News / Resources

Topics covered in this issue of the Health Law Update include:

• Contractual Joint Venture Again the Focus of Advisory Opinion 
• CMS Issues First Annual RAC Program Report to Congress
• OIG Work Plan Highlights PPACA and ARRA Initiatives
• Comprehensive Primary Care Initiative Builds on Patient-Centered Medical Home Concept
• 2009 Demonstration Offers Insights on Bundled Payments Initiative
• Senate Finance Committee Targets Therapy Visit Gaming by Home Health Companies
• CMS Issues Guidance on Changes to MMSEA Reporting Requirements
• Events Calendar

CONTRACTUAL JOINT VENTURE AGAIN THE FOCUS OF ADVISORY OPINION

On October 10, the U.S. Office of Inspector General (OIG) issued Advisory Opinion 11-15, in which it found that physicians having an ownership interest in a company that would provide pathology laboratory management services to a third party could generate prohibited remuneration in violation of the Medicare and Medicaid anti-kickback statute.

The Advisory Opinion was requested by a physician who operated the pathology laboratory management company (Management Company). The Management Company would enter into a contract with a clinical anatomic pathology laboratory (Laboratory). Under the management agreement, the Management Company would, in essence, provide turnkey laboratory services. More specifically, the Management Company would provide the Laboratory with all clinical laboratory pathology services for a fixed maximum number of hours each year, as well as utilities, furniture, fixtures and the exclusive use of laboratory space and equipment. Additionally, the Management Company would provide marketing and billing services and essential nonphysician staff. The Laboratory would pay the Management Company a usage fee that would be calculated based on a percentage of the Laboratory’s income, fixed in advance for a term of 12 months, which generally would correspond to the volume of the Laboratory’s use of the Management Company’s services. The management agreement would be for a term of three years.

The Management Company would offer various additional physicians, including urologists, gastroenterologists and dermatologists (each, individually, a New Physician Investor and, collectively, the New Physician Investors) the opportunity to invest in the Management Company. Most of the New Physician Investors would have little or no background in the laboratory services. The Management Company stated that it intended to recruit individuals with the appropriate experience and expertise to provide clinical laboratory services. While no referral requirement would exist, the New Physician Investors, who would be in a position to generate referrals of laboratory specimens to the Laboratory, would own in excess of 40 percent of the ownership interest and the party requesting the opinion certified that more than 40 percent of the Management Company’s gross revenue would be related to such referrals.

The Advisory Opinion offered the OIG an opportunity to reiterate its well documented opposition to contractual joint ventures involving turnkey arrangements. This arrangement, however, differed from past arrangements addressed by the OIG where a physician entity obtained turnkey laboratory services. In the instant case, the Management Company actually provided turnkey services to the Laboratory. The result, however, was not different.

The OIG found that a safe harbor would not apply. Because more than 40 percent of the ownership interest would be held by referral sources and more than 40 percent of the revenues for the Management Company would be the result of owner referrals, the small entity investment entity safe harbor would not apply. Similarly, the safe harbors for space leases, equipment leases and management contracts would not apply because the aggregate usage fees were not determined in advance.

With no safe harbor available, the OIG examined the risk in the underlying relationship and found that it posed more than a minimal risk of fraud and abuse. The OIG stated that the usage fees paid by the Laboratory to the Management Company take into account the value or volume of referrals made by the New Physician Investors. This, the OIG believed, posed considerable risk of overutilization for the laboratory services. The OIG also was concerned that, because the safe harbor 40/40 tests could not be met, there were no safeguards to counter the reliance on referrals from New Physician Investors. Finally, the OIG questioned whether the Management Company was simply a vehicle to reward the New Physician Investors for referrals to the Laboratory because it was unlikely that the New Physician Investors, or the physician who requested the Advisory Opinion, have any experience operating a clinical laboratory.

Given the facts in the proposed arrangement and its past positions, it is not surprising that the OIG reached its decision. The Advisory Opinion underscored the importance of examining potential joint ventures to ensure that they have a legitimate business purpose.

For more information, please contact Steven A. Eisenberg, or 216.861.7903.

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CMS ISSUES FIRST ANNUAL RAC PROGRAM REPORT TO CONGRESS

In its first annual report to Congress on the national recovery audit contractor (RAC) program, the Centers for Medicare and Medicaid Services (CMS) reported that RACs had identified and collected $75 million in overpayments and $16.9 million in underpayments for fiscal year (FY) 2010. Not surprisingly, the majority, or 82 percent, of RAC program corrections related to overpayments whereas 18 percent of RAC program corrections were identified underpayments that were refunded to providers.

Healthcare providers have appealed approximately five percent of all claims collected in FY 2010. To date, CMS reports that only 2.4 percent of all 2010 claims collected have been both challenged and overturned on appeal. However, we would note that this data is preliminary, as it does not fully account for the FY 2010 claims that still are working through the appeals process, which can take up to two years to fully adjudicate. In our experience, it is that latter levels which provide the greatest opportunity for fair review, and we would expect the favorable appeals outcome percentage to increase in future reports.

The report also briefly addresses the Medicaid RAC program established by the Patient Protection and Affordable Care Act (PPACA). States are currently in the process of implementing their Medicaid RAC programs. As of May 2011, CMS completely exempted each of the five U.S. territories from implementing a RAC program on the basis of Medicaid claims system infrastructure challenges. Future reports will contain greater detail on the status, implementation and outcomes of the Medicaid RACs.

As noted in the April 14, 2011, issue of the Health Law Update, CMS officials discussed their plans to move away from the "bounty-hunter" tainted name "RAC" and towards the term "Recovery Auditor." This report to Congress implements that initiative. CMS’s discussions of the FY 2010 results refer to the contractors as Recovery Auditors while references to RACs are mostly in terms of the demonstration project.

For more information, please contact B. Scott McBride, or 713.646.1390 or Ameena N. Ashfaq, or 713.646.1329.

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OIG WORK PLAN HIGHLIGHTS PPACA AND ARRA INITIATIVES

The OIG recently issued its annual Work Plan for FY 2012. Of particular interest are the initiatives related to PPACA, as well those evaluating the effectiveness of programs initiated or funded by the American Recovery and Reinvestment Act of 2009 (ARRA).

PPACA-focused work planned by the OIG includes several Medicare-related reviews, such as the POA (present on admission) indicators relevant to payment reductions to hospitals with high rates of hospital-acquired conditions; studies of the rate of same-day admissions; operationalization of compliance plans of skilled nursing facilities and various reviews of rates, quality and coverage issues under the Medicare Part C (MA) program. For Medicaid, the OIG will review the new methodology for computing federal upper payment limit amounts required by PPACA, assess drug utilization with respect to Medicaid rebates offered under PPACA, as well as healthcare-acquired conditions, coding and Medicaid Statistical Information System effectiveness. In the public health area, the OIG plans to review the appropriate utilization of PPACA grants to various agencies and individuals, the compliance and capabilities of community health centers receiving PPACA funds and the effectiveness of the National Health Service Corps and Prevention and Public Health Funds.

ARRA-related work planned by the OIG in FY 2012 includes reviews of Medicare and Medicaid incentive payments for Meaningful Use of Electronic Health Records (EHR) to determine whether improper incentive payments have been made. Medicare and Medicaid information systems will be reviewed for security and privacy issues, particularly the effectiveness of breach notification and medical identity theft prevention programs, agency contractor system enhancements to ensure security of sensitive EHR and personal information and reviews of the Office of Civil Rights’ oversight of the HIPAA privacy and security regulations.

With respect to the other audits and reviews that will be conducted by OIG in FY 2012, the following are a few brief highlights of new activities and recurring reviews that will be affecting some key healthcare providers and suppliers. There are many more activities not covered here, so providers and suppliers are advised to review all Work Plan sections related to their specific industry segment.

OIG Work Plan (Excerpts)	Description
Hospitals
Accuracy of Present-on-Admission Indicators	Coding review of POA indicators submitted inpatient claims
Medicare Inpatient and Outpatient Payments to Acute Care Hospitals	Focused review based on data that identifies hospitals at high risk for overpayments, including review of selected billing requirements, policies and interviews of hospital management
Inpatient Transfers to Inpatient Hospice Care	Review of billing accuracy and of financial relationships between hospital and hospice provider
Review of Inpatient Rehabilitation Facilities	Review whether IRF payments were properly reduced for delayed reporting of patient assessments
Critical Access Hospitals (CAH)	Review whether hospital meets required CAH criteria
Same-Day Readmissions	Continued review accuracy of claims and identify trends
Nonphysician Outpatient Services	Review of nonphysician services provided by hospitals shortly before or during a Part A stay
Observation Services During Outpatient Visits	Continued review of claims for outpatient observation services and effect on beneficiaries’ out-of-pocket expenses
Physicians
Incident-To Services	Review billings and compare error rates to those for non-incident-to services
E/M Services	Review of coding trends and assess extent of improper payments by CMS, including EHR documentation across multiple services and use of modifiers during global surgery period
High Cumulative Part B Payments	Review payment system controls for effectiveness in identifying billing errors and fraud and abuse
Place of Service Codes	Continued review of inappropriate coding
Assignment Rules	Continued review of inappropriate billing and billing beneficiaries in excess of Medicare
Durable Medical Equipment
Questionable Billing for Diabetic Testing Supplies and Home Glucose Monitoring Equipment	Review utilization and supplier billing for improper payments
Competitive Bidding Program	Continued post-award audits and reviews
Frequency of Replacement of DME Supplies	Review of documentation and frequency of orders of repetitive services and supplies
Skilled Nursing Facilities
Nursing Home Compliance Plans	Review for effective implementation and operationalization
Safety and Quality of Post-Acute Care for Medicare Beneficiaries	Review of transfer process, preventable readmissions, and adverse incidents; OIG also will review hospitalization and rehospitalization of nursing facility residents
Questionable Billing Practices During Non-Part A Nursing Home Stays	Review of questionable billing patterns associated with nursing homes and Medicare Part B suppliers/physicians with respect to services provided to non-part A residents
Hospice
Marketing Practices and Financial Relationships with Nursing Facilities	Review of marketing materials and practices and financial relationships to determine inappropriate activity. Examples may include improper enrollment and compensation practices and aggressive marketing.

For more information, please contact John S. Mulhollan, or 216.861.7484.

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COMPREHENSIVE PRIMARY CARE INITIATIVE BUILDS ON PATIENT-CENTERED MEDICAL HOME CONCEPT

CMS is soliciting applications for its multi-payer Comprehensive Primary Care (CPC) Initiative demonstration project under Section 3012 of PPACA to test the ability of comprehensive primary care to achieve the triple aim of improving care, improving health and decreasing healthcare costs. Designed to foster collaboration between public and private third party payers, the four-year initiative extends and builds upon the patient-centered medical home concept. Under the CPC Initiative, providers will receive a risk-adjusted average of $20 per month to coordinate care for Medicare beneficiaries. Actual payments will range from $8 to $40 per month per beneficiary. After the first two years, providers will receive a risk-adjusted average of $15 per month and will be able to share the savings resulting from coordinating care. The demonstration project will be conducted in five to seven markets across the country, the locations of which are to be based upon where a preponderance of the participants have elected to participate. CMS intends to permit approximately 75 practices per market to participate.

For more information, please contact Robert M. Wolin, or 713.646.1327 or Darby C. Allen, or 713.646.1311.

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2009 DEMONSTRATION OFFERS INSIGHTS ON BUNDLED PAYMENTS INITIATIVE

The Medicare Acute Care Episode (ACE) Demonstration for certain inpatient orthopedic and cardiovascular procedures implemented in early 2009 may offer valuable insights for providers wishing to participate in the CMMI Bundled Payments for Care Improvement Initiative (Bundled Payments) announced August 23, 2011. Please see the September 1 issue of the Health Law Update for information on this initiative.

The ACE Demonstration is very similar to Model 4 of the Bundled Payments Initiative in that participating providers will receive a single payment for both Part A and Part B services furnished during an inpatient stay. The five health systems participating in the ACE Demonstration are: Baptist Health System (San Antonio, Texas), Exempla St. Joseph Hospital (Denver, Colorado), Hillcrest Medical Center (Tulsa, Oklahoma), Oklahoma Heart Hospital (Oklahoma City, Oklahoma) and Lovelace Health System (Albuquerque, New Mexico).

The ACE Demonstration allows participating Medicare beneficiaries to share 50 percent of the savings that are realized under the program, up to a maximum of the annual Part B premium, currently $1,157. CMS publishes the current shared savings amount by Diagnosis Related Groups (DRG) for each participating health system.

The Bundled Payments initiative would allow participating providers, rather than the Medicare beneficiaries, to share in savings generated under the program. Nevertheless, providers contemplating applying for the Bundled Payments initiative may wish to review the ACE Demonstration for an understanding of the potential shared savings that might be realized under the initiative.

For more information, please contact Darby C. Allen, or 713.646.1311.

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SENATE FINANCE COMMITTEE TARGETS THERAPY VISIT GAMING BY HOME HEALTH COMPANIES

A recent Senate Committee on Finance report discussed the results of a review of home health therapy practices at four of the largest publicly traded home health companies following a Wall Street Journal article on medically unnecessary therapy utilization.

The Committee found that the companies, prior to reimbursement changes in 2008, encouraged therapists to provide therapy visits at or just above the ten-visit threshold at which Medicare paid a ‘‘bonus’’ under the prospective payment system (PPS) for home health services. The companies are alleged to have encouraged the visits over the threshold even if patient medical necessity alone would not have justified such care when the reimbursement formula went into effect. The pattern was demonstrated by the change in the number of home health episodes having between 10 and 13 therapy visits. These episodes increased by approximately 90 percent between 2002 and 2007. When new therapy thresholds were introduced in 2008, the Committee found that the home health agencies rapidly altered their therapy visit patterns to match the new 6-, 14- and 20-visit thresholds. MedPAC called the changes in utilization ‘‘the swiftest one-year change in therapy utilization since PPS was implemented."

The Committee found that therapists and managers were pressured to adjust the number of home health therapy visits to maximize Medicare profitability. The report cites from internal company e-mails describing the need to move patients to more profitable numbers of therapy visits following the 2008 reimbursement changes. To address these concerns, in 2011, CMS modified therapy coverage policies to require stronger documentation, and for 2012, CMS proposed revising the case-mix weights by lowering high therapy case weights and increasing the weights for episodes with little or no therapy to reduce the profitability incentive based upon pre-2008 data. CMS also has indicated that it intends to undertake a more comprehensive review of home health payments in the future.

While the home health report is interesting for the specific issues addressed, it may prove to be a more powerful roadmap for the future of OIG investigations. Consequently, providers should carefully monitor their response to payment changes to avoid evidence of reimbursement gaming. In addition, the review may add impetus to the reshaping of the terms upon which services are offered to Medicare beneficiaries and the government’s approach to cost containment.

For more information, please contact Robert M. Wolin, or 713.646.1327.

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CMS ISSUES GUIDANCE ON CHANGES TO MMSEA REPORTING REQUIREMENTS

CMS recently posted the following new guidance and alerts on significant changes to the mandatory reporting of Medicare beneficiary liability settlements, judgments and payments under Section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA) in connection with the law’s October 1, 2011, compliance deadline:

• An alert delaying the MMSEA Medicare Secondary Payer (MSP) reporting requirement for certain liability insurance (including self-insurance) settlements, judgments, awards or other payments as follows:
  • If the Total Payment Obligation to the Claimant (TPOC) occurs on or after October 1, 2011, and exceeds $100,000, reporting begins January 1, 2012.
  • If a payment of over $50,000 occurs after April 1, 2012, reporting begins on July 1, 2012.
  • If a payment of over $25,000 occurs after July 1, 2012, reporting begins on October 1, 2012.
  • If smaller payment amounts above the TPOC threshold are made after October 1, 2012, reporting begins on January 1, 2013.

This alert supersedes the content of Version 3.2 of the User Guide.

• Policy guidance on exposure, ingestion and implantation issues explaining when Medicare will assert a recovery claim against settlements, judgments, awards or other payments and when the MMSEA reporting rules will apply to cases involving continued exposure to an environmental hazard, continued ingestion of a particular substance and toxic exposure from an implant. The critical date with respect to such exposures is December 5, 1980.
• An alert on Qualified Settlement Funds (QSF) under Section 468B of the Internal Revenue Code indicating that MMSEA reporting is not required when all of the following criteria are met: (1) the settlement, judgment, award or other payment is a liability insurance (including self-insurance) TPOC amount, where there is no ongoing responsibility for medicals involved; (2) the settlement, judgment, award or other payment will be issued by a QSF in connection with a state or federal bankruptcy proceeding; and (3) the funds were paid into the trust prior to October 1, 2011.
• A policy memorandum providing information on proposed liability Medicare set-aside arrangement amounts related to liability insurance (including self-insurance) settlements, judgments, awards or other payments. According to the policy memorandum, when the beneficiary's treating physician certifies in writing that the treatment related to the liability insurance settlement has been completed as of the date of the settlement and that future medical items/services will not be required, Medicare will consider its interest, with respect to future medicals, satisfied for that particular "settlement." However, if the beneficiary receives additional settlements, he or she must obtain a separate physician certification for each settlement. This policy memorandum introduces the concept of establishing a Medicare liability set-aside amount from settlements. CMS, however, will not provide any confirmation that Medicare’s interest for future medicals has been satisfied.

CMS also has indicated that further changes and alerts should be expected in the near future.

For more information, please contact Robert M. Wolin, or 713.646.1327 or Lynn Sessions, or 713.646.1352.

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EVENTS CALENDAR

October 13

Houston counsel Lynn Sessions will speak on "Landmines for Litigators: What You Need to Know About HIPAA and HITECH" at the section luncheon of the Houston Bar Association Litigation Section in Houston, Texas.

October 17

New York partner Ted Kobus will speak on "Responding to Data Breaches: From A to Z" at the 2011 ASHRM Annual Conference & Exhibition sponsored by the American Society for Healthcare Risk Management in Phoenix, Arizona.

November 4

Houston counsel Lynn Sessions will speak on "Healthcare Cyber Risks and Privacy Breaches -- Emergent Problem or Chronic Condition?" at the Professional Liability Underwriters Society annual conference in San Diego, California.

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