Healthcare Litigation

On November 2, the Centers for Medicare & Medicaid Services (CMS) finalized the 2017 Medicare Physician Fee Schedule (PFS) rule. This rule, which takes effect on January 1, 2017, updates payment policies and rates for services furnished under the PFS.  A CMS fact sheet summarizing the major components of the rule is available here.  The rule included several updates to and clarifications regarding the federal physician self-referral law (or “Stark Law”), including: (1) unit-based compensation in arrangements for the rental of office space or equipment; (2) a technical correction; and (3) the annual update to CPT/HCPCS codes used to identify certain categories of Stark designated health services (or “DHS”).  These updates and clarifications are either routine or, in the case of unit-based compensation, ultimately resulted in no changes to the Stark regulations as currently implemented. Unit-Based Compensation. First, the PFS rule included a lengthy discussion of unit-based compensation in arrangements for the rental of office space or equipment (so-called “per-click” arrangements).  This discussion stemmed from an opinion issued by the D.C. Circuit on June 12, 2015 in Council for Urological Interests v. Burwell, 790 F.3d 212 (available here).  In this opinion, the D.C. Circuit concluded that CMS’s discussion of a 1993 House of Representatives conference report in the 2009 Inpatient Prospective Payment System (IPPS) final rule, which finalized regulations prohibiting certain per-unit of service compensation formulas in the rental of office space and equipment regulatory exceptions (found at 42 C.F.R. § 411.357(a)(5)(ii)(B) and (b)(4)(ii)(B), respectively), “contained an unreasonable interpretation of the conferees’ statements” concerning the rental of office space and rental of equipment statutory exceptions (found at 42 U.S.C. § 1395(e)(1)(A) and (e)(1)(B), respectively), and remanded the case to CMS “to permit a fuller consideration of the legislative history.” CMS responded to this directive in the final PFS rule. In the proposed 2017 PFS rule (available here), CMS used the same language in the existing exceptions for office space and equipment and proposed to include in each exception a requirement that, as previously implemented, rental charges for the lease of office space or equipment are not determined using a formula based on per-unit of service rental charges, to the extent that such charges reflect services provided to patients referred by the lessor to the lessee.  CMS also used the opportunity to re-propose the same language, as was previously implemented, banning per-click lease arrangements in the exceptions for fair market value compensation and indirect compensation arrangements (at 42 C.F.R. § 411.357(l)((3)(ii)) and (p)(1)(ii)(B), respectively).  In the final rule, CMS finalized these requirements without modification.  The net result is that the language in all four exceptions (for office space, equipment, fair market value compensation and indirect compensation arrangements) has remained unchanged.  Note that the relatively new exception for timeshare arrangements (at 42 C.F.R. § 411.357(y)(6)(ii)(B)), which was effective on January 1, 2016, includes a parallel ban on per-unit of service fees, with CMS using the same rationale for including it there. CMS rejected the position of the Council for Urological Interests that it lacked authority to impose a ban on per-click leases, and asserted that its reasoning in this final rule fully addressed the court’s concerns. As the D.C. Circuit stated, CMS emphasized that the Stark Law “does not unambiguously forbid the Secretary from banning per-click leases as she evaluates the needs of the Medicare system and its patients.”  CMS pointed out that the Stark Law gives it the authority to add requirements as needed to protect against program or patient abuse, explicitly permits it to impose additional conditions on arrangements for the rental of office space or equipment, and does not state that per-click rates must always be permitted.  CMS stated its belief, as first stated in the 2009 IPPS rule, that such a ban is necessary because per-click lease arrangements (where the lessor makes referrals to the lessee that generate payments to the lessor) create improper incentives for physicians to over-utilize services (by ordering unnecessary services that would not have been ordered absent a profit motive), may narrow the choice of treatment options of a patient and may increase costs to the Medicare program. Further, citing language from the opinion, CMS stated that “Congress knew how to cabin the Secretary’s authority to impose ‘other’ requirements” and “knew how to further clarify what it meant by compensation that does not take into account the volume of business generated between the parties” (as it did in the employment exception). Additionally, Congress knew how to permit per-click payments explicitly (as it did in the exception for continuation of certain group practice arrangements with a hospital).  The fact that Congress did not explicitly prohibit or permit per-click arrangements in the context of the exceptions for office space and equipment leases supports the position that the Stark Law is silent regarding the permissibility of per-click for equipment rentals.  Therefore, CMS has the authority to impose such a prohibition in order to protect against program or patient abuse. CMS emphasized that it does not absolutely prohibit rental charges based on units of service furnished. This is only prohibited “where the lessor generates the payment from the lessee through a referral to the lessee for a service to be provided in the rented office space or using the rented equipment.”  For this reason, per-unit of service rental charges are permitted, as long as the referral for those services did not come from the lessor. Technical Correction. Second, the rule included a technical correction regarding instructions for submitting a request for an advisory opinion related to physician referrals at 42 C.F.R. § 411.372(a).  This rule now provides that parties must submit such requests to CMS according to instructions specified on the CMS website.  Previously, this regulation specified that parties must submit such requests to CMS in writing.  However, the CMS website regarding advisory opinions (available here) has not been updated since March 2016 and does not include instructions for submitting an advisory opinion.  These instructions will likely be posted to this website in the near future. Code List Updates. Third, the rule included the annual update to the list of CPT/HCPCS codes used to identify certain categories of DHS (the “Code List”).  As specified in the Stark Law regulations at 42 C.F.R. § 411.351, the following four categories of DHS are defined by reference to the Code List: (1) clinical laboratory services; (2) physical therapy, occupational therapy, and outpatient speech-language pathology services; (3) radiology and certain other imaging services; and (4) radiation therapy services and supplies.  The Code List is updated annually to reflect changes in the most recent CPT and HCPCS Level II publications.  Further, items and services that may qualify for either of two Stark Law exceptions—the exception for preventive screening tests, immunizations and vaccines at 42 C.F.R. § 411.355(h) and the exception for EPO and other dialysis-related drugs at 42 C.F.R. § 411.355(g)—are identified by reference to the Code List.  The Code List included the annual updates to the codes eligible for the preventive screening tests, immunizations and vaccines exception.  However, as in previous years, the Code List does not include any codes eligible for the EPO and other dialysis-related drugs exception (for reasons explained by CMS in the rule).  The PFS rule includes tables showing the additions and deletions to the Code List.  We expect that, as per usual, the complete list will be posted before the end of the year to the CMS website dedicated to the Code List, found here. The advanced copy of the PFS rule is available here.  The official version of the rule is scheduled for publication in the Federal Register on November 15, 2016.

The Centers for Medicare & Medicaid Services (CMS) released its 2017 Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center Payment System Final Rule (Final Rule) on Tuesday. The Final Rule implements section 603 of the Bipartisan Budget Act of 2015 relating to payment for items and services furnished by certain off-campus provider-based departments of a provider. Section 603 of the Act amended the Social Security Act by providing that items and services furnished at off-campus departments of a hospital will not be reimbursed under the OPPS if items and services furnished at that off-campus department were not billed as outpatient hospital services prior to November 2, 2015.  CMS uses the term “nonexcepted” when referring to a location or items or services that are subject to the new payment limitations.  The Final Rule appears to largely adopt the regulations included in its proposed rule published in July, with only some modification. In addition, CMS also released an interim final rule (Interim Final Rule) in the same publication establishing the Medicare Physician Fee Schedule as the “applicable payment system” for the majority of the nonexcepted items and services furnished by nonexcepted off-campus provider-based departments. The Interim Final Rule establishes new site-of-service payment rates under the Medicare Physician Fee Schedule to pay nonexcepted off-campus provider-based departments for the furnishing of nonexcepted items and services.  These nonexcepted items and services must be reported on the institutional claim form and identified with a newly established claims processing modifier. CMS is soliciting comments on certain aspects of both the Final Rule and the Interim Final Rule. Comments are due by December 31, 2016.  The advanced copy of the Final Rule is available here.  The official version of the Final Rule is scheduled for publication in the Federal Register on November 14, 2016. Look for a more detailed analysis of the Final Rule and Interim Final Rule from Dorsey and Whitney.

The Centers for Medicare & Medicaid Services (CMS) released an advanced copy of the final rule implementing the agency’s new dual-track Quality Payment Program created by the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). The final rule made several significant changes to the proposed rule that was released earlier this year and offers eligible clinicians considerable flexibility for participation in 2017. By way of background, MACRA, which passed with broad bipartisan support, replaced Medicare’s much-maligned “Sustainable Growth Rate” formula with the new Quality Payment Program. The new Quality Payment Program continues CMS’s transition from paying for volume to paying for value and represents the most comprehensive Medicare payment reform since the creation of the hospital prospective payment systems.  Under MACRA, eligible clinicians, including physicians, physician assistants, nurse practitioners, clinical nurse specialists and certified nurse anesthetists, can participate in the Quality Payment Program through one of two tracks: the Merit-Based Incentive Payment System (MIPS) or Advanced Alternative Payment Models (Advanced APMs). CMS received over 4,000 comments in response to its proposed rule released on April 27, 2016. In a call with reporters following the release of the final rule, acting CMS Administrator Andy Slavitt said many of the comments could be summed up as a request from providers to make the transition as simple and flexible as possible.  At least initially, responses from providers and provider associations have been positive, particularly in response to CMS’s decision to treat 2017 as a transition year. Some of the key changes in the final rule include the following: Adoption of the pick your pace concept to allow clinicians to avoid negative payment adjustments. CMS established a number of policies for calendar year 2017, which CMS refers to as a transition year, in an effort to make the initial transition into the Quality Payment Program more flexible. The most significant of these policies was the formal adoption of the “pick your pace” concept that was originally announced as a possibility in September. Under the pick your pace concept, clinicians participating in the MIPS track (which CMS estimates will initially be over 90% of eligible clinicians) can choose from three levels of participation during the first performance year. By submitting only a minimum amount of data, eligible clinicians can avoid a downward payment adjustment in 2019 based on first year (2017) performance. Eligible clinicians may earn positive adjustments through higher levels of participation. Reduced year one goals to help alleviate reporting burden. CMS also reduced a number of the objectives required for participation in each of the four MIPS performance categories in 2017. For example, the final rule reduces the number of activities required to achieve full credit in the improvement activity performance category from six medium-weighted or three high-weighted activities to four medium-weighted or two high-weighted activities. New category weighting to address provider concerns about first year reporting. The final rule includes adjusted MIPS performance category weighting. Specifically, the quality performance category weight was increased from fifty percent to sixty percent for year one while the resource use performance category weighting was reduced from ten percent to zero for year one. The weighting will change in future performance years, with resource use eventually being worth thirty percent of the total composite performance score. Including more clinicians in the “low volume” exclusion; Support for small and independent practices. The final rule includes a number of revisions designed to make it easier for practices with 15 or fewer clinicians to participate in MIPS. In addition, the final rule modified the low volume threshold to exempt more clinicians from participation. Under the final rule, MIPS will not apply to practices with less than $30,000 in Medicare charges or fewer than 100 unique Medicare patients per year. The threshold was originally set at $10,000 in the proposed rule. New website. CMS launched a new website on the same day it released the final rule. The website (available here) includes a number of resources designed to help clinicians identify how best to participate in the Quality Payment Program based on practice size, specialty, location and patient population. The advanced copy of the final rule is available here.  An executive summary of the final rule prepared by CMS is available here.  The official version of the final rule is scheduled for publication in the Federal Register on November 4, 2016.