Health Law Update - September 8, 2016

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

  • Congress is Back in Session – So What Now for Healthcare?
  • What Does the CMS Notice of Benefit and Payment Parameters Mean for Providers?
  • Medicare Advantage Plan Arbitration Clauses Preempted by Medicare Appeals Process
  • Obstruction of a Medicare Audit Doesn’t Require Direct Obstruction of a Federal Agent
  • Events Calendar

Congress is Back in Session – So What Now for Healthcare?

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

With Congress reconvening after a seven-week summer recess, we wanted to provide you with a quick topline of key healthcare issues lawmakers are expected to consider this week.

Zika Funding

The Senate voted September 6 – and as expected – failed to overcome a Democratic filibuster of new funding to combat the Zika virus. Congress earlier this summer failed to approve funding after Senate Democrats twice blocked consideration of legislation that would have provided $1.1 billion. Democrats object to the GOP Zika bill in part because it’s offset by cuts in the Affordable Care Act. Congressional leaders are expected to include Zika funding in a must-pass spending bill later this month to keep the government operating after fiscal 2016 expires on September 30.

21st Century Cures

On September 7, House Energy and Commerce Chairman Fred Upton (R-MI) acknowledged publicly what had been widely suspected on Capitol Hill – his “21st Century Cures” medical innovation legislation will not pass Congress before the November elections.

Key lawmakers and committee staff had been working during Congress’ summer recess to find a resolution to the popular bill (H.R. 6). Upton had hoped to push through a scaled-down version in September with small-bore regulatory changes designed to speed the discovery and approval of new drugs and medical technology. Upton proposed adding $4 billion for the National Institutes of Health (NIH), $1 billion for the Cancer Moonshot initiative and $1 billion to combat opioid abuse.

But the bill had been blocked by Senate Democrats, who were pressing for billions of dollars more in automatic funding for NIH. Lawmakers also couldn’t resolve partisan disputes as Democrats didn’t want to streamline regulatory approval for pharmaceutical manufacturers without also addressing drug prices, which lawmakers are highlighting in their political campaigns.

Upton still hopes Cures can win congressional approval in December when Congress will reconvene for a post-election lame duck session.

Medicare Part A

The House Ways and Means Health Subcommittee held a hearing on September 7 to examine the evolution of quality in Medicare Part A, specifically whether existing Medicare policies are giving hospitals enough incentives to deliver high-quality, cost-efficient care. “Breaking down barriers to innovation in Medicare will improve the program for beneficiaries and ensure limited taxpayer dollars are being spent efficiently,” subcommittee Chairman Pat Tiberi (R-OH) said. Witnesses included Barbara Gage of George Washington University’s Center for Healthcare Innovation and Policy Research; Elisabeth Wynn of the Greater New York Hospital Association; and Dr. Gregory Worsowicz, president of the American Academy of Physical Medicine Rehabilitation.

Medicare Part B

On September 7, the House Budget Committee held a hearing on the Centers for Medicare and Medicaid Services’ (CMS) CMMI demonstration projects, including the controversial pilots for provider-administered drugs under Medicare Part B and a bundled payment model for joint replacement. Opponents of the Part B demo, which include both Republicans and Democrats, learned they will face a significant procedural hurdle if they hope to overturn the plan – the demo could save taxpayers more than $30 billion over 10 years. That means, under congressional budget rules, lawmakers would need to find corresponding savings elsewhere to kill the pilot program. Congress isn’t likely to act to block the demo until December at the earliest. CMS hasn’t finalized the Part B drug plan, and the agency hasn’t forwarded a draft to the White House’s Office of Management and Budget for review.

Mental Health Parity

The House Energy and Commerce Health Subcommittee will hold a hearing on September 9 examining federal mental health parity laws and regulations. Lawmakers will examine a section of H.R. 2646, the “Helping Families in Mental Health Crisis Act,” as well as additional mental health and substance use disorder parity laws.

Cancer Moonshot

Vice President Joe Biden’s Cancer Moonshot initiative recently released the first of three major reports, calling for the creation of a national clinical trials network for immunotherapy research and a national cancer data “ecosystem.” It also advocated increased support for the development of new technologies to monitor cancer cells and the impact of cancer treatments, including radiologic imaging, nuclear medicine and PET imaging. Radiation therapy is also referenced as a potential means of overcoming drug-resistant cancerous tumors.


Mylan Pharmaceuticals remains in the congressional crosshairs as lawmakers in both parties criticize price increases for the company’s emergency allergy treatment. Mylan has agreed to meet privately this week with staff for the Senate Aging Committee and the House Oversight and Government Reform Committee, as well as respond this week to written questions from the Senate Judiciary Committee. Congressional hearings – and even subpoenas – could target Mylan in coming weeks.

What Does the CMS Notice of Benefit and Payment Parameters Mean for Providers?

By Susan Feigin Harris

The Centers for Medicare & Medicaid Services (CMS) recently issued its proposed Notice of Benefit and Payment Parameters for 2018 (Proposed Rule) a couple of months earlier than in the past - one of the administration’s many actions aimed at setting the tone going into the election and the coming year. The release of the Proposed Rule comes as many insurers, including Aetna, Cigna, Humana, UnitedHealthcare and smaller qualified health plans (QHPs), announced plans to exit or limit participation in the Exchanges for 2017. With a targeted focus on making the Exchanges operate more efficiently, the Proposed Rule spans 293 pages of dense content with numerous proposals related to the risk adjustment program and accompanying tables and figures. Although central to insurance entities, the Proposed Rule is sure to impact patient access to healthcare services and payment to providers. To that end, CMS is asking providers to weigh in on the Proposed Rule’s policies, some of which may be more relevant than others to patients seen in the office or hospitals.

Network Adequacy

The Proposed Rule addresses network adequacy standards, in particular, by building on the minimum criteria established under 45 CFR § 156.230. In the 2017 Payment Notice, HHS finalized a policy related to “network breadth” by QHPs that will allow consumers to use to make network adequacy comparisons with those of other QHPs in the same geographic area. CMS intends to pilot a network breadth indicator in six states for plan year 2017. The results of the pilot will determine if CMS will expand it to more states in 2018.

The Proposed Rule seeks input on whether CMS should incorporate further detail into these indicators, specifically whether a plan is being offered as part of an integrated delivery system. In essence, CMS is requesting whether this information imparts a higher level of access or “may not accurately describe the ability of a consumer to access providers relative to consumers enrolled in plans that are not part of an integrated delivery system in the same county.”

For purposes of defining which plans utilize an integrated delivery system, CMS proposes to use the “alternate essential community provider standard at 45 CFR 156.235(b).” Thus, a plan would be part of an integrated delivery system if it provides a majority of covered professional services through physicians employed by the issuer or through contracted medical groups.

Surprise Medical Bills

In an effort to address escalating concerns by consumers over “surprise” medical bills that occur, for example, when care is delivered at an in-network facility by an out-of-network specialist, the Proposed Rule includes a requirement that beginning in 2018, plans count enrollee cost sharing for an essential health benefit (EHB) provided by an out-of-network provider at an in-network facility toward the enrollee’s annual deductible. CMS is soliciting comments on whether this policy should be expanded to apply to QHPs both on and off the Exchanges, regardless of whether the QHP covers out-of-network services.

Essential Community Providers

With regard to the calculation of Essential Community Providers and whether a QHP has met the minimum percentage of ECPs in a plan’s services, CMS is requesting comments on maintaining the agency’s current approach in future years and specifically requests comments on the best approach for measuring hospital participation in 2019.

Opportunity for Comment

CMS is soliciting comments on all aspects of the Proposed Rule. Comments are due on or before October 6, 2016.

Medicare Advantage Plan Arbitration Clauses Preempted by Medicare Appeals Process

By Robert M. Wolin

The Arizona Supreme Court, in an interesting case involving a Medicare-related coverage dispute between a Medicare Advantage plan administrator, United Behavioral Health (UBH), and two inpatient psychiatric care providers, held that the Medicare administrative appeals process preempts the arbitration language contained in the UBH provider agreements. The court also remanded the case back to the state appeals court to determine whether ERISA similarly preempts arbitration of coverage disputes involving ERISA-regulated plans. The UBH case raises concerns over the availability and use of remedies beyond those set out in Medicare Advantage provider agreements when addressing coverage claims and disputes.

Coverage Pre-Authorization Denial

The dispute in United Behavioral Health v. Maricopa Integrated Health System concerns whether continued inpatient treatment of Medicare Advantage plan and ERISA plan beneficiaries initially hospitalized for mental health treatment was medically necessary, and therefore compensable. UBH refused to authorize the extended inpatient care as medically necessary. Notwithstanding the UBH denial, providers continued the beneficiaries’ inpatient care and made claims for reimbursement, which UBH denied. The providers then sought arbitration pursuant to the arbitration provisions in the provider agreements. UBH filed suit to stay the arbitration proceedings claiming that Congress provided exclusive procedures in the Medicare Act and in ERISA for resolving coverage disputes that preempt arbitration contending that the disputes must be resolved through the Medicare and ERISA administrative processes.

Preemption of Provider Agreement’s Arbitration Clause

Finding the court of appeals erred by deciding that whether the provider’s ERISA-related claims are arbitrable depends on whether the provider has standing to assert its claim, the Arizona Supreme Court vacated the court of appeals’ opinion and remanded the case back to the state appeals court to determine whether ERISA preempts the provider agreement’s arbitration clause.

Holding that all claims "arising under" the Medicare Act must be resolved through the U.S. Department of Health and Human Services’ (HHS) administrative review procedures, the Arizona Supreme Court stated that “[a] claim arises under the Medicare Act if "both the standing and the substantive basis for the presentation" of the claim is the Medicare Act or if the claim is ‘inextricably intertwined’ with a claim for Medicare benefits.” As a result, the court found the dispute was not subject to arbitration.

Concluding that if a “claim is "wholly collateral" to the Medicare Act's review provisions and outside HHS's expertise, it is not subject to” the Medicare appeals process, the court cited a 2004 decision by the Fifth Circuit Court of Appeals [RenCare, Ltd. v. Humana Health Plan of Texas, Inc., 395 F.3d 555 (5th Cir. 2004)] wherein the Fifth Circuit found the Medicare appeals process was not applicable to the following disputes:

  • Services that the Medicare Advantage plan has approved for an enrollee such that no enrollee is seeking benefits or
  • Services for which no enrollee was at risk of paying, and
  • Services where the government has no financial stake in the outcome.

In leaving providers with a back door to seek arbitration should HHS preclude the providers, as Medicare Advantage contract providers, from pursuing Medicare appellate rights, the court determined if:

“these remedies … do not apply to contract providers, this would foreclose the [p]roviders' ability to use the Act's administrative review procedures, and [p]roviders could then exercise their arbitration rights.”

Obstruction of a Medicare Audit Doesn’t Require Direct Obstruction of a Federal Agent

By Robert M. Wolin

A registered pharmacist, the owner of two Alabama pharmacies, pleaded guilty to obstructing a 2012 federal audit of Medicare claims and agreed to pay a $2.5 million penalty to the government. The submission of the false and misleading documents by the pharmacy owner constituted obstruction of a federal audit of his Medicare claims, even though it was initially conducted by CVS/Caremark Inc., which administered prescription drug claims for Medicare Part D. Consequently, it is important to be aware of the role and authority of all auditors and to avoid submitting false or misleading documentation.

The pharmacies in question operated as both compounding and retail pharmacies. Medicare Part D generally will not reimburse pharmacies for compounded medications made using bulk pharmaceutical powders. Nevertheless, the pharmacies sought Part D reimbursement for compounded medications, primarily topical pain creams, made from bulk ingredients. To avoid claim denials, the “pharmacies, however, used the billing code for the tablet or capsule form of the ingredient[s].”

According to the charges and plea agreement, the owner obstructed a 2012 audit by CVS/Caremark when he caused to be submitted falsified and misleading documents stating that medications in tablet or capsule form had been used as ingredients for the compounded prescriptions by the pharmacies he owned.

The charges resulted from a joint investigation by the FBI, the HHS Office of Inspector General and the FDA’s Office of Criminal Investigation.

Events Calendar

September 26, 2016

Washington, D.C., Partner Lee H. Rosebush will present “Compounding-503(b)” at the National Association of Specialty Pharmacy (NASP) Specialty Pharmacy Law Conference in Washington, DC.

October 6, 2016

Houston Partner Lynn Sessions will present “Legal Issues in Higher Education” at the Virginia Alliance for Secure Computing & Networking (VASCAN) 2016 Conference at The University of Mary Washington Stafford Campus in Fredericksburg, VA.

October 10, 2016

Houston Partner Donna S. Clark will present “Stark/Anti-Kickback Law Update” at the 2016 Texas Health Law Conference, sponsored by the Texas Hospital Association and the Health Law Section of the State Bar of Texas, in Austin, TX.

Houston Partner Susan Feigin Harris and Jeff Wurzburg of CMS will present “Health Reform 2016: An Examination of the Transformation of Healthcare Policy at the Federal Level and Insights into Successful Navigation of the Changing Landscape” at the 2016 Texas Health Law Conference, sponsored by the Texas Hospital Association and the Health Law Section of the State Bar of Texas, in Austin, TX.

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