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On December 20, 2019, the Federal appeals court panel that heard U.S. ex rel. Bookwalter v. UPMC, No. 18-1693 (3d Cir.), amended its September 2019 opinion by removing a controversial interpretation of the “volume or value” standard under the Stark Law.  The September opinion had adopted a “correlation theory,” holding that a physician’s compensation “varies with” the volume or value of referrals if the physician is paid based on his personally performed services, such as on a work relative value unit (wRVU) basis, and there is a “correlation” between the physician’s referrals and those personally performed services.  The court relied on this correlation theory to support its finding that the physicians had an indirect compensation arrangement with the hospitals to which they referred, thereby allowing the case to proceed and shifting the burden to the defendants to prove the availability of a Stark Law exception.  Although the amended December opinion removed the correlation theory rationale, the court maintained its September holding to allow the case to proceed based on alternative reasoning that there were adequate allegations that the physicians’ compensation “took into account” their referrals.

Background

The Stark Law prohibits a physician’s Medicare referrals for “designated health services,” including hospital services, to an entity with which the physician has a direct or indirect financial relationship, unless the requirements of an applicable exception are satisfied.  One element of the Stark Law’s test to determine whether a physician has an indirect compensation arrangement with an entity is whether the physician’s aggregate compensation “varies with, or takes into account, the volume or value of referrals” to the entity.  For these reasons, a critical component in a Stark Law analysis is frequently whether a referring physician is compensated in a manner that “varies with” or “takes into account” the volume or value of his referrals.
Continue Reading Federal Appeals Court Amends Stark Law Opinion to Remove Controversial “Volume or Value” Interpretation, but Uncertainty Remains

The Centers for Medicare & Medicaid Services (CMS) released a draft guidance for state survey agencies on May 3, 2019, impacting hospitals that share space, staff, and/or services with another co-located hospital or health care entity. The draft builds on informally followed principles by CMS employees which emphasized that certain payment rules, like those for…

The Office of Inspector General (OIG) of the Department of Health and Human Services has issued a final rule implementing its statutory authority under the Affordable Care Act (ACA) to expand the exclusion regulations applicable to persons or entities receiving funds, directly or indirectly, from federal health care programs.

Specifically, the final rule expands OIG’s…

Observers are digesting what the Trump Administration will mean for the health care and life sciences industry.  Forecasting is more challenging for this incoming Administration than most given the relatively sparse policy details released during the campaign and the lack of a government service record to examine for clues.  Today President-elect Trump’s transition team released a one-page statement on health care policy, but many questions remain.  Nevertheless, we offer below our initial observations and issues to watch in the months to come.

  • Potential Sea Change. Uncertainty is, as some like to say, the “obvious comment” that characterizes the whole prospective Trump Administration.  Other than an intended “repeal and replacement” of the Affordable Care Act (ACA), President-elect Trump has provided relatively few details on a proposed health care agenda.  Until these policies are fleshed-out, expect an environment where some business decisions and investments may be delayed, with a resulting impact on merger and acquisition activity. That said, other transactions may become more likely, as the threat of new restrictions under a Clinton administration are removed, along with the prospect of potential regulatory relief under a Republican-controlled federal government.
  • Affordable Care Act Repeal and Replacement.  Trump has repeatedly indicated his desire to repeal and replace the ACA, including a vow to summon Congress into a special session for this task.  If the law is repealed, however, what would take its place, and how would Congress address the roughly 20 million Americans currently covered in some way under the ACA (and the potential rise in uncompensated care costs that also would result)?  Despite the call for repeal, certain parts of the law are popular. For instance, President-elect Trump noted on the campaign trail that he was in support of the ACA’s prohibition against the use of pre-existing health conditions to deny coverage (or as a basis for premium-setting).  Other proposals offered by Trump as candidate include allowing for the sale of health insurance across state lines as long as plans comply with state requirements, various tax benefits, and more transparency in health care pricing.  In today’s policy statement, President-elect Trump added support for high-risk pools, which he characterizes as “a proven approach to ensuring access to health insurance coverage for individuals who have significant medical expenses and who have not maintained continuous coverage.”  Congressional Republicans have offered a number of alternatives that are likely to be a springboard for reform, most notably the “Better Way” plan proposed by House Speaker Paul Ryan.  In fact, according to the Speaker’s office, “in the 114th Congress alone, House Republicans have introduced more than 400 individual bills that would improve our nation’s health care system” – demonstrating that Congress is not reticent about legislating on health care issues.  The new Senate’s Republican majority will not have the 60 votes required to override a potential Democratic filibuster of legislation to fully repeal the law. While Congress could use budget reconciliation authority (which requires only 50 votes in the Senate) to make significant changes, the drawn-out pace of the budget process may not satisfy those who want quick action in this area.  Regardless of the legislative vehicle, after years of calling for Obamacare repeal while President Obama was in office, the Republican Congress will be under tremendous pressure to act quickly – even if it is a “down-payment” on reform — now that Republicans will control the presidency and the Congress.

Continue Reading Looking Ahead to a Trump Administration: Health Care and Life Sciences Industry Perspectives

On September 21, 2016, the House Ways and Means Committee approved H.R. 5713, the “Sustaining Healthcare Integrity and Fair Treatment Act of 2016” or “SHIFT Act.”  The primary focus of the SHIFT Act is to provide an additional delay in full implementation of the “25 Percent Rule” for long-term acute care hospitals (LTCHs).  The legislation also would tighten CMS’s authority to impose Medicare enrollment moratoria to prevent providers and suppliers from evading the moratoria by locating outside of moratoria areas. 
Continue Reading House of Representatives Approves Bill to Delay LTCH 25% Rule Implementation, Make Other LTCH Reforms, and Tighten Medicare Enrollment Moratorium Authority

On July 13, 2016, the House Ways and Means Committee approved an amended version of H.R. 5713, the “Sustaining Healthcare Integrity and Fair Treatment Act of 2016” or “SHIFT Act.” The primary focus of the SHIFT Act is to delay further the full implementation of the “25 Percent Rule” for long-term acute care hospitals (“LTCHs”).  Under the 25 Percent Rule, an LTCH is allowed to admit up to 25% of its patients from a single general acute care hospital; for patients admitted past the 25% threshold, an LTCH faces a significant Medicare reimbursement reduction.

Under current law, the Centers for Medicare & Medicaid Services (“CMS”) has been precluded from fully implementing the 25 Percent Rule for freestanding LTCHs for cost reporting years beginning before July 1, 2016, and for LTCH hospitals-within-hospitals (“HIHs”) for cost reporting years beginning before October 1, 2016. The SHIFT Act would prohibit full implementation of the 25 Percent Rule for nine months for both freestanding LTCHs and LTCH HIHs for discharges occurring on or after October 1, 2016 through June 30, 2017.  (However, it would also allow the 25 Percent Rule to go into effect for LTCH HIHs for cost reporting years beginning on or after July 1, 2016 rather than October 1, 2016, thereby creating a gap period before the nine month prohibition would begin.)
Continue Reading Ways and Means Approves Bill to Delay LTCH 25% Rule Implementation, Make Other LTCH Reforms

On June 9, 2015, the Office of the Inspector General of the Department of Health and Human Services (OIG) released a fraud alert warning physicians to scrutinize carefully the conditions and terms of any medical director or other compensation arrangement they enter into with potential recipients of Federal health care program business. The risks associated with these arrangements under the anti-kickback statute are not new. However, the fraud alert signals  the OIG’s current focus on physicians, which reportedly has also included hiring additional attorneys to handle investigative and enforcement activity involving physicians. Moreover, the government now has access to unprecedented amounts of data regarding financial arrangements between physicians and drug and device manufacturers.

The fraud alert follows on the heels of a dozen recent settlements between the OIG and individual physicians who allegedly received kickbacks disguised as medical directorships and other office staff arrangements. In those settlements, the OIG determined the physicians played an integral role in the schemes and specifically alleged that the agreements:Continue Reading An Apple a Day Keeps the OIG Away: Practical Guidelines for Structuring Physician Compensation Arrangements to Avoid Kickback Allegations

Reed Smith attorneys have prepared a Client Alert which provides a summary of the most significant proposed changes to the Medicare program’s long-term acute care hospital prospective payment system (“LTCH-PPS”) for fiscal year (“FY”) 2012. On Tuesday, April 19, 2011, the Centers for Medicare & Medicaid Services (“CMS”) released on its website an advance copy of the “Proposed Rule” revising the LTCH-PPS for fiscal year FY 2012, which applies to discharges occurring on or after October 1, 2011 through September 30, 2012. The official copy of the Proposed Rule will be published in the Federal Register in the coming days. Comments on the Proposed Rule must be submitted no later than 5 p.m. on June 20, 2011.
Continue Reading CMS Issues Proposed Changes to LTCH Payment Rates and Other Payment Policies for Fiscal Year 2012

On February 17, 2009, President Obama signed into law H.R. 1, the American Recovery and Reinvestment Act (the “ARRA”). The sweeping $790 billion economic stimulus package includes a number of health care policy provisions. Reed Smith’s Health Care Memorandum summarizes the major health policy provisions of the Act.
Continue Reading American Recovery and Reinvestment Act — Health Information Privacy/Incentives, Medicaid Funding & Other Health Provisions