Health Law Update - November 17, 2016

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

  • Trump Administration: Impact on Healthcare
  • The Wait is Over: CMS Delivers Post-BBA Provider-Based Policies in Final 2017 OPPS
  • Nursing Home Arbitration Ban: There’s a Line in the Sand but the Tide May Still Come In
  • California OSHA Sets the Bar by Adopting the Strongest Workplace Violence Prevention Standard in the Nation
  • Events Calendar

Trump Administration: Impact on Healthcare Policy

Republicans’ biggest issue will be what to do with the 20 million Americans who have gained coverage under the ACA.

By Michael A. Ferguson, Susan Feigin Harris and Christian B. Jones

Congress reconvened this week for the first time since Donald Trump’s stunning victory, and just as his election was a political earthquake, the impact of the Trump administration and the Republican Congress on healthcare policy promises to be just as sweeping.

President-elect Trump made repealing the Affordable Care Act (ACA) a centerpiece of his campaign, and with a Republican-controlled Congress, the multiple prior attempts could pave the path for dismantling the ACA in short order. GOP policymakers are plotting how best to move forward, what portions of the ACA to leave intact and what replacement language they can agree to. Stakeholders, like insurers and hospitals, have thrown out their pre-election strategies and are scrambling to understand and shape potential ACA policy decisions in this unexpected and unpredictable policy environment.

While the future of the ACA will consume lawmakers in the coming months, the election’s outcomes promise to impact a range of additional healthcare issues, including Medicare and Medicaid payment and delivery system reforms; drug prices; the future of the Center for Medicare & Medicaid Innovation (CMMI); and the Independent Payment Advisory Board (IPAB), a key provision of the ACA that many lawmakers have sought to eliminate.

It’s a new political world in Washington, and public policy that has historically been marked by partisan-fueled gridlock suddenly seems possible, creating new risks and new opportunities for healthcare stakeholders.

Lame-Duck Session

The one thing that members of Congress must do in the lame-duck session before they adjourn is pass a spending bill to keep the government operating before the continuing resolution expires on December 9, 2016. Many are arguing over how long the next spending measure will extend, given several impending spending issues (including a vote to raise the debt ceiling) that will ripen in March. In any event, there appears to be little appetite to do much until the new Congress is sworn in with a Republican majority in both houses and a Trump administration fully in place.

Before year’s end, Congress will likely consider a version of the medical innovation legislation “21st Century Cures” (HR 6) prior to the end of Rep. Fred Upton’s (R-MI) term as chair of the House Energy and Commerce Committee. Rep. Upton has made the Cures legislation a key priority in 2016 and feels strongly about the provisions in the House bill, which now resides in the Senate. But the effort remains blocked by disagreements over how to pay for the bill’s increased funding for NIH and FDA, as well as new funding for Vice President Biden’s Cancer Moonshot initiative. Congressional staff last week said the legislation likely wouldn’t be considered until December at the earliest. Although Senate Majority Leader Mitch McConnell (R-KY) and other GOP leaders have indicated that HR 6 should be a priority in the lame-duck session, other legislators believe the Cures legislation will be delayed until 2017, when it could be folded into other industry user fee reauthorization.

The focus on opioid abuse and legislation drafted to help address this issue could also die in the lame-duck session.

Prior to the election, pharmaceutical manufacturers called on Congress to stall the proposed Medicare demonstration program, funded by CMMI to provide reimbursement for physician-administered drugs. Industry lobbyists wanted to attach language blocking the CMMI demonstration to a separate “must-pass” funding bill to keep the government open after the current stopgap budget expires on December 9.

Theoretically, the Trump administration could claw back the demonstration program after a new CMS administrator is sworn in next year. But the president-elect became a wild card on drug issues after he advocated for several adverse policies during the campaign, including drug importation and allowing the federal government to negotiate directly with manufacturers on pricing. (Neither importation nor overturning the so-called non-interference policy on prices is currently featured on the president-elect’s transition website.)


Congress reconvened this week for mostly internal housekeeping, including electing new leaders and issuing committee assignments to newly elected lawmakers. No changes are expected to the House GOP leadership, though Speaker Paul Ryan (R-WI) could face a challenge in January when the entire House votes on his re-election.

Some House Democrats, led by younger members, are pushing to delay their party’s elections (three of the Democrats’ top four House leaders are at least 75 years old).

Sen. Chuck Schumer (D-NY) will replace retiring Minority Leader Harry Reid (D-NV). Schumer will have to balance a newly ascendant liberal wing led by Sens. Bernie Sanders (I-VT) and Elizabeth Warren (D-MA) with the political reality that 25 Democratic senators face re-election in 2018, including many in states Trump won.

House Republicans also will decide who will replace term-limited Energy and Commerce Committee chair Fred Upton (R-MI). The committee has principal jurisdiction over healthcare regulatory policy, the FDA, and Medicaid and Medicare. GOP leaders will choose between Reps. Greg Walden (R-OR), and John Shimkus (R-IL).

The House is scheduled to vote this week on a series of healthcare bills, including establishing an HHS panel to recommend how to implement preventive health strategies for people with diabetes and metabolic and autoimmune diseases; authorizing emergency medical services personnel to administer anti-seizure medications, narcotic painkillers and other controlled substances; and reauthorizing tens of millions of dollars in grants and scholarships for nursing education programs.

Affordable Care Act

After railing against the ACA for months, Trump has recently softened his stance, saying he would be open to amending the law rather than repealing it. That’s less a policy retreat and more an acknowledgment that Republicans had wanted to keep some provisions they have long championed, such as coverage for pre-existing conditions.

But make no mistake, Trump and Congress will try to largely dismantle the ACA, and the efforts are already underway. They are likely to use a procedural technique called “reconciliation” that allows the GOP to bypass an expected Democratic-led filibuster in the Senate and approve legislation with only Republican votes.

Congress can’t repeal all of the ACA with reconciliation, only those sections that relate to taxes and spending, including new taxes created to fund the program, such as those on medical devices, subsidies to buy health insurance, penalties for not having insurance and Medicaid expansion. Important and controversial provisions, such as the individual mandate, cannot be repealed through reconciliation. However, much can be done by executive order and by failing to enforce, fund and vigorously defend the ongoing lawsuits challenging the ACA. Moreover, since the ACA’s success was largely tied to provisions and elements working in concert, dismantling the financial underpinnings of the ACA through reconciliation could cause serious distortions in the insurance markets and the exchanges, which are already in a state of disarray.

It is highly unlikely that the many fraud enforcement or consumer provisions will be subject to immediate repeal and very likely that we will find these important provisions (some of which are CBO money savers) in a replace legislative package.

Republicans’ biggest issue will be what to do with the 20 million Americans who have gained coverage under the ACA. Some lawmakers want a repeal bill ready for Trump’s signature in January along with companion legislation to replace the ACA. It is likely that a concept for replacement will be unveiled at the same time as a repeal package, but the repeal package would include a transition period to allow for the introduction and passage of a replace package.

Insurers are already selling 2017 policies, and Republicans have been unable to coalesce around what would take the ACA’s place. Now that replacing the law is no longer theoretical, the process of agreeing on new coverage will likely play out over a period of months. A potential template could be House Speaker Paul Ryan’s “A Better Way.” Recently, the Heritage Foundation sent a white paper to the Trump campaign that contained several provisions for healthcare reform, that could also form a foundation for changes.

Drug Prices

Pharma companies dodged a bullet last week.

The drug industry was preparing for legislative and regulatory assaults from an expected Clinton administration and a Democratic-controlled Senate. Democrats would have grilled the industry over drug prices, including subpoenaing internal information on pricing decisions as well as marketing and research spending.

But not all is rosy for pharma. The president-elect is a wild card whose campaign comments on the industry could have come from Sanders’ talking points.

Rising drug prices and the lack of industry transparency that goes into pricing play to the populist anger Trump tapped into during the campaign. Even congressional Republicans are not immune to that sentiment and are expected to press FDA to speed generic applications to ensure competition for non-branded drugs.

Still, considering the downside risk pharmaceutical manufacturers faced with the likes of Sen. Bernie Sanders, among others, firing off subpoenas and holding hearings, drug companies will be playing less defense than they had feared.

Medicare and Payment Reform

Congressional Republicans earlier this year proposed combining Parts A and B of the Medicare program to promote care coordination and discourage overutilization, a major change in billing and operations that would need to occur nationally; strengthening Medicare Advantage; repealing the IPAB (which would authorize Medicare cost reductions outside the political process) and CMMI; repealing the ban on physician-owned hospitals; and reforming Medigap insurance.

Outside the ACA, the implementation of major changes to physician payment under MACRA may be reviewed and other controversial regulatory changes to the Medicare program could be pulled back or slowed significantly under new leadership in HHS.

Within the ACA, a change of funding for or repeal of the CMMI and a scaling back of the agency’s numerous alternative payment and delivery demonstration projects (including accountable care organizations) that are currently under way could disadvantage private payers.

Pharmaceutical manufacturers and physician groups working to derail and possibly kill the CMMI pilot program for Medicare Part B reimbursements (and the likely forthcoming demonstration for Part D) could benefit from a policy shift in CMMI funding. Congress may attempt to stop or roll back the Part B demonstration in December, or lawmakers could wait until early next year to work with the new CMS administrator to scale back the program.

Trump could clash with Republicans on Medicare. He was clear during the campaign that he didn’t want to change Medicare. But his transition team says the incoming president favors “modernizing” the Medicare program. Lawmakers would like to model changes on what they see as the market-based success of Part D, with plans openly vying for seniors’ business.

Medicaid and CHIP

House Speaker Ryan, a key policymaker in the healthcare space, said last week that he wants to push for a large-scale Medicare and Medicaid overhaul next year, which may include the concept of block-grants for state Medicaid programs.

Thirty-one states leveraged federal money to expand their Medicaid programs under the ACA. The likelihood of continued Medicaid expansion is low, given the talk of repeal. So how will Congress and the Trump administration pursue the call for enhanced state flexibility? By continuing to approve and review the 1115 waivers that enable states to test and evaluate policy approaches that do not meet current Medicaid program rules. Nearly two-thirds of the states are currently operating under one or more 1115 waivers. However, the 1115 waivers are not well-liked by current CMS leadership.

Another option created by the ACA is the Section 1332 state innovation waiver, which would allow states to refashion insurance coverage by waiving specific parts of the ACA. Available January 2017, the 1332 waivers have been widely discussed as a preferred vehicle for pursuing certain innovative reforms.

Important changes to the disproportionate share hospital (DSH) supplemental payment program required by the ACA could also occur, but this could cause confusion in the hospital accounting world and among Medicaid programs, as regulations are in the process of being finalized and proposals for reductions are being considered.

Finally, the Children’s Health Insurance Program (CHIP) comes up for reauthorization in 2017. Opposition by Congress and the Trump administration could end CHIP, leaving millions of children without coverage, unless the issue is addressed in early 2017.

The Wait is Over: CMS Delivers Post-BBA Provider-Based Policies in Final 2017 OPPS

Now that the rule is out, work to implement the BBA changes begins in earnest.

By Kristen McDermott Woodrum, Susan Feigin Harris and Ernessa B. McKie

CMS commemorated the one-year anniversary of the Bipartisan Budget Act of 2015 (BBA) with the traditional gift of paper, offering long-awaited guidance to hospitals on how the agency will implement the site-neutral payment policies of BBA Section 603 in the CY 2017 Hospital Outpatient Prospective Payment System (OPPS) final rule. Section 603 addresses the differential in reimbursement to providers based on whether a location is operated as a provider-based hospital outpatient department, paid under the higher OPPS rates, or a freestanding facility. Effective January 1, 2017, the BBA limits billing under the OPPS to “excepted” departments.

The final rule does not offer hospitals reprieve from the impending reimbursement shift or extend grandfathered status to departments that were “mid-build” when the BBA was enacted. But it does provide clarity and answers on key questions including how to submit claims, reimbursement rates under applicable payment systems, and changes that will terminate the grandfathered status of excepted departments. And it responds to comments of industry stakeholders, including the American Hospital Association, urging CMS to rethink some of the policies set forth in the proposed rule, though it does not go as far as many had hoped.

Wait Is Over but Work Continues

Now that the rule is out, work to implement the BBA changes begins in earnest.

  • CMS still has work to do. While the agency finalized a temporary policy to reimburse non-excepted items and services during the next year under the Medicare Physician Fee Schedule (MPFS), it acknowledged the need to adapt its systems to allow for payments under applicable payment systems thereafter. In addition to the final rule, CMS also issued an interim final rule with comment period to establish the MPFS payment rates for items and services billed by non-excepted departments starting January 1.
  • Congress also has work to do if additional relief will be afforded. In June, the U.S. House of Representatives passed H.R. 5273, the Helping Hospitals Improve Patient Care Act, which included, among its many provisions, potential relief for cancer hospitals and hospitals that can certify a new off-campus department was “mid-build” when the BBA was enacted. It is unlikely these hospitals will qualify for excepted or grandfathered status unless there is movement on this bill in the Senate during the lame-duck session.
  • But hospitals have the most work ahead, evaluating how to operate excepted departments in a manner that maintains OPPS billing rates, preparing to bill for items and services provided in non-excepted departments starting January 1 and monitoring compliance. An overview of key focus areas is provided below.

Identifying Excepted Departments

The final rule defines excepted hospital departments to include:

  • Dedicated emergency departments. The final rule provides that all items and services (not just emergency services) furnished in an emergency department satisfying existing regulations may be paid through the OPPS.
  • Departments “on the campus” or within 250 yards of the hospital or remote location of the hospital. CMS recognized that the BBA added significantly more focus and attention on provider-based criteria, including the definition of “campus,” but indicated it will continue to defer to the regional offices to make case-by-case determinations of what constitutes a main campus. CMS did clarify that the measurement of 250 yards from a remote location is made from any point of the physical facility.
  • Grandfathered off-campus departments. CMS expanded its interpretation of the BBA to except off-campus departments that furnished a covered service prior to November 2, 2015, even if claims were timely submitted after the BBA enactment date.

No guidance by CMS was provided in the final rule or during the November Hospital Open Door Forum on whether the BBA payment and certification provisions would be applied as strictly to entities that primarily are engaged in providing Medicaid items and services. CMS punted to the states for direction, but the conservative approach is to assume the BBA applies unequivocally.

Maintaining Status of Excepted Departments

The final rule provides little flexibility on facts and circumstances outside a hospital’s control that could endanger the excepted status of a department. But CMS backed away from an admittedly complex and burdensome proposal to limit expansion of services in excepted departments to items and services in the same clinical family.

  • Relocation. As a general rule, an off-campus department will lose its excepted status if it relocates from the physical address (including the unit number) listed on its enrollment form as of November 1, 2015. CMS expressed concern that a broader relocation policy could create an unintentional loophole undermining the intent of the BBA by allowing relocation to larger facilities with different equipment and staff and unbridled expansion of service lines. The final rule adopts an exceptions process to allow relocation for extraordinary circumstances outside the hospital’s control, such as natural disasters, significant seismic building code requirements, or significant public safety issues. Exceptions will be evaluated on a case-by-case basis by the regional offices and this opportunity for dialogue may allow hospitals to educate staff on community needs. CMS signaled that it may issue subregulatory guidance to address technical details.
  • Change of Ownership. Excepted status of an off-campus department is transferrable to a new owner only if the new owner becomes the owner of the main provider and accepts the Medicare provider agreement. Excepted status is lost for an individual excepted department that is sold and if the provider agreement is terminated.
  • Expansion of Services. As a bright spot in the rule for hospitals (and CMS staffers), CMS declined to limit an excepted department to billing for items and services within defined “clinical families” it billed for under the OPPS during some period prior to the BBA’s enactment. CMS acknowledged the proposed policy could be operationally complex and burdensome but expressed its intent to monitor service line growth and, if appropriate, adopt a limitation on expansion in future rulemaking. The final rule includes a specific request for comments on a policy to limit OPPS payment to the types of services furnished and billed prior to November 2, 2015. CMS intends to monitor for shifts of services from non-excepted to excepted off-campus departments and the final rule imposes specific reporting requirements on providers related to additions and changes to excepted departments.

Getting Paid for Non-Excepted Services

The BBA provides that non-excepted departments will be paid under applicable Medicare Part B payment systems other than the OPPS. In the proposed rule, CMS identified the MPFS as the applicable payment system, with some exceptions, but proposed no mechanism for hospitals to directly bill for services under this payment system. In its interim final rule, CMS found a workaround for its systems issues. Starting January 1, hospitals will be able to submit claims on the institutional UB-04 form with the modifier “PN” to signify the services were provided in a non-excepted department. CMS will establish new MPFS rates, which for 2017 will be about 50 percent of the OPPS rate for each non-excepted item or service, with some exceptions. CMS acknowledged that even this is a temporary solution. In the meantime, hospitals may elect to enroll a non-excepted facility as a freestanding facility or supplier to bill non-excepted items and services under the MPFS. Hospitals should keep in mind that billing and enrollment changes may have a ripple effect, impacting licensure requirements, private payer reimbursement and other matters.

Evaluate, Monitor and Stay Tuned

Hospitals will need to evaluate and monitor their operations to maximize reimbursement under the BBA. Providers should assess the status of facilities as excepted departments and track their services, educate strategic planning and real estate personnel on the impacts of changes to excepted departments and work with their revenue cycle and billing teams toward reimbursement of non-excepted departments under other applicable payment systems. Refinements and additional guidance will be forthcoming so hospitals should stay tuned.

CMS is accepting comments on its interim final rule through December 31, 2016. And while congressional action may be a long shot, anything is possible in politics.

Nursing Home Arbitration Ban: There’s a Line in the Sand – But the Tide May Still Come In

By Emily C. Crosby and Elizabeth A. O'Connell

On November 7, 2016 a federal judge in Mississippi granted a request to temporarily enjoin CMS from implementing a federal rule, scheduled to take effect November 28, 2016, banning the use of mandatory pre-dispute arbitration agreements by federally-funded skilled nursing facilities (Rule). Despite noting the potential public policy arguments for the Rule, the court found that CMS had overstepped by attempting to act without statutory authority.


The validity of arbitration clauses was first addressed almost 100 years ago in the Federal Arbitration Act (FAA). The FAA provides that an arbitration agreement is not invalid merely because it compels arbitration but that it can be nullified based on principles of contract law. Numerous laws designed to restrict the use of arbitration clauses in SNF admission agreements have been proposed over the years, and most have met with strong resistance from providers and other industry groups citing, among other things, that increased lawsuits and the costs associated with litigating disputes and paying claims would cause significant hardship for the industry.

The U.S. Supreme Court has also repeatedly upheld the use of arbitration clauses. In Marmet Health Care Center Inc. v. Brown, 132 S. Ct. 1201 (2010), for example, the Court invalidated a portion of the West Virginia Nursing Home Act that rendered null and void any waivers of the right to bring a court action against a nursing home. The Court remanded the case with instructions that a blanket ban on nursing home arbitrations is not enforceable, but left open the possibility that a court could consider whether or not a specific arbitration agreement is unenforceable under state common law contract principles not specific to arbitration agreements. Similarly, in AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011), the Court interpreted the FAA as preempting the field of state law contract formation and enforcement rules as applied to arbitration clauses, so that state laws regarding the enforceability of contracts cannot overrule the parties’ privately agreed-upon terms for arbitration.

The Rule

The initial version of the Rule, proposed by HHS in July 2015, aimed to improve the disclosure of arbitration clauses in admission agreements. The final Rule, however, took a much harsher stance, cutting off funding to skilled nursing facilities that require arbitration clauses as a condition of admission. HHS enacted the Rule under its executive authority and did not seek congressional approval.

The Lawsuit

As expected, the industry reacted immediately and negatively to the Rule, citing, among other things, the risk of severe increases in litigation costs as well as litigation abuse, the costs of which would ultimately be borne by payers and consumers. The American Health Care Association and four other state and local healthcare groups then filed a class action lawsuit against the Rule, claiming that CMS had exceeded its authority and that the Rule violated the FAA. The government argued the Rule did not ban arbitration agreements outright, but merely provided a financial incentive not to use them. The plaintiffs further claimed that CMS exceeded its authority by effectively creating legislation on an issue that Congress had repeatedly declined to legislate and urged the court to prevent the Rule from taking effect on November 28, 2016.

The United States District Court for the Northern District of Mississippi issued a 40-page order granting the plaintiffs’ motion for a preliminary injunction, temporarily enjoining enforcement of the Rule. The court agreed that CMS did not have the authority to enact the mandate without statutory authority, stating that the Rule exemplified the “incremental creep of federal agency authority beyond that envisioned by the U.S. Constitution.” The court acknowledged the challenges in mandating arbitration clauses in the consumer context, but demurred these as congressional considerations, stating that “Congress’ failure to enact positive legislation should not serve as an excuse for the executive branch to assume powers which are properly reserved for the legislative branch.”

BakerHostetler is actively monitoring developments in this matter and assisting our clients in navigating this period of uncertainty for the industry.

California OSHA Sets the Bar by Adopting the Strongest Workplace Violence Prevention Standard in the Nation

On Oct. 21, 2016, after nearly two years of meetings and work, the California Division of Occupational Safety and Health Administration (Cal/OSHA) adopted a standard intended to reduce workplace violence against healthcare workers. This is a monumental action by Cal/OSHA for at least three reasons. First, federal OSHA currently has no specific standard governing workplace violence, and it is the first time that a state OSHA agency has adopted a standard addressing the prevention of workplace violence for healthcare facilities. Second, the standard is by far the strictest occupational safety and health regulation in the country governing workplace violence for healthcare workers. And third, the California standard sets an extremely high bar for other state OSHA plans, as well as federal OSHA, when these other agencies consider changes to their respective standards. Read more >>

Events Calendar

November 29, 2016

Washington, DC Senior Advisor Michael A. Ferguson will moderate a panel on Pharma/Healthcare during FiscalNote’s Reinvent Influence Summit at the U.S. Institute of Peace in Washington, DC.

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