualify for shared savings in the first performance “year.”
• The proposed rule would have required that 50 percent of primary care physicians be defined as meaningful electronic health record users by the start of the second performance year, but the final rule removed this requirement.
• The final rule modifies the process of assigning beneficiaries to a two-step process. If a beneficiary has received primary care services from a primary care physician, ACO assignment is made based on which primary care physician accounts for the plurality of a beneficiary’s “allowed charges.” If a beneficiary has not received any primary care services from a primary care physician, assignment is based on which ACO professional (such as a specialist) accounts for the plurality of a beneficiary’s “allowed charges.”

In addition to the final Medicare Shared Savings Program rule released by CMS, the federal government released several other documents related to ACOs today, including:

• CMS and the Office of Inspector General (OIG) jointly issued an interim final rule with comment period titled “Final Waivers in Connection With the Shared Savings Program.” The document establishes the conditions for waivers of certain provisions of the physician self-referral law, the anti-kickback statute, and certain provisions of the civil monetary penalty law in connection with specific arrangements developed pursuant to the Medicare Shared Savings Program. The interim final rule sets forth five waivers addressing: (1) start-up arrangements, (2) ACO-related arrangements during the term of the ACO’s participation agreement, (3) distribution of the shared savings, (4) compliance with exceptions under the physician self-referral law, and (5) the civil monetary penalty law’s prohibition on beneficiary inducement.
• CMS also released a notice announcing an Advance Payment Model within the Shared Savings Program framework. Only certain ACOs participating in the Medicare Shared Savings Program (namely, physician-owned organizations, critical access hospitals, and rural providers participating in the Shared Savings Program) can participate in this Model. The Model is designed to test whether pre-payment could improve the coordination of care and generate savings more quickly and to a greater extent. Further, the Model is structured to test whether and how pre-payment of future shared savings could bolster physician-owned and rural provider participation in the Medicare Shared Savings Plan. Selected ACOs will receive three types of payments: (1) an upfront, fixed payment; (2) an upfront, variable payment; and (3) a monthly payment of varying amount depending on of the number of Medicare beneficiaries historically attributed to the ACO.
• The Federal Trade Commission (FTC) and the Department of Justice (DOJ) jointly issued a final Antitrust Policy Statement titled, "Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program." In the final Policy Statement, the agencies clarify that the policy applies to all provider collaborations that are eligible and intend, or have been approved, to participate in the Medicare Shared Savings Program, not only collaborations formed after March 23, 2010. In addition, the final Policy Statement no longer contains provisions relating to mandatory antitrust review. The Medicare Shared Savings Program final rule no longer requires a mandatory antitrust review for certain collaborations as a condition of entry into the Shared Savings Program.
• The Internal Revenue Service (IRS) issued a fact sheet titled “Tax-Exempt Organizations Participating in the Medicare Shared Savings Program through Accountable Care” (FS-2001-11) providing guidance on ACO participation by tax-exempt organizations. In the fact sheet the IRS confirms that the guidance provided in its Notice 2011-20 issued on April 18, 2011 continues to reflect the agency’s expectations for participation in the Medicare Shared Savings Program. The fact sheet also responds to a number of frequently asked questions.

Reed Smith will be preparing a comprehensive Client Alert on the final rule and other related policy guidance issued by the Administration. In the meantime, for additional background on the ACO program, see our previous reporting at http://www.healthindustrywashingtonwatch.com/tags/accountable-care-organizations/. Please do not hesitate to contact us if you have specific questions about the new regulations.

 

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On October 11, 2011, the Centers for Medicare & Medicaid Services (CMS) published a proposed rule that would revise Medicare Advantage (MA) and Part D prescription drug benefit program (Part D) regulations. Among many other things, the proposed rule would:

• Implement new statutory requirements, including codifying Medicare Part D Coverage Gap Discount Program rules under the Affordable Care Act (ACA) and finalizing Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) requirements related to coverage of benzodiazepines and barbiturates;
• Terminate the contract of MA and Part D plan sponsors that have failed to achieve at least a 3-star rating under CMS’s 5-star plan rating system for a period of three years;
• Modify rules for medication therapy management comprehensive medication reviews for beneficiaries in long term care (LTC) settings;
• Allow physicians to request Independent Review Entity reconsideration of a denied Part D prescription on their patient’s behalf without obtaining a signed authorized representative form;
• Require Part D sponsors to provide beneficiaries with the option of a daily prorated cost-sharing rate for prescriptions for fewer than 30 days in certain circumstances;
• Require Part D sponsors to include the prescriber’s National Provider Identifier on prescription drug event records to enhance CMS efforts to address fraud and abuse;
• Increase transparency by requiring Part D pharmacy benefit managers to report additional financial information; and
• Allow MA plans to limit coverage of durable medical equipment (DME) to specific manufacturers or brands if certain conditions are met (discussed in greater detail below). 

CMS also requested comment (without proposing regulatory text) on a potential new requirement for LTC facility consultant pharmacists to be independent of the LTC facility pharmacy, pharmaceutical manufacturers or distributors, or any affiliate of these entities. Comments on the rule will be accepted until December 12, 2011.

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CMS is seeking emergency Office of Management and Budget (OMB) review of certain health insurance rate increase disclosure and review requirements necessary to implement its September 6, 2011 final rule on “unreasonable rate increases” under the ACA. As previously reported, the September rule extended rate increase disclosure and review requirements to health coverage sold through associations, even if the state does not include such coverage in its definitions of individual and small group market. Comments on the requirements will be accepted until October 21, 2011. In a related development, on October 7, 2011, HHS began posting information on insurance company justifications of rate increases of 10% or more.

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Under the ACA, certain insurance plans, including those participating in new purchasing exchanges, must cover, at a minimum, a package of items and services that the Secretary has defined as essential. The Institute of Medicine (IOM) has released recommendations to HHS on a process to define what benefits should be included in the “essential health benefits” (EHB) package under the ACA. Note that the IOM has not weighed in on specific benefits to be covered in the EHB, but rather it proposes a set of criteria and methods that should be used in deciding what benefits are most important for coverage. According to the report, the IOM “committee saw its primary task as finding the right balance between making a breadth of coverage available for individuals at a cost they could afford.” For instance, criteria to guide content of the aggregate EHB package include: ensuring that the package is affordable for consumers, employers, and taxpayers; maximizing the number of people with insurance coverage; addressing the needs of the most vulnerable patients and populations; promoting the right care to the right patient in the right setting at the right time; focusing on high value services; addressing the medical concerns of greatest importance to enrollees as identified through a public deliberative process; and protecting against the greatest financial risks due to catastrophic events or illnesses. With regard to specific components of the EHB package, the individual service, device, drug generally must: be safe, with expected benefits greater than expected harms; be medically effective and supported by a sufficient evidence base or credible standard of care; demonstrate meaningful improvement in outcomes over current effective services/treatments; be a medical service; and be cost effective. The IOM notes that failure to meet any of these criteria should result in exclusion or significant limits on coverage, and inclusion does not mean that an item or service is appropriate for every person. The IOM also sets forth criteria for defining updating the EHB package, focusing on the use of a transparent, participatory, equitable, and consistent process that is sensitive to the value of services, responsive to new information, cognizant of budget constraints, encouraging to innovation, and data-driven. 

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CMS has sent its long-awaited Medicare Shared Savings Program/Accountable Care Organization (ACO) final rule to the White House Office of Management and Budget (OMB) for final regulatory clearance – the last step before it reaches the Federal Register. The text of the rule is not available at this stage, and the time needed for OMB review can vary from days to months, but the regulation finally is nearing release. Reed Smith will be analyzing the rule when it is issued. 

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On October 12, 2011, the Senate Special Committee on Aging is holding a hearing entitled “A Time for Solutions: Finding Consensus in the Medicare Reform Debate."  Also on October 12, the Senate Health, Education, Labor and Pensions Committee is holding a hearing on "The State of Chronic Disease Prevention."  On October 13, the House Education and the Workforce Subcommittee on Health is holding a hearing on “Regulations, Costs, and Uncertainty in Employer Provided Health Care."

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On October 13, 2011, CMS is hosting a call to discuss its request for applications for the Comprehensive Primary Care (CPC) initiative, which is designed to help primary care practices deliver higher quality, better coordinated, and more patient-centered care. The call will begin at 1:00 p.m. ET; to participate, dial 1-800-837-1935 and reference Conference ID 17242137.

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On September 28, 2011, the U.S. Department of Justice (DOJ) filed a cert petition requesting Supreme Court review of the 2-1 decision of the Court of Appeals for the 11th Circuit striking down the ACA as unconstitutional. This action potentially accelerates Supreme Court review of the constitutionality of requiring Americans who can afford it to maintain basic health insurance coverage, a provision that has generated conflicting opinions by various courts. The legal uncertainties associated with this mandate in turn has complicated implementation efforts at the state level. The DOJ has compiled information related to legal challenges to the ACA.   
 

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On September 28, 2011,CMS announced a new “Comprehensive Primary Care” (CPC) initiative, designed to help primary care practices deliver higher quality, better coordinated, and more patient-centered care. The program is being established under section 3021 of the ACA, which authorized CMS to test innovative payment and service delivery models that reduce spending under Medicare, Medicaid or CHIP, while preserving or enhancing the quality of care. The CPC initiative will test both a service delivery and payment model. The service delivery model will test comprehensive primary care, which has the following functions: risk-stratified care management; access and continuity; planned care for chronic conditions and preventative care; patient and caregiver engagement; and coordination of care across the medical neighborhood. The payment model includes a risk-adjusted monthly care management fee paid to the selected primary care practices for their fee-for-service Medicare beneficiaries (estimated to be $20 in the first two years, and about $15 in years three and four). In addition, providers have the potential to share in any Medicare savings in years two through four of the initiative. Practices also will receive compensation from other payers participating in the initiative, including private insurers, to enable them “to integrate multi-payer funding streams to strengthen their capacity to implement practice-wide quality improvement.” The voluntary initiative will begin as a demonstration project in five to seven health care markets, with approximately 75 primary care practices in each market. CMS currently is soliciting public and private health care payers for the initiative; once payers and markets have been selected, primary care practices will be recruited and selected in those markets. Public and private health care payers interested in applying must submit a Letter of Intent by November 15, 2011.

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On November 17-18, 2011, CMS is hosting its final "accelerated development learning session” (ADLS) to educate executives about ways to build successful accountable care organizations (ACOs). The session will be held at CMS headquarters in Baltimore, MD.

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The CMS Center for Consumer Information and Insurance Oversight has published a final rule that amends a May 23, 2011 regulation on health insurance rate increase disclosures and review under the Affordable Care Act (ACA).  Specifically, in response to public comments, CMS has amended the definitions of ‘‘individual market’’ and ‘‘small group market’’ that apply for rate review purposes to include coverage sold to individuals and small groups through associations, even if the state does not include such coverage in its definitions of individual and small group market. The rule also updates standards for health insurance issuers regarding disclosure and review of unreasonable premium increases. The rule is effective November 1, 2011. A fact sheet is available here.  

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CMS has published a notice requesting comments on implementation of section 1331 of the ACA, which allows states to establish a Basic Health Program instead of offering coverage through an Affordable Insurance Exchange. Under this option, states may enter into contracts to offer one or more “standard health plans” providing at least the “essential health benefits” established under the ACA to eligible individuals. CMS is requesting information on a number of specific issues to aid in the development of standards for the Basic Health Program including, among many others: 

• To what extent have states begun to assess whether to establish a Basic Health Program? 
• What factors would encourage a state to establish a Basic Health Program? 
• What health plan standards should be considered, including the advantages and disadvantages of an expanded benefit package for standard health plans compared to qualified health plans? 
• What is the expected impact of standard health plans on provider payments and consumer access? 
• What options are states considering relating to premiums and cost-sharing? What factors, other than those listed in the statute, should be considered in the methodology for determining the amount of Basic Health Program funding to states? 
• What standards should be adopted related to health plan offerers, the contracting process with standard health plans, and coordination with other state programs?

CMS is accepting comments on the notice until October 31, 2011.

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On September 16, 2011, CMS published a final rule to implement section 6411 of the ACA, which requires all states to contract with Recovery Audit Contractors (RACs) to audit Medicaid claims, identify underpayments and overpayments, and recover overpayments or correct underpayments (similar to the Medicare RAC program). RACs will be paid a contingency fee out of improper payments they recover that took place in the previous three years. The rule provides guidance to states related to federal/state funding of state start-up, operation and maintenance costs of Medicaid RACs, and the payment methodology for state payments to Medicaid RACs. States are required to assure that adequate appeal processes are in place for providers to dispute adverse determinations made by Medicaid RACs.  In addition, the rule directs states to coordinate with other contractors and entities auditing Medicaid providers and with state and federal law enforcement agencies. The rule is effective January 1, 2012. 

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CMS is seeking comments on its proposed pressure ulcer measure data set for the new Long Term Care Hospital (LTCH) Quality Reporting Program. Under the ACA, LTCHs that fail to submit quality measure data may be subject to a 2 percentage point reduction in their annual update for discharges beginning in FY 2014. One of the LTCH quality measures is the Percent of Residents with Pressure Ulcers That Are New or Have Worsened. Beginning on October 1, 2012, LTCHs will begin to use a data collection document entitled the "LTCH CARE Data Set'' as the vehicle by which to collect the pressure ulcer data for the LTCH quality reporting program. This data set, which CMS created with data items contained in other pressure ulcer data sets, consists of: (1) pressure ulcer documentation; (2) selected covariates related to pressure ulcers; (3) patient demographic information; and; (4) a provider attestation section. CMS will accept comments on the data collection until November 1.

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CMS is seeking comments on information collection requirements related to the ACA Hospice Voluntary Quality Data Reporting Program.  Under the ACA, beginning with FY 2014, the Secretary must reduce the market basket update by 2 percentage points for any hospice that does not comply with the quality data submission requirements with respect to that fiscal year. CMS described the hospice quality reporting requirements in the FY 2012 hospice wage index rule. CMS is now requesting approval of the “Quality Data Submission Form” that hospice providers will use to submit quality measures data to CMS related to Participation in a Quality Assessment and Performance Improvement (QAPI) Program that Includes at Least Three Quality Indicators Related to Patient Care. Comments will be accepted until November 1, 2011.

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CMS has released guidance to states on implementation of Section 10202 of the ACA, which establishes the State Balancing Incentive Payments Program. This program is designed to provide “a strong financial incentive to stimulate greater access to non-institutionally based long-term services and supports (LTSS).” The letter discusses the structure of the program, implementation timeframe, and funding opportunities for states.

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The Government Accountability Office (GAO) has issued an ACA-mandated report entitled "Drug Pricing: Manufacturer Discounts in the 340B Program Offer Benefits, but Federal Oversight Needs Improvement."  By way of background, the 340B program limits the prices that participating manufacturers may charge for outpatient drugs purchased by certain “covered entities” that act as “safety net” providers of services to low-income individuals (e.g., community health centers, critical access hospitals, and children’s hospitals). The program is administered at the federal level by the Health Resources and Services Administration (HRSA). Of the 29 covered entities the GAO interviewed for this study, 13 reported that they generated 340B program revenue that exceeded drug-related costs (including costs of purchasing and dispensing drugs), which enabled the entities to serve more patients and provide additional services (all entities interviewed by the GAO reported using the program in ways consistent with its purpose). The GAO report observes that the 340B program has increasingly been used in settings, such as hospitals, where the risk of improper purchase of 340B drugs is greater, in part because they serve both 340B and non-340B eligible patients. With the number of hospitals in the 340B program increasing significantly in recent years, some stakeholders, including drug manufacturers, have questioned whether all of these hospitals need a discount drug program. In fact, according to the GAO, the number of covered entity sites has nearly doubled over the last 10 years to over 16,500, and now includes almost one-third of all U.S. hospitals. The GAO also discussed a variety of ways that manufacturers' distribution of drugs at 340B prices could affect access to drugs. The GAO concluded that “HRSA’s oversight of the 340B program is inadequate because it primarily relies on participants’ self-policing to ensure compliance” with program requirements. The GAO recommends that HRSA take steps to strengthen oversight, including: conducting selective audits of 340B covered entities to deter potential diversion; providing more specific guidance on the definition of a 340B patient and eligibility criteria for hospitals that are not publicly owned or operated; and requiring reviews of manufacturers' plans to restrict distribution of drugs at 340B prices.

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Recent Congressional hearings focusing on health policy issues include:

• House Ways and Means Committee hearings on expiring Medicare provider payment provisions and the impact of health sector mergers and acquisitions on private health insurance costs;
• A Senate Health, Education, Labor and Pensions Committee hearing on "Securing the Pharmaceutical Supply Chain";
• A House Judiciary Committee hearing on “The Proposed Merger betweenExpress Scripts and Medco”;
• A House Oversight and Government Reform Committee hearing entitled "Examining Abuses of Medicaid Eligibility Rules";
• A Senate Finance Committee hearing on "Dually-Eligible Beneficiaries: Improving Care While Lowering Costs"; and
• House Energy and Commerce Health Subcommittee hearings entitled "Cutting the Red Tape: Saving Jobs from PPACA's Harmful Regulations," “The Increase in Drug Shortages,” and a field hearing in La Jolla, CA on the “Impact of Medical Device and Drug Regulation on Innovation, Jobs and Patients: A Local Perspective.”

In addition, on October 4, the Senate Homeland Security and Governmental Affairs Subcommittee on Federal Financial Management has scheduled a hearing on "Costs of Prescription Drug Abuse in the Medicare Part D Program."

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CMS will hold a National Provider Call on October 27, 2011 to discuss an ACA requirement that most Medicare-enrolled providers and suppliers revalidate their enrollment. 

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HHS is extending until October 31, 2011 the comment period on two proposed rules published July 15, 2011 to implement provisions of the Affordable Care Act. The first rule would implement the ACA’s "Affordable Insurance Exchanges," which are state-based health insurance markets for individuals and small employers. The second proposed rule would implement standards for states related to reinsurance and risk adjustment, and for health insurance issuers related to reinsurance, risk corridors, and risk adjustment under the ACA. The comment period for both rules originally was scheduled to end on September 28, 2011. An official notice will be published in the Federal Register on September 30.

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The ACA modified the statutory Federal Upper Limit (FUL) provisions pertaining to Medicaid reimbursement for multiple source drugs. Briefly, under the ACA, the Secretary was directed to calculate FULs as no less than 175% of the weighted average (determined on the basis of utilization) of the most recently reported monthly average manufacturer prices (AMP), effective October 1, 2010. CMS has not yet released its much-anticipated regulations to implement this provision. Last week, however, CMS issued for review and comment its draft FUL reimbursement files, including the draft methodology used to calculate the FULs in accordance with the ACA and the weighted average of monthly AMPs in a FUL group. The draft FUL prices are based on the manufacturer reported and certified July 2011 monthly AMP and AMP unit data. In releasing the files, CMS notes that the ACA requires the FUL amendments to take effect whether or not implementing regulations are issued. CMS is accepting comments on the draft FUL reimbursement framework, although a deadline is not specified.

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CMS is seeking comments regarding whether the agency should revise a requirement that pharmaceutical manufacturers make payments to Medicare Part D drug plans under the Medicare Coverage Gap Discount Program Agreement via electronic fund transfer (EFT).   Some manufacturers have raised concerns that EFT is not practical when an invoice amount is very low because of bank minimum EFT thresholds and transaction fees. CMS is requesting input on whether it should allow an exception to the EFT requirement, and if so, what the exception should be (e.g., payment by check instead). Comments are due October 7, 2011.

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On August 22, 2011, HHS and the Departments of Labor and Treasury published two proposed rules designed to help consumers understand and evaluate their health insurance options, as mandated by the ACA.  The first rule would require health plans and issuers to provide consumers with a Summary of Benefits and Coverage (SBC) under circumstances set forth in the proposed rule. Health plans and issuers would be required to provide notice at least 60 days before any significant modification is made in the plan or coverage during the year. The regulation also would establish a uniform glossary of terms commonly used in health insurance coverage (e.g., coinsurance, deductible, excluded services, out-of-network). Second, the Departments have proposed templates and instructions to be used in making required disclosures under the SBC rule. Comments on both proposals are due by October 21, 2011.

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On August 15, 2011, CMS announced its decisions regarding which teaching hospitals are receiving reductions and/or increases to their direct graduate medical education (GME) and indirect medical education (IME) full-time equivalent (FTE) resident caps, as authorized by Section 5503 of the ACA. CMS has released a list of hospitals receiving FTE resident cap decreases and/or increases.

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The Centers for Medicare & Medicaid Services (CMS) has launched the Bundled Payments for Care Improvement Initiative under Section 3021 of the Affordable Care Act (ACA), which authorizes the Secretary to test innovative delivery arrangements to reduce federal spending while preserving or enhancing the quality of care. Under the Bundled Payments Initiative, CMS seeks applicants who will strive to improve care coordination for Medicare beneficiaries who are hospitalized and when they leave the hospital. Very broadly, applicants will offer a discount to Medicare compared to usual Medicare spending; the applicant will be paid the Medicare savings beyond the discount level, but will assume risk for Medicare expenditures above an established risk threshold. CMS invites proposals with one of following four approaches to bundled payments:

• Model 1: Retrospective payment models for the acute inpatient hospital stay only. 

For this model, the episode of care consist of all Part A services furnished to “included beneficiaries” during a hospital stay, including hospital diagnostic testing and all related therapeutic services furnished by an entity wholly owned/operated by the admitting hospital in the three days prior to admission and the hospital facility services furnished during the hospital stay. Awardees will offer a discount from the usual Part A hospital inpatient MS-DRG payments; the minimum discount varies by year, ranging from 0% for the first six months, gradually increasing to 2% by year three. 

• Model 2: Retrospective bundled payment models for hospitals, physicians, and post-acute providers for an episode of care consisting of an inpatient hospital stay followed by post-acute care. 

All beneficiaries admitted to an awardee acute care hospital for agreed-upon MS-DRGs will be included in the episode. The episode begins with the inpatient hospital admission to a participating provider and continues for a minimum of 30 days following discharge. The episode includes all hospital services (as defined in Model 1), plus Part A and Part B services furnished during the hospital stay, and Part A and Part B services furnished in the post-discharge period related to the episode “anchor.” In addition to the inpatient services, bundled services include inpatient hospital readmission services; long term care hospital services (LTCH); inpatient rehabilitation facility services (IRF); skilled nursing facility services (SNF); home health agency services (HHA); hospital outpatient services; independent outpatient therapy services; clinical laboratory services; durable medical equipment (DME); and Part B drugs. Applicants should propose a target price for the episode that includes a single rate of discount on the expected Medicare payments for all included Part A and Part B services. CMS requires minimum discount of 3% for applicants who propose a 30-89 day post-discharge episode, and a 2% minimum discount for 90 day or longer episode. Awardees may not restrict beneficiary choice of provider, including post-acute care provider, and awardees will be financially liable for care for included beneficiaries that is furnished by providers who are not participating in the model. 

• Model 3: Retrospective bundled payment models for post-acute care where the bundle does not include the acute inpatient hospital stay. 

The episode anchor is the initiation of post-acute care services at a SNF, IRF, LTCH, or with an HHA within 30 days of beneficiary discharge from an acute care hospital for an agreed-upon MS-DRG. The episode will begin on the date post-acute services are initiated with an awardee and continue through a minimum of 30 days following initiation of the episode. The episode must include all related Part A and Part B services furnished during the episode period, including related readmissions (all services in Model 2 except acute inpatient services). Applicants should propose a target price for the episode that includes a single rate of discount off of the expected Medicare payments for all included services. Awardees may not restrict beneficiary choice of provider; awardees are financially responsible for care for included beneficiaries furnished by providers who are not directly participating in the model.  

• Model 4: Prospectively-administered bundled payment models for hospitals and physicians for the acute inpatient hospital stay only. 

Proposals under Model 4 will build on the ongoing Medicare Acute Care Episode (ACE) demonstration for cardiac and orthopedic inpatient procedure hospitalizations, but will expand to additional geographic areas and clinical conditions. CMS notes that, unlike the ACE demonstration, the Bundled Payment Initiative will not include sharing savings with patients because such policies previously “have proven operationally challenging to administer and confusing for beneficiaries.” The episode of care is the acute inpatient admission to an awardee for agreed-upon MS-DRGs through patient discharge. The episode will include Part A hospital services (as defined in Model 1) and Part B professional services, along with specified services furnished during certain readmissions. The CMS will consider applicant proposals around risk adjustment, which must include a description of the methodology and may include plans for updating risk adjustment on a yearly basis. Applicants should propose a target price for the episode that includes a single rate of discount off of the expected Medicare Part A and Part B payments for all hospital facility and professional services furnished during the hospitalization and related readmissions for all beneficiaries with the agreed-upon MS-DRGs (a minimum 3% discount). CMS and the awardee will agree to the price for the bundle of services in advance, and the awardee bears full risk for the price of the episode.

Additional requirements for each model are set forth in the request for application (RFA). In general, CMS seeks to ensure that total Medicare expenditures under any model will decrease relative to what they would have been absent this initiative, and that quality measures are met.   Gainsharing arrangements are permitted under each model, but they must meet criteria “designed to ensure that care is not inappropriately reduced, that the quality of care remains constant or is improved, that there are not inappropriate changes in utilization or referral patterns, and to guard against fraud, waste, and abuse.” CMS states in the RFA that it will consider using its waiver authority with respect to fraud and abuse laws and other Medicare provisions for such gainsharing arrangements as appropriate. Bundled payment agreements will include a performance period of 3 years, with the possibility of a 2-year extension, beginning with program start date (which may be as early as the first quarter of CY 2012 for Model 1 awardees). Potential applicants must submit a letter of intent by September 22, 2011 for Model 1 (subsequently extended until October 6) and by November 4, 2011 for Models 2, 3, and 4; additional deadlines are set forth in the RFA materials. CMS also published a Federal Register notice announcing the initiative. 

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On August 12, 2011, the Obama Administration made a series of announcements related to implement of Affordable Insurance Exchanges (Exchanges) under the Affordable Care Act (ACA). The Exchanges, which will become operational by January 1, 2014, are designed to provide competitive marketplaces for individuals and small employers to directly compare available private health insurance options on the basis of price, quality, and other factors. The Department of Health and Human Services (HHS) has issued a proposed rule addressing eligibility determinations for Exchange participation and insurance affordability programs, along with standards for employer participation in a new Small Business Health Options Program.  The official version of the rule will be published August 17, and comments will be accepted until October 31, 2011. HHS also released updated information on the status of state efforts to build Exchanges, and the Department provided information to governors on federal resources available to establish Exchanges.  In a related development, the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule that would coordinate Exchange, Medicaid, and Children’s Health Insurance Program eligibility and enrollment. The CMS rule also addresses increased Federal Medical Assistance Percentage (FMAP) rates associated with medical assistance expenditures for certain “newly eligible” individuals. Comments will be accepted until October 31. Finally, the Internal Revenue Service (IRS) released regulations related to the ACA’s health insurance premium tax credit, which will help individuals purchase private health coverage through an Exchange.  Among other things, the proposed IRS regulations describe who will be eligible to receive the premium tax credit and how to compute the credit. The IRS also announces a November 17 public hearing on the regulation. The comment deadline is October 31.

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On August 15, 2011, the IRS released temporary regulations that provide guidance to drug manufacturers on the annual fee imposed on covered entities engaged in the business of manufacturing or importing branded prescription drugs, as mandated by the ACA.  The temporary regulations provide an overview of the fee requirement (including an explanation of the terms used in implementing the fee), set forth how the fee is calculated (and subsequently adjusted), discuss information manufacturers must submit to the IRS, describe the dispute resolution process to allow covered entities to submit error reports relating to the preliminary fee calculation, and provide for a notice of the final fee calculation. The temporary regulations also explain how manufacturers pay the fee, how the fee is treated for tax purposes, and how to make refund claims. While these temporary regulations generally are consistent with the approach proposed in previous IRS guidance, certain modifications and additions were made in response to public comments. The temporary regulations are scheduled to be published on August 18, 2011 and are effective upon publication.   The IRS also issued proposed regulations on this issue.  The text of the temporary regulations serves as the text of the proposed regulations, which are also to be published August 18.  Comments regarding the proposed regulations will be accepted if received by 90 days after publication.

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CMS has released its final rule to update Medicare inpatient prospective payment system (IPPS) hospital and long-term care hospital prospective payment system (LTCH-PPS) payment and other policies for FY 2012.   The official version of the rule will be published on August 18, 2011. Overall, CMS estimates that FY 2012 payments to general acute care hospitals for operating expenses would increase by $1.13 billion, or 1.1%, compared to 2012 (and compared to a projected decrease of $498 million under the proposed rule). The following are the highlights of the sweeping rule (the advance version is almost 1500 pages):

• The higher final 1.1% update to payments reflects a 3% market basket update (compared to 2.8% in the proposed rule), which is reduced by a multi-factor productivity adjustment of 1.0% (compared to the proposed 1.2%) and an additional 0.1% reduction mandated by the ACA). This amount is further adjusted by a 2% reduction to account for changes in hospital documentation and coding practices that did not reflect actual increases in patients’ severity of illness (CMS initially proposed a 3.15% documentation and coding adjustment), along with an additional 1.1% increase in response to litigation involving the calculation of budget neutrality for the rural floor. Hospitals that do not successfully participate in the Inpatient Quality Reporting (IQR) program (formerly called the Reporting Hospital Quality Data for Annual Payment Update or RHQDAPU) will have their market basket update reduced by two percentage points. 
• The final rule includes a number of hospital quality initiatives. The rule expands the measures to be reported under the IQR program for the FY 2014 and FY 2015 payment determinations (there are a total of 76 measures for the FY 2015 payment determination), but streamlines reporting requirements in an effort to reduce the burden on participating hospitals. CMS also is implementing the ACA’s Hospital Readmissions Reduction Program, which will reduce payments beginning in FY 2013 to certain hospitals that have excess readmissions for certain selected conditions. CMS is finalizing measures regarding rates of readmissions for acute myocardial infarction, heart failure, and pneumonia, along with a methodology for calculating excess readmission rates. In addition, the rule builds on CMS’s January 13, 2011 separate proposed rule to implement the ACA’s Hospital Value-Based Purchasing program, which will tie Medicare payments to the quality of hospital services beginning in FY 2013, by adding a measure on Medicare Spending Per Beneficiary (this measure will also be used in the Hospital IQR Program). CMS did not adopt its proposal to add Acute Renal Failure after Contrast Administration to the list of hospital-acquired conditions in FY 2012.
• The final rule also, among many other things: modifies Medicare severity diagnosis related group (MS-DRG) classifications for certain procedures; implements ACA policies providing additional payments to certain low-volume hospitals and to qualifying hospitals in certain geographic areas with low per-beneficiary Medicare spending; clarifies the payment policy for replacement of recalled devices to address partial credits; excludes hospice discharges from the disproportionate share hospital and indirect medical education adjustments; further clarifies that the “3-day payment window” policy applies to preadmission diagnostic and non-diagnostic services furnished at physicians’ practices that are wholly owned or wholly operated by the admitting hospital, revises how pension contributions are reported for wage index and cost finding purposes; discusses its decision to deny three applications for new technology add-on payments; modifies add-on payments for hospitals treating patients with end-stage renal disease; finalizes redistribution of graduate medical education caps; and updates the rate-of-increase limits for certain hospitals excluded from the IPPS that are paid on a reasonable cost basis subject to these limits. The final rule also modifies Medicare “under arrangements” requirements to clarify that hospitals may provide only therapeutic and diagnostic services “under arrangements” with an outside entity; routine services, such as contracted nursing services, furnished outside the hospital can no longer be furnished “under arrangement” and covered by Medicare. Hospitals that cannot provide routine services directly (rather than under arrangement) to Medicare inpatients would be required to discharge the inpatient and transfer the patient to another hospital.  The final rule also includes numerous changes impacting LTCHs. 

The official version of the rule will be published on August 18, 2011. 

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This post was written by Debbie McCurdy & Paul Pitts.

On August 18, 2011, CMS is publishing its final rule updating Medicare long-term care hospital (LTCH) PPS policies and payment rates for FY 2012 (affecting discharges and cost reporting periods beginning on or after October 1, 2011 through September 30, 2012). Medicare payments to LTCHs are projected to increase by $126 million (2.5%) in FY 2012 relative to FY 2011, due to a 1.8% rate update together with other policies adopted in the final rule. Specifically, the final standard federal rate for FY 2012 is $40,222, an increase from $39,600 applicable during FY 2011. The increase is based on a market basket increase of 2.9% minus a productivity adjustment of 1.0% and minus an additional 0.1% as mandated by the ACA. Under the final rule, the fixed loss amount for high cost outlier cases is set at $17,931, down from $18,785 in FY 2011, and the labor-related share of the LTCH-PPS standard federal rate is decreased from 75.271% to 70.199%. In addition, the final rule requires that any updates to the area wage level adjustment be made in a budget-neutral manner. CMS also has updated how to determine if an LTCH meets the requirement that it have an average inpatient length of stay for Medicare patients (including both Medicare covered and non-covered days) of greater than 25 days. In the final rule, CMS has clarified that all data on all Medicare inpatient days, including Medicare Advantage days, must be included in the average length of stay calculation. Effective for cost reporting periods beginning on or after January 1, 2012, CMS will disqualify an LTCH for payment under LTCH-PPS if it fails to meet the average length of stay requirement when Medicare Advantage days are included. The final rule also implements a new quality reporting program for LTCHs mandated by the ACA that will impact payment determinations beginning in FY 2014. Under this program, LTCHs will be required to submit data from three quality measures in order to receive the full payment update in fiscal year 2014, including measures related to (1) catheter-associated urinary tract infections, (2) central line catheter-associated blood stream infection, and (3) pressure ulcers that are new or have worsened. If an LTCH fails to report on the selected quality measures, its annual market basket update will be reduced by 2 percentage points.

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On August 3, 2011, the HHS published an interim final rule with comment period amending rules regarding coverage of certain preventive services by group health plans and health insurance coverage in the group and individual markets under the ACA. As previously reported, HHS announced earlier this month that health plans will be required to furnish certain preventive health services, including contraceptive services, for women without cost sharing under the ACA, effective for plan years beginning on or after August 1, 2012.  The August 3 rule provides the Health Resources and Services Administration (HRSA) with additional discretion to exempt certain religious employers from HRSA preventive guidelines with regard to contraceptive services. Under the rule, a religious employer is one that: (1) has the inculcation of religious values as its purpose; (2) primarily employs persons who share its religious tenets; (3) primarily serves persons who share its religious tenets; and (4) is a non-profit organization. HHS will be accepting comments on this definition as well as alternative definitions.   The interim final regulations are effective August 1, 2011, although comments will be accepted until September 30, 2011. 

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CMS has extended the deadline for submission of requests for temporary codes under the ACA “Treatment of Certain Complex Diagnostic Laboratory Tests Demonstration” from August 1, 2011 to September 6, 2011. The Demonstration allows a separate payment to laboratories performing certain complex laboratory tests that would, under standard Medicare rules, be bundled into the payment to the hospital or critical access hospital.

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The Patient-Centered Outcomes Research Institute (PCORI), which was established by the ACA, is seeking public feedback on eight initial topics for a series of “Tier 1” pilot projects. The pilot projects are intended to help PCORI set national priorities for research, support the development of novel methods or collection of preliminary data that can advance patient-centered outcomes research (PCOR), and inform the development of a future PCORI research agenda. The eight initial topics for the PCORI pilot projects include developing/identifying, testing, and/or evaluating:

1. Methods to inform the process of establishing and updating national priorities for PCOR.
2. Methods for bringing together patients, caregivers, clinicians and non-traditional partners in all stages of a multi-stakeholder research process, from the generation and prioritization of research questions to the conduct and analysis of a study to dissemination of study results.
3. Approaches for translating research findings into changes in health care practices.
4. Approaches that could systematically, without bias, identify gaps in evidence that most affect low-income populations; minorities; children; elderly; women; people with disabilities, multiple medical conditions, rare conditions, and other vulnerable populations.
5. Predictive outcomes instruments of interest to patients.
6. Methods for researching behaviors, lifestyles, and choices within patient control that may influence outcomes.
7. Methods for studying the patient-clinician interaction in situations where multiple options for prevention, diagnosis, or treatment exist.
8. Methods to assess strategies that respect patient autonomy and promote informed decision-making, incorporating the best healthcare knowledge into the application of care.

Note that this request is for input on the pilot project topics, not a request for applications (RFA) for pilot project grants; PCORI expects to issue an RFA for pilot project grants in late September. Comments on the topics will be accepted until August 31, 2011. 

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This post was written by Robert J. Hill, Joseph W. Metro and Vicky G. Gormanly.

On August 4, 2011, CMS held an "External Stakeholders Meeting" at its Baltimore headquarters to discuss the development of a survey for what it is now calling "National Average Drug Acquisition Cost" or "NADAC". Earlier this year, CMS announced that it would publish a pricing benchmark based upon pharmacies' acquisition costs for both brand and generic drugs, which State Medicaid programs could use instead of Average Wholesale Price (AWP) or Wholesale Acquisition Cost (WAC) to establish pharmacy reimbursement rates. CMS has entered into a contract with Myers & Stauffer, LC, to develop NADAC; Myers & Stauffer currently collects pharmacy acquisition costs for Oregon and Alabama, two states that have made such costs an element of their Medicaid pharmacy reimbursement.

Representatives of Myers & Stauffer handled the bulk of the presentation. They indicated that they plan to survey approximately 2,000 - 2,500 independent, chain and specialty pharmacies monthly, selected randomly from the 62,000 such pharmacies; "closed door" pharmacies such as mail order and long-term care pharmacies would not be included. Given that many "specialty" pharmacies dispense primarily through the mail, it is not clear why they have not been excluded along with non-specialty mail order pharmacies or whether it suggests that CMS might view them as community retail pharmacies for purposes of manufacturer price reporting under the Medicaid rebate statute. Pharmacies will be asked to submit their invoice data for all drug purchases made during the most recent 30-day period (it wasn't clear how the period would be defined). Myers & Stauffer stated that pharmacies could simply photocopy invoices and send them in; alternatively, invoice data could be submitted in electronic form via e-mail, or the pharmacy's wholesaler could submit the data on behalf of the pharmacy. CMS intends to minimize the submission burden on pharmacies.

Whether or not to respond to the survey request will be voluntary on the part of pharmacies. Monthly submissions will not seek data on discounts, rebates, chargebacks, free goods, or other off-invoice transactions. Instead, CMS will conduct a separate survey, on an annual basis, for that information--for which pharmacy responses will also be voluntary. Once Myers & Stauffer gets that data, they and CMS "will determine next steps"; apparently there is no current intent or specific plan to make it part of the NADAC that CMS will be publishing. One of the main purposes of that survey will be to look for "trends" over time; if this is collected only annually, then it would presumably be at least a year before this has any impact.

Myers & Stauffer expects a 2-month lag in the data--i.e., data published for January pricing would be from November. Myers & Stauffer recognizes that this lag could put pharmacies "underwater" (for brand drugs) when manufacturers implement price increases, if the increased acquisition price were not reflected in NADAC until two months later; accordingly, Myers & Stauffer is working with CMS to take that into account, by monitoring WACs, and adjusting reported NADAC prices when WACs are increased. They stated that they could do this given that their experience shows average acquisition costs are closely correlated with WAC. Nevertheless, the timeliness of such adjustments is to be determined, particularly for WAC increases between monthly NADAC updates; CMS noted that updates would be "at least" monthly.

It will be up to individual States whether or how to use NADAC, but if they want to use it they will need to do a State Plan amendment which CMS would have to approve. Joseph Fine, CMS's MPA Technical Director, Division of Pharmacy, who is a pharmacist, referenced an industry study from several years ago indicating pharmacies' dispensing costs are in the range of $10.00 per prescription, rather than the $2.00 - $2.50 dispensing fee in many current reimbursement formulas. He implied that CMS would expect a State formula with no markup on ingredient cost would be approved only if the dispensing fee were much higher, and indicated a belief that this creates an opportunity for the focus of pharmacy reimbursement to change from a focus on margin over ingredient cost to payment for what is actually done by the pharmacy. Nevertheless, in answers to public questions, CMS refused to give any parameters about what it would or would not require.

Prices will be published for each strength/dosage form of a given drug, with separate prices for generic and brand. "Generic" and "brand" will be defined based upon CMS covered outpatient drug file; in answering a question, Mr. Fine appeared to indicate that single source and innovator multiple source drugs would be considered brands, and noninnovator multiple source drugs considered generics. However, CMS did not directly address how authorized generics would be treated; since these are classified as innovator multiple source, it would appear that they would be mixed into the "brand" reimbursement, even though they are often treated as generics in pharmacy reimbursement today.

Data will be analyzed to exclude "outliers." In addition, 340B pharmacies will be excluded, although it is not clear how emerging 340B contract pharmacy arrangements will be excluded.

CMS still expects to publish its first file of NADAC prices by the end of the year. CMS pledged to be fully transparent in developing the NADAC, and says it will look for comments after NADAC is published.

The ultimate impact of the survey is far from clear, given its voluntary nature and the fact that it will only focus on gross acquisition costs and not off-invoice transactions and adjustments. For branded drugs, it is not clear how NADAC will be materially different from WAC data available through pricing services, and the lag in reflecting manufacturer price increases appears to present problems. For generics, the new AMP-based "Federal Upper Limit" prices to be published by CMS under the Affordable Care Act will reflect manufacturer discounts (subject to various issues with calculating and reporting AMP), and will constitute an upper limit of Medicaid ingredient cost reimbursement--albeit at "not less than" 175% of utilization-weighted average AMP. Nevertheless, development of NADAC was prompted by interest from State Medicaid programs, and some States may propose to utilize it as the basis--or one basis--of their pharmacy reimbursement methodologies. Some private payors may also seek to utilize it. Accordingly, we will be monitoring further developments with respect to NADAC.

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On July 29, 2011, CMS issued its final Medicare hospice wage index rule for FY 2012, which will increase overall payments by 2.5% as a result of a 3% market basket update, offset by an estimated 0.5% decrease resulting from updated wage index data and the continued phase out of the wage index budget neutrality adjustment factor. CMS has adopted its proposal to change the hospice aggregate cap calculation methodology to a “patient-by-patient proportional methodology” in response to litigation challenging CMS’s existing method for counting Medicare beneficiaries. Hospice providers have the option of electing to continue using the current methodology. Also, as previously reported, “to prevent future litigation, and alleviate the litigation burden on providers, CMS, and the courts,” CMS issued a related ruling dated April 15, 2011 that allows any hospice that has a timely-filed administrative appeal of the existing methodology for a cap year ending on or before October 31, 2011 to have its cap determination recalculated using the patient-by-patient proportional methodology.  In addition, the final rule implements a hospice quality reporting program, as mandated by the ACA. The initial measures are limited to a National Quality Forum (NQF)-endorsed measure on pain management and a structural measure related to participation in a Quality Assessment and Performance Improvement (QAPI) Program that includes at least three indicators related to patient care. Hospices must begin collecting quality data in October 2012, to be submitted in 2013; hospices may also voluntarily begin collecting data on the QAPI measure in October 2011 for submission in 2012. Hospices that do not report quality data in 2013 will have their annual increase factor reduced by 2 percentage points in FY 2014. The final rule includes a number of other hospice policy changes, including: elimination of a current requirement that the hospice physician who performs a face-to-face encounter for recertification of a patient’s terminal illness and attests to that encounter be the same physician who certifies the patient’s terminal illness; clarification of the timeframes for face-to-face encounters; and revisions to the definition of hospice employee. The official version of the rule will be published on August 4, 2011.

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On July 29, 2011, the Centers for Medicare & Medicaid Services (CMS) released its final update to Medicare skilled nursing facility (SNF) prospective payment system (PPS) rates and policies for fiscal year (FY) 2012. Under the final rule, SNF rates would be reduced by 11.1% -- or $3.87 billion – compared to FY 2011 levels. The rate reduction results from adoption of a controversial plan to “recalibrate” SNF PPS rates to correct what CMS characterizes as an “unexpected spike” in payments in FY 2011, when CMS implemented the Resource Utilization Groups, version four (RUG-IV) patient classification system. Although CMS intended implementation of RUG-IV to be budget-neutral, CMS maintains that claims under the updated system show a significant increase in Medicare expenditures, primarily due to changes in therapy use under the new classification system. CMS declined to phase in the reductions over several years, as had been recommended by commenters, since it “would continue to reimburse facilities at levels that significantly exceed intended SNF payments.” Instead, CMS is applying a 12.6% recalibration reduction, which is partially offset by a 1.7% standard rate update (which represents a 2.7% market basket update reduced by a 1.0% percentage point “multifactor productivity adjustment” mandated by the Affordable Care Act, or ACA). CMS observes that despite the recalibration, payments in FY 2012 will be 3.4% higher than in 2010, before the adoption of RUG-IV. In addition to these payment policies, the final rule establishes a standard for group therapy, defined as therapy provided simultaneously to four patients, regardless of payer source, who are performing the same or similar activities and are supervised by a therapist or assistant who is not supervising any other individuals. The rule also adopts policies related to the reporting and allocation of group therapy minutes, and requires new reporting when changes occur in the intensity of therapy. CMS also has adopted other modifications to the schedule for completing the MDS 3.0 patient assessment instrument. In addition, CMS has revised its policy regarding supervision of therapy students to provide that a therapy student working in an SNF will no longer be required to be in the supervising therapist’s “line of sight.” Note that CMS is deferring the adoption of the proposed rule to implement an ACA provision requiring Medicare SNFs and Medicaid nursing facilities to disclose certain information regarding the ownership and organizational structure of their facilities; these requirements will be finalized in a separate rule early in CY 2012.  The official version of the rule will be published on August 8, 2011.

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On July 29, 2011, CMS released an advance copy of its final rule updating Medicare IRF PPS rates and policies for FY 2012 (affecting discharges and cost reporting periods beginning on or after October 1, 2011 and through September 30, 2012).  The rule, which will be published in the Federal Register on August 5, 2011, is expected to increase IRF PPS rates by 2.2% nationwide ($150 million). This rate increase reflects a 2.9% market basket increase (using a revised and rebased index) that is partially offset by a -1% productivity adjustment and 0.1% rate cut mandated by the ACA, increased by 0.4% due to an updated outlier threshold amount that increases estimated outlier payments from 2.6% in FY 2011 to 3% in FY 2012. In addition to these rate changes, the rule implements a new quality reporting program, also required by the ACA, that reduces the annual IRF PPS increase factor by 2 percentage points for facilities that fail to report quality data, beginning in 2014. Under the final rule, IRFs initially will submit data on two quality measures: “urinary catheter-associated urinary tract infection” and “pressure ulcers that are new or have worsened.” CMS is considering for future rulemaking a third measure under development on “30-day Comprehensive All Cause, Risk Standardized Readmission.” The final rule also, among other things: updates case-mix group relative weights; uses final FY 2011 inpatient PPS pre-reclassified and pre-floor wage data; freezes the facility-level adjustment factors for FY 2012 at FY 2011 levels for one additional year; allows IRFs to receive temporary adjustments to their full-time equivalent intern and resident caps if interns/residents are unable to complete their training in certain situations; and allows IRF and inpatient psychiatric facility units to expand during a cost reporting period (not just at the beginning of a cost reporting period).  The rule is effective October 1, 2011. 

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On August 1, 2011, HHS announced that health plans will be required to furnish certain preventive health services for women without cost sharing under the Affordable Care Act, effective for plan years beginning on or after August 1, 2012. The eight additional preventive services for women were recommended by the Institute of Medicine on July 19.

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On July 20, 2011, CMS published a proposed rule to implement the Consumer Operated and Oriented Plan (CO–OP) program, which was mandated by the Affordable Care Act (ACA) to provide loans to encourage the creation of consumer-governed, private, nonprofit health insurance issuers. CO-Ops will offer qualified health plans to individuals and small businesses through new Affordable Insurance Exchanges (Exchanges), and may offer coverage to small businesses through state ”Small Business Health Option Programs.” The ACA provides $3.8 billion for the CO-OP program, with the goal of having at least one CO-OP in each state. The proposed rule would: (1) establish eligibility standards for the CO–OP program; (2) establish certain loan terms; and (3) provide basic standards that organizations must meet to become a CO-OP and participate in this program. CMS will accept comments on the proposed rule until September 16, 2011.

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The Department of Health and Human Services (HHS) has issued a notice correcting technical errors in its June 24, 2011 amendment to a 2010 interim final rule on internal claims and appeals and external review processes for group health plans and health insurance coverage in the group and individual markets under the ACA. 

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The Patient-Centered Outcomes Research Institute (PCORI), established by the ACA, is seeking public comment on its working definition of "Patient-Centered Outcomes Research" (PCOR) to help focus the panel's comparative effectiveness efforts. Under the working definition, PCOR “helps people make informed health care decisions and allows their voice to be heard in assessing the value of health care options.” PCOR answers the following patient-focused questions: Given my personal characteristics, conditions and preferences, what should I expect will happen to me? What are my options and what are the benefits and harms of those options? What can I do to improve the outcomes that are most important to me? How can the health care system improve my chances of achieving the outcomes I prefer?” Under the working definition, in order to answer these questions, PCOR: (1) assesses the benefits and harms of preventive, diagnostic, therapeutic, or health delivery system interventions to inform decision making, highlighting comparisons and outcomes that matter to people; (2) is inclusive of an individual's preferences, autonomy and needs, focusing on outcomes that people notice and care about such as survival, function, symptoms, and health-related quality of life; (3) incorporates a wide variety of settings and diversity of participants to address individual differences and barriers to implementation and dissemination; and (4) investigates (or may investigate) optimizing outcomes while addressing burden to individuals, resources, and other stakeholder perspectives. Comments will be accepted until September 2, 2011.

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Congressional committees continue to examine a variety of health care policy issues. Recent hearings include the following:

• The Senate Special Committee on Aging held a hearing on reducing Medicare drug costs. In connection with the hearing, the Senate Aging Committee majority staff set forth legislative options for cutting Medicare drug costs. 
• The Senate Health, Education, Labor and Pensions Committee held a hearing on FDA user fees, and is planning an August 2 hearing on "Health Reform and Health Insurance Premiums: Empowering States to Serve Consumers." 
• Other Congressional committees examined ACA implementation: a House Oversight and Government Reform Committee hearing on "Impact of Obamacare on Job Creators and Their Decision to Offer Health Insurance"; and a House Small Business Committee hearing entitled “Small Businesses and PPACA: If They Like Their Coverage, Can They Keep It?" 
• The House Oversight Committee examined “Improper Medicare Payments: $48 Billion in Waste?"  
• On August 3, the Senate Finance Committee is holding a hearing on "Dually-Eligible Beneficiaries: Improving Care While Lowering Costs."

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The GAO has released a compilation of contracts awarded and consultants retained by federal departments and agencies to assist in implementing the ACA. For instance, the GAO reports that the total amount obligated by the HHS's Assistant Secretary for Administration for ACA-related contracts as of April 15, 2011 was $706 million (most related to support of state Pre-existing Condition Insurance Plans), while CMS’s total contract obligations were $20 million and the Internal Revenue Service’s contract obligations totaled $34.8 million. 

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The Institute of Medicine recommended to the HHS Secretary that eight additional preventive services for women be added to the preventive services that health plans cover at no cost to the patient under the ACA. The eight services include:  screening for gestational diabetes; human papillomavirus (HPV) testing as part of cervical cancer screening for women over 30; counseling on sexually-transmitted infections; counseling and screening for HIV; contraceptive methods and counseling to prevent unintended pregnancies; lactation counseling and equipment to promote breast-feeding; screening and counseling to detect and prevent interpersonal and domestic violence; and yearly well-woman preventive care visits to obtain recommended preventive services.

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CMS is hosting "accelerated development learning sessions” (ADLS) to educate executives about ways to build successful accountable care organizations (ACOs).  Registration is now open for the second ADLS to be held in San Francisco, California on September 15-16, 2011.

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CMS published a proposed rule on July 12, 2011 that would decrease Medicare home health agency (HHA) PPS payments for CY 2012 by 3.35%, or $640 million, compared to 2011 levels. This reimbursement cut would reflect a 2.5% market basket update that is reduced by 1 percentage point as mandated by the ACA, a 0.1% wage index increase, and a 5.06% reduction to account for increases in aggregate case-mix that are unrelated to changes in the patient’s health status. In addition, if an HHA does not submit required quality data, the home health market basket percentage increase would be reduced by an additional 2 percentage points. The rule also would make a number of case-mix changes, including removing two hypertension codes from the case-mix system, lowering payments for high-therapy episodes, and recalibrating case-mix weights. The rule also addresses a number of home health policy issues. For instance, the rule would allow physicians who attend to a home health patient in an acute or post-acute setting to inform the certifying physician of their encounters with the patient in order to satisfy the requirement that a certifying physician or an allowed non-physician practitioner (NPP) has see a patient prior to certifying a patient as eligible for the home health benefit. CMS also proposes to clarify its ‘‘confined to the home’’ definition and certain occupational therapy policies. Comments on the proposed rule will be accepted until September 6, 2011. 

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On July 8, 2011, CMS published a proposed rule that would update the ESRD PPS for CY 2012.  CMS projects that payment rates would increase by 1.8% under the proposed rule as a result of a 3% market basket increase that is reduced by 1.2% productivity adjustment (mandated by the ACA). The rule also would impact a variety of other ESRD payment policies, including outlier payments, the low-volume adjustment, drug add-on payments, and wage index values. The rule also would revise requirements for the ESRD quality incentive program (QIP), under which payments to dialysis facilities are tied to their performance on certain quality measures. CMS proposes to retire one of QIP performance measures for payment year (PY) 2013 – hemoglobin level less than 10g/dL – and equally weight the two remaining measures (hemoglobin levels greater than 12g/dL and hemodialysis adequacy, as measured by Urea Reduction Ratio levels of at least 65). For the PY 2014 payment determination, CMS is proposing to retain the anemia management measure (hemoglobin level greater than 12g/dL) and to adopt seven new measures that expand the types of dialysis services measured under the QIP. The rule also would revise the QIP scoring methodology, applicable to payments to dialysis facilities in PYs 2013 and 2014.  In addition, the proposed rule would revise the ambulance fee schedule regulations and revise the Medicare definition of durable medical equipment (DME), as discussed below. CMS will accept comments on the proposed rule until August 30, 2011.

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The Internal Revenue Service (IRS) is seeking comments on the CHNA requirements for 501(c)(3) hospitals established by the ACA. In the notice, the IRS describes anticipated regulatory provisions regarding, among other things: hospital organizations required to meet the CHNA requirements; how and when a CHNA is conducted; the community served by a hospital facility; making a CHNA available to the public; how and when an implementation strategy is adopted; excise taxes on failures to meet the CHNA requirements; reporting and documentation requirements; and effective dates.  Although the CHNA requirements are not effective until taxable years beginning after March 23, 2012, the IRS is publishing the notice now since some hospital organizations may choose to start conducting CHNAs and developing implementation strategies before the effective date. Comments on the notice are due by September 23, 2011.  

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On July 12, 2011, CMS published a proposed rule that would implement an Affordable Care Act (ACA) requirement that physicians document the existence of a face-to-face encounter (including through the use of telehealth) with a Medicaid eligible individual within certain timeframes as a condition of Medicaid coverage of home health services. Likewise, Medicaid programs would be required to adopt face-to-face encounter requirements for the provision of supplies, equipment and appliances that parallel Medicare requirements pertaining to documentation of face-to-face encounters for DME. That is, CMS would only require that, for items of DME specified by CMS under the Medicare program as subject to a face-to-face encounter requirement, the physician must document that a face-to-face encounter that is related to the primary reason the individual requires the item has occurred no more than 90 days before the order is written or within 30 days after the order is written. CMS intends to issue additional guidance to states on this provision. The proposed rule also would clarify that states may not limit home health services to services delivered in the home; that is, a beneficiary is not prohibited from receiving home health services in any non-institutional setting in which normal life activities take place. Finally, the rule would clarify the definition of medical supplies, equipment, and appliances for Medicaid purposes to better align with the Medicare program’s definition. Comments will be accepted until September 12, 2011. 

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On July 15, 2011, the Department of Health and Human Services (HHS) published a proposed rule to implement the ACA’s "Affordable Insurance Exchanges" (“Exchanges”), which are state-based health insurance markets for individuals and small employers that are scheduled to become operational by January 1, 2014. Specifically, the proposed rule: (1) sets forth the federal requirements that states must meet if they elect to establish and operate an Exchange; (2) outlines minimum requirements that health insurance issuers must meet to participate in an Exchange and offer qualified health plans; and (3) provides basic standards that employers must meet to participate in the “Small Business Health Options Program.”  A second proposed rule would implement standards for states related to reinsurance and risk adjustment, and for health insurance issuers related to reinsurance, risk corridors, and risk adjustment under the ACA. These standards are intended to mitigate the impact of potential adverse selection and stabilize premiums in the individual and small group markets as insurance reforms and the Exchanges are implemented. Comments on both proposed rules will be accepted until September 28, 2011. Note that the regulations do not address all of ACA Exchange provisions; additional guidance on the establishment and operation of Exchanges will be provided in forthcoming proposed rules. 

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On July 8, 2011, HHS published an interim final rule with comment period implementing certain administrative simplification provisions of the ACA. Specifically, the regulation adopts operating rules for two HIPAA transactions: eligibility for a health plan and health care claim status. The rule also defines the term “operating rules'' and explains the role of operating rules in relation to the adopted transaction standards. The regulations are effective June 30, 2011, and the compliance date for this regulation is January 1, 2013. HHS will accept comments on the rule until September 6, 2011. 

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HHS is seeking comments on proposed data collection standards for race, ethnicity, sex, primary language, and disability status in population health surveys, as required by Section 4302 of the ACA.  Comments will be accepted until August 1, 2011. HHS also announced plans to begin collecting health data on lesbian, gay, bisexual and transgender populations. According to HHS, both of these initiatives “aim to help researchers, policy makers, health providers and advocates to identify and address health disparities afflicting these communities.”

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CMS has posted a June 29, 2011 memo to pharmaceutical manufacturers on certain ACA Medicare Coverage Gap Discount Program issue. In brief, the memo sets forth CMS’s proposed short- and long-term solutions to a problem with providing to manufacturers “Medicare Part D Discount Information” related to certain low-volume claims while protecting beneficiary identities. It also proposes technical corrections to the deadline for appeals related to coverage gap discount agreements. CMS will accept comments on its proposals until August 1, 2011. The memo also announces that CMS intends to undertake a formal rulemaking process to codify aspects of the Discount Program, including a new definition of “Medicare Part D Discount information.” CMS expects to issue a proposed rule in the fall and a final rule in the spring of 2012.

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A number of Congressional panels have held hearings on health policy issues this month, and more are scheduled, including the following:

• The House Energy and Commerce Committee has held hearings on: reauthorization of the Prescription Drug User Fee Act (PDUFA); the ACA’s Independent Payment Advisory Board (IPAB), which is charged with helping to contain Medicare costs; and legislation addressing children's hospital graduate medical education (GME) costs (H.R. 1852) and autism research (H.R. 2005). On July 20, the panel will hold a hearing on “FDA Medical Device Regulation: Impact on American Patients, Innovation and Jobs." On July 21, the Committee will hold a legislative hearing to review H.R. 1254, the Synthetic Drug Control Act, H.R. 2405, a bill to reauthorize certain provisions of the Public Health Services Act and the Federal Food, Drug, and Cosmetic Act relating to public health preparedness and countermeasure development; and draft legislation entitled the Enhancing Disease Coordination Activities Act.  
• The House Budget Committee held hearings on the IPAB and the sustainability of the Medicare program.
• The House Oversight and Government Reform Committee held a hearing on "Fulfilling A Legal Duty: Triggering A Medicare Plan From The Administration." 
• The Senate Finance Committee held a hearing on “Governors’ Perspectives on Medicaid.” 
• The Senate Homeland Security and Governmental Affairs Committee held a hearing entitled "Harnessing Technology and Innovation to Cut Waste and Curb Fraud in Federal Health Programs." 
• On July 21, the Senate Special Committee on Aging will hold a hearing on reducing Medicare drug costs.
• On July 21, the Senate Judiciary Committee is scheduled to vote on S. 27, the Preserve Access to Affordable Generics Act.
• On August 3, 2011, the Senate Health, Education, Labor and Pensions Committee is scheduled to vote on S. 958, the Children's Hospital GME Support Reauthorization Act, and S.1094, the Combating Autism Reauthorization Act. 

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 As previously reported, CMS is hosting a series of accelerated development learning sessions (ADLS) to educate executives about ways to build successful accountable care organizations (ACOs). On July 19, 2011, CMS is hosting a “follow-up webinar” on “Physician Culture Change for Improving ACO Cost and Quality Outcomes.”

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CMS has published a notice inviting interested parties to participate in the ACA-mandated “Treatment of Certain Complex Diagnostic Laboratory Tests Demonstration.”   The Demonstration allows a separate payment to laboratories performing certain complex laboratory tests that would, under standard Medicare rules, be bundled into the payment to the hospital or critical access hospital.  CMS has posted a list of the lab tests subject to the demonstration and other background information on its web site.  Potential participants must apply for a temporary billing code by August 1, 2011. Payment under the demonstration begins January 1, 2012, and the demonstration will last two years or until a $100 million ceiling is reached.  CMS has scheduled an educational call to discuss the program on July 21. 

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On July 27, 2011, CMS will host a Special Open Door Forum on the 2013 Hospital Value-Based Purchasing Program, under which quality of care factor into hospital Medicare reimbursement. Note that the period of performance for the FY 2013 program began on July 1, 2011. The call will cover, among other things, hospital eligible for the program, key dates, clinical process of care and patient experience measures, calculation of performance scores, and determination of incentive payments.

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CMS is hosting a provider call on July 21, 2011 to provide an overview of Medicare coverage for an Initial Preventive Physical Examination (commonly known as the "Welcome to Medicare" Visit) and the Affordable Care Act’s Annual Wellness Visit. Registration for the call will close at 1:30 pm on July 20 or when available space has been filled.

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This post was written by Robert J. Hill, Daniel A. Cody and Vicky G. Gormanly.

On July 8, 2011, CMS announced that it had awarded Myers and Stauffer, LC a contract to prepare a monthly survey of retail community pharmacy (“RCP”) prescription drug prices. The contract is in furtherance of CMS’s commitment to develop and publish “Average Acquisition Cost” data reflecting RCPs’ purchase costs for all covered outpatient drugs, for potential use by State Medicaid agencies in rate-setting.

According to CMS, the contract is divided into two parts, which will be completed concurrently:

• Part I focuses on RCP consumer prices, including (i) calculation of the monthly national RCP prices; and (ii) reporting by the States of payment and utilization rates for the 50 most widely prescribed drugs; and (iii) comparison of State drug payment rates to national retail survey prices.
• Part II focuses on RCP ingredient purchase costs, including a survey of purchase costs of all covered outpatient drugs purchased by RCPs, including independent community pharmacies, chain pharmacies and specialty pharmacies. This data would be used to develop the AAC, which would be updated on at least a monthly basis.

CMS states that to ensure that the methodology for Part II is implemented appropriately, it intends to include stakeholders such as representatives from pharmacy associations, wholesalers, and States “to assure that there is transparency and input on the AAC determination process.” The agency plans to host “an All-State teleconference to introduce the components of the Retail Price Survey and Average Acquisition Cost initiative”, details of which will be made available in the near future.

Alabama and Oregon, also pursuant to contracts with Myers & Stauffer, have already incorporated the use of AACs in their Medicaid pharmacy reimbursement formulas. Earlier this year California appeared to be moving toward an AAC reimbursement policy, but the relevant language was removed from the bill that was ultimately signed by Governor Brown. Notably, there appear to be variations in each State’s definition of AAC, e.g., relative to treatment of rebates.

The details regarding how AAC will be collected, calculated and reported could be significant for pharmacies, manufacturers and other industry participants. Pharmacy trade groups have previously questioned CMS’s authority to require RCPs to report their acquisition prices in surveys for purposes of publishing an AAC. 

CMS is expected to publish for comment proposed regulations regarding the redefinition of Average Manufacturer Price (“AMP”), which under the Affordable Care Act (“ACA”) will be used to determine Federal Upper Limits (“FULs”) for State Medicaid reimbursement to pharmacies for multi-source drugs. Many of the questions which apply to reporting and determination of AMP and FUL prices could also apply to reporting and determination of AAC. Notably, however, AAC will presumably apply to branded drugs as well as generic drugs. Further, States (and commercial payors) may choose to use AAC in a variety of ways not anticipated by CMS, whereas FULs act as a nation-wide cap on Medicaid pricing for the drugs to which they apply.

We will continue to monitor progress as to CMS’s calculation and use of AAC, as well as related issues such as that of the upcoming proposed rule for reporting of AMP and calculation of FULs for covered outpatient drugs.

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On June 24, 2011, the Department of Health and Human Services (HHS), the Internal Revenue Service, and the Employee Benefits Security Administration published an amendment to their July 23, 2010 interim final rule on internal claims and appeals and external review processes for group health plans and health insurance coverage in the group and individual markets under the Affordable Care Act (ACA).  The amendment is intended to provide additional flexibility to states in implementing ACA consumer protections. Among other things, the revised rules extend the transition period for state external review processes to January 1, 2012, and provide additional guidance for plans and issuers regarding temporary external review requirements. The amendment is effective July 22, 2011, although the agencies will accept comments on the amendment until July 25, 2011. Separate technical guidance has been issued by the Departments that addresses both state- and federally-administered external review processes and update model notices issued in connection with the July 2010 regulations.  HHS also has issued separate guidance outlining how a state may operate until January 1, 2014 an external review process under federal standards similar to the required consumer protections in the July 23, 2010 rule.

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On June 17, 2011, CMS announced its plans to phase out its waiver program for limited benefit health insurance plans, dubbed “mini-med” plans. By way of background, the ACA health insurance market reform provisions required, among other things, that insurance plans phase out their annual limits on insurance coverage beginning in September 2010. Most plans currently may not impose an annual limit that is lower than $750,000; that limit increases to $1.25 million in September 2011 and to $2 million for plan years beginning in September 2012. CMS has granted temporary waivers from the ACA’s minimum annual limits to certain health plans that demonstrate that compliance with the phase-out of limits would result in a significant decrease in access to benefits or a significant increase in premiums. CMS has announced that after September 22, 2011, it will no longer consider new waiver applications or requests for extensions of temporary waivers. In addition, any plans receiving such waivers will be required to alert consumers that the plan has restrictive coverage, including low annual limits that could result in high out-of-pocket spending. Beginning in 2014, when health insurance is scheduled to be offered through Health Insurance Exchanges, annual coverage limits for new health plans will be prohibited.

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The National Prevention, Health Promotion, and Public Health Council has released its final “National Prevention and Health Promotion Strategy,” as mandated by the ACA. The strategy identifies four “strategic directions” for improving the nation’s health: building healthy and safe community environments; expanding quality preventive services in both clinical and community settings; empowering people to make healthy choices; and eliminating health disparities. The document also makes recommendations to address seven priority areas for improving the health and wellness of the U.S. population: tobacco free living; preventing drug abuse and excessive alcohol use; healthy eating; active living; injury and violence free living; reproductive and sexual health; and mental and emotional well-being.

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The Government Accountability Office (GAO) has issued a report entitled "HHS Research Awards: Use of Recovery Act and Patient Protection and Affordable Care Act Funds for Comparative Effectiveness Research." The report includes a more than 40-page listing of all comparative effectiveness research grants issued under the Recovery Act, including the entities that have received funding and the general purpose of the funding (no funding had been obligated under the ACA's comparative effectiveness provision as of April 25, 2011).

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This post was written by Susan A. Edwards.

On June 17, 2011, CMS issued a memo to state survey agencies on implementation of an ACA provision requiring certain individuals in applicable LTC facilities to report any reasonable suspicion of crimes committed against a resident of that facility.  For purposes of the survey guidance, CMS is defining the following Medicare and Medicaid participating provider types as LTC facilities: nursing facilities; skilled nursing facilities; hospices that provide services in LTC facilities; and intermediate care facilities for the mentally retarded. Among other things, the memo: provides instructions to LTC facilities regarding their obligations under the statute (including notification of employees about their reporting responsibilities and nonretaliation against reporting employees); suggests other “advisable functions” for LTC facilities to undertake to promote compliance with the provision; explains the reporting timeframes for covered individuals; and provides guidance to survey agencies on how to respond to reports of reasonable suspicion of a crime. An analysis of the memo, which is effective immediately, is available in the following Client Alert.

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Recent Congressional health policy hearings have included: a House Ways and Means Health Subcommittee hearing on the Medicare program’s financial status; a Senate Finance Committee hearing on “Health Care Entitlements: The Road Forward"; a House Energy and Commerce Committee hearings examining the Medicare/Medicaid dual eligible population and the Medicare Secondary Payer program; and a Senate Homeland Security and Governmental Affairs Committee hearing entitled “Transforming Lives Through Diabetes Research.” Looking ahead, on July 13 the Energy and Commerce Health Subcommittee is holding a hearing entitled “IPAB: The Controversial Consequences for Medicare and Seniors.” Under the ACA, the new Independent Payment Advisory Board (IPAB) is charged with submitting detailed proposals to Congress and the President to reduce Medicare per-capita spending if projected spending growth exceeds a target. IPAB's proposals will go into effect automatically unless Congress enacts alternative legislation to achieve the required savings (with certain exceptions). 

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On June 6, 2011, CMS published a final rule to implement an Affordable Care Act (ACA) provision that prohibits Medicaid payments for care associated with “provider-preventable conditions” (PPCs). There are two categories of PPCs: 

1. Health Care-Acquired Conditions (HCAC) – This term applies to Medicaid inpatient hospital settings, and includes at a minimum the full list of Medicare’s hospital acquired conditions (except Deep Vein Thrombosis/Pulmonary Embolism following total knee/hip replacement in pediatric and obstetric patients).
    
2. Other Provider-Preventable Conditions (OPPC) – This term applies to Medicaid inpatient and outpatient health care settings where these events may occur, and includes at a minimum the subjects of three Medicare National Coverage Determinations (surgery on the wrong patient, wrong surgery on a patient, and wrong site surgery). States could expand their policies to settings other than inpatient hospital and to additional conditions with CMS approval.

States may not prohibit payments to a provider for a PPC if the patient’s condition existed prior to the initiation of treatment, and states must ensure that nonpayment for PPCs does not prevent access to services for Medicaid beneficiaries. In addition, states may limit provider payment reductions to the extent that the identified PPC would otherwise result in an increase in payment, or if the state can reasonably isolate for nonpayment the portion of the payment directly related to the PPC. Note that while the statutory effective date is July 1, 2011, CMS intends to delay compliance action on these provisions until July 1, 2012.

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On June 8, 2011, CMS published a proposed rule that would implement an ACA requirement to make standardized extracts of Medicare Parts A, B, and D claims data available to “qualified entities.” These entities will combine this Medicare data with private sector claims data to generate public reports evaluating the performance of providers and suppliers. CMS would evaluate whether an organization is eligible to receive data based on their qualifications in three areas: organizational and governance capabilities (including the ability to accurately calculate quality, efficiency, effectiveness, and resource use measures from claims data); the addition of claims data from other sources; and data privacy and security practices.   The qualified entity must agree to share the reports confidentially with providers and suppliers prior to their public release to provide an opportunity to make corrections. No individual beneficiary data would be shared under this program. CMS will accept comments on the proposed rule until August 8, 2011.

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CMS is now accepting applications for the Medicare FQHC Advanced Primary Care Practice demonstration project, which will test how the advanced primary care practice model (also called patient-centered medical home) can improve quality of care, promote better health, and lower costs. The demonstration program, which was authorized by the ACA, will pay an estimated $42 million over three years to up to 500 FQHCs to coordinate care for Medicare patients. Participating FQHCs are expected to achieve Level 3 patient-centered medical home recognition, help patients manage chronic conditions, and actively coordinate patient care. Participating FQHCs will be paid a monthly care management fee for each eligible Medicare beneficiary receiving primary care services in exchange for adopting specified care coordination practices. Applications will be accepted until August 12, 2011. 

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On May 31, 2011, CMS issued revised guidance for pharmaceutical manufacturers regarding appealing invoiced discount payments under the Medicare Part D Drug Coverage Gap Discount Program. The revised guidance reflects comments received on CMS's April 7, 2011 draft version of the document. 

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CMS has issued a May 31, 2011 informational bulletin to states on Section 6501 of the ACA, which requires states to terminate the Medicaid participation of any individual or entity terminated under Medicare or any other Medicaid state plan. CMS implemented this provision through a broader Medicare and Medicaid provider/supplier screening rule published February 2, 2011.  In the May 31 bulletin, CMS discusses a secure, web-based portal it has established to allow states to share information regarding terminated providers, along with a “Medicaid State plan preprint” it is developing for states to use when submitting a state plan amendment to implement program integrity provisions. The bulletin also includes operational guidance in the form of “Frequently Asked Questions” regarding Section 6501.

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CMS has provided updated information about implementation of Section 3113 of the ACA, which requires CMS to conduct a demonstration project to provide direct Medicare payment to clinical laboratories for certain complex diagnostic laboratory tests beginning January 1, 2012. The demonstration will last two years or until a $100 million ceiling is reached. 

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The Internal Revenue Service (IRS) is seeking comments on the funding mechanism for the ACA’s Patient-Centered Outcomes Research Trust Fund. The Trust Fund will finance the work of the Patient-Centered Outcomes Research Institute (PCORI), which is charged with conducting comparative clinical effectiveness research. The Trust Fund is to be financed in part by fees to be paid by issuers of health insurance policies and sponsors of self-insured health plans, effective for policy and plan years ending after September 30, 2012. The IRS has issued Notice 2011-35, which requests comments regarding how these fees should be calculated and paid, including several possible rules and safe harbors. Comments on the notice will be accepted until September 6, 2011. 

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Earlier this month, the House Oversight and Government Reform Health Care Subcommittee held a hearing on "Pathway to FDA Medical Device Approval: Is There a Better Way?"; the House Small Business Healthcare Subcommittee reviewed “Health IT Barriers for Small Medical Practices"; and the House Energy and Commerce Oversight and Investigations Subcommittee held a hearing on HHS regulatory reform. The Energy and Commerce Health Subcommittee also examined the ACA’s “Effects on Maintaining Health Coverage and Jobs: A Review of the Health Care Law's Regulatory Burden"; this hearing “reconvenes” on June 15.  Also coming up,  In addition, a House Judiciary Subcommittee on Crime hearing on June 14 will focus on the Foreign Corrupt Practices Act.  On June 22, the House Ways and Means Health Subcommittee will hold a hearing on the Medicare program’s financial status.  Looking ahead to next month, on July 13 the Energy and Commerce Health Subcommittee is holding a hearing entitled “IPAB: The Controversial Consequences for Medicare and Seniors.”  Under the ACA, the new Independent Payment Advisory Board (IPAB) is charged with submitting detailed proposals to Congress and the President to reduce Medicare per-capita spending if projected spending growth exceeds a target. IPAB's proposals will go into effect automatically unless Congress enacts alternative legislation to achieve the required savings (with certain exceptions). 

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As previously reported, CMS has launched several initiatives designed to encourage hospitals, physicians and other providers to participate in “accountable care organizations” (ACOs) that offer cost-effective, coordinated care to Medicare beneficiaries. In addition to issuing a major proposed rule to implement the Affordable Care Act’s (ACA) Medicare Shared Savings Program (under which ACOs that meet certain quality standards and surpass a minimum savings target will be able to share a percentage of Medicare savings), CMS has proposed a "Pioneer ACO Model."  The Pioneer ACO Model is designed to provide an opportunity for more rapid escalation of shared savings and risk to advanced ACOs -- that is, organizations with extensive experience with systematic care improvement efforts that are prepared to enter payment arrangements that include financial accountability and performance incentives. While CMS had originally indicated that letters of intent to participate in the Pioneer ACO Model would be due on June 10, 2011, CMS has extended that deadline to June 30, 2011 in response to feedback from potential applicants. Likewise, the deadline for submission of applications has been extended; they now must be postmarked by August 19, 2011 (instead of July 18).

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On June 14, 2011, CMS is holding a Special Open Door Forum on the Accountable Care Organization (ACO) Advance Payment Initiative.   By way of background, the CMS Innovation Center is considering an Advance Payment Initiative for those ACOs entering the Medicare Shared Savings Program to test whether and how pre-paying a portion of future shared saving could increase participation in the Medicare Shared Savings Program. More information is available on the Innovation Center website.

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On May 23, 2011, HHS published a final rule with comment period to implement the ACA's requirements regarding disclosure and review of “unreasonable” health insurance premium increases. Under the rule, premium increases of 10% or more must be reviewed by state or federal officials, effective September 1, 2011. In addition, effective September 1, 2012, the 10% threshold will be replaced by state-specific thresholds that reflect insurance and health care cost trends in each state. The rule also requires companies to provide consumers with their justifications for unreasonable rate increases, and the public would have an opportunity to provide input during the evaluation process. In order to address varying state rules on treatment of insurance sold through associations, HHS is accepting comments on the rule’s definition of “individual market” and “small group market”; comments on those sections will be considered if submitted by July 18, 2011.  

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On May 25, 2011, the Senate voted 40-47 to oppose H.Con.Res. 34, the House-approved budget resolution for fiscal year (FY) 2012. As previously reported, H.Con.Res. 34 calls for significant structural reforms of the Medicare and Medicaid programs and repeal of the ACA.  In addition, the Senate voted unanimously (0-97) not to consider S.Con.Res. 18, setting forth the President's budget request for FY 2012, which also includes a variety of Medicare and Medicaid provisions. The Senate has not yet adopted a budget resolution for FY 2012.

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On May 25, 2011, the House approved H.R. 1216, which would rescind certain unobligated ACA funding for health centers to expand or establish programs that provide training to medical residents, and it would make funding for future payments to those centers subject to annual discretionary appropriations. The legislation has not yet been considered by the Senate. 

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A number of Congressional panels have held hearings recently on health policy issues, including: a Senate Judiciary Crime Subcommittee hearing entitled "Responding to the Prescription Drug Epidemic: Strategies for Reducing Abuse, Misuse, Diversion, and Fraud";  House Energy and Commerce hearings on interstate health insurance purchasing and creation of an interoperable public safety network; and a Joint Economic Committee hearing on innovation and job growth in the life sciences industry.  In addition, three hearings are scheduled for June 2: a House Oversight and Government Reform Health Care Subcommittee hearing on "Pathway to FDA Medical Device Approval: Is There a Better Way?"; a House Small Business Healthcare Subcommittee hearing entitled "Not What the Doctor Ordered: Health IT Barriers for Small Medical Practices"; and an Energy and Commerce Health Subcommittee hearing on the “Patient Protection and Affordable Care Act’s Effects on Maintaining Health Coverage and Jobs: A Review of the Health Care Law's Regulatory Burden."

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On May 16, 2011, the Patient-Centered Outcomes Research Institute (PCORI) -- created by the ACA to spearhead federal comparative effectiveness research -- announced the selection of Joe V. Selby, M.D., M.P.H., as the first PCORI executive director.   Dr. Selby is a family physician, clinical epidemiologist and health services researcher.  

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This post was originally written for the Life Sciences Legal Update blog by Ruth N. Holzman, Angelo Ciavarella, Joseph W. Metro and Vicky G. Gormanly.

On Friday, May 27, 2011, the Internal Revenue Service ("IRS") issued Notice 2011-46 (the "New Notice"), which extended to June 10, 2011 the deadline to submit error reports in accordance with the dispute resolution process established with respect to the preliminary fee calculation of the 2011 fee imposed on certain manufacturers and importers of branded prescription drugs.

To read the full blog post, please click here.

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CMS is hosting a “special open door forum” on the Pioneer Accountable Care Organization (ACO) Model on June 7, 2011. The Pioneer ACO model is a shared savings program designed for health care organizations that are experienced in coordinating patient care in different care settings and that are prepared to enter payment arrangements with financial accountability and performance incentives. For dial-in information, see the CMS Pioneer ACO call announcement.  

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This post was originally written for the Life Sciences Legal Update blog by Joseph W. Metro and Vicky G. Gormanly.

On May 20, 2011, the Health Resources and Services Administration (“HRSA”) released a proposed rule concerning the exclusion of orphan drugs for certain covered entities under the 340B Program. The 340B Program, enacted pursuant to the Veterans Health Care Act of 1992 (“VHCA”), limits the prices that participating manufacturers may charge for outpatient drugs purchased by certain “covered entities” that act as “safety net” providers of services to low-income individuals.

Health care reform included significant changes for the 340B program, including expanding the types of covered entities eligible to participate in the Program. New classes of covered entities include certain freestanding cancer hospitals, rural referral centers, sole community hospitals, critical access hospitals, and children’s hospitals. However, under the amendments, 340B prices are not available for “orphan drugs” purchased by freestanding cancer hospitals, rural referral centers, sole community hospitals and critical access hospitals. This limitation applies to protect financial incentives for manufacturers to bring to market such drugs.

Under the proposed rule, however, such covered entities may in fact purchase orphan drugs at the 340B price so long as the drug is not transferred, prescribed, sold, or otherwise used for the rare condition or disease for which the orphan drug was designated. In other words, covered entities can purchase the drugs for approved non-orphan uses, as well as potentially unapproved, off-label uses. This proposal potentially “guts” the ineligibility provisions of the statute, as the rule provides no guidance as to how manufacturers can determine what indications (or non-indicated off-label uses) their orphan drugs are used for, and emphasizes that manufacturers may not condition the offer of 340B pricing upon an entity’s assurance that the drug will be used for its orphan indication.

The proposed rule is also somewhat unusual in its specificity, in that HRSA has not previously issue a rule that more generally governs the 340B program. Thus, manufacturers may wish to consider whether it is appropriate to comment on some of the general defined terms (e.g., “covered entity,” “covered outpatient drug”) contained in the proposed rule.

The proposed rule may be viewed here.  Comments are due July 19, 2011.

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This post was written by Debra McCurdy & Paul Pitts.

On May 17, 2011, CMS made several announcements designed to encourage hospitals, physicians and other providers to participate in “accountable care organizations” (ACOs) that offer cost-effective, coordinated care to Medicare beneficiaries. By way of background, CMS issued a major proposed rule on April 7, 2011 to implement the Affordable Care Act’s Shared Savings Program, under which ACOs that meet established quality and performance standards and surpass a minimum savings target will be able to share a percentage of Medicare savings (in additional to traditional fee-for-service payments under Medicare Parts A and B). 

Advance Payment Initiative under the Shared Savings Program

In response to provider concerns about access to capital needed to form a successful ACO under the proposed rule, CMS is now considering an Advance Payment Initiative (API) to test whether providing ACOs with an advance on expected shared savings could increase participation in the Medicare Shared Savings Program. ACOs would be required to provide a plan for using these funds to build care coordination capabilities and meet other organizational criteria, and any advance payments would be recouped through the ACOs’ earned shared savings. Comments on this option will be accepted until June 17. Also with regard to the Shared Savings Program, CMS is hosting a series of accelerated development sessions (ADSs) to educate executives about ways to build successful ACOs. The first 3-day, in-person ADS is scheduled for June 20-22 in Minneapolis (note that CMS has published corrections to the original announcement of the session). Registration is required.

Alternative Pioneer ACO Model

CMS has announced the launch of a separate "Pioneer Accountable Care Organization Model" – a new ACO model that will be available as early as the fourth quarter of 2011 to advanced ACOs (that is, organizations with extensive experience with systematic care improvement efforts that are prepared to enter payment arrangements that include financial accountability and performance incentives). The Pioneer ACO Model is intended to complement the Medicare Shared Savings Program, but it will provide more opportunities for rapid escalation of shared savings and risk. An ACO may participate in either the Shared Savings Program or in the Pioneer ACO Model, but not both concurrently. CMS expects to partner with approximately 30 organizations in the Pioneer ACO Model, with a minimum of 15,000 Medicare beneficiaries in each (5,000 for rural ACOs). The program will test alternative payment models that (1) include escalating levels of financial accountability through successive performance periods during the participation agreement; (2) provide a transition from fee-for-service to population-based payment by the third performance period, and (3) generate Medicare savings.   

Many components of the Pioneer ACO Model match what CMS proposed to adopt in the Medicare Shared Savings Program. However, several aspects of the model differ substantially. For example, the Pioneer ACO Model may include a prospective identification of the Medicare beneficiaries for whom an ACO is accountable, rather than a retrospective assignment of beneficiaries. Pioneer ACOs also must commit to entering outcomes-based contracts with other purchasers (private health plans, state Medicaid agencies, and/or self-insured employer) so that the majority of the ACO’s total revenues (including from Medicare) will be derived from such outcomes-based payment arrangement by the end of the second performance period (in December 2013). In the third year of participation in the Pioneer Model, the ACO’s payment will transition to a population-based payment (per-beneficiary per month payment) that replaces a significant portion of the ACO’s fee for service payments. While CMS describes in detail one payment arrangement for Pioneer ACOs, the agency notes that it will offer variations in the shared savings, shared loss, and savings and loss maximums to accommodate the needs of a given Pioneer ACO. In addition, CMS strongly encourages applicants to propose alternative payment models for the agency’s consideration that offer similar or greater savings to the Medicare program. CMS intends to use recommendations it receives from applicants to develop and offer an alternative payment arrangement that participating ACOs may choose to utilize.  Pioneer ACOs must meet quality performance measures and other CMS standards adopted in the final rule implementing the Shared Savings Program. If a Pioneer ACO finds the terms of the final rule to be unacceptable, the ACO may withdraw from the Pioneer ACO Model program anytime before January 2012. In addition, CMS will test the use of technical support in the form of rapid data feedback and shared learning activities. 

Interested organizations must submit a nonbinding letter of intent by June 10, 2011, and applications must be postmarked no later than July 18, 2011.  A related May 20 Federal Register notice is available here.

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On May 24, 2011, CMS is hosting a national teleconference on its April 7, 2011 proposed rule to implement the ACA’s Medicare Shared Savings program. The program is intended to encourage physicians, hospitals, and certain other types of providers and suppliers to form “accountable care organizations” (ACOs) to provide cost-effective, coordinated care to Medicare beneficiaries. The registration deadline for the session is 1:30 p.m. ET on May 23, 2011, or when available space has been filled.  For additional information about the ACO rule, see our previous postings. 

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The Food and Drug Administration (FDA) published a notice on May 10, 2011 seeking comments on its upcoming user fee program for biosimilar and interchangeable biological product (351(k)) applications. The user fee program was mandated by the Biologics Price Competition and Innovation Act of 2009, which was enacted as part of the Affordable Care Act (ACA). In particular, the FDA seeks comments on the identified principles for development of a 351(k) user fee program, along with the proposed structure and performance goals for the user fee program. Comments on the notice will be accepted until June 9, 2011. The FDA plans to hold a series of industry-stakeholder meetings this year as it develops its plan; stakeholders who have not notified FDA of their interest in participating in these meetings should notify the agency by June 3, 2011.

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On May 3, 2011, the House of Representatives approved H.R. 1213, a bill that would repeal mandatory funding provided to states to establish American Health Benefit Exchanges under the ACA. While the bill has not been considered by the Senate, the White House has voiced its opposition to the measure.

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Under the ACA, certain employers must offer health coverage to their full-time employees or make a “shared responsibility” payment, starting in 2014. The ACA exempts small firms with fewer than 50 full-time employees from this requirement. The IRS has issued Notice 2011-36, which provides information on the ACA shared responsibility payment provision and requests comments on approaches for determining who is a full-time employee for purposes of this requirement. Comments will be accepted until June 17, 2011.

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This post was written by Ruth N. Holzman, Angelo Ciavarella and Joseph W. Metro.

On May 2, 2011, the Internal Revenue Service (the "IRS") issued Revenue Procedure 2011-24 (the "Revenue Procedure"), which establishes a dispute resolution process for the preliminary fee calculation for the 2011 fee imposed on certain manufacturers and importers of branded prescription drugs pursuant to the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the "ACA"). As further explained below, in order to participate in the dispute resolution process, a "covered entity" must submit a written error report to the IRS that is postmarked no later than June 1, 2011.

This Tax Alert provides background on the annual fee and a summary of the dispute resolution process established by the Revenue Procedure.

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On May 9, 2011, the FTC is hosting a workshop to seek input on its "Proposed Statement of Antitrust Enforcement Policy," which discusses how the federal antitrust agencies will enforce U.S. antitrust laws when competing health care providers create new Accountable Care Organizations (ACOs) under the Affordable Care Act.  Note that attendees will be admitted on a first-come basis, but the event also will be webcast.

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On May 5, 2011, the Centers for Medicare & Medicaid Services (CMS) is publishing its proposed rule to update Medicare inpatient prospective payment system (IPPS) hospital and long-term care hospital prospective payment system (LTCH-PPS) payment and other policies for FY 2012. Overall, CMS estimates that FY 2012 payments to general acute care hospitals for operating expenses would decrease by $498 million (0.5%) under the proposed rule, while Medicare payments to LTCHs are projected to increase by $95 million (1.9%). CMS addresses a wide variety of policies in the more than 1000-page advance version of the rule. 

Highlights of the proposal are available after the jump.

• CMS proposes applying a number of adjustments to arrive at an overall operating payment reduction of approximately 0.5%. Specifically, CMS proposes updating IPPS payments by 1.5% (based on a projected market basket update of 2.8%, which is reduced by a multi-factor productivity adjustment of 1.2% and an additional 0.1% reduction mandated by the Affordable Care Act or ACA), with an additional 1.1% increase in response to litigation involving the calculation of budget neutrality for the rural floor, and a 3.15 percentage point reduction to account for changes in hospital documentation and coding practices that did not reflect actual increases in patients’ severity of illness. 
• The proposed rule includes a number of hospital quality initiatives. The proposed rule would expand the measures to be reported for purposes of the Inpatient Quality Reporting (IQR) program (formerly called the Reporting Hospital Quality Data for Annual Payment Update or RHQDAPU) for the FY 2013 and FY 2014 updates. Hospitals that do not participate in the IQR quality reporting program will have their market basket update reduced by two percentage points.  The rule also would streamline reporting requirements in an effort to reduce the burden on participating hospitals. CMS is also proposing to add one category of conditions (Acute Renal Failure after Contrast Administration) to the list of hospital-acquired conditions (HACs) in FY 2012 (hospitals are prevented from receiving higher payment for care solely resulting from HACs). CMS also proposes implementing the ACA’s Hospital Readmissions Reduction Program, which will reduce payments beginning in FY 2013 to certain hospitals that have excess readmissions for certain selected conditions. CMS is proposing measures regarding rates of readmissions for acute myocardial infarction, heart failure, and pneumonia, along with a methodology for calculating excess readmission rates. The proposed rule also builds on CMS’s January 13, 2011 separate proposed rule to implement the ACA’s Hospital Value-Based Purchasing (VBP) program, which will tie Medicare payments to the quality of hospital services beginning in FY 2013, by proposing an additional measure on Medicare Spending Per Beneficiary. 
• The proposed rule would, among many other things: modify Medicare severity diagnosis related group (MS-DRG) classifications for certain procedures; implement ACA policies providing additional payments to certain low-volume hospitals and to qualifying hospitals in certain geographic areas with low per-beneficiary Medicare spending; clarify the payment policy for replacement of recalled devices to address partial credits; exclude hospice discharges from the disproportionate share hospital and indirect medical education adjustments; further clarify Medicare payment for services provided in hospital outpatient departments on either the day of or during the three days prior to an inpatient admission (known as the 3-day payment window); revise how pension contributions are reported for wage index and cost finding purposes; address three applications for new technology add-on payments; and institute policy changes affecting wage indices and add-on payments for hospitals treating patients with end-stage renal disease. CMS also proposes to modify Medicare “under arrangements” requirements to clarify that hospitals could provide only therapeutic and diagnostic services “under arrangements” with an outside entity. Routine services, such as contracted nursing services, furnished outside the hospital could no longer be furnished “under arrangement” and covered by Medicare. The rule also would update the rate-of-increase limits for certain hospitals excluded from the IPPS that are paid on a reasonable cost basis subject to these limits.
• The proposed rule also includes numerous changes impacting LTCHs. Reed Smith attorneys have prepared a Client Alert summarizing the LTCH proposals, including provisions addressing: changes to payment rates and other payment policies for FY 2012; revisions to and rebasing of the LTCH market basket; a requirement for budget neutrality in the area wage level adjustment; LTCH average length of stay policies; an extension of the LTCH moratorium on new LTCH beds to LTCHs “under development” on December 29, 2007; and implementation of a quality data reporting program for LTCHs as mandated by the ACA. 

Supplementary information regarding the rule is posted on the CMS web site. The official version of the proposed rule will be published May 5, 2011. Comments will be accepted until on June 20, 2011.

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On April 29, 2011, CMS released its final rule to implement a Hospital Value-Based Purchasing (VBP) program, as mandated by the ACA. The VBP program will build on the current pay-for-reporting program by tying Medicare payments to the quality of hospital services. Specifically, under the rule, starting in FY 2013 (which begins October 1, 2012), CMS will make value-based incentive payments to acute care hospitals based either on: (1) how well the hospital performs on certain quality measures, or (2) how much the hospital’s performance improves compared to its performance during a baseline period. The rule addresses the proposed quality measures, performance standards, scoring scheme, and framework for translating scores into value-based incentive payments. In general, the higher a hospital’s performance or improvement during the performance period for a fiscal year, the higher the hospital’s incentive payment will be. The initial measures CMS is adopting are a subset of the measures being used for the existing IQR program. As mandated by the ACA, the VBP program is deficit-neutral; that is, aggregate hospital VBP payments are funded through a reduction in base DRG payments for each discharge. The DRG reduction will be 1% in FY 2013 ($850 million, which is redistributed in VBP incentive payments), rising to 2% by FY 2017. CMS anticipates that out of 3,092 participating hospitals in FY 2013, payment increases will range from 0.0236% to 1.817%. When the base DRG payment reduction is factored in, about half of participating hospitals will receive a net increase in payments and half will receive a net decrease in payments, with no hospital experiencing a net change of more than 1%. The official version of the rule will be published May 6, 2011.

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On April 28, 2011, CMS released its proposed update to Medicare skilled nursing facility (SNF) PPS rates and policies for FY 2012. CMS sets forth two very different options under consideration for revising rates for 2012. The first option, applying the standard rate update methodology, would increase rates by 1.5% ($530 million) as a result of a 2.7% market basket update reduced by a 1.2 percentage point “Multifactor Productivity Adjustment” mandated by the ACA. The second option seeks to address what CMS characterizes as an “unexpected spike” in SNF PPS payments in FY 2011, when CMS implemented the Resource Utilization Groups, version four (RUG-IV) patient classification system. Although CMS intended implementation of RUG-IV to be budget-neutral, initial claims under the updated system show a significant increase in Medicare expenditures, in part because the proportion of patients grouped in the highest-paying RUG therapy categories greatly exceeded CMS expectations. Although CMS will continue to analyze claims data, the agency is considering making a prospective adjustment to case mix weights to “restore overall payments to their intended levels,” which would cut rates by $4.47 billion. While this amount would be partly offset by the 1.5% update, this option would still result in a net payment decrease of $3.94 billion (-11.3%) for FY 2012. In addition to these payment policies, the proposed rule would implement an ACA provision requiring Medicare SNFs and Medicaid nursing facilities to disclose certain information in a standardized format to HHS and other entities regarding the ownership and organizational structure of their facilities. CMS also proposes to establish a standard that defines group therapy under the SNF PPS as therapy provided simultaneously to four patients who are performing similar therapy activities, and to require the allocation of group therapy minutes in assigning RUG-IV payment groups. In addition, the rule would require a new Medicare-required assessment to be completed by SNFs when changes occur in the intensity of therapy, and CMS proposes modifications to the schedule for completing the MDS 3.0. In addition, CMS proposes revising its current policy regarding supervision of therapy students to provide that a therapy student working in an SNF would no longer be required to be in the supervising therapist’s “line of sight.”  The official version of the rule will be published on May 6, 2011. Comments on the proposal will be accepted until June 27.

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On April 29, 2011, CMS published a proposed rule to update Medicare IRF PPS rates and policies for FY 2012. The proposal would increase IRF PPS rates by 1.5% ($120 million nationwide), reflecting a 2.8% market basket increase (using a revised and rebased index) that is partially offset by a 1.3 percentage point rate reduction mandated by the ACA.  In addition, the rule would implement a new quality reporting program, also required by the ACA, that reduces the annual IRF PPS increase factor by 2 percentage points for facilities that fail to report quality data, beginning in 2014. Under the proposal, IRFs initially would submit data on two quality measures: “urinary catheter-associated urinary tract infection” and “pressure ulcers that are new or have worsened.” CMS is considering for future rulemaking a third measure under development that would address readmissions within 30 days to another inpatient stay (acute care hospital, rehabilitation facility, or other setting). The proposed rule also would, among other things: update case-mix group relative weights; increase the high cost outlier threshold from $11,410 to $11,822 (which would maintain outlier payments at 3% of total IRF PPS payments in FY 2012 compared to 2.7% in 2011); use final FY 2011 IPPS pre-reclassified and pre-floor wage data; update the rural, low-income patient, and teaching status adjustment factors using more recent data; allow IRFs to receive temporary adjustments to their full-time equivalent intern and resident caps if interns/residents are unable to complete their training in certain situations; and revise rules regarding "new" facilities and changes in bed size and square footage for IRFs and inpatient rehabilitation units. Comments on the proposed rule are due by June 21, 2011. 

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On May 6, 2011, CMS is publishing a final rule updating PPS rates for Medicare inpatient hospital services provided by inpatient psychiatric facilities (IPFs) for discharges occurring during rate year (RY) 2012, which begins July 1, 2011. CMS estimates that the rule would increase overall IPF PPS payments by approximately $120 million, reflecting a $130 million increase from an update to payment rates (a market basket update of 3.2% reduced by 0.25 percentage points as required by the ACA), and a $10 million decrease due to an adjustment to outlier threshold from approximately 2.2% in RY 2011 to 2.0% in RY 2012). The rule also changes the IPF PPS payment rate update period to coincide with federal fiscal years (beginning October 1); in order to transition to a FY update period, RY 2012 is a 15-month period. Other provisions of the rule modify the IPF PPS teaching adjustment, rebase and revise the applicable market basket, and make other clarifications to IPF PPS policies.

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CMS has adopted a final rule that increases federal funding for certain Medicaid eligibility determination and enrollment activities under the ACA and updates regulations to reflect other Medicaid eligibility and business process changes. Under the rule, states may qualify for an enhanced 90% federal matching rate for design and development of new eligibility determination systems and a 75% federal matching rate for maintenance and operations of the new systems (compared to the current 50% match).  To qualify for enhanced funding, states must meet performance standards and conditions, including seamless coordination with Health Insurance Exchanges to be established under the ACA. The 90% rate will be available until December 31, 2015, and the 75% match will be available beyond that date if certain conditions are met. The rule is effective April 19, 2011. 

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The HHS Secretary has submitted a report to Congress outlining the Department’s plan to implement a value-based purchasing (VBP) program for Medicare payments to ambulatory surgical centers (ASCs), as mandated by the ACA. The report describes current efforts to improve quality and payment efficiency in ASCs, and examines steps required in designing and implementing a Medicare ASC VBP program, including measure development, performance scoring and public reporting, and phase-in of the VBP program. 

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On April 15, President Obama signed into law H.R. 1473, which funds the federal government through September 30, 2011. The measure includes funding reductions for a variety of HHS programs, including certain ACA initiatives. For more information, see our previous report. Also on April 15, the House of Representatives approved H.Con.Res. 34, to establish the federal budget for FY 2012, on a vote of 235 -193. As previously reported, the House budget, drafted by House Budget Chairman Paul Ryan, calls for significant structural reforms of the Medicare and Medicaid program and repeal of the ACA. 

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On April 14, 2011, President Obama signed into law H.R. 4, the “Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011.” The act repeals an ACA provision that required businesses to file an IRS form 1099 for each vendor from whom they make purchases of at least $600 and revises other ACA IRS reporting requirements. The change is financed by expanded recoupment of health insurance exchange subsidy overpayments.

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On April 13, 2011, the House of Representatives approved H.R. 1217, a bill to repeal the ACA’s Prevention and Public Health Fund, which is a discretionary fund for investment in prevention and public health programs. The bill now moves to the Senate, where it is unlikely to be considered. The White House also has issued a statement opposing the bill.

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According to a new ACA-mandated OIG report, "Part D Plans Generally Cover Drugs Commonly Used By Dual Eligibles," Part D plan formularies on average include 96% of the 191 drugs commonly used by dual eligible beneficiaries (those that quality for both Medicare and Medicaid). Moreover, 90% of dual eligibles are enrolled in Part D plans with formularies that include at least 90% of the commonly-used drugs. Part D plans vary in the extent to which they apply utilization management tools to the drugs commonly used by dual eligibles. The OIG did not make any related recommendations.  

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The Bureau of Labor Statistics (BLS) has released new data on employer-sponsored health insurance coverage, as required by the ACA. Specifically, the report examines the extent of employer coverage of the following 12 medical benefits (these benefits were not included in a previous compensation survey): emergency room visits; ambulance services; diabetes care management; kidney dialysis; physical therapy; DME; prosthetics; maternity care; infertility treatment; sterilization; gynecological exams and services; and organ and tissue transplantation.

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On May 5, 2011, CMS is hosting a national forum on the ACA-mandated Community-Based Care Transitions Program (CCTP). The CCTP is designed to encourage the development of partnerships between hospitals with high readmission rates and community based organizations in order to: improve transitions of beneficiaries from the inpatient hospital setting to other care settings; improve quality of care for Medicare beneficiaries; reduce avoidable hospital readmissions for high risk beneficiaries; and document measureable savings to Medicare.

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This post was written by Scot T. Hasselman, Carol C. Loepere, Daniel A. Cody, Paul Pitts, Debra A. McCurdy and Susan A. Edwards.

The Patient Protection and Affordable Care Act (“PPACA”), enacted in March 2010, requires that the Secretary (“Secretary”) of the Department of Health & Human Services (“HHS”) establish a Medicare “Shared Savings Program” by January 1, 2012.  The Shared Savings Program is intended to encourage physicians, hospitals, and certain other types of providers and suppliers to form accountable care organizations (“ACOs”) to provide cost-effective, coordinated care to Medicare beneficiaries. Physicians, hospitals, physician groups, other providers, policymakers, and many other stakeholders in the health care industry have eagerly anticipated the issuance of the ACO proposed rule. On March 31, 2011, under the authority of the Secretary, the Centers for Medicare & Medicaid Services (“CMS”) issued the proposed rule.

Reed Smith attorneys and analysts have prepared a comprehensive Client Alert which first provides a brief overview of the ACO model, then summarizes the proposed rule, listing areas of comment solicited by CMS and identifying the practical impact of the proposed rule, as well as questions and concerns that may emerge. Finally, this Client Alert summarizes the jointly issued CMS and OIG notice with comment period discussing the waiver of the physician self-referral law, the anti-kickback statute, and certain provisions of the civil monetary penalty law in connection with the Medicare Shared Savings Program. The Alert provides a summary and analysis of those provisions of the proposed rule and the proposed waiver that we believe are of greatest interest to health care providers, and medical device and pharmaceutical manufacturers. Click here to read the full Alert (PDF).

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On April 13, 2011, President Obama delivered a speech outlining his plan for reducing the federal budget deficit by $4 trillion within 12 years, in part through Medicare and Medicaid reforms. Specifically, the President is calling for $480 billion in Medicare and Medicaid cuts by 2023 and at least an additional $1 trillion in cuts over the subsequent decade. One mechanism the President proposes to control Medicare spending is directing the Affordable Care Act’s (ACA) Independent Payment Advisory Board (IPAB) to hold Medicare cost growth per beneficiary to the gross domestic product per capita plus 0.5 percent (rather than 1.0 percent under the ACA) beginning in 2018. If spending growth exceeds the target, the IPAB's proposals go into effect automatically unless Congress enacts alternative legislation to achieve required savings. The President proposes additional budget enforcement measures to ensure savings targets are met. The President also calls for $200 billion in cuts in Medicare prescription drug spending (including by "leveraging Medicare’s purchasing power," speeding the availability of generic biologics, and prohibiting brand-name companies from entering into “pay for delay” agreements with generic companies). With regard to Medicaid, the plan calls for savings of at least $100 billion over 10 years. According to the summary, the President’s plan would replace the current federal matching formulas with a single matching rate that rewards states for efficiency and automatically increases if a recession increases enrollment and associated state costs. Additional Medicare and Medicaid "accountability" proposals include, among others: restricting states’ use of provider taxes to lower their state spending without providing additional health services; recovering "erroneous" payments from Medicare Advantage plans; capping Medicaid payments for durable medical equipment (DME); and implementing Medicaid management of high prescribers and users of prescription drugs, among other things.  President Obama also announced that he has asked Majority Leader Reid, Speaker Boehner, Minority Leader Pelosi and Minority Leader McConnell to each designate four members to participate in bipartisan, bicameral negotiations led by the Vice President, beginning in early May to develop a legislative framework for comprehensive deficit reduction.

President Obama’s deficit reduction proposal comes at a time when the House of Representatives is considering a budget proposal for FY 2012 (H. Con. Res. 34) drafted by House Budget Chairman Paul Ryan (R-WI) that calls for $6.2 trillion in spending cuts over the next 10 years, although estimates of savings vary (see http://budget.house.gov/fy2012budget/). Among other things, the budget resolution includes significant structural reforms of the Medicare and Medicaid program and repeal of the ACA. With regard to Medicare, the plan would convert the Medicare program to a premium support model for individuals becoming eligible for Medicare beginning in 2022. Under this policy, traditional Medicare eventually would be replaced with a system whereby beneficiaries would choose among competing health plans meeting coverage standards (similar to current Medicare Part C plans), and a premium-support payment would be made to the plan, subsidizing its cost, with increased assistance provided to lower-income beneficiaries and those with greater health risks. The resolution also would convert federal Medicaid spending into a block grant program. In addition, the measure generally calls for repeal of the ACA, although presumably such efforts would focus on ACA insurance-related provisions rather than, for example, the extensive Medicare provider reimbursement or fraud enforcement provisions. The House Budget Committee approved the measure on a party-line vote, and it is scheduled to be considered by the full House this week. Note that the budget resolution simply provides the spending and revenue instructions for the Congressional committees; enacting legislation would need to be adopted to implement any of the proposed policy changes. Democratic leaders have widely criticized the Ryan plan. Nevertheless, particularly in light of today’s proposal by the President, it appears increasingly likely that some form of entitlement reform may advance this year.

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On April 15, 2011, CMS is publishing a final rule to update Medicare Advantage (MA) and Part D prescription drug benefit regulations to reflect Affordable Care Act (ACA) requirements and make other program changes for contract year 2012. Specifically, the rule implements ACA provisions that, among other things: limit beneficiary cost sharing for certain services under MA plans; clarify the Secretary’s authority to deny certain MA and Part D plan bids; permit MA and Part D plans to waive a de minimis monthly beneficiary premium for low income subsidy (LIS) eligible enrollees and make related changes to LIS reassignment rules; provide for an income-related increase in Part D monthly premiums; eliminate Part D cost-sharing for full-benefit dual eligible individuals who are receiving certain home and community-based services; codify statutory changes to close the Part D coverage gap; implement a more uniform Part D exceptions and appeals process; codify changes to the MA benchmark calculation and rebate amounts; update the methodology for using quality ratings to determine MA bonus payments; and provide for more frequent dispensing of certain branded drugs for Part D beneficiaries residing in long term care facilities to reduce waste (note that in the final rule, CMS is requiring dispensing in increments of 14 days or less effective January 1, 2013, rather than its proposal for dispensing every 7 days or less effective January 1, 2012). In addition to these ACA provisions, the rule clarifies program requirements to: prevent certain Part D and MA executives whose plans are barred from participation from serving in similar capacities in other plans; establish new standards regarding MA plan employment of appropriate personnel to make certain medical policy determinations; strengthen various beneficiary protection provisions; establish training requirements for MA and Part D sponsor agents and brokers; and establish plan fiscal solvency standards.   While the rule generally is effective June 14, 2011, a number of provisions have earlier or later effective dates (as outlined in tables 1 and 2). CMS estimates that the rule will reduce Medicare spending by about $76 billion for fiscal years (FYs) 2011 through 2016, mainly as a result of the ACA’s reforms to MA payments. The official version of the rule will be available April 15.

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On April 5, CMS published a notice announcing it will stop accepting applications for the ACA ERRP program as of May 5, 2011, since the agency estimates it has approved a sufficient number of applications to exhaust program funding. If, on the other hand, the agency determines that additional funds are available based on pending applications, CMS may reopen the application process. According to a CMS related report, the ERRP has provided almost $1.8 billion in funding to more than 1,300 health plan sponsors that offer coverage to early retirees.

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As discussed in our April 1 Special ACO Regulatory Update, CMS released major rules on March 31, 2011 to implement the new Medicare Shared Savings Program under the ACA.  The program is intended to encourage physicians, hospitals, and certain other types of providers and suppliers to form ACOs to provide cost-effective, coordinated care to Medicare beneficiaries. An ACO that meets established quality and performance standards and surpasses a minimum savings target will be able to share a percentage of savings (in additional to traditional fee-for-service payments under Medicare Parts A and B). The official version of the rule was published April 7.

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On April 12, 2011, HHS Secretary Kathleen Sebelius and CMS Administrator Donald Berwick launched a public-private “Partnership for Patients” to improve hospital care and transitions between care settings and reduce health system costs. By the end of 2013, the Partnership is committed to: (1) reducing preventable hospital-acquired conditions by 40% compared to 2010 levels; and (2) decreasing preventable complications during transitions between care settings, thereby reducing hospital readmissions by 20% compared to 2010. According to CMS, over the next three years this initiative could save 60,000 lives and save the health care system $35 billion, including up to $10 billion in Medicare savings. To date, the initiative has been endorsed by more than 500 hospitals, along with physicians and nurses groups, consumer groups, and employers.  As part of this initiative, the CMS Innovation Center intends to dedicate more than $500 million to test and implement models that promote delivery of safer patient care.  Key patient safety areas of focus include: adverse drug events; catheter-associated urinary tract infections; central line associated blood stream infections; injuries from falls and immobility; obstetrical adverse events; pressure ulcers; surgical site infections; venous thromboembolism; ventilator-associated pneumonia; and other hospital-acquired conditions.  CMS also will provide $500 million for a Community-based Care Transition Program (CCTP), as authorized by the ACA. The CCTP will support hospitals and community based organizations in helping Medicare beneficiaries at high risk for readmission to the hospital safely transition from the hospital to other care settings. CMS is now soliciting applications for CCTP funding from eligible community-based organizations and acute care hospitals that partner with community based organizations.

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CMS has released an April 7, 2011 memo to pharmaceutical manufacturers seeking comments on draft guidance regarding the bases for invoice-related appeals involving manufacturer discounts provided under the ACA Medicare Coverage Gap Discount Program. Comments will be accepted until April 23, 2011. CMS also has posted the 2012 Medicare Advantage Capitation Rates and Medicare Advantage and Part D Payment Policies and Final Call Letter.

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CMS is reminding home health agencies and hospices that, effective April 1, 2011, it will enforce new ACA face-to-face encounter requirements for purposes of certification of a patient’s eligibility for Medicare home health services and of recertification for Medicare hospice services.

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On April 8, 2011, President Obama and Congressional leaders announced an agreement on the outline of a spending bill to fund the government through the rest of FY 2011 (until September 30, 2011). The final FY 2011 continuing resolution cuts an additional $38.5 billion in federal spending over the remainder of the year, including new cuts in Department of Health and Human Services funding. Notably, the continuing resolution includes a number of provisions addressing the Affordable Care Act, including: reduced funding for the ACA Consumer Operated and Oriented Plan (which supports nonprofit, member-run health insurance issuers that offer qualified health plans in the individual and small group markets); elimination of the “Free Choice Voucher” insurance subsidy program; mandates a number of reports on the cost of implementing the ACA, administrative waivers of ACA annual insurance limits, and the impact of certain ACA market reforms on premiums for employer-sponsored health insurance; and requires an audit of ACA comparative effectiveness funding. Congress is expected to vote on the FY 2011 continuing resolution later this week. In the meantime, Congress passed and the President signed a separate stop-gap bill to fund the government through April 15, 2011 to allow time for action on the FY 2011 bill to be completed.  As noted above, although the FY 2011 spending plan is not yet finalized, the House of Representatives already is moving ahead with consideration of its FY 2012 budget framework.
 

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On April 5, 2011, the Senate approved H.R. 4, the “Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011.” The legislation, which was approved by the House in March, would repeal an ACA provision that requires businesses to file an IRS form 1099 for each vendor from whom they make purchases of at least $600 and revise other ACA IRS reporting requirements. The bill is paid for by expanded recoupment of health insurance exchange subsidy overpayments. The bill now awaits the President’s signature; the President has expressed support for the bill since it corrects “a flaw that placed an unnecessary bookkeeping burden on small businesses.” 

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On April 5, 2011, the House Energy and Commerce Committee approved a series of health policy bills, including H.R. 1217, a bill to repeal the Prevention and Public Health Fund (a discretionary fund for investment in prevention and public health programs); and H.R. 1213, a bill to repeal mandatory funding provided to states to establish American Health Benefit Exchanges under the ACA. The full House is scheduled to vote on H.R. 1217 on April 13, 2011.

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This post was written by Debra H. Dermody, Gavin Eastgate, and Michelle Mantine.

On March 31, 2011, the Federal Trade Commission (FTC) and Department of Justice (DOJ) issued a joint proposed Statement of Enforcement Policy to explain how the agencies...

View the full post by clicking here.

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CMS is hosting an April 12, 2011 listening session on an ACA-mandated report to Congress on a plan to reform the Medicare hospital inpatient PPS wage index. The call will feature a review of a contractor report on an alternative methodology for the wage index, along with an opportunity for public comment on wage index reform.

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On Thursday, April 7, 2011 at 1pm ET, CMS is hosting a conference call to discuss its proposed Accountable Care Organization rule, which is intended to encourage physicians, hospitals, and other providers and suppliers to ACOs to create ACOs to provide cost-effective, coordinated patient care. Under the proposed rule, an ACO that meets established quality and performance standards and surpasses a minimum savings target will be able to share a percentage of savings.  To participate dial: 1-866-501-5502, and reference Conference ID: 56412810.

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This post was written by Susan A. Edwards and Debra A. McCurdy.

On March 31, 2011, the Centers for Medicare & Medicaid Services (CMS) proposedhighly anticipated regulations setting forth the details of the implementation of new “accountable care organizations” under Section 3022 of the Affordable Care Act (ACA). Specifically, the proposed rule would establish a “Shared Savings Program” intended to encourage physicians, hospitals, and other providers and suppliers to ACOs to create ACOs to provide cost-effective, coordinated patient care. Under the proposed rule, an ACO that meets established quality and performance standards and surpasses a minimum savings target will be able to share a percentage of savings (in additional to traditional fee-for-service payments under Medicare Parts A and B).

The proposed rule addresses numerous policy and operational issues associated with the entities that may form an ACO, beneficiary assignment to an ACO, establishment of quality standards, and calculation of incentive payments, among many others. With regard to calculation of payments, CMS intends to develop a benchmark for expected expenditures for ACO beneficiaries in the absence of the ACO. Each ACO’s performance will be measured against the benchmark to determine whether the ACO qualifies for savings or is accountable for losses (although CMS intends to establish a minimum savings rate that must be exceeded in order for an ACO to qualify for shared savings). If an ACO meets quality standards and achieves savings exceeding the minimum saving rate, the ACO would share in savings, based on the quality score of the ACO. Notably, CMS is proposing that ACOs would be able to choose between one of two program “tracks” for calculating savings: (1) an ACO could operate on a shared saving only track for the first two years, and would be required to assume the risk for shared losses in the third year; (2) an ACO could share in savings and risk liability for losses beginning in its first performance year, in return for a higher share of savings it generates. The quality score used to determine eligibility for incentive payments would be based on quality measures in five key areas designed to align with current CMS incentive programs: patient experience, care coordination, patient safety, preventive health, and at-risk population/frail elderly health.

The proposed rule will be published in the April 7, 2011 issue of the Federal Register. CMS will accept comments on the proposed rule until June 6, 2011, and will respond to comments and issue a final rule later this year. CMS anticipates that the Shared Savings Program will begin operating on January 1, 2012, as mandated by the ACA.  In addition to the CMS proposed rule, the federal government released several other documents related to ACOs yesterday, including: 

• CMS and the Office of Inspector General (OIG) jointly issued a notice with comment period discussing the waiver of the physician self-referral law, the anti-kickback statute, and certain provisions of the civil monetary penalty law in connection with the Medicare Shared Savings Program.
• The Federal Trade Commission (FTC) and the Department of Justice (DOJ) jointly issued an Antitrust Policy Statement titled, "Proposed Statement of Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program."
• The Internal Revenue Service (IRS) issued a notice requesting comments regarding the need for guidance on participation by tax-exempt organizations in ACOs.

Reed Smith has prepared an in-depth analysis of the proposed ACO rule. If you have any specific questions about the new rule, please feel free to contact any Reed Smith attorney with whom you work.

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The Department of Health and Human Services (HHS) has published a proposed rule to implement the procedural framework for submission and review of State Innovation Waiver applications under section 1332 of the Affordable Care Act (ACA). Under the rule, states would have flexibility to apply for a State Innovation Waiver to pursue their own strategies to ensure their residents have access to high quality, affordable health insurance. The program is intended to allow states to implement policies that differ from those in the ACA if they provide coverage that is at least as comprehensive and affordable as the coverage offered through Health Insurance Exchanges, the state provide coverage to at least as many residents as otherwise would have been covered under the ACA, and the policies do not increase the federal deficit. Comments on the rule will be accepted until May 13, 2011. An HHS press release notes that while the ACA makes State Innovation Waivers available in 2017, President Obama supports bipartisan legislation that would make waivers available to states beginning in 2014.

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On March 23, 2011, the Centers for Medicare & Medicaid Services (CMS) published a notice announcing that the 2011 Medicare application fee for institutional providers (excluding physicians and nonphysician practitioners) is $505. Note that CMS has adopted a broad definition of institutional entities subject to the application fee; it applies to “any provider or supplier that submits a paper Medicare enrollment application using the CMS-855A, CMS-855B (not including physician and nonphysician practitioner organizations), CMS-855S or associated Internet-based PECOS enrollment application.” As authorized under CMS’s February 2, 2011 final Medicare/Medicaid/CHIP provider screening rule, institutional providers must pay the application fee when enrolling in Medicare, revalidating their Medicare enrollment, or adding a new Medicare practice location, effective March 25, 2011. Likewise, effective March 25, 2011 prospective or re-enrolling Medicaid or CHIP providers must submit the applicable application fee unless: (1) the provider is an individual physician or nonphysician practitioner; or (2) the provider is enrolled in Medicare or another state’s Medicaid or CHIP program and has already paid an application fee. The application fee will be used to fund new provider screening tools, such as unannounced site visits, background checks, and fingerprinting, and other program integrity efforts. The provider screening rule established a hardship exception process and allows Medicaid to waive the fees in certain circumstances. CMS also has released information on the mechanics of making application fee payments. For more information about the rule, see Reed Smith’s alert.

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On March 18, 2011, CMS published a final rule revising and expanding current Medicare and Medicaid regulations regarding the imposition and collection of civil monetary penalties (CMPs) by CMS when nursing homes are not in compliance with federal participation requirements, as mandated by Section 6111 of the ACA. The rule is effective January 1, 2012. 

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CMS has published an interim final rule with comment period addressing the treatment of teaching hospitals that are members of the same Medicare graduate medical education (GME) affiliated groups for the purpose of determining possible full-time equivalent resident cap reductions. The rule implements section 203 of the Medicare and Medicaid Extenders Act of 2010, which modified certain GME policies under the ACA. The rule is effective July 1, 2011, and CMS is accepting comments on the policy until April 13, 2011. Note that CMS also issued a separate notice making corrections to the GME portion of the November 24, 2011 Medicare hospital outpatient prospective payment system (HOPPS) final rule. 

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On March 21, 2011, HHS released its National Strategy for Quality Improvement in Health Care, as mandated by the ACA. The document sets forth three overarching aims for the health care system: better care (high-quality, safer, patient-centered care); healthy people and communities (supporting interventions to address behavioral, social, and environmental determinants of health); and more affordable care. The strategy establishes six priorities to help achieve these aims: reducing harm caused in the delivery of care; engaging each person and family as partners in their care; promoting effective communication and coordination of care; promoting the most effective prevention and treatment practices for the leading causes of mortality, starting with cardiovascular disease; working with communities to promote wide use of best practices; and developing and spreading new health care delivery models. 

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The ACA requires Part D plans to provide an annual comprehensive review of the participating beneficiary’s medications, which may result in the preparation of a medication action plan or other instructions for the beneficiary. CMS has released its draft standardized format for such medication review action plans. In addition, CMS has issued guidance to Part D plan sponsors on the process for CY 2012 medication therapy management program submissions and related change requests. CMS also has issued a memo on CY 2012 formulary submissions, including timelines. 

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Several Congressional committees have held hearings on various aspects of the ACA, including: A House Oversight Health Care Subcommittee hearing on “Obamacare: Why The Need For Waivers?"; a Senate Finance Committee hearing on "Health Reform: Lessons Learned During the First Year"; a Senate Health, Education, Labor and Pensions Committee hearing examining "Health Insurance Exchanges and Ongoing State Implementation of the Affordable Care Act” and House Energy and Commerce Health Subcommittee hearings on "The Implementation and Sustainability of the New, Government-Administered Community Living Assistance Services and Supports (CLASS) Program" and on the "Patient Protection and Affordable Care Act in Pennsylvania: One Year of Broken Promises." Looking ahead, the Energy and Commerce Committee has scheduled a March 30 hearing on the ACA’s impact on budget and jobs, and an April 1 hearing on the ACA’s “High Risk Pool Regime: High Cost, Low Participation," and the House Appropriations Committee is holding a hearing on April 1 to discuss health reform funding. In other areas, the House Homeland Security Emergency Preparedness Subcommittee held a hearing on "Ensuring Effective Preparedness, Response, and Recovery for Events Impacting Health Security." The House Ways and Means Committee held a hearing to examine the Medicare Payment Advisory Commission's (MedPAC) annual report to Congress on Medicare payment policies (discussed in greater detail below). The House Budget Committee held a hearing on "Fulfilling the Mission of Health and Retirement Security." 

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The GAO has released a report entitled “Private Health Insurance Coverage: Expert Views on Approaches to Encourage Voluntary Enrollment.” For the report, the GAO solicited expert opinion on potential alternatives to the ACA’s individual health insurance mandate, given policy concerns and legal challenges to the mandate. Options suggested include, among others: imposing late enrollment penalties; expanding employers' roles in facilitating employees' health insurance enrollment; imposing a tax to pay for uncompensated care; expanding public education; and conditioning receipt of certain government services upon proof of health insurance coverage. Note that experts did not necessarily suggest these options would be as effective in increasing enrollment as would an individual mandate. A second GAO report examines “Private Health Insurance: Data on Application and Coverage Denials.” While data reviewed indicates that the aggregate application denial rate for the first quarter of 2010 was 19%, denial rates varied significantly across insurers, and the available data provided little information on the reasons for the denials.

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The Congressional Budget Office (CBO) has issued a report entitled "Reducing the Deficit: Spending and Revenue Options," a compendium of budget options to reduce the federal deficit. Many of the proposals would impact the Medicare and Medicaid programs and health insurance provided under the ACA. Highlights of the options include: adding a “public plan” to the ACA health insurance exchanges; repealing the individual health insurance mandate; limiting medical malpractice torts; converting the federal share of Medicaid’s payments for long-term care services into a block grant; reducing the floor on federal Medicaid matching rates; expanding cost-sharing for beneficiaries receiving SNF and home health services; reducing Medicare rates across the board in high-spending areas; eliminating the Medicare critical access hospital, Medicare-dependent hospital, and sole community hospital programs; and requiring manufacturers to pay a minimum rebate on Medicare Part D drugs for low-income beneficiaries. For each option, the CBO presents the potential fiscal impact and policy ramifications. 

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The Patient-Centered Outcomes Research Institute (PCORI) has begun to meet to discuss its strategy for comparative effectiveness research under the ACA. Several reports also have been posted to the PCORI website, including a Program Development Committee report that highlights planned actions, such as an environmental scan of current comparative effectiveness research initiatives and "tier 1" planning grants.

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On March 31, 2011, CMS is hosting a special open door forum on its “Study and Report on the Development of Home Health Payment Revisions to Ensure Access to Care, and Payment for Severity of Illness.” The forum is designed to assist CMS in an initiative mandated by the Affordable Care Act to assess home health agency costs associated with providing ongoing access to care for low-income beneficiaries, those in medically underserved areas, and those with varying levels of severity of illness. The HHS Secretary must provide recommendations to Congress on legislative and administrative actions in response to the study by March 1, 2014. To that end, CMS is seeking input on the public’s first-hand experience with serving hard to reach populations and challenges certain beneficiaries may experience in accessing Medicare home health services. CMS has posted the presentation slides and a related literature review on its web site.

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Several Congressional committees have scheduled hearings next week on the ACA:

• On March 15, the House Oversight and Government Reform Health Care Subcommittee is holding a hearing entitled “Obamacare: Why The Need For Waivers?"
• On March 16, the Senate Finance Committee is holding a hearing on "Health Reform: Lessons Learned During the First Year." HHS Secretary Kathleen Sebelius is scheduled to testify. 
• On March 17, the Senate Health, Education, Labor and Pensions Committee will examine "Health Insurance Exchanges and Ongoing State Implementation of the Affordable Care Act."

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On February 25, 2011, CMS published a proposed rule that would implement an Affordable Care Act (ACA) provision to allow states to provide Medicaid home and community-based attendant services and supports through the Community First Choice (CFC) state plan option. According to CMS, the goal of the program is “to give States additional resources to make community living a first choice, and leave nursing homes and institutions as a fall back option.” The CFC program, which will be available October 1, 2011, will allow states to receive a 6 percentage point increase in federal matching payments for CFC services under “person-centered plans” that allow the individual to determine how services (such as assistance with activities of daily living and health-related tasks) are provided to promote independence. States also may cover costs for moving individuals from an institution to the community (e.g., security deposits, purchase of household supplies). Comments will be accepted until April 26, 2011.

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On March 1, 2011, CMS published a notice seeking comments on certain reporting requirements related to its December 23, 2010 proposed rule on the disclosure and review of “unreasonable” health insurance premium increases under the ACA. CMS requests input on various aspects of the data insurers and states will be required to submit in connection with rate reviews and the way this information will be presented to consumers. Comments are due May 2, 2011. 

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Under the ACA, states and territories must establish Medicaid Recovery Audit Contractors (RACs) to identify and recover Medicaid overpayments and identify underpayments. CMS had previously called on states to fully implement their RAC programs by April 1, 2011. In light of operational issues and a pending rulemaking implementing the Medicaid RAC program, however, CMS has withdrawn the April 1, 2011 implementation deadline. Instead, when CMS finalizes its November 10, 2010 proposed rule, it will indicate a new implementation timeline. In a related development, CMS has compiled information on the status of state Medicaid RAC programs on its website.

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On February 25, 2011, CMS issued guidance to state Medicaid directors on MOE provisions in the ACA. By way of background, the ACA’s MOE provisions generally are intended to ensure that Medicaid eligibility standards for adults remains in place pending implementation of ACA coverage changes that take effect in 2014. The new guidance provides CMS’s interpretation of three aspects of the MOE requirements: the MOE exemption for higher-income adult populations in states experiencing budget deficits; the implication of the MOE provision for states operating Section 1115 demonstration projects; and how premium increases are treated under the MOE requirements. 

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On March 3, 2011, the House of Representatives approved H.R. 4, the Small Business Paperwork Mandate Elimination Act of 2011. H.R. 4 would repeal an ACA provision that requires businesses to file an IRS form 1099 for each vendor from whom they make purchases of at least $600 and revise other ACA IRS reporting requirements. The House version of the bill is paid for by expanded recoupment of health insurance exchange subsidy overpayments. The Senate approved a different version of the 1099 reporting requirement last month; the two approaches – particularly the financing mechanisms -- now need to be reconciled. 

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The House Energy and Commerce Committee held a hearing entitled "The Consequences of Obamacare: Impact on Medicaid and State Health Care Reform." In addition, the House Energy and Commerce Health Subcommittee held hearings on the FY 2012 HHS budget and implementation of the ACA. On March 2, three Congressional panels held hearings on health care fraud: the Senate Finance Committee examined "Preventing Health Care Fraud: New Tools and Approaches to Combat Old Challenges"; the House Ways & Means Oversight Subcommittee focused on "Improving Efforts to Combat Health Care Fraud"; and the Energy & Commerce Committee held a hearing on “Waste, Fraud and Abuse: A Continuing Threat to Medicare and Medicaid". The fraud hearings covered current and planned regulatory and enforcement initiatives, legislative proposals, and areas of continued program vulnerability. Note that yet another Medicare/Medicaid fraud hearing, this one to be held by the Senate Homeland Security and Governmental Affairs Committee, is scheduled for March 9.  Also on the Congressional schedule is a March 9 Energy and Commerce Subcommittee on Health hearing on “Setting Fiscal Priorities in Health Care Funding” and a March 10 House Education and the Workforce Health Subcommittee hearing on "The Pressures of Rising Costs on Employer Provided Health Care."

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The HHS Office of Inspector General (OIG) has issued its annual report on top HHS management and performance challenges. One of the key areas identified by the OIG is incorporating program integrity into ACA implementation, given “[t]he magnitude of expenditures and impact on providers, insurers, employers, and beneficiaries from financial and health perspectives.” Areas of particular concern related to ACA implementation include, among others: programs implemented under expedited timeframes; ensuring accuracy of payments involving risk corridors, reconciliation payments, or similar payment structures; changes to Part D and other Medicare and Medicaid payments; and insurance scams and other activities that put patients at risk. 

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HHS has announced a March 14, 2011 public meeting of the Consumer Operated and Oriented Plan (CO-OP) Advisory Board. The ACA charges the Board with advising the Secretary how to award grants and loans to encourage the creation of nonprofit, member-run health insurance issuers to offer qualified health plans in the individual and small group markets.

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On March 10, 2011, CMS is hosting a public call on implementation of an ACA requirement that HHS develop a plan to implement a value-based purchasing program for Medicare SNF services. On the call, CMS is seeking stakeholder input on such issues as: the development, selection, and modification process for measures of quality and efficiency; the reporting, collection, and validation of quality data; the structure of value-based payment adjustments and the sources of funding for the value-based bonus payments; and methods for the public disclosure of information on SNF performance.

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On February 28, CMS is hosting a "Stakeholder Listening Session" on "Recommendations for the Initial Core Set of Health Quality Measures for Adults in Medicaid as Required under the Affordable Care Act." CMS and AHRQ are seeking feedback and perspectives on the initial set of recommended, core quality measures for adults in Medicaid, including stakeholders' experiences in collecting and reporting any of the recommended measures.

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On March 1, 2011, the House Energy and Commerce Committee is holding a hearing on "The Consequences of Obamacare: Impact on Medicaid and State Health Care Reform."  On March 2, the Senate Finance Committee will hold a hearing on "Preventing Health Care Fraud: New Tools and Approaches to Combat Old Challenges."  Also on March 2, the House Ways & Means Oversight Subcommittee is holding a hearing on "Improving Efforts to Combat Health Care Fraud." 

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On February 2, 2011, the Centers for Medicare & Medicaid Services (CMS) published a final rule with comment period (Final Rule) implementing provisions of the Affordable Care Act (ACA) that strengthen provider and supplier screening provisions under Medicare, Medicaid, and the Children's Health Insurance Program (CHIP). The rule is effective March 25, 2011, as mandated by the ACA (although CMS is delaying the effective date of a provision requiring fingerprint-based criminal history record checks for certain providers until after additional subregulatory guidance is issued).

Among many other things, the Final Rule applies various screening tools, including unannounced site visits, background checks, and fingerprinting, based on the level of risk associated with different provider and supplier types. The Final Rule also: imposes application fees on institutional providers and suppliers; authorizes CMS and states to impose moratoria on new provider enrollment to protect against a high risk of fraud; authorizes the suspension of payments pending an investigation of a credible allegation of fraud; provides guidance to states regarding termination of providers from Medicaid and CHIP if terminated by Medicare or another state program; and addresses termination of providers and suppliers from Medicare if terminated by a Medicaid state agency. The rule also discusses comments regarding an ACA requirement that providers or suppliers in certain industry sectors establish compliance programs; these comments will be considered in a future rulemaking.

CMS notes it has identified specific provisions surrounding implementation of fingerprinting for certain providers and suppliers that may be subject to change based on public comments; comments on the fingerprinting requirements only will be accepted until April 4, 2011.

Our full alert provides an analysis of the major provisions of the extensive Final Rule.

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On February 17, 2011, the Centers for Medicare & Medicaid Services (CMS) published a proposed rule prohibiting Medicaid payments for care associated with “provider-preventable conditions” (PPCs). CMS would use the term PPC as an umbrella term for hospital and nonhospital conditions identified by the state for nonpayment. PPCs would encompass health-care acquired conditions, as defined for Medicare purposes, and other PPCs applicable to other conditions and service settings beyond the inpatient hospital setting (CMS notes that preventable conditions can occur in outpatient hospital, nursing facility, and ambulatory care settings). The policy is mandated by the ACA, which requires the regulations to be effective July 1, 2011. CMS will accept comments on the proposed rule until March 18, 2011. 

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On February 18, 2011, CMS published an interim final rule with comment period that would implement an ACA provision imposing notification requirements in connection with closure of a Medicare skilled nursing facility (SNF) or Medicaid NF. Under the rule, in the case of a long-term care (LTC) facility closure, the SNF or NF administrator must provide written notification of the impending closure and a plan for the relocation of residents at least 60 days prior to the impending closure (or, if the Secretary terminates the facility’s participation in Medicare or Medicaid, not later than the date the Secretary determines appropriate). While the ACA authorizes civil monetary penalties (CMPs) of up to $100,000 and exclusion for an administrator's failure to comply with this provision, CMS recognizes that there are times when an administrator has no control over closure procedures. In the rule, CMS therefore sets CMPs of: a minimum of $500 for the first offense; a minimum of $1,500 for the second offense; and a minimum of $3,000 for the third and subsequent offenses. CMS provides appeal rights for an individual who is subject to administrator sanctions under the rule. The rule is effective March 23, 2011, and comments will be accepted until April 19, 2011.

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On February 11, 2011, HHS published a proposed rule that would establish rules for student health insurance policies offered by college and universities under the ACA. The proposed rule would clarify that such student policies are subject to certain ACA consumer protections, including a prohibition on lifetime dollar caps on coverage and a ban on coverage denials for students under age 19 because of a pre-existing condition. The rule also would set minimum annual dollar limits on essential health benefits (EHBs) and enhance transparency provisions. HHS will accept comments until April 12, 2011.

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HHS is requesting comments on the ACA requirement that the Secretary establish the Consumer Operated and Oriented Plan (CO-OP) program. Under this program, the Secretary will make grants and loans to foster the creation of qualified nonprofit, member-run health insurance issuers to offer qualified health plans in the individual and small group markets. Comments will be accepted until March 4, 2011. 

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On February 2, 2011, Senate opponents of the ACA failed by a 47 to 51 vote to clear a procedural hurdle that would have allowed a vote on repeal of the law. Although the House had voted last month to repeal and replace the ACA, the Democratic-controlled Senate was not expected to follow suit. Attention now shifts to the courts, particularly in light of a recent ruling by U.S. District Judge Roger Vinson in a 26-state lawsuit that the ACA is unconstitutional because of the mandate that individuals purchase insurance. Given the split in lower court decisions regarding the constitutionality of the law to date, the issue ultimately is expected to be decided by the U.S. Supreme Court. In a related development, the Senate did pass by a 81-17 vote a much narrower amendment to repeal an ACA provision that requires businesses to file an IRS form 1099 for each vendor from whom they make purchases of $600 or more.   The House Ways and Means Committee approved a separate 1099 reporting repeal measure on February 17, with costs offset by reductions in health insurance exchange subsidies.

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On February 15, 2011, the House Energy and Commerce Health Subcommittee approved a number of health policy bills, including H.R. 358 (relating to coverage of abortion services under the ACA); H.R. 528, the Neglected Infections of Impoverished Americans Act of 2011 (requiring the HHS Secretary to study the epidemiology and impact of neglected parasitic infectious disease associated with poverty); and H.R. 570 (to amend the Dental Emergency Responder Act to enhance the roles of dentists and allied dental personnel in the nation's disaster response framework).  In addition, on February 16, the House Judiciary Committee approved  H.R. 5, the Help Efficient, Accessible, Low-cost, Timely Healthcare (HEALTH) Act of 2011. The legislation would set conditions for lawsuits arising from health care liability claims, including limits on noneconomic and punitive damages.

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