Health Law Update – January 12, 2017

Alerts / January 12, 2017

Welcome to this week's edition of the Health Law Update. In this Issue:

CMS Finalizes Mandatory Cardiac and Joint Bundles … But Their Future is Uncertain

By Kristen McDermott Woodrum and Kaitlyn Appleby

When Tom Price assumes the top post at the U.S. Department of Health and Human Services (HHS) later this month (subject to Senate confirmation), the ink will barely be dry on a final rule issued by the Centers for Medicare & Medicaid Services (CMS) mandating hospital participation in two new cardiac episode-based payment models (EPMs) and an expansion of the Comprehensive Care for Joint Replacement (CCJR) program that began in April 2016. Under the Obama administration, HHS has ambitiously moved to tie federal Medicare expenditures to value and quality outcomes and transition providers to alternative payment models, such as EPMs. But the future of these models is uncertain.

The rule tracks closely CMS’s July 2016 proposed rule and reveals the 98 metropolitan statistical areas (MSAs) mandated to participate in bundled payment models for acute myocardial infarction (AMI) and coronary artery bypass graft (CABG). It also extends CCJR to certain surgical hip/femur fractures. Through the mandatory models, CMS seeks to gain additional experience with episode-based approaches for hospitals with diverse characteristics. And arguably, such models only succeed if less efficient hospitals are incentivized to change through mandatory participation.

Many, including Price, believe the mandatory models represent experiments with Americans’ health that exceed the authority granted by the Affordable Care Act to the Center for Medicare & Medicaid Innovation (CMMI) to test new models and conduct demonstrations. Price, an orthopedic surgeon, was the first of 179 members of Congress to sign a September 29, 2016 letter to Andrew Slavitt, acting administrator of CMS, and Patrick Conway, M.D., chief medical officer of CMMI, criticizing CCJR and the July proposed rule. But the potential savings are big, estimated by CMS to be $159 million over the initial performance period, and a new study of CCJR demonstrates the potential for savings through EPMs without diminishing the quality of care.

The new cardiac EPMs have a five-year performance period beginning July 1, 2017 and ending December 31, 2021. During this performance period each episode will begin with an inpatient stay and generally include all payments through 90 days post discharge. During each performance year, CMS will pay for services on a fee-for-service basis, but at the completion of the performance year, CMS will calculate the amount due to or from the hospital. In response to comments to the proposed rule, CMS is delaying the implementation of downside risk (or obligation to pay CMS) by nine months until episodes beginning October 1, 2018. The rule, however, does allow for participants to assume downside risk as early as January 1, 2018, to qualify as an Advanced Alternative Payment Model under the Quality Payment Program introduced by the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). The rule also finalizes incentives for cardiac rehabilitation in 90 MSAs, half of which are subject to the mandatory cardiac bundles.

Success in bundled payment models requires strategic planning and alignments, which are not quickly or easily implemented. So, even though the future of the new EPMs is in question, providers drafted for participation should evaluate their readiness for the changes (maybe) coming. And hospitals eligible for the cardiac rehabilitation incentives should determine how they may capture the additional revenues available through coordinating cardiac rehabilitation and achieving patient adherence to cardiac rehabilitation treatment plans.

Federal Court Enjoins Part of ACA Final Non-Discrimination Rule

By Amy E. Fouts and Kyle R. Gregory

On December 31, 2016, the U.S. District Court for the Northern District of Texas issued a nationwide injunction in Franciscan Alliance, Inc. v. Burwell, N.D. Tex., No. 16-cv-108, holding that portions of the final rule issued by the HHS Office for Civil Rights (OCR), which sought to operationalize Section 1557 of the Affordable Care Act (ACA), violated the Administrative Procedures Act (APA). It is important to note that the court did not strike down the entire rule. Going forward, entities covered under Section 1557 will still be required to provide assurances and notices of nondiscrimination on the basis of sex. However, this requirement will no longer include protections against discrimination on the basis of gender identity or termination of pregnancy.


Section 1557 of the ACA prohibits discrimination by a covered entity on the basis of race, color, national origin, sex, age, and disability in certain health programs or activities. The ACA derived its prohibition on sex discrimination from Title IX, a comprehensive federal law that prohibits discrimination on the basis of sex in any federally-funded education program or activity. On May 18, 2016, OCR published a final rule that sought to clarify and codify the nondiscrimination requirements of Section 1557, particularly the prohibition against discrimination on the basis of sex (Final Rule). The first elements of the Final Rule went into effect in July 2016.

Under the Final Rule, sex discrimination is broadly defined to include “gender identity,” which is defined as “an individual’s sense of gender, which may be male, female, neither, or a combination of male and female, and which may be different from an individual’s sex assigned at birth.” The definition also includes “gender expression,” i.e., the way an individual expresses gender identity, whether or not it conforms to social stereotypes associated with a particular gender, as well as an individual whose gender identity is different from the sex assigned to that person at birth, often referred to as “transgender” along with discrimination related to “termination of pregnancy,” i.e., discrimination due to past abortion history.

A complaint brought in August 2016 by the Franciscan Alliance (a Catholic hospital system), a Catholic medical group, a Christian medical association, and several states challenged the Final Rule’s interpretation of “sex discrimination” under Title IX as encompassing “gender identity” and “termination of pregnancy.”

What the Court Found

The court found that HHS’s interpretation of Section 1557 to prohibit discrimination against transgender persons wrongly construed both Title IX and Section 1557. According to the court, “sex” under Title IX is narrowly defined as the immutable biological differences between males and females as acknowledged at or before birth. By incorporating the statutory prohibition of sex discrimination in Title IX into Section 1557, Congress intended to keep the definition of discrimination on the basis of sex narrow in scope, thus not including protections for gender identity or termination of pregnancy. In addition, the court held the Final Rule’s failure to incorporate Title IX’s religious exemptions rendered the Final Rule arbitrary, capricious, and contrary to the law under the APA.

The court also addressed plaintiffs’ argument that the Final Rule violated the Religious Freedom Restoration Act (RFRA). The RFRA provides that the government may only substantially burden the free exercise of religion of a person or organization if the government (1) has a compelling interest to do so, and (2) is using the least restrictive means possible to further that compelling interest. Here, the court found the Final Rule placed substantial pressure on plaintiffs to abstain from a sincere religious exercise (i.e., the refusal to perform, refer for or cover gender transition procedures or abortions). Further, through the threat of enforcement actions, the court found the Final Rule made the practice of religious beliefs more expensive, which imposed an undue burden.

Although the government may burden one’s religious exercise under certain circumstances, it must show that the burden is the least restrictive means of advancing a compelling interest. The court found that HHS failed to prove the Final Rule employs the least restrictive means. According to the court, if the government wished to expand access to transition and abortion procedures, the most straightforward way to achieve this would be for the government to assume the cost of providing them. By requiring the plaintiffs to do so in its place, the judge determined that the Final Rule likely violated the RFRA.


The implications going forward are less clear as the decision to appeal the court’s ruling will ultimately be left to the Trump administration. The U.S. Supreme Court has already agreed to hear a case on whether an agency is allowed to interpret a federal prohibition on sex discrimination in schools under Title IX to cover discrimination based on gender identity. Of course, should the ACA be fully repealed under the new administration, such decision may prove moot for Section 1557.

HHS Ordered To Eliminate Medicare Appeals Backlog By 2021

By Kevin D. Bradberry

On January 4, 2017, the U.S. District Court for the District of Columbia rejected a request by the Secretary of HHS asking the court to reconsider its decision that requires HHS to eliminate the backlog of Medicare claims appeals pending at the Office of Medicare Hearings and Appeals (OMHA) by 2021. While “not unsympathetic to [the Secretary’s] plight,” the court nevertheless affirmed the order that Secretary Burwell begin a phased reduction of the agency’s appeals backlog at the Administrative Law Judge level. As of July 2016, claims submitted to OMHA for review experience an average wait for adjudication of more than two and a half years.

On December 5, 2016, the court granted summary judgment in American Hospital Association v. Burwell and ordered the Secretary to reduce the Medicare-appeals backlog annually by specific numeric targets through 2020. Noting that Congress had not taken any action on the AFIRM Act since it was introduced in the Senate on December 8, 2015, the court concluded that Congress was “unlikely to play the role of the cavalry here, riding to the rescue of the Secretary’s besieged program.” As a result, the court adopted the plaintiffs’ proposal for a structured reduction in the backlog: 30 percent by the end of 2017; 60 percent by December 31, 2018; 90 percent by December 31, 2019; and 100 percent the following year.

In doing so, the court avoided the Fourth Circuit’s reasoning in Cumberland County Hospital System, Inc. v. Burwell that granting relief to a single provider would simply put the provider “at the head of the queue, where doing so would simply move all others back one space.” 816 F.3d 48, 51 (4th Cir. 2016). The court also rejected the Secretary’s argument that such systemic relief would force HHS to make payment on Medicare claims regardless of their merit, noting that “[s]atisfying the statutory demands for both accuracy and timeliness will no doubt prove challenging, but such is the task at hand.”

Declining to implement the plaintiffs’ proposal that the court enter default judgment on January 1, 2021 for claims pending at OMHA for more than a year, the court agreed with HHS that this action could “create perverse incentives for providers and suppliers to appeal non-meritorious claims,” and determined that if the deadlines were not met, the plaintiffs could instead move for default judgment against the government in the instant court action.

Under the court’s December order, the Secretary must file status reports updating the court on HHS’s progress every 90 days. The first report is due March 6, 2017.

Blog Exclusive: Capitol Hill Healthcare Update

BakerHostetler’s “Capitol Hill Healthcare Update” is distributed weekly when Congress is in session.

By Michael A. Ferguson, Christian B. Jones, Adam J. Higgins and Tyler M. Thompson

January 10, 2017

  • The GOP faces internal dissent over ACA repeal timing
  • Democrats pressure Trump, GOP on drug prices
  • Democrats target HHS pick Price
  • Burgess to lead key House health panel
  • Trump fills two key White House health posts
  • Rep. Paulsen reintroduces device tax repeal
  • Grassley expands Mylan probe
  • Lawmakers object to HHS liver transplant plan

January 4, 2017

  • New Congress targets ACA repeal
  • GOP’s ACA replacement still under development
  • Obama to rally with Dems on ACA
  • Walden, Neal among changes to key health panels

For further information or questions, please contact the authors or any member of the BakerHostetler Federal Policy team.

January 18, 2017 Webinar: What to Expect in Trump’s First 100 Days

After years of gridlock, Congress is poised to unleash a flurry of legislative activity early in 2017. The agenda is jam-packed as the Republican-led Congress targets major changes to the Affordable Care Act, Dodd-Frank, taxes and a host of Obama administration regulatory initiatives. Republicans will leverage their congressional majorities to advance their policy priorities, but Democrats have procedural weapons to delay or even derail certain GOP initiatives as they hope to shape legislative outcomes more to their party’s liking. Overshadowing it all will be Donald Trump. How will the new president work with Congress? What happens when the legislative process inevitably slows or the White House loses a key vote? How will lawmakers react when they’re singled out for criticism in a presidential tweet?

Register Now >>

Events Calendar

January 18, 2017

Cleveland Of Counsel Thomas S. Campanella will present “Post-Election Review: An Update” for the Northeast Ohio Health Underwriters Association, in Brecksville, OH.

January 31, 2017

Cleveland Of Counsel Thomas S. Campanella will present “Reimbursement’s Impact on Device Business Development” at the Medical Device Business Development: Mergers, Acquisitions & Corporate Strategy Conference in Atlanta, GA.

February 15, 2017

Houston Partner Lynn Sessions will be speaking at the “Healthcare Cyber 101 Event” for the Greater Houston Society for Healthcare Risk Management in Houston, TX.

February 23, 2017

Washington, D.C. Partner Lee Rosebush will be hosting a CLE webinar in conjunction with Lawline on recent developments in pharmacy and pharmaceutical law. The live webcast will cover a wide range of issues, including pharmacist-in-charge liability, compounding law, off-label use, false claims, product liability issues and medical marijuana. For more information and to register, please consult the Lawline website.

February 23-24, 2017

Houston Partner Lynn Sessions will present “Preparing for Your Coming Privacy Breach” at the American Health Lawyers Association’s Long Term Care and the Law Program in San Diego, CA.

March 11, 2017

Houston Partner Lynn Sessions will present “Domino Effect of Flawed Breach Response” at the 2017 SXSW Conference in Austin, TX

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.

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