News / Resources

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

• Form W-2 Reporting of Employer-Sponsored Health Plan Coverage—Prepare for Compliance Now
• Reductions in Imaging Services Reimbursement Ahead?
• OIG Looks Unfavorably on DME Arrangement
• Provider-Preventable Conditions Extended to Medicaid
• There’s an App (and Regulation) for That
• Publication Notice

FORM W-2 REPORTING OF EMPLOYER-SPONSORED HEALTH PLAN COVERAGE—PREPARE FOR COMPLIANCE NOW

The Patient Protection and Affordable Care Act of 2010 (PPACA) added Section 6051(a)(14) to the Internal Revenue Code (the Code), imposing a new W-2 reporting requirement on employers. Under the new rule, employers must report the aggregate cost of “applicable employer-sponsored coverage” on Forms W-2 issued to employees. PPACA initially mandated this new rule for taxable years beginning on or after January 1, 2011. However, this requirement was subsequently made optional for 2011 in an effort to provide employers time to update their payroll systems. The Internal Revenue Service (IRS) now will require W-2s covering the 2012 taxable year to include the cost of coverage information. While the requirement for employers to report does not go into effect until after the 2012 taxable year, employers can begin preparing for this reporting change now.

Applicable employer-sponsored coverage is broadly defined as coverage under a group health plan the employer makes available to the employee that is nontaxable to the employee (or that would be nontaxable if the coverage was employer-provided). Several types of coverage are excluded, including long-term care, a dental or vision plan offered under a separate policy or insurance contract, accident or disability income insurance, liability insurance, workers’ compensation insurance or independent coverage only for a specified disease or illness if the employer pays the premiums for the coverage on a post-tax basis. Amounts contributed to any Archer MSA, a health savings account or a salary reduction election to a flexible spending arrangement also are excluded from the reporting requirements.

Recently, in Notice 2011-28, the IRS issued interim guidance to facilitate compliance with the reporting requirements for Forms W-2 for the 2012 taxable year. An employer offering an insured plan may use the premiums charged by the insurer in calculating the aggregate cost of coverage. Otherwise, the calculation is made using either the COBRA applicable premium method or a modified COBRA premium method.

While nearly all employers sponsoring group health plans will be subject to the new reporting requirements, certain transitional relief has been provided. Employers filing less than 250 Forms W-2 for the 2011 taxable year will not be subject to the reporting requirement for the 2012 taxable year. Additionally, until the IRS issues further guidance, which will be enforced prospectively only, multiemployer plans, Health Reimbursement Arrangements, dental and vision plans not integrated into a group health plan and self-insured plans of employers not subject to COBRA continuation coverage or similar requirements are excluded from the aggregate cost calculation.

Employers should speak with their payroll administrator, any other vendors connected to the issuance of W-2 forms and their insurers and/or actuaries to determine the benefits that will be subject to these new reporting requirements, the aggregate cost of the coverage provided to employees and how these new reporting requirements will be met.

If you would like further information or assistance in preparing to comply with the new reporting requirements, please contact Jennifer Mills, or 216.861.7874. Michelle Manzoian contributed to this article.

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REDUCTIONS IN IMAGING SERVICES REIMBURSEMENT AHEAD?

Noting significant growth in imaging services paid by Medicare under the physician fee schedule, the Medicare Payment Advisory Commission (MedPAC) advanced several recommendations aimed at increasing the appropriate use of imaging services in its June report to Congress. These include prior authorization requirements for physicians who order significantly more advanced imaging tests (e.g., MRIs) than their peers, specified as the top ten percent of providers. Other recommendations relate to payment reductions for imaging services. For example, one proposal addresses cases where two or more imaging services are performed in the same encounter. Certain imaging services comprised in a multiple procedure currently are subject to payment reduction; however, this reduction is limited to the technical component of the test. MedPAC recommends including the professional interpretation and also proposes payment reductions when the same physician orders and performs a diagnostic test.

The MedPAC recommendations have prompted responses from affected practitioners and organizations. With respect to the prior authorization proposal, a requirement that has not been used in the Medicare program, commenters stress the impediment to patient access and the administrative burden on providers. Pointing to the significant payment cuts on advanced imaging services imposed by prior legislation, commenters cautioned that further cuts could result in a shifting of imaging services to the more costly hospital setting. In lieu of payment cuts and prior authorization requirements, the commenters urged that MedPAC consider alternatives such as the use of evidence-based, physician-developed appropriateness criteria for curbing overutilization of advanced imaging services.

For questions regarding the MedPAC proposals, please contact Donna S. Clark, or 713.646.1302.

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OIG LOOKS UNFAVORABLY ON DME ARRANGEMENT

On June 21, 2011, the Office of the Inspector General (OIG) released Advisory Opinion 11-08 (AO 11-08), finding that an Existing Arrangement and a Proposed Arrangement where the employees of an independent diagnostic testing facility (IDTF) specializing in sleep studies provided services for a durable medical equipment (DME) company potentially generated prohibited remuneration in violation of the anti-kickback statute.

In the Existing Arrangement, a written agreement between multiple IDTFs and the DME company provided that when a non-federally insured beneficiary selected the DME company, an employee of the IDTF would provide the services for setting up the continuous positive airway pressure (CPAP) machine and educating patients on its use. The IDTF employees also were responsible for the display, inventory, care and maintenance of the CPAP machines consigned to the IDTF. Patients were provided with a list of alternate DME providers by each IDTF that may include an endorsement of the DME company. The DME company paid the IDTF a per patient fee that was certified to be consistent with fair market value.

Although very similar to the Existing Arrangement, the Proposed Arrangement had a few substantive differences. First, the Proposed Arrangement would apply to all patients, including beneficiaries of federal healthcare programs. Second, the fee would be a flat fee rather than a per patient fee. Also, while the fee would not be altered, the DME company would be permitted to terminate the arrangement if it was not satisfied with the number of patients receiving services. Finally, the parties were unable to certify that the fixed fee was consistent with fair market value.

Not surprisingly, the OIG found that both arrangements could generate prohibited remuneration and that neither arrangement satisfied a safe harbor. Consistent with past criticisms of certain DME supplier arrangements, the OIG found that those described in AO 11-08 contained “hallmarks” of potentially problematic arrangements. These include direct payments that closely tied the DME company with the IDTF and, in turn, the IDTF’s patients, and the consignment aspects of the arrangements. The OIG also was concerned because some of the IDTFs had physician ownership so that the close tie between the IDTF and the DME company could lead to the physician or other IDTF health professional marketing the DME company’s products.

While AO 11-08 did not necessarily cover new ground, especially given the somewhat obvious facts of the arrangement, it should cause providers to again closely examine relationships with home health agencies, DME companies and other similarly situated providers. While providing a list of alternate providers is important and often required, a list will not serve to protect what may otherwise be questionable activity.

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

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PROVIDER-PREVENTABLE CONDITIONS EXTENDED TO MEDICAID

On June 1, 2011, the Centers for Medicare and Medicaid Services (CMS) issued a final rule on Provider-Preventable Conditions (PPC), often referred to as “Never Events,” that prohibits state Medicaid plans from making payments to providers for reasonably preventable conditions by requiring them to adopt, at a minimum, Medicare's nonpayment policy for preventable conditions (hereinafter the “Rule”). It also authorizes states to identify preventable conditions beyond the Medicare list for which Medicaid payments will be prohibited. The effective date is July 1, 2011, with a compliance deadline of July 1, 2012.

In an effort to augment quality improvement in the Medicaid program, PPACA requires that Medicaid prohibit payment for the following PPCs: the full list of Medicare Health Care-Acquired Conditions in the inpatient hospital setting, with the exception of deep vein thrombosis/pulmonary embolism following total knee replacement or hip replacement in pediatric and obstetric patients, and Other Provider-Preventable Conditions, including broad application to Medicaid inpatient and outpatient healthcare settings where adverse events may occur, surgery on the wrong patient, wrong surgery or wrong site, regardless of setting and other conditions that the state may choose to expand beyond this list with CMS approval. The Rule requires that states revise their Medicaid plans to comply with this provision. It also mandates that states implement provider self-reporting of PPCs through their claims systems and anticipates that the existing claims systems will be used as a platform for provider self-reporting of PPCs, even when the provider may have written off the charges and there is no associated bill.

The Rule extends nonpayment beyond the inpatient setting and into any healthcare setting where these events can occur, including physician offices, outpatient surgery centers and skilled nursing facilities. Unlike the nonpayment provisions for Medicare, the Rule does not contain a Present on Admission requirement, so healthcare providers should exercise care in documenting a patient’s physical condition at the time of admission. The Rule, however, does not preclude the states from imposing a Present on Admission system.

The Rule will impact children’s hospitals, cancer hospitals, long-term care facilities and outpatient physician settings, which previously had been excluded under the Medicare PPC rules. Further, it takes away the argument these providers had with third party payers in contracts negotiations around Never Events. As with the Medicare regulations, the Rule has malpractice implications and requires coordination among many departments at healthcare facilities and large physician groups, including legal, risk, billing and quality. If providers have not already established processes for the reporting and review of PPCs, they should engage their risk management and billing departments to develop them.

Should you require assistance with implementing processes or other issues around PPCs, please contact Lynn Sessions, or 713.646.1352.

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THERE’S AN APP (AND REGULATION) FOR THAT

Mobile medical applications for smartphones and other mobile devices make up a growing industry. To date, app regulations by the Food and Drug Administration (FDA) and the U.S. Department of Health and Human Services have been limited. Concerned with issues of efficacy and safety as the usage of mobile medical apps gains momentum, the FDA recently signaled its intent to regulate the development and marketing of such applications. To that end, the FDA’s Center for Devices and Radiological Health has announced plans to issue guidelines on mobile medical apps later this year.

Under current regulations, if the mobile device transmits only data and does not control or alter the function of a medical device it is exempt from the stricter rules that govern medical devices, such as those involved with patient monitoring. However, there are many new apps that have gone through the FDA approval process, including apps that allow physicians to monitor mothers and babies remotely from the delivery suite as well as remote viewing of diagnostic imaging, laboratory analysis, glucose levels and other diagnostic tools. As a result, such medical apps can potentially turn a smartphone into a medical device that is subject to FDA regulation.

Mobile medical applications also raise issues regarding the application of HIPAA/HITECH and its attendant requirements to covered entities and their business associates. Medical apps that store and/or transmit protected health information are subject to HIPAA, and covered entities should consider HIPAA compliance and risk assessment when purchasing these apps. Additionally, end users may be able to download and use these apps outside the normal software purchase process, and covered entities should review policies related to mobile apps as they pertain to protected health information and software acquisition. In the event of a healthcare provider’s lost or stolen mobile device, covered entities should include an analysis of any medical apps that may have been contained or stored on the device.

For more information, please contact Lynn Sessions, or 713.646.1352.

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PUBLICATION NOTICE

Please be advised that the Health Law Update will not publish Thursday, July 7. We will resume our regular publication schedule on July 21.

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Baker & Hostetler LLP publications are intended to inform our clients and other friends of the Firm about current legal developments of general interest. They should not be construed as legal advice, and readers should not act upon the information contained in these publications without professional counsel. The hiring of a lawyer is an important decision that should not be based solely upon advertisements. Before you decide, ask us to send you written information about our qualifications and experience. © 2011 Baker & Hostetler LLP