In its decision, the Court concluded that UnitedHealth Group, Inc. (“United”) was not authorized to engage in “cross-plan offsetting.” What is cross-plan offsetting? It is a “self-help” practice that third party administrators (“TPAs”) of employer-funded health plans (“ERISA Plans”) engage in by offsetting alleged overpayments made to an out-of-network provider under one TPA-administered ERISA Plan by withholding payments to the same provider under a different TPA-administered ERISA Plan. Cross-plan offsetting is not an issue for in-network providers since most, if not all, in-network contracts include very specific definitions of what an overpayment is and how it may be resolved. However, for out-of-network providers, there is no contract in place and this often leads to disagreements about what should be considered an overpayment and how overpayments may be resolved. From the TPA’s perspective, cross-plan offsetting alleviates the need to wait for the resolution of an overpayment dispute to recapture overpayments made by the TPA to the provider. From the provider’s perspective, cross-plan offsetting is the TPA version of “robbing Peter to pay Paul.”
Sound complicated? Cross-plan offsetting is complicated! However, notwithstanding its complications, cross-plan offsetting is effective. In fact, it is so effective that on May 30, 2019, United filed a Petition for Writ of Certiorari asking the United States Supreme Court to overturn the Eighth Circuit’s decision and allow United and other TPAs to continue using cross-plan offsetting as a way to recover alleged overpayments.
The Eighth Circuit Decision
In its decision, the Eighth Circuit Court of Appeals agreed with the lower court that cross-plan offsetting was not allowed under the terms of the governing ERISA Plan documents. As noted by the Court, the ERISA Plan documents at issue expressly allowed such offsets for provider claims based on patients within the same plan, but said nothing about cross-plan offsets. Although the Court did not render a definitive opinion as to the permissibility of cross-plan offsetting under ERISA, the Court remarked that, at a minimum, cross-plan offsetting, as a practice, was “in some tension with the requirements of ERISA,” and “pushed the boundaries of what ERISA permits.” Finally, in recognition of the fact that the ERISA Plan documents explicitly allowed offsets within the same plan but did not explicitly allow cross-plan offsets, the Court concluded that United’s argument that cross-plan offsets were permissible because the ERISA Plan documents did not say otherwise was unreasonable.
United’s Petition for Writ of Certiorari
In its Petition, United asks the Supreme Court to clarify (i) whether a TPA’s determination that a plan which is silent on the permissibility of cross-plan offsetting, yet gives the plan more general authority, is necessarily unreasonable; and (ii) whether a court can reject a TPA’s interpretation of an ERISA Plan based in part upon the conclusion that the TPA’s interpretation, “pushed the boundaries of what ERISA permits.”
In support of its Petition, United argued that the Supreme Court should grant its Petition due to a multitude of conflicts that the Eighth Circuit decision creates and/or amplifies amongst multiple Circuit Courts of Appeals. For example, in its Petition, United describes the Fifth Circuit decision in Quality Infusion Care, Inc. v. Health Care Services Corp., as allowing cross-plan offsets in the case of ERISA plans that were “materially identical” to those at issue in the Eighth Circuit case.
If the Supreme Court grants certiorari…
If the Supreme Court were to allow United and, in turn, other TPAs, to continue their practice of cross-plan offsetting, many have expressed a concern that ERISA Plan members may be the most at risk for the continuation of the practice. For example:
If a TPA were to reduce a physician’s reimbursement for services provided to a Plan A member in order to recover an overpayment that the TPA made to the physician for services provided to a Plan B member, the physician may decide to bill the Plan A member for that portion of the Plan A reimbursement withheld by the TPA. As such, the Plan A member may find him/herself at risk for medical bills that were supposed to be covered by Plan A; and
If more TPAs embrace cross-plan offsetting as a result of a Supreme Court decision in favor of the practice, providers may close their practices to members of ERISA Plans administered by TPAs that engage in cross-plan offsetting. As a result, members of such TPA-administered plans may be faced with diminished access to needed medical care by providers who are unwilling to take on the financial risk that cross-plan offsetting may entail.
On the other hand, if the Supreme Court ultimately bans the practice of cross-plan offsetting, TPAs may try to revise their existing agreements with employers to explicitly allow for the practice. Employers will then have to determine whether it is in their best interests and the best interests of their employees to allow such a practice (at the risk of employees being balance billed or not treated by their desired practitioner at all) or prohibit such a practice (at the risk of losing funds that are overpaid to providers and not otherwise recoverable). If employers agree to cross-plan offsetting by their contracted TPAs, plan members may again find themselves suffering the financial and access consequences described above. If employers do not agree to cross-plan offsetting, then providers may see increased reimbursement – at least temporarily – until TPAs begin ramping up their collection efforts to recoop overpayments through in-plan offsets.
As originally scheduled, a response to the Petition was to be filed by the Respondents on or before July 1, 2019. However, on June 17, 2019, the Court granted the Respondent’s motion to extend the time to file the response from July 1, 2019 to July 31, 2019.
 Notwithstanding the Court’s hesitancy to rule on the practice’s permissibility under ERISA, in an amicus brief filed by the Department of Labor (“DOL”), the DOL maintained that cross-plan offsetting would violate ERISA’s fiduciary rules.
In its discussion paper, FDA recognized that its current approach to the regulation of medical devices―which is based on devices that are static in nature with planned, discrete changes―is ill-suited for AI algorithms. For example, under the current framework, changes in an AI algorithm due to real-world use, depending on the significance or risk posed to patients of that modification, could trigger premarket review by FDA. The consequence would be that whenever the algorithm learns or adapts (which ideally it would with every use), the manufacturer would have to ask FDA to clear (or approve) the algorithm change. That scenario is unworkable—both for the manufacturer and for FDA. FDA’s approach introduced a framework that considers the adaptive nature of AI and machine-learning (ML) based technologies, and proposed a streamlined approach that should lessen regulatory burden on industry.
The framework proposed a total lifecycle approach, based on four principles: (1) good ML practices (GMLP) from software development through distribution; (2) initial pre-market review that would include a pre-determined plan for modifications; (3) risk management approach to modifications after pre-market review; and (4) post-marketing monitoring and reporting of product performance. At the heart of FDA’s proposed framework, and the most unique aspect of the approach, is the second principle—the option for manufacturers to submit a plan of predetermined modifications during the initial premarket review of an AI or ML device.
The plan, called a “predetermined change control plan,” would disclose changes that are anticipated based on the software’s adaptive learning, and the methodology for implementing those changes in a controlled manner. In other words, the plan would lay out a roadmap, or region, of potential changes as the machine learns, and would describe the methods in place to control the risks anticipated with those algorithm changes. Changes within the scope of the plan would not require FDA premarket review. Changes outside the scope of the plan, and that lead to a new intended use―for example, to diagnose a different/new disease―would require premarket review. Changes that are outside of the plan, but that do not create a new intended use, would trigger a “focused” FDA premarket review of the plan. This approach would eliminate the burdensome requirement for a company to seek clearance from FDA for every significant software change.
The public comments vary in support of FDA’s proposed framework. Some comments asked FDA to expand the scope of the framework to include software in medical devices, as opposed to the current scope, which covers only software as a medical device. Many commenters asked for more clarity around terms used in the discussion paper, including foundational terms such as “machine learning,” as opposed to the broader terms of artificial or augmented intelligence, and terms such as “locked down” and “continuous learning” algorithms. Numerous comments requested more examples to illustrate the Agency’s expectations, such as examples of changes to AI/ML software that would (or would not) trigger premarket review. Some commenters noted that certain principles, including GMLP, are either premature given the nascent state of the industry, or should be harmonized with standards already being developed by external standards setting organizations.
A few comments noted that the incorporation of elements of CDRH’s software pre-certification program is confusing because the “pre-cert” program has not been fully evaluated or adopted, and the results have not been shared outside of the few companies who participated in the pilot program. One comment noted that FDA did not discuss bias as a significant risk for ML software with clinical applications. The output of the ML software is only as good as its inputs, and the comment notes that clinical trials systematically include or exclude patients with certain characteristics, and insurance records capture information only from those with access to the health care system. Another commented noted that the transparency in monitoring that FDA requests (under the fourth principle) is not realistic, given the barriers presented by privacy and access restrictions to patient information.
One comment requested coordination not only with external stakeholders, but with other FDA centers, such as CDER and CBER. In particular, drug companies are increasingly using AI/ML technology during drug discovery to identify new biomarkers, incorporating software into combination products regulated by CDER, or using continuous learning algorithms in clinical decision support software to recommend specific patient therapies. FDA has not issued guidance in these areas, and the comment urged FDA to discuss how AI/ML-based software could be used outside of a medical device premarket application, such as in support of clinical trial design or patient recruitment.
While the industry largely encourages FDA to react quickly to evolving technology so as not to stifle innovation, the Agency will have to take time to more clearly define foundational terms in this complex area and clarify its expectations for software developers and medical device companies.
On May 3, 2019, the Centers for Medicare & Medicaid Services (“CMS”) published a comprehensive proposed rule (“Proposed Rule”) to revise the Medicare payment structure for inpatient prospective payment systems (“IPPS”) hospitals. According to the preamble of the Proposed Rule, the purpose of the Proposed Rule is to bump up Medicare’s reimbursements to rural hospitals, some of which receive the lowest rates in the country.
Unfortunately for urban hospitals, any proposed changes in the Medicare reimbursement system must be budget-neutral; therefore, any increase in rural hospital reimbursement must be matched with an equal and offsetting decrease in urban hospital reimbursement. As reported in the Kaiser Health News on June 3, 2019, the Kaiser Family Foundation likens this to a Robin Hood-like effect – robbing from the rich to give to the poor. Like in Sherwood Forest, there are winners and losers in the world of Medicare reimbursement.
Wage Index: How it all Works
IPPS hospitals are paid a preset rate for each Medicare admission, based on the patient’s Medicare Severity-adjusted Diagnosis Related Group (“MS-DRG”). The MS-DRG considers several factors including: principal diagnosis, complications and comorbidities, surgical procedures, age, gender, and discharge destination.
Furthermore, under the Social Security Act, CMS is required to vary the labor portion of the standardized federal IPPS reimbursement rates to account for differences in area wage levels to reflect “the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level.” For short-term acute care hospitals, CMS must update this index annually. When drafting the wage index, CMS refers to the “Medicare Cost Report, the Hospital Wage Index Occupational Mix Survey, hospitals’ payroll records, contracts, and other wage-related documentation” to derive an “average hourly wage for each labor market area (total wage costs divided by total hours for all hospitals in the geographic area) and a national average hourly wage (total wage costs divided by total hours for all hospitals in the nation).” The final index is a ratio comparing the specific labor market area’s average hourly wage to the national average hourly wage.
The wage index can have significant effects on reimbursement rates. For example, according to CMS, “a hospital in a rural community could receive a Medicare payment of about $4000 for treating a beneficiary admitted for pneumonia while a hospital in a high wage area (like many urban communities) could receive a Medicare payment of nearly $6000 for the same case, due to differences in their wage index.”
Proposed Changes and the Urban/Rural Divide
As described in the Proposed Rule, CMS’s proposed changes attempt to address common concerns that “the current wage index system perpetuates and exacerbates the disparities between high and low wage index hospitals,” and, as noted by the Office of Inspector General of the U.S. Department of Health and Human Services in an 2018 Audit Report, the wage index may not accurately measure local labor prices. Under the proposed rule, CMS plans to introduce three basic changes to the current wage index payment structure for fiscal year (“FY”) 2020.
First, CMS intends to increase the wage index for hospitals with a wage index value below the 25th percentile. The increase would be determined by half the difference between the otherwise applicable wage index value for that hospital and the 25th percentile wage index value across all hospitals. In order to ensure sufficient time to reflect hospital employee compensation increases in the index, the policy would be effective for at least 4 years, beginning in FY 2020.
Second, to offset the increase in spending, CMS intends to decrease reimbursement rates for hospitals above the 75th percentile. This complementary decrease is necessary to conform with budget neutrality requirements. To provide some level of insulation from rapid changes in reimbursement rates, the policy would include a 5-percent cap on any decrease in a hospital’s wage index from its final wage index for FY 2019. Additionally, CMS intends to preserve the rank order of the hospitals relative reimbursement rates, affirming that rank order “generally reflects meaningful distinctions between the employee compensation costs faced by hospitals in different geographic areas.”
Third, CMS proposes changes to the wage index “rural floor” calculation. CMS proposes removing urban to rural hospital reclassifications from the calculation of the rural floor wage index value beginning in FY 2020. Under current law, the IPPS wage index value for an urban hospital cannot be less than the wage index value applicable to hospitals located in rural areas in the state—the “rural floor” provision. However, according to an April 23, 2019 CMS Fact Sheet and as referenced in the Proposed Rule, urban hospitals in a limited number of states have inappropriately used this provision to influence the rural floor wage index value “at the expense of hospitals in other States, which also contributes to wage index disparities.”
You Can Please Some of the People all of the Time ….
As noted above and as described in the Proposed Rule, CMS’s wage index proposal creates winners and losers. Not surprisingly, both parties have been vocal in their support and disdain for the wage index proposals.
For example, on April 24, 2019, Craig Becker, the President and Chief Executive Officer of the Tennessee Hospital Association (“THA”), issued the following statement:
For years, the Medicare [area wage index] has benefited hospitals in high income states at the expense of hospitals in states like Tennessee – particularly our rural hospitals – which have struggled to remain financially viable under this inequitable situation.
Yesterday’s announcement by CMS recognizes this longstanding unfairness and creates a reasonable path forward to provide much needed relief for Tennessee’s hospitals. This change will help secure the continued availability of healthcare services in communities across Tennessee and can provide a more sustainable future for all hospitals.
We applaud CMS’ leadership on this issue and are grateful for the continued support from Tennessee’s congressional delegation in advocating for [area wage index] reform.
Most recently, in an Opinion published by the Jackson Sun on June 25, 2019, Lamar Alexander, U.S. Senator, Tennessee, echoed the THA in its support of the Proposed Rule and wrote that the Proposed Rule, “will help ensure Americans can access health care close to their homes by attempting to level the playing field between urban and rural hospitals that rely on the Medicare hospital payment system.”
On the other side of the divide, the American Hospital Association (“AHA”) – which includes rural and urban hospitals among its membership – took a more nuanced position in its June 24, 2019 to the Proposed Rule. While recognizing the shortcomings of the wage index, AHA challenged the need to balance increases in rural hospital reimbursement with decreases in urban hospital reimbursement:
The AHA appreciates CMS’s recognition of the wage index’s shortcomings and supports improving the wage index values for low-wage hospitals. However, this should not be accomplished by penalizing other hospitals, especially in light of the fact that Medicare currently reimburses all inpatient PPS hospitals below the cost of care. Importantly, CMS is not bound by statute to apply budget neutrality for wage index modifications as proposed. As such, we support increasing the wage index values of low-wage hospitals, but urge the agency to use its existing authority to do so in a non-budget neutral manner.
In the June 3, 2019 Kaiser Health News article referenced above, the Massachusetts Health & Hospital Association (“MHHA”) is reported to have gone even further than the AHA in its critique of the Proposed Rule. In an emailed statement issued by Michael Sroczynski who oversees the MHHA’s government lobbying efforts, the MHHA questioned the use of the wage index as a tool to address rural/urban disparities in Medicare reimbursement. As reported by Modern Healthcare in an April 27, 2019 article, “CMS throws rural hospitals a lifeline with wage index changes,” MHHA objects to “providing relief to one subset of hospitals by arbitrarily cutting payments to another subset of hospitals that have genuinely higher labor costs.” In considering MHHA’s position, the article notes that the Commonwealth’s hospitals have historically been at the higher end of the wage index.
Finally, Paul Ginsburg, Director of the USC-Brookings Schaeffer Initiative for Health Policy and a member of the Medicare Payment Advisory Commission, is quoted by Modern Healthcare in the April 27, 2019 article as saying that the Medicare wage index mechanism and the data upon which it draws are deeply flawed and the changes proposed in the Proposed Rule do not seem to address these flaws. “Rather than fix it, they are saying it is not very accurate so we are going to move up the low end and cut back the high end, which is really getting even further away from the philosophy of a payment system—to use good data to make these decisions.”
In his final assessment of the Proposed Rule and its wage index-related provision, Mr. Ginsburg said to Modern Healthcare that, given the system’s core flaws, the ultimate impact of the wage index changes is uncertain. “You really don’t know what these changes are going to be accomplishing, for better or worse.”
* Eva Schifini is a law clerk in the Sheppard Mullin’s Century City office.
 84 F.R. at 19395-96. “Under section 1886(d)(8)(D) of the [Social Security] Act, the [CMS] Secretary is required to adjust the standardized amounts so as to ensure that aggregate payments under the IPPS after implementation of the provisions of sections 1886(d)(8)(B), 1886(d)(8)(C), and 1886(d)(10) of the Act are equal to the aggregate prospective payments that would have been made absent these provisions.” 84 F.R. at 19589.
 Social Security Act § 1886(d) (42 U.S.C. § 1395ww).
 Social Security Act § 1886(d)(2)(H), (d)(3)(E).
On June 24, 2019, President Trump signed an executive order that purports to create a more transparent health care market for both patients and providers. The order attempts to decrease the prevalence of opaque pricing, while increasing the amount of health care data available to health care users and stakeholders alike.
The executive order lays out a series of deadlines by which regulations, proposals and recommendations must be completed that intend to generate: (i) more informed patient choices, (ii) enhanced health care analytics, and (iii) greater financial options for individual payment.
The Steps for More Informed Patient Choices
Posting Hospital Charges. Within 60 days, the U.S. Department of Health and Human Services (“HHS”) is required to propose a regulation that obligates hospitals to post standard charge information in a patient friendly format.
Predictive Pricing. Within 90 days, HHS and other interested government agencies must solicit comment on a proposal to require certain health care providers, insurers, and plans to provide patients with projections of their out-of-pocket costs for services before they receive care.
Removing Impediments. Within 180 days, a report will be issued describing how the federal government and private sector are currently impeding health care price and quality, and providing recommendations regarding how to best eliminate these impediments.
The Steps for Enhancing Health Care Analytics
A Roadmap to Better Metrics. Within 180 days, HHS and other interested government agencies will prepare a roadmap to align and improve data reporting and quality metrics across federal health care programs such as Medicare, Medicaid, and the Veterans Affairs Health System.
Better Access to De-Identified Date. Within 180 days, HHS, in consultation with other agencies, will increase access to de-identified claims data from taxpayer-funded health care programs and group health plans for researchers and entrepreneurs to identify inefficiencies ripe for improvement.
The Steps for Expanding Payment Options
More High Deductible Plans. Within 120 days, the Secretary of the Treasury will issue guidance to expand the number of high-deductible health plans that can be used alongside a health savings account.
Expanded Medical Deductions. Within 180 days, a regulation will be proposed to treat expenses related to certain health care arrangements as tax deductible medical expenses.
Greater Carryover for Flexible Spending. Within 180 days, the Secretary of the Treasury will issue guidance to increase the amount of funds that can carry over without penalty at the end of the year for flexible spending arrangements.
Until the regulations, roadmaps, and guidance mandated by the executive order come into greater focus, the impact of the order is fuzzy at best. However, various industry stakeholders are already taking aim at transparency proposals that could open up private rate negotiations to public scrutiny. As the American Hospital Association noted in a statement, “publicly posting privately negotiation rate could, in fact, undermine the competitive forces of private market dynamics, and result in increased prices.” Similar concerns have been expressed on the payor side, while providers lament the prospect of enhanced administrative burden taking time away from the provision of clinical care. Whether the executive order ultimately improves the health care system inefficiencies it seeks to address remains to be seen, but one can expect increased scrutiny and industry reaction as implementation of the executive order advances.
On June 6, 2018, President Trump signed the “John S. McCain III, Daniel K. Akaka, and Samuel R. Johnson VA Maintaining Internal Systems and Strengthening Integrated Networks Act” a.k.a. the VA MISSION Act of 2018 (“VAMA”) into law, a $52 billion reform bill aimed at improving access to, and the quality of, medical services provided to veterans by the Department of Veterans Affairs (the “VA”). We explored the pros and cons associated with VAMA in a June 12, 2019 blog article that we have linked here.
Contrary to VAMA’s primary goal of increasing access, and the quality of, medical services provided to veterans by the VA, as currently drafted, VAMA only allows VA covered practitioners (which only includes physicians) to provide telehealth services via the VA’s telemedicine system. It does not allow trainees, including interns, residents, fellows and graduate students from providing care via the VA’s the telemedicine system. This seems contrary to one of the main goals of VAMA, which is to increase access to telemedicine services by veterans.
On June 12, 2019, Congressman Early L. Carter introduced legislation to increase veterans’ access to telemedicine by expanding the types of health care providers that would be eligible to provide telemedicine services under VAMA. The proposed bill would allow trainees who participate in professional training programs (i.e., residents, interns and fellows) to use the telemedicine system available under VAMA so long as they are supervised by a credentialed VA staff member. Congressman Carter has indicated that his goal is to improve telehealth training at VA health centers and to increase access to care by increasing the eligible providers.
While there is general bi-partisan support for this new legislation, there are still concerns relating to the costs associated with VAMA. It is, therefore, likely that the approval process of this new legislation will be slow as any additions to VAMA undergoes a high level of scrutiny.
On June 14, 2019, the National Labor Relations Board (NLRB or Board) issued an important decision clarifying whether and when an employer may lawfully exclude union organizers from its privately owned public spaces. Under then extant Board caselaw, where an employer had invited the public to enter or use space on its private property, the employer could not lawfully exclude union organizers from entering and using that same “public space” because that exclusion was considered to be unlawful discrimination in violation of Section 8(a)(1) of the National Labor Relations Act (NLRA or Act). The Board’s decision in UPMC, 368 NLRB No. 2, rejects this generalized “public area” doctrine, redefines what is and isn’t unlawful discrimination for the purposes of determining a union’s right of access to an employer’s public spaces and, broadens employer’s legal options under the NLRA.
UPMC spawns from a hospital’s ejection of two union organizers from its 11th floor public cafeteria where the organizers were meeting with hospital employees to discuss union organizing. It draws a critical distinction between the mere exclusion of union representatives from such public areas and their exclusion based on the activities they engage in while present in public areas. Citing the Supreme Court’s leading union access case, NLRB v. Babcock & Wilcox Co., 351 U.S. 105 (1956), the Board observed that while the Act required an employer to refrain from interfering, restraining or coercing employees’ exercise of their statutory rights, the Act does not require that an employer permit the use of its facilities for organizing when other means of communication are readily available. Accordingly, the Board found that an employer does not have a duty to allow the use of its facility by nonemployees for promotional or organizing purposes and the fact that a cafeteria located on an employer’s private property is open to the public does not mean that an employer must allow any nonemployee access to that public space for any purpose. To the contrary, since it is on private property, an employer has a right to promulgate and enforce rules and practices regulating conduct to be carried out in that public space as long as they are facially neutral and enforced in an even-handed and consistent fashion. Thus, absent disparate treatment, where by a rule or practice, a property owner bars access by nonemployee union representatives seeking to engage in certain activities, while permitting similar activity in similar relevant circumstances by other nonemployees, an employer may decide what types of activities, if any, it will allow by nonemployees on its property and exclude those nonemployees who elect to engage in such proscribed conduct, even though they are affiliated with a union and on premises to engage in organizational activities.
Following UPMC, an employer’s exclusion of union representatives from public areas on the employer’s private property will not be deemed unlawful unless that exclusion is accompanied by evidence of the “non disruptive” activity the union representatives engaged there and absent further proof that the employer has permitted similar conduct by other nonemployees. Absent such proof, the employer’s exclusion or ejection of a union’s representative(s) from its public areas is not “disparate treatment” and does not constitute discrimination. Accordingly, the mere denial of a union’s access to such public spaces is no longer unlawful or legally sufficient to establish a violation of the Act.
Employers can and should promulgate facially neutral rules and engage in practices regulating conduct in the public spaces on their private property, including rules prohibiting solicitation by third parties.
The employer’s rules/practices should be written in neutral, albeit broadly fashioned terms that are sufficient to reach but not target or single out union or organizing activities.
The employer should enforce these rules in a consistent and even-handed fashion as to similar conduct under similar circumstances; to the extent that there is non-enforcement of a rule, that non-enforcement should be documented and earmarked to its specific circumstances so as to render that non-enforcement explainable and distinguishable from subsequent enforcement as to union nonemployee access/on-premises conduct.
AN IMPORTANT CAVEAT: While UPMC is welcomed news to employers, it may be of limited use to employers in states like California where state laws give unions greater access rights than federal law and where the courts and law enforcement are reluctant to enforce an employer’s rights under the NLRA.
As the excitement around blockchain technology continues to grow in the healthcare sector, there is an increasing realization that blockchain has the capability of addressing many of the data and information-related challenges that the healthcare world has been focused on for years – such as providing access to comprehensive interoperable electronic health records and ensuring data continuity for patients who receive treatment in multiple healthcare settings. As this realization has taken hold, healthcare stakeholders and constituents are seemingly trying to “make up for lost time” with new blockchain initiatives being announced on a regular basis seeking to turn theoretical applications into real-world blockchain solutions.
As further evidence that the healthcare industry is on blockchain overdrive, on June 3, 2019, the Austin Blockchain Collective, an organization that represents some 140 blockchain and crypto companies with a presence in Austin, Texas, announced the creation of the Austin Blockchain Collective Healthcare Working Group (the “Working Group”). The Working Group’s initial membership includes various blockchain and cryptocurrency companies, including Abstrakt, DeepHive, and Factom, as well as the Dell Medical School at The University of Texas at Austin (“Dell Med”). Dell Med plans to utilize its knowledge of academic medicine to help the Working Group’s other members adapt blockchain technologies to wide variety of healthcare challenges. Together this Working Group aims to leverage its collective understanding of data science and health informatics to come up with innovative healthcare solutions.
Dell Med previously partnered with the City of Austin to pilot a blockchain solution, named the “MyPass Initiative,” to solve the problem of health data fragmentation caused by a lack of physical identification among the homeless population in Austin. A loss of physical ID can result in fragmentation of an individual’s health record. Utilizing emergency medical services at multiple locations, which occurs frequently among the homeless population, compounds the fragmentation issue. Dell Med and its partner, the City of Austin, observed that emergency service providers often had trouble tracking homeless individuals’ health records, which in turn made it more difficult to provide these individuals with a high level of care.
The MyPass Initiative aims to use blockchain technology to help solve these data fragmentation and quality of care problems by collecting electronic health records and identification documents from homeless individuals and storing them on a permissioned blockchain run by the City. The City can then provide participating homeless individuals with a unique identifier to access their health records on any computer network hosting the platform. This structure allows doctors, nurses, and emergency personnel working at a variety of locations to access an individual’s complete health record without a physical ID. Being able to access a complete health record enables these providers to give homeless individuals a higher quality of care.
Solutions like the MyPass Initiative show the potential of blockchain to resolve complex healthcare challenges facing stakeholders and patients alike. Partnerships like the Working Group, as well as the Synaptic Health Alliance (a consortium of five major healthcare companies focused on the use of blockchain to foster innovation in healthcare which we featured in a January 31, 2019 blog post) will continue to form as more organizations explore how to adopt blockchain technology to the healthcare industry.
Earlier this week, the Supreme Court upheld a D.C. Circuit Court decision vacating a policy of the Centers for Medicare and Medicaid Services (“CMS”) that would have “dramatically – and retroactively – reduced payments to hospitals serving low-income patients.” Azar v. Allina Health Services, 587 U.S. __ at 1 (2019). The Supreme Court’s Allina opinion (“Op.” or the “Decision”) is critically important for hospitals that rely on Medicare disproportionate share (“DSH”) payments and has broader implications for the way that CMS issues the voluminous guidance that the agency applies to Medicare-participating providers and suppliers and other CMS-contracted entities.
Disproportionate Share Payments
Medicare provides DSH payments to eligible hospitals as additional reimbursement to cover the higher operating costs commonly experienced by hospitals that serve a significantly disproportionate number of low-income patients. DSH payments are calculated as a percentage add-on to the basic DRG payment for inpatient hospital services provided by a DSH-eligible hospital. Eligibility for DSH payments and the amount of DSH payments that an eligible hospital receives is determined by a complex formula and each hospital’s “disproportionate patient percentage” (“DPP”). Currently, the DPP is derived from the sum of two ratios – (i) the percentage of Medicare inpatient days (including Medicare Advantage (Medicare Part C) inpatient days) attributable to patients entitled to both Medicare Part A and Supplemental Security Income (“SSI”) benefits, and (ii) the percentage of total inpatient days attributable to patients eligible for Medicaid but not entitled to Medicare Part A.
As noted above, the current DPP calculation includes Medicare Advantage inpatient days when adding up the total number of Medicare inpatients days used in the first ratio. However, as shown in the timeline below, Medicare Advantage inpatient days were not always included in that calculation.
2003. CMS issued a proposed rule that sought “to clarify” that Medicare Advantage days are excluded from DSH calculations because they are not considered covered and paid under Medicare Part A.
2004. CMS changed course and issued a final rule providing that Medicare Advantage days are to be counted in the calculation of Medicare inpatient days for purposes of calculating the DPP.
2013. CMS issued a new rule formally including Medicare Advantage beneficiaries in the DSH calculation and applying the practice prospectively. At the same time, the D.C. Circuit, in the Allina case, was considering whether the 2004 final rule – a reversal of the 2003 proposed rule – could stand or whether it differed so much from the proposed rule that it constituted new rulemaking that required its own notice and comment period before it could be enforced.
2014. Sixteen days after the D.C. Circuit’s mandate vacating the 2004 rule, CMS issued its DPPs for 2012, noting that they included Medicare Advantage days (“2014 DSH Guidance”), consistent with the vacated 2004 rule. By issuing the 2014 DSH Guidance as policy rather than regulation, CMS avoided the notice and comment period required under the Medicare Act, as discussed further below. As a result, the 2014 DSH Guidance was issued without notice to the public, without any explanation of CMS’ departure from the prevailing pre-2004 standard reinstated by the D.C. Circuit in its 2014 mandate, and without an opportunity for public comment on the substance of the 2014 DSH Guidance.
Azar v. Allina Health Services
In response to CMS’s 2014 DSH Guidance, a group of hospitals challenged CMS’ retroactive policy change, arguing that the government had failed to meet the Medicare Act’s requirement to provide public notice and a 60-day comment period for any “rule, requirement, or other statement of policy (other than a national coverage determination) that establishes or changes a substantive legal standard governing the scope of benefits, the payment for services, or the eligibility of individuals, entities, or organizations to furnish or receive services or benefits under [Medicare].” 42 U.S.C. § 1395hh(a)(2). Over a five year period, the Allina case moved through the courts until it finally reached the Supreme Court.
In the Decision, the Court agreed with the hospitals and held that the statutory language did not track the APA’s distinction between “substantive” and “interpretive” rules, but instead was broad enough to include CMS’ 2014 policy change.
The Supreme Court’s Analysis
The APA – and its notice and comment requirements – does not apply to public benefit programs like Medicare. See 5 U.S.C. § 553(a)(2). The Medicare Act, however, separately imposes a notice and comment requirement with respect to the establishment of or change to certain substantive legal standards. The Court’s decision turned on the interpretation of the phrase “substantive legal standard.” The parties proposed fundamentally different definitions of the phrase. The hospitals argued that the statute distinguishes between substantive legal standards that create duties, rights, and obligations, and procedural legal standards, that specify how duties, rights, and obligations should be enforced. Meanwhile, the government argued that the statute should track the APA’s distinction between “substantive rules” that have the force and effect of law, and interpretive rules that advise the public of an agency’s construction of statutes and rules.
Justice Gorsuch, writing for the Court, found the government’s interpretation untenable for several reasons. First, Justice Gorsuch pointed out that the Medicare Act’s notice and comment requirement explicitly applied to statements of policy, which are – by definition – not substantive rules under the APA. Second, Justice Gorsuch looked to a subsequent provision in the Medicare Act, which gives the government limited authority to make “substantive change[s]” to certain pronouncements, including “interpretive rules” and “statements of policy,” implying again that “substantive” as used in the Medicare Act does not have the same meaning as in the APA. Third, Justice Gorsuch noted that if Congress intended to incorporate the APA standard, Congress could simply have done so via cross-reference, as it did with the APA’s good cause exemption; Congress’ cross-reference to one exemption but not the other strongly implied that the exclusion of the “interpretive rules” exemption was intentional.
Based on this analysis, Justice Gorsuch concluded that “the government’s arguments for reversal fail to withstand scrutiny.” Op. at 12. Therefore, while the Court noted that it “need not…go so far as to say that the hospitals’ interpretation, adopted by the court of appeals, is correct in every particular,” it affirmed the D.C. Circuit’s 2014 mandate vacating CMS’ rule.
The Court’s decision is a triumph for hospitals, in the face of a CMS policy change that was promulgated retroactively and with no notice, cutting millions of dollars of payments that hospitals had reasonably expected to receive and could ill afford to lose. While CMS may certainly shift its policy on disproportionate share payment calculation going forward, it will at least be clearly required to give affected stakeholders at least a minimal heads-up.
Stepping back from these unambiguously positive practical consequences, the decision raises a great many questions about how CMS will be required to establish its subregulatory guidance going forward. For an agency – and the entities it regulates – that publishes tens of thousands of pages of subregulatory guidance, all of which is subject to regular amendment, this question could not be more fundamental. Justice Gorsuch contended that his opinion will not impose substantial burden on the agency, noting that “the dissent points to only eight manual provisions that courts have deemed interpretive over the last four decades.” However, there is no reason to think that courts would have considered whether the vast majority of manual provisions were interpretive.
Moreover, as Justice Breyer’s dissent points out, the Court provides no clear standard for distinguishing between the types of CMS guidance that would and would not be subject to the Medicare Act’s notice and comment requirement, since the Court did not adopt the substantive/procedural distinction suggested by the hospitals or propose an alternative. Potentially, a significant volume of manual provisions could at least arguably establish or change “substantive legal standard governing the scope of benefits, the payment for services, or the eligibility of individuals, entities, or organizations to furnish or receive services or benefits under [Medicare].” The status of such manual provisions and any future revisions thereto is uncertain.
Finally, as Justice Gorsuch noted, “[n]otice and comment gives affected parties fair warning of potential changes in the law and an opportunity to be heard on these changes – and it affords the agency a chance to avoid errors and make a more informed decision.” Op. at 15-16. These benefits cannot be overstated, and CMS would no doubt be well-served to be more transparent and communicative in its development of subregulatory guidance, even at the cost of a slower rate of change required by a more contemplative process. Nevertheless, it would be valuable to both CMS and its regulated entities to better understand the scope of Justice Gorsuch’s opinion and the extent to which CMS’ volumes of subregulatory guidance may be called into question.
On May 14, 2019, the Supreme Court issued a decision in the case of Cochise Consultancy, Inc. v. United States ex rel. Hunt, No. 18-315, 2019 WL 2078086 (U.S. May 13, 2019) . In its decision, the Supreme Court essentially added four years on the time available for private suits to be brought by whistleblowers/relators under the False Claims Act (“FCA”), regardless of whether the Government decides to intervene. As a result of this decision, entities that submit claims to the Government for payment – including Medicare, Medicaid and other Federal healthcare program-participating providers and suppliers – may find themselves facing a private whistleblower complaint more than six years after the alleged conduct took place. As described in the following article, “Supreme Court Addresses False Claims Act Statute of Limitations,” that was previously posted on the Sheppard Mullin False Claims Act Defense Blog on May 14, 2019, the Court decision now allows for the possibility that a whistleblower could inform an appropriate U.S. official of material facts relating to an alleged FCA violation after the whistleblower’s own six-year statute of limitations has already tolled, so long as the action is brought within 10 years of the alleged violation.
Supreme Court Addresses False Claims Act Statute of Limitations
On Monday, May 14, 2019, the Supreme Court issued a decision essentially expanding by four years the time available for private suits to be brought by relators under the False Claims Act (“FCA”), regardless of whether the Government decides to intervene. In Cochise Consultancy, Inc. v. United States ex rel. Hunt, No. 18-315, 2019 WL 2078086 (U.S. May 13, 2019), plaintiff-relator Billy Joe Hunt filed a complaint on November 27, 2013, alleging two defense contractors (collectively, “Cochise”) violated the FCA in 2006 and 2007 by submitting false claims for payment under a subcontract providing security services in Iraq. The United States declined to intervene, and Cochise moved to dismiss the complaint, arguing that the action was barred under the FCA’s statute of limitations clause, 31 U.S.C. § 3731.
As we explained when the Court granted certiorari, the FCA has two statute of limitations. Normally, a case must be brought within 6 years of “the date on which the violation of [the False Claims Act] is committed.” 31 U.S.C. § 3731(b)(1). The Act’s second statute of limitations provision allows for FCA cases to be brought “more than 3 years after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed.” 31 U.S.C. § 3731(b)(2).
Mr. Hunt alleged the violations at issue in this case occurred between January 2006 and “early 2007,” and claimed to have revealed the alleged fraud in an interview with FBI agents regarding an unrelated matter that occurred on November 30, 2010. Because the alleged violation occurred over six years prior to the claim being filed, Cochise moved to dismiss the case on statute of limitations grounds and argued that, because the Government had declined to intervene, the second prong of the statute of limitations did not apply. The district court agreed with Cochise but the Eleventh Circuit reversed and, in the process, created a three way circuit split.
The Supreme Court resolved this split this week by holding that the statute of limitations applies equally to suits initiated by the Government as well as by a relator. The appropriate time limit for Mr. Hunt’s claims was thus three years after the meeting in which Mr. Hunt disclosed his allegations to the Government, since it was at that time the facts first became known to the United States. The Supreme Court also clarified that “a private relator is not an ‘official of the United States’ in the ordinary sense of that phrase,” and that therefore the three-year statute of limitations did not start when Mr. Hunt gained knowledge of the facts underlying the violations.
This ruling carries possible negative implications for contractors as it expands the universe of potential cases subject to the second, and longer, of the FCA statutes of limitations. The Court’s decision allows for the possibility that a relator could inform an appropriate U.S. official of material facts relating to an alleged FCA violation after their own six-year statute of limitations has already tolled, so long as the action is brought within 10 years. This decision may also subject the government to additional, and earlier, requests for information regarding its knowledge of the alleged conduct, as such knowledge is now dispositive to both statute of limitations defenses as well as materiality defenses following Escobar.
The Centers for Medicare and Medicaid Services (“CMS”) healthcare audit programs – including the Unified Program Integrity Contractors (“UPICs”) audit program, the Recovery Audit Contractor (“RAC”) program, the Comprehensive Error Rate Testing (“CERT”) program, etc. – have been the subject of regular complaints and calls-for-action by the Medicare/Medicaid provider community for many years.
In significant part, the provider complaints have focused on CMS’s lack of oversight over the activities of CMS’s third-party audit contractors – UPICs, RACs, etc. – and the improper audit procedures utilized by such auditors which often produce unsupportable audit adjustments and, in turn, significant hardship for providers. For example:
On December 3, 2014, the American Medical Association (“AMA”) wrote a letter to CMS urging CMS to correct a two-year backlog of appeals in connection with the RAC program. The letter claimed that more than 60% of RAC determinations were overturned on appeal in 2013, thus demonstrating that RAC auditors are often wrong, causing significant hardship for physicians;
More recently, in a 2018 letter campaign, AMA continued to push for additional RAC reforms in two letters addressed to CMS Administrator Seema Verma dated June 13, 2018 and September 11, 2018. In these letters, the AMA voiced its opposition to the congressionally-mandated contingency fee structure used by CMS to pay the RACs. The AMA described RAC contingency fee payments as a “pay and chase model;” and
In addition to the concerns described above, AMA, in its September 11, 2018 letter, cited CMS statistics showing that out of the nearly 47,000 RAC Medicare Part B determinations that were appealed in fiscal 2015, 70% were overturned in the provider’s favor. As cited by the AMA, RAC accuracy actually decreased from 2013 – the year identified by the AMA in its December 13, 2014 letter.
CMS Responds to Provider Complaints Regarding RAC Program.
In a CMS blog article posted on May 2, 2019, CMS Administrator Seema Verma highlighted recent progress made by CMS in reducing provider complaints related to the RAC program. According to Administrator Verma, CMS has made a concerted effort to increase oversight of RACs and, as a result, “[CMS has] reduced RAC-related provider burden to an all-time low, as evidenced by the significant decrease in the number of RAC-reviewed claim determinations that are appealed and the corresponding reduction in the appeals backlog.”
In describing some of the actions that CMS has taken to improve RAC oversight, Administrator Verma highlighted the following:
CMS is now holding RACs accountable for performance by requiring RACs to maintain a 95% accuracy score. RACs that fail to maintain this rate will receive a progressive reduction in the number of claims they are allowed to review;
CMS now requires RACs to maintain an overturn rate of less than 10%. Failure to maintain such a rate, will also result in a progressive reduction in the number of claims the RAC can review; and
CMS has revised the RAC program to provide that RACs will not receive a contingency fee until after the second level of appeal is exhausted. Previously, RACs were paid immediately upon denial and recoupment of the claim. According to CMS, this delay in RAC payment will help assure providers that a RAC’s decision is correct before the RAC is paid for its auditing services.
Simply Home Healthcare, LLC v. AZAR et al:
Simply Home Healthcare, LLC (“Simply”), a Chicago-based home health provider, filed a class action complaint on April 5, 2019, against the U.S. Department of Health and Human Services (“HHS”) and AdvanceMed, a Medicare contractor (the “Complaint”). The Complaint alleges that AdvanceMed misapplied federal Medicare billing rules regarding overpayments. This alleged conduct, the Complaint argues, caused Simply and potentially numerous other home health providers to go out of business due to reimbursement disputes with AdvanceMed.
Prior to closing its operations in 2018, Simply provided therapy services to patients residing in assisted and independent living facilities in the Chicago area for over six years. AdvanceMed is a Unified Program Integrity Contractor (“UPIC”) – an entity that contracts with the Centers for Medicare & Medicaid Services (“CMS”) to provide data mining services to discover overpayments or patterns of fraud.
In 2016, AdvanceMed requested Simply to provide medical charts for a routine audit. While Simply waited on the audit to conclude, Medicare payments to Simply, which averaged over $250,000 per month, suddenly stopped on April 17, 2017. Two days later, Simply received two letters from AdvanceMed – the first letter stated that a payment suspension was put into place due to “reliable information that an overpayment exist[ed];” and the second letter requested that Simply provide additional medical charts for AdvanceMed’s review. Simply complied with the request, producing over 20,000 pages of information within 15 days.
After producing the additional records, Simply repeatedly contacted AdvanceMed to suggest various plans of correction and attempted to convince AdvanceMed and CMS to lift the payment suspension. AdvanceMed responded by claiming the payment suspension would not be lifted, because CMS “decided to continue the suspension based on credible evidence of fraud.”
Finally, in September of 2017, AdvanceMed lifted the payment suspension and informed Simply that it owed Medicare $5.4 million in overpayments based on AdvanceMed’s extrapolation of payments in previous years. Simply appealed this decision, reducing the repayment obligation to $4.8 million. At this point, Simply had laid off all but two staff members, was not taking on any new patients, and was ultimately forced to shut down its operations.
The Complaint, which was filed in the U.S. District Court for the Northern District of Illinois, alleges that over 100 healthcare providers may have ceased operations or otherwise been damaged by payment suspensions and extrapolations of overpayments by AdvanceMed. Simply alleges that the payment suspensions and extrapolations of overpayments were contrary to Medicare regulations and an overstep of AdvanceMed’s powers as a UPIC. Among other things, Simply alleges that AdvanceMed (i) inflated the hours that it spent reviewing reimbursement documents, and thus receive more payment from HHS, by imposing payment suspensions as a way to require providers to submit additional documentation; and (ii) withhold payments on the basis of fraud without consulting with law enforcement officials, as is required under Medicare regulations.
As demanded in the Complaint, Simply is seeking both (i) a declaratory judgment from the court that AdvanceMed intentionally exceeded its powers as a UPIC; and (ii) actual and punitive damages caused by AdvanceMed’s alleged illegal payment suspensions and extrapolations of overpayments.
Where are we now?
The Simplify complaint and Administrator Verma’s recent report show that the comings-and-goings of CMS’s third-party audit contractors continue to attract much attention within CMS, the Medicare provider community, and with other stakeholders. The activity described in this article not only calls attention to the current state of CMS’s various audit programs but also calls attention to possibility of future activity that will both increase transparency as well as the effectiveness of RACs, UPICs, and other program integrity auditors. We will provide further updates as the world of Medicare and Medicaid audits revolves and evolves.