Welcome to this week’s edition of the Health Law Update. Topics covered today include:
As the country awaited the impending debt ceiling deadline of August 2, the Senate passed and the President signed into law S. 365, known as the Budget Control Act of 2011 (Budget Control Act) in just the nick of time. Baker Hostetler closely followed the debt ceiling/deficit reduction discussions for clients and is actively evaluating its anticipated impact. While a multitude of programs and issues will be considered in future fiscal discussions, spending reductions and further reforms of Medicare, Medicaid and other government healthcare programs are squarely on the table as a result of the Budget Control Act. Thus, the process put in place by the Act merits closer inspection, and developments in the coming weeks should be closely monitored.
In summary, the law allows for staggered, conditional increases in the debt limit of up to $2.1 - $2.4 trillion through a series of actions to be taken by the end of this year to reduce projected budget deficits by an even greater amount. Specifically, the law allowed the President to increase the debt ceiling limit immediately by $400 billion and subsequently by another $500 billion, subject to largely symbolic votes on resolutions of disapproval in both houses of Congress—symbolic because the resolution is subject to presidential veto. The law then provides authority to raise the debt ceiling by another $1.2 - $1.5 trillion pending enactment of deficit reduction legislation and additional disapproval resolution votes. The increases in the debt ceiling are estimated to be sufficient into 2013.
The Budget Control Act implements close to $1 trillion in deficit reduction through caps on discretionary spending over the next decade and certain “program integrity initiatives,” (i.e., measures to clamp down on fraud, waste, etc.) and calls for Congress to enact an additional $1.2 - $1.5 trillion in deficit reduction by year-end in order to avoid automatic broad-based spending cuts of up to $1.2 trillion starting in 2013 via a fail-safe trigger known as “sequestration.”
Sequestration originally was used in the Balanced Budget and Emergency Deficit Control Act of 1985 (Title II of P.L. 99-177) and has been enacted subsequently in the various pay-as-you-go (PAYGO) laws adopted by both the House and the Senate in recent years. The Budget Control Act references and invokes the PAYGO Act of 2010 (PAYGO 2010) and ties sequestration to specific sections within PAYGO 2010. Sequestration would require that 50 percent of the automatic spending cuts come from defense spending and 50 percent of the remaining spending cuts come from nondefense function spending, both as defined in PAYGO 2010.
Based on the PAYGO rules, nondefense cuts would come from both discretionary and mandatory (entitlement) programs. These would include cuts to Medicare providers (limited to two percent, down from the four percent required in the PAYGO sequestration provisions) and Medicare managed care plans. Other mandatory programs slated for cuts include farm price supports. Excluded from sequestration are, among others, Social Security, Medicaid, CHIP, child nutrition, Supplemental Security Income (SSI), refundable tax credits such as the Earned Income Tax Credit, veterans benefits and federal retirement. The listed exceptions are found in Sections 255 and 256 of the Balanced Budget and Emergency Control Act of 1985, as amended by PAYGO 2010. These are referenced in the Budget Control Act, with limited amendments relating to the two percent cap on Medicare provider rate cuts. Thus, the threatened automatic cuts are not quite “across-the-board.”
The Budget Control Act delegates the required deficit reduction obligation to a joint committee of Congress—dubbed a super committee. This Joint Committee on Deficit Reduction (Joint Committee) shall consist of 12 members—three from each party in each house of Congress, appointed by leadership—and must hold its first meeting by September 16.
Leader Reid, Speaker Boehner, House Minority Leader Pelosi and Senate Minority Leader McConnell all have named the selected legislators for the Joint Committee: Senators John Kerry (D-Mass.), Patty Murray (D-Wash.), Max Baucus (D-Mont.), Rob Portman (R-Ohio), Pat Toomey (R-Pa.) and Jon Kyl (R-Ariz.), and Representatives James Clyburn (D-S.C.), Xavier Becerra (D-Calif.), Chris Van Hollen (D-Md.), Fred Upton (R-Mich.), Jeb Hensarling (R-Tex.) and Dave Camp (R-Mich.). Congressman Hensarling and Senator Murray will co-chair the super committee.
This committee has significant authority under the Budget Control Act, with no jurisdictional limits on programs it can cut or sources of revenues it can raise. Further, the legislation developed will have expedited status, cannot be amended and cannot be filibustered. The Joint Committee must develop, draft and vote on proposed legislation that achieves at least $1.2 trillion in deficit reduction by November 23 so that the legislation may be fully considered and passed by December 23. The Joint Committee passes its recommendation on to Congress by a simple majority vote of the committee members.
Failure to attain the required $1.2 trillion minimum in deficit reduction (as scored by the Congressional Budget Office (CBO)) by the deadline will trigger “sequestration” or broad-based spending cuts, spread out evenly over 2013 - 2021. If the Joint Committee’s recommendations achieve at least $1.2 trillion and are enacted by Congress by the deadline, the debt ceiling will be raised in kind by $1.2 trillion. However, if the Joint Committee fails to produce a bill, the bill is not enacted or it produces less than a scorable $1.2 trillion in deficit reduction, the debt limit increase will only be $1.2 trillion, again subject to a resolution of disapproval vote.
The compromise in the Act also included agreement that a vote will occur in both houses of Congress on a balanced budget amendment by December 31.
Prior to enactment of the Budget Control Act, significant cuts and reforms impacting the healthcare industry were considered and drew many to Washington to lobby their cause. With an aging population accessing Medicare benefits, increases in low-income individuals accessing Medicaid and unemployment and poor economic performance, our governmental healthcare programs are more financially stressed than at any time in our history. It is a widely held belief among policy analysts and legislators that sincere reform must occur in both the Medicare and Medicaid programs as a serious aspect of any deficit reduction legislation. All of this also must occur in light of the implementation of the Affordable Care Act and the anticipated influx of additional Medicaid beneficiaries in 2014.
It is against this backdrop that the Joint Committee will be considering multiple changes to our federal expenditures and, in contrast to some reporting, the Joint Committee has no limits on what it can consider with regard to deficit reduction. In fact, it is likely that with the short time frame allotted to the Joint Committee, any and all prior deficit reduction options will be on the table. This will include important health policy options, including revisions to the provider tax/upper payment limit provisions in Medicaid or the use of a blended federal medical assistance percentage as a means to reduce the federal dollars flowing to states to help administer its Medicaid programs. Additionally, changes to graduate medical education formulas or the elimination altogether of such supplemental payments to providers may be seriously considered.
If former proposals were scored by CBO for savings, we should consider them “on the table” for purposes of achieving the requisite and timely deficit reduction. Additionally, important programs in the Affordable Care Act that were under attack also will be vulnerable, such as the maintenance of effort requirements or important demonstration pilots and projects that might achieve the delivery system reform and transformation so central to healthcare reform.
Additionally, we anticipate that the Joint Committee will be considering changes to the sustainable growth rate (SGR) formula. The scheduled 29.5 percent cut to Medicare physician payments will need to be considered as the deadline of January 1, 2012, looms near. In many of the proposals that already have been considered there is a desire to permanently fix the ever-present physician fee schedule headache and obtain a permanent end to the vexing SGR formula requiring automatic provider rate cuts, but the cost of doing so (approximately $300 billion) will require cuts elsewhere.
Consequently, while the healthcare industry dodged a fast-moving bullet, significant changes most assuredly lie ahead as the country and the Joint Committee come to terms with some extremely difficult decisions that will impact our country.
While the Joint Committee may technically identify revenue-raising measures, many Republicans, including some on the Joint Committee, have indicated they will resist any revenue raisers. Some Republicans on the Joint Committee have indicated they might be open to limited revenue raisers such as elimination of certain tax preferences or increases in user fees. While Democrats have indicated support for a wide variety of revenue raisers, it is necessary for those revenue raisers to gain some Republican support to be included in the Joint Committee proposal. To the extent that revenue raisers are included, that might be done in a revenue neutral manner (i.e., to offset other revenue reductions). Revenue raisers more likely to be included would be those that have enjoyed some bipartisan support or political popularity. Some such recent proposals supported by the Administration and many members of Congress include:
In the past few years, significant attention has been paid to the possibility of fundamental tax reform. Given the short time frame in which the Joint Committee is operating, it is much less likely that more fundamental tax reform is possible. Recent attempts at more comprehensive tax reform include the Simpson-Bowles Commission proposal and the proposals put forward by a small group of bipartisan Senators (the so-called “Gang of Six”). Some of the more significant reform ideas to come out of these plans include migrating toward a territorial system of taxation, implementing some type of value-added tax, reducing the statutory corporate tax rate and eliminating tax preferences (such as narrowly targeted deductions and credits). In addition, some members of Congress and the Administration have indicated support for reducing or eliminating deferral of taxes on income earned abroad (which would be the opposite of moving toward a territorial system). It is unclear which of these ideas would be included in fundamental tax reform, but all are likely to be debated in the coming months even if unlikely to be included in any Joint Committee proposal.
Baker Hostetler’s healthcare public policy team, comprised of lawyers and professionals skilled in healthcare law, tax law and government policy, will continue to closely follow the debate and work with clients to assure their interests are considered by agencies, legislators and the Administration.
For more information, please contact Susan Feigin Harris, or 713.646.1307; Lucy J. Calautti, or 202.861.1739; William J. Weber, or 202.861.1681 or Michael W. Nydegger, or 202.861.1688.
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The Center for Medicare and Medicaid Innovation (CMMI) recently provided important updates and responses to frequently asked questions (FAQs) relative to applications for the Pioneer Accountable Care Organization (ACO) Model. CMMI, in the communication, provides clarification to the communication transmitted July 15, 2011, relating to the calculation of financial exposure, ACO governance structure, application clarification and information relating to privacy.
The Centers for Medicare and Medicaid Services (CMS) requires Pioneer ACOs to commit to pay their fair share of any losses to CMS. In the response to FAQs, CMS and CMMI clarify that the ACO must establish its financial security for losses at the time of application submission by committing to provide a financial guarantee that will cover 25 percent of total potential losses for each performance period. CMS and CMMI clarify that any letter of credit used as a form of guarantee must be provided at the time the applicant signs the agreement to participate in the Pioneer ACO Model. Additionally, CMS and CMMI clarify that any similarly enforceable mechanism may be used.
With regard to providing proof of outcomes-based contracts, CMS and CMMI indicate that letters from purchasers or payers with whom the ACO has entered into or has plans to negotiate an outcomes-based contract are acceptable means of documentation. With regard to what appears to be a multiplicity of questions surrounding the governance structure requirements, CMS and CMMI appear to be providing leeway by recognizing that various state laws may prohibit patients or consumer advocates from sitting on certain boards. While the requirement is to have one patient and one consumer advocate on the Pioneer ACO board, it appears as though reasonable explanations and citations to the appropriate state law, and plans to achieve the requirements through other means, may be acceptable to CMS and CMMI in consideration of the application for the Pioneer ACO Model. CMS corrects the draft agreement and clarifies that the agreement should not have indicated that 10 percent of the Pioneer ACOs board has to be patients or patient advocates. This was an error and the final agreement will be corrected to reflect this change.
Finally, with regard to the claims feed resulting in the allocation of beneficiaries, CMMI and CMS indicate that the ACOs must choose between two options: (1) receipt of three years of de-identified historical claims data for aligned beneficiaries, or (2) notification of the aligned beneficiaries with an opt-out for sharing personally identifiable information. After the 30-day opt-out period has passed, CMS will provide the ACO with three years of historical claims data that includes personally identifiable data for those aligned beneficiaries who have not chosen to opt out.
Baker Hostetler continues to work with clients in forming or applying for ACOs and working with CMS and CMMI. For more information, please contact Susan Feigin Harris, or 713.646.1307.
On August 4, 2011, the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) released Advisory Opinion 11-11 refusing to approve a proposal between a supplier and a skilled nursing facility (SNF), as the OIG was concerned that the sales of products could be a “swapping arrangement” that could potentially generate illegal remuneration under the federal anti-kickback statute.
The requestor proposed two arrangements that it might use to respond to a request for proposal issued by a county-owned SNF. Under the first arrangement, the requestor would submit a bid to serve as the SNF’s exclusive supplier of medical supplies and equipment covered by Medicare Part B and furnish non-Medicare-covered items at a price below cost, should the SNF choose to purchase those items. The requestor indicated that if it did not offer below-cost pricing on the noncovered items, the SNF would be unlikely to select it as the SNF’s exclusive supplier. The requestor stated that the Medicare Part B payments for covered items would make up for the below-cost pricing of the noncovered items. The OIG opined that this would be an impermissible “swapping arrangement” under which the SNF would be given favorable pricing on items for which it paid out of pocket in exchange for referrals of risk-free Medicare-covered services. This opinion is consistent with Advisory Opinion 99-2 addressing similar issues and the 2006 settlement that Emergency Medical Services Corporation affiliates entered into with the U.S. Department of Justice to settle allegations that certain of its hospital and nursing home contract discounts violated the federal anti-kickback statute.
However, anticipating the OIG response, the requestor also asked if the result would be the same if a “friend” sold products below cost to the nursing home. Under the second proposed arrangement, the requestor would use two commonly owned supply companies. One to provide non-Medicare-covered items and related services and a second to provide Medicare-covered items and related services under a joint bid. The OIG also disapproved of this proposal and stated “it is the substance, not the form, of an arrangement that governs under the anti-kickback statute.” The interjection of a separate but commonly owned company to provide the noncovered items and related services at below-cost prices did not change the OIG’s analysis. Consequently, one must consider the entire realm of relationships commonly owned entities have with another party, not just the relationships of a single entity in isolation, when evaluating fraud and abuse risks.
For more information, please contact Robert M. Wolin, or 713.646.1327, or Darby C. Allen, or 713.646.1311.
On August 4, HHS released an Advanced Notice of Proposed Rule Making (ANPRM) on metadata standards to support a nationwide electronic health information exchange. Section 3001 of the Health Information Technology for Economic and Clinical Health Act (HITECH) provides for the Office of the National Coordinator for Health Information Technology to develop a nationwide health information technology infrastructure including standards for metadata. The HIT Policy Committee suggested steps earlier this year to achieve the vision of the infrastructure contemplated under HITECH. A first step is the establishment of a minimal set of standards for metadata that could be attached to a patient summary care record. The purpose of the ANPRM is to solicit broad public comment on the proposed metadata standards.
What is “metadata”? Metadata is commonly referred to as “data about data” or “data that provides more information or detail about a piece of data.” For example, metadata can tell you when a piece of data was created, accessed, modified and by whom. The ANPRM divides the metadata standards into three categories: (1) patient identity, or data elements about the patient; (2) provenance, or data elements about the source of the clinical data; and (3) privacy, or data elements about the types and sensitivity of the clinical data. The ANPRM sets forth proposed standards for each of these categories. Overall, HHS recommends that the HL7 CDA R2 requirements be adopted for all three categories in order to provide the widest coverage across the metadata elements. However, it does recognize that there are limitations to these standards in each category.
The ANPRM proposes the following data elements for the patient identity set:
For the provenance metadata set, the following is proposed:
The proposed privacy metadata standards include:
The content metadata is comprised of data type describing the underlying data from a clinical perspective and sensitivity indicating at a granular level the type of underlying data to enable protection with automated privacy filters. HHS expects that the privacy metadata will enable healthcare providers to filter sensitive information before releasing for disclosure and allow for another layer of patient privacy protection.
The initial impact of the standards will be on electronic health record (EHR) vendors to develop the technology allowing providers to comply with the proposed metadata standards. After development, providers then will need to upgrade their EHR to comply with HITECH standards for metadata. Those providers with a more customized EHR may find themselves having to standardize certain forms to meet the metadata standards. Providers will need to have internal privacy policies in place and aggressive policy revisions as new regulations are proposed, to accommodate the policy pointer element. Staff training and education on the existence and anticipated use of the metadata elements also will be needed. Collaboration between healthcare IT and privacy professionals is imperative for implementation of the privacy metadata elements. HHS expects that once the EHR technology is able to apply the metadata standards, healthcare providers will develop innovative ways to use the capability, such as appropriately filtering data prior to making any disclosure for additional privacy/security protection and processing information for quality improvement and quality measurement.
Comments on the above standards and other topics such as additional metadata elements to consider, other naming conventions, codes for particularly sensitive health information and other potential uses of metadata are due by September 23, 2011.
For additional information or assistance with comments to HHS, please contact Lynn Sessions at or 713.646.1352 or John S. Mulhollan at or 216.861.7484.
Believe it or not, the open enrollment period for calendar-year employee benefit plans is just around the corner. But fear not! This year’s open enrollment period likely will be much easier to navigate than last year’s because several of the healthcare reform-related notice requirements of last year need not be repeated this year. Below is a checklist of notices employers should begin developing in preparation for the 2012 plan year open enrollment period:
In addition, employers sponsoring group health plans that will be maintaining their grandfathered health plan status for the 2012 plan year should disseminate a Grandfathered Health Plan Status Notice so that plan participants will be reminded that certain aspects of healthcare reform do not apply to the grandfathered plan.
Finally, employers sponsoring group health plans that will be losing their grandfathered health plan status for the 2012 plan year will need to disseminate the following notices:
Extension of Dependent Coverage Notice (to put employees on notice that their dependent children who have another offer of employer-sponsored coverage are now eligible to participate in the employer’s health plan); and
Patient Protection Notice (to put employees on notice that a health plan that has lost its grandfathered status will now need to comply with the patient protection requirements of healthcare reform).
If you have any questions about administering the 2012 plan year open enrollment period or drafting the notices that should be disseminated during this period, please contact Jennifer A. Mills, or 216.861.7874 or Susan Whittaker Hughes, or 216.861.7841.
On August 9, Illinois Governor Pat Quinn signed into law the Patients’ Right to Know Act which reinstates a portion of the medical malpractice tort reform law that was struck down by the Illinois Supreme Court in February 2010.
The new law (225 ILCS 60/24.1) provides for the Illinois Department of Financial and Professional Regulation (the Department) to make publically available on a website a profile for each licensed physician and chiropractor. The profile will include the following:
A physician may decline to submit some of this information, such as faculty appointments and published literature. The profile is designed to give Illinois patients information to assist them in choosing a physician. Physicians who are licensed in Illinois will have 60 days to review the postings made by the Department for accuracy. The website is expected to be up within two months.
For additional information or assistance with Disciplinary Board issues, please contact Tara G. Kamradt, or 312.416.6222 or Lynn Sessions, or 713.646.1352.
Houston partner Susan Feigin Harris will speak on “ACOs: Fact or Fiction?” at the 2011 Health Law Conference sponsored by the Texas Hospital Association in Austin, Texas.
Houston partner Donna Clark will speak on “Stark/Anti-Kickback Update” at the 2011 Health Law Conference sponsored by the Texas Hospital Association in Austin, Texas.
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