News / Resources

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

• IPPS Final Rule Imposes Coding Adjustment; Adds Payment Window Reg. 
• ESRD Final Rule Augurs Payment System Changes for Other Providers 
• AHA Comments on Stark Self-Disclosure Protocol 
• Patient-Labeled Waste: Dumpster Disposal Violates HIPAA, FTC Laws 
• Strategic Implications of Health Reform for the LTC Industry 
• Events Calendar

IPPS FINAL RULE IMPOSES CODING ADJUSTMENT; ADDS PAYMENT WINDOW REG.

Medicare payment for inpatient prospective payment system (IPPS) hospital services will decrease by $440 million in FY 2011 under a final rule released by the Centers for Medicare & Medicaid Services (CMS) on July 30. The new 1800+ page rule, which finalizes the Medicare payment update and policy changes for IPPS and long-term care hospitals (LTCH) proposed by CMS under a rulemaking published May 4, 2010, also finalizes a supplemental proposed rule published June 2, 2010, on Medicare payment changes promulgated by the Patient Protection and Affordable Care Act (PPACA). For more information, please see the April 29 and May 27 issues of the Health Law Update.

Documentation and Coding Adjustment

Under the final rule, IPPS hospitals will receive a 2.35 percent increase for inflation that includes a 0.25 percent reduction imposed by PPACA. Applied to this amount will be a -2.9 percent “documentation and coding” adjustment (DCA) proposed by CMS in its May 4 rule. According to the agency, a DCA adjustment is necessary “to recoup a portion of excess aggregate payments in FY 2008 and FY 2009 that do not reflect actual increases in patients’ severity of illness.” This controversial reduction, coupled with other adjustments, is estimated to reduce total payments for operating expenses to IPPS hospitals by 0.4 percent (or $440 million) in FY 2011. Similarly, LTCH rates will increase 2.5 percent for inflation, less an adjustment required by PPACA. CMS will apply a -2.5 percent DCA adjustment to this amount that will result in an estimated increase of 0.46 percent or $22 million.

Three-Day Payment Window Rule

Also tucked within the final IPPS/LTCH payment rule is an interim final rule with comment period implementing the statutory clarifications of the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act for “services related to admission” under the Medicare three-day payment window rule. For more information regarding this legislation, please see the July 8, 2010, issue of the Health Law Update. The interim final rule provides that all nondiagnostic services rendered on or after June 25, 2010, other than ambulance and maintenance renal dialysis services, provided by a hospital on the date of a beneficiary’s inpatient admission are deemed related to the admission and part of the beneficiary’s inpatient stay. Additionally, outpatient nondiagnostic services provided on the first, second and third calendar day prior to admission are deemed related to the beneficiary’s inpatient stay unless the hospital attests otherwise. A process for hospitals to attest to nondiagnostic services as being unrelated to the hospital claim will be established according to CMS. This is a substantial change from the historical policy under which a direct match of diagnosis codes was necessary in order to deny payment for such services. Now, hospitals will have to affirmatively show the “unrelatedness” of the nondiagnostic services in order to receive payment.

Comment Period

The final rule is slated for publication in the Federal Register on August 16, 2010. The comment period closes on September 28, 2010.

For more information, please contact Gregory N. Etzel, or 713.646.1316 or Kathleen P. Rubinstein, MPA, or 713.276.1650.

ESRD FINAL RULE AUGURS PAYMENT SYSTEM CHANGES FOR OTHER PROVIDERS

On July 26, CMS issued its final rule establishing a case-mix adjusted bundled prospective payment system (PPS) for dialysis providers. The PPS reimbursement system was promulgated by the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) and replaces the present composite payment system and payments for separately billable dialysis services which currently comprise about 40 percent of total spending for outpatient maintenance dialysis. The PPS rate system will be transitioned in over a four-year period; however, facilities can elect to immediately transition to PPS effective January 1, 2011.

Bundled Payment

Under PPS, dialysis facilities will receive bundled payment for ESRD treatments and supplies, related drugs and laboratory tests. The base payment rate will be $229.63 for each dialysis treatment. The bundled payment will be case-mix adjusted to account for the patient’s age, body surface area, low body mass index, sex, eleven co-morbidity categories and the patient’s dialysis longevity. Other adjustments were incorporated to account for pediatric patients, low-volume facilities (less than 4,000 treatments per year), high-cost outlier cases and the geographic location wage index. It is expected that total ESRD reimbursement under the final rule will decline by two percent, or approximately $200 million, in FY 2011.

Quality Incentive Program

Consistent with the agency’s drive toward value based purchasing initiatives, the ESRD PPS rule contains a proposed quality incentive program (QIP) for FY 2012 that links payments to performance standards. The QIP is the first of its kind in the Medicare program, actually reducing allowable payments if a facility fails to meet certain performance scores. Facilities that do not meet the quality requirements will see their reimbursement for services furnished on or after January 1, 2012, reduced by up to 2.0 percent. The proposed rule sets forth the first three quality standards. Two of the quality measures evaluate whether patients are receiving appropriate anemia treatments. The third measure evaluates patients’ urea reduction ratios, to determine how well dialysis treatments are removing wastes from the patients’ bodies.

Harbingers of Systems That Await Other Providers

The ESRD bundled payment approach and the QIP are harbingers of the systems that await other providers in the Medicare program. PPACA provided further support (and statutory mandates in several instances) for CMS to begin financially punishing providers for failure to meet certain quality standards as part of a value-based purchasing initiative. Careful attention should be paid to this rule by all provider types to evaluate the agency’s approach to such initiatives.

For more information, please contact Robert M. Wolin, or 713.646.1327 or Gregory N. Etzel, or 713.646.1316.

AHA COMMENTS ON STARK SELF-DISCLOSURE PROTOCOL

Since March of 2009, entities have been unable to use the Office of Inspector General’s (OIG) self-disclosure protocol to address arrangements constituting only a Stark Law violation, without an accompanying federal anti-kickback violation. PPACA mandates the creation of a Stark Law self-referral disclosure protocol (Protocol), effective September 23, 2010. On July 16, 2010, the American Hospital Association (AHA) published a letter to express support for the Protocol and recommendations for its implementation. The AHA letter encourages the Secretary of HHS to establish a two-track review process, to adopt mitigating factors in addition to those specified in PPACA and to stipulate damages in certain situations.

With respect to the two-tract review process, the AHA letter encourages an expedited review in circumstances “[W]here a provider’s disclosure of material facts and circumstances demonstrates that a matter can be resolved without significant additional evidence . . . .” The expedited process would be most applicable to situations involving inadequate or incomplete writings, such as missing signatures. A detailed review would be applicable “where the circumstances giving rise to an actual or potential violation necessitate a more involved description or analysis.” Examples given in the AHA letter include arrangements where the payment methods are complex or situations where the application of the Stark Law is unclear. Encouraging flexibility and a case-by-case approach, the AHA letter advises against specifying circumstances applicable to each process.

In addition to the mitigating factors set forth in PPACA, which include the nature and extent of the arrangement, the timeliness of the disclosure and the cooperation in providing additional information, the AHA letter proposes the following additional factors: whether the parties’ failure to meet all the prescribed criteria of an applicable exception was due to an innocent or unintentional mistake; the corrective action taken by the parties; whether the services provided were reasonable and medically necessary; whether access to a physician’s services was required in an emergency situation; and whether the Medicare program suffered any harm beyond the statutory disallowance.

PPACA authorizes the Secretary to compromise payment and settlement amounts due and owing for Stark Law violations. In doing so, the AHA letter suggests stipulated damages in amounts up to $10,000 for categories of violations posing the least risk of harm, such as missing signatures.

Finally, the AHA letter encourages the Secretary to deem a disclosure under the Protocol as a reporting of an overpayment, with a suspension of the PPACA time frame for return of overpayments (60 days) until the amount owed is determined under the Protocol.

For questions concerning the Stark Law self-disclosure protocol, contact Donna S. Clark, or 713.646.1302.

PATIENT-LABELED WASTE: DUMPSTER DISPOSAL VIOLATES HIPAA, FTC LAWS

A recent million-dollar settlement by the Rite Aid drug store chain should remind all providers to consider carefully the Health Insurance Portability and Accountability Act (HIPAA) when evaluating their waste streams. Rite Aid was accused of violating HIPAA’s privacy requirements by improperly disposing of prescriptions, labeled pill bottles and unused labels in their regular trash.

In addition to the settlement payment to the U.S. Department of Health and Human Services (HHS), Rite Aid was required to enter into a resolution agreement with HHS under which the company agreed to “implement a strong corrective action program,” that includes establishing policies and procedures for disposing of protected health information, creating a training program for handling and disposing of patient information, conducting internal monitoring and getting an independent assessment of its compliance for three years.

Rite Aid also was accused by the Federal Trade Commission (FTC) of violating the FTC Act by failing to implement reasonable and appropriate measures to protect customers’ personal information against unauthorized access when it represented in its HIPAA and other disclosures that it would do so. The FTC settlement requires Rite Aid to establish a comprehensive information security program designed to protect the security, confidentiality and integrity of the personal information it collects from consumers and to obtain every two years for the next 20 years an independent, outside audit of that program.

Consequently, providers must assure that patient-labeled waste, such as IV bags, are not being disposed of into dumpsters that are not protected in a manner to prevent public access in accordance with HIPAA.

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

STRATEGIC IMPLICATIONS OF HEALTH REFORM FOR THE LTC INDUSTRY

On July 22, 2010, Baker Hostetler partners Tom Kahle, Bob Wolin, Steve Eisenberg and John McGowan joined with Scott Heiser, Partner and President of Employee Benefits at the 28th largest insurance broker in the United States, Neace Lukens, in hosting a webinar titled “Long-Term Strategic Implications of Health Care Reform on the LTC Industry.” The webinar, which discusses the impact and strategic implications of health reform for the LTC industry, addressed a number of topics, including:

• Implications of health reform to LTC facilities as employers
• Impact on revenue and relationship to quality
• Evolving delivery systems and the role of LTC
• Evolving transparency, required disclosures and Elder Justice Act

Please click here to view an audio and video recording of this 90-minute webinar program.

EVENTS CALENDAR

August 5

Susan Feigin Harris will discuss the antitrust and clinical integration guidelines involved in joint venture activity and potential solutions for hospitals pursuing delivery system reform as a panelist for a webinar titled “Building the Ship While Sailing: Legal Issues for Hospitals Exploring Medical Home Models” by The Advisory Board.

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