Top Three Downstream Issues in Physician Private Equity Transactions



We have posted previously in Healthcare Law Today related to physician private equity transactions, commonly called “recapitalizations.” Most of the discussions have been about the “who,” the “why” and the “how” of these transactions.  What we haven’t yet discussed are the issues that may arise following the closing of one of these transactions.  While the impact of the issues generally emerge post-closing, many can be addressed, or at least recognized, at the time the original transaction is negotiated. Following are three material issues that often surface:

1. Rollover Equity

As we’ve discussed in other blogs in Healthcare Law Today the sale of a so-called platform practice generally results in the selling physicians receiving both cash and equity in the recapitalized company (rollover equity).  Buyers demand that selling physicians retain a certain percentage of their sale proceeds in the form of rollover equity in order to ensure that the physicians have strong incentives to help grow the recapitalized business.

This equity has the potential to grow in value and provide the selling physicians with additional profitability from the original transaction so long as the physicians are afforded the opportunity to dispose of the equity. This puts pressure on the terms of the transfer and disposition of this equity. For example, both sides will want to consider the circumstances under which a physician can, or will be required to, sell back his or her equity and the price at which it will be sold. Common buy-sell events include death, disability, leaving the practice through retirement or otherwise, or breaching the operating agreement or a restrictive covenant.  Sales in certain adverse consequences will often result in some sort of reduction in purchase price below the fair market value of the equity; these prices and penalties need to be negotiated carefully.

In addition, well-counseled physicians should be allowed to participate in a subsequent sale of the company by their private equity partner.  Commonly called “tag along” and “drag along” provisions, these terms are negotiated during the original recapitalization transaction.  For example, physicians are generally afforded the right to “tag along” in a sale of equity by their private equity partner.  Note, however, that as purchase price multiples have risen and as the possibility of fund-to-fund sales has increased in certain instances, physicians are being required to roll over, a second time, a certain portion their rollover equity in post-recapitalization sales.  Conversely, private equity sponsors generally have the ability to “drag” their physicians partners along in an equity sale; in this case, care should be taken to ensure that the physicians have the right to participate in the sale on substantially the same terms as the sponsor.

2. Capital Calls and Dilution (Bolt Ons)

Physician recapitalization strategies don’t end with the acquisition of the platform practice; quite to the contrary. These businesses grow through the acquisition of additional practices that are often referred to as “bolt on” acquisitions. Such a growth plan requires capital. Generally, it is expected that a combination of debt and cash flow will provide the capital necessary to buy these bolt on practices.  However, things don’t always go according to plan. In those instances, the equity holders are asked to contribute capital to the recapitalized company in order to provide the funds necessary to grow the business.

Standard provisions in recapitalization documents include terms related to the ability of the governing body of the recapitalized company to issue calls for capital. Well advised physician equity holders will seek preemptive rights that allow them to invest new money as well, so as to avoid dilution, subject to certain exceptions. Preemptive rights are valuable, but they come with a price. Exercising these rights requires the equity holders taking advantage of these rights to pay fair market value for new equity.  Preemptive rights, however, can be both a blessing and a curse. Physician investors don’t always expect that they will need to dip into their own reserves to avoid being diluted, but it happens. Candid discussion of growth plans, capitalization requirements and alternatives is advised during the course of negotiations.

3. Tax Issues 

Depending upon how the original physician practice was treated from a tax perspective, there may be tax consequences upon the later disposition of equity in the recapitalized practice by the original physician owners.  For example, if the practice was a subchapter S corporation for tax purposes, it is often necessary that the physician investors (assuming there is more than one) hold their rollover equity in an equity holding company.  Meaning, the physicians own stock in the equity holding company and the equity holding company owns the rollover equity in the recapitalized practice, that also elects S corporation status. This is done to avoid the recognition of built-in gains on the rollover equity. However, when any of the physician equity holders exits the practice and sells his or her equity in the holding company, a tax will be triggered at that time, and this tax is borne by all physician investors, whether or not they have sold any equity. In that instance, it is necessary that the physician owners structure their arrangement to require any exiting physician investor to pay the taxes incurred by the remaining physician investors so as to avoid an unfair, and unexpected tax result.

Physician recapitalization transactions are complicated and much time and effort is spent on structuring the sale of the practice. However, care should be taken to better appreciate the downstream impact of the terms of the original transaction.

For more information about Foley’s Transactional Health Care Practice, visit

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Medicare Remote Patient Monitoring: CMS Allows “Incident to” Billing



CMS just announced a clarification that remote patient monitoring under CPT code 99457 may be furnished by auxiliary personnel, “incident to” the billing practitioner’s professional services.  An “incident to” service is one that is performed under the supervision of a physician (broadly defined), and billed to Medicare in the name of the physician, subject to certain requirements, one of which is discussed below.  The announcement came in a technical correction issued March 14, 2019 and is effective immediately.  This is a highly-anticipated change among remote patient monitoring companies, as we discussed in greater detail in our previous coverage.

The newest code for remote patient monitoring, CPT code 99457, went live in January 2019.  It offers Medicare reimbursement for “Remote physiologic monitoring treatment management services, 20 minutes or more of clinical staff/physician/other qualified healthcare professional time in a calendar month requiring interactive communication with the patient/caregiver during the month.”

When the final rule for the 2019 Physician Fee Schedule was published in November 2018, CMS stated that CPT code 99457 describes professional time and “therefore cannot be furnished by auxiliary personnel incident to a practitioner’s professional services.”   With this technical correction, CMS deleted that sentence, instead replacing it with: “We thank commenters and confirm that these services may be furnished by auxiliary personnel incident to a practitioner’s professional service.”  This is a welcome revision long-awaited by telehealth providers.

The change now allows RPM services to better mirror Chronic Care Management (CCM) services (CPT code 99487, 99489, and 99490).  However, the default rule for incident to billing under Medicare requires direct supervision, not general supervision.  Direct supervision means the physician and auxiliary personnel must be in the same building at the same time (albeit not the same room).  In contrast, general supervision does not require the physician and auxiliary personnel to be in the same building at the same time, and the physician could instead use telemedicine to exert general supervision over the auxiliary personnel.

For CCM Services, CMS created a regulatory exception allowing “incident to” billing under general supervision.  Unfortunately, the recent technical correction for RPM does not state that CPT code 99457 can be delivered under general supervision.  Indeed, CMS has not revised the RPM regulations to allow an exception to the default requirement of direct supervision.  While the correction is good news for providers and patients, changing the RPM rules to expressly allow incident to billing of CPT code 99457 under general supervision will make a huge difference in operations and business models, thereby allowing more patients to enjoy the quality-improving benefits of remote patient monitoring.

Providers and technology companies seeking a change to allow general supervision should consider submitting comments to CMS on this topic once the 2020 Physician Fee Schedule proposed rule is issued (typically the beginning of July).  We will continue to track these rules and changes as they develop.

Want to learn more?

Join a deeper discussion of remote patient monitoring and regulatory issues at the American Telemedicine Association’s 2019 Annual Conference and Expo in New Orleans on April 14-16, 2019.  Read the current program agenda and register here.

For more information on telemedicine, telehealth, virtual care, remote patient monitoring, digital health, and other health innovations, including the team, publications, and representative experience, visit Foley’s Telemedicine & Digital Health Industry Team.

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Website Accessibility: An Issue for Health Care Companies


Website accessibility under the Americans with Disabilities Act of 1990 (ADA) and Rehabilitation Act of 1973 (Rehabilitation Act) is an issue of which health care providers and other health care companies should be aware. There have been lawsuits filed that include claims for website accessibility under these Acts. A number of entities, including health care providers, have received complaints on behalf of visually impaired individuals claiming that the entity’s web presence is not equally accessible to the visually impaired. These claims are brought under Title III of the ADA and Section 508 of the Rehabilitation Act on the theory that websites are public accommodations. Fueled by success in at least one federal district court case, complaints are being filed against private entities on the same theory. Thus, health care companies should be cognizant of website accessibility issues and take steps necessary to address compliance.

Can Mere Web Presence Render Employers Subject to an ADA Claim?

The United States District Court for the Southern District of Florida recently considered the issue of whether a website constitutes a public accommodation under the ADA in Gil v. Winn-Dixie Stores, Inc.[1]  Gil involved a legally blind customer who shopped at the grocery and pharmacy chain and routinely refilled prescriptions at its brick and mortar locations. Using accommodation software, such as a screen reader, the customer was able to visit various websites, but found the store’s website was incompatible with the software. Specifically, the customer alleged that 90% of the tabs on the website could not be read by his software and that he was unable to obtain digital coupons, navigate the store locator tool, or refill prescriptions online for in-store pickup and delivery.

While no direct sales were made through the website, the store’s website allegedly deterred the customer from enjoying the chain’s goods and services in violation of Title III of the ADA. The crux of the argument was that the website constituted a “public accommodation” within the meaning of Title III, and therefore, violated the ADA by not providing equal access, and depriving the visually impaired of the “full and equal enjoyment” of its services.

Sidestepping a question that has divided federal appellate courts—whether the store’s website itself constitutes a “public accommodation”—the court found that the store’s website was “heavily integrated” with, and operated as a gateway to, its brick and mortar locations. Ultimately, the court determined the website denied the customer full and equal enjoyment of the store’s goods and services, issued a mandatory injunction requiring the store to address accessibility issues, and awarded attorneys’ fees to the customer.

What Does This Mean for Employers?

Although this case is not binding on any court (the case is on appeal to the 11th Circuit but no decision has yet been issued), it will have persuasive value across jurisdictions and provides ammunition to plaintiffs’ attorneys who are already filing Title III lawsuits against companies based on website inaccessibility.

Employers are, in many ways, left wondering what their responsibilities are to employees and the public alike, and whether their web presence renders them subject to claims under Titles I and III of the ADA.  Many jobs are performed entirely on computers and through various web or network databases. Many employers almost exclusively require that applications for jobs and internal transfers be submitted through web portals. And it is often the case that benefit information and handbooks are largely available through web portals—which are often managed by third parties.

Employers should proactively evaluate accessibility issues as they relate to points of web access for employees and customers alike. Due to the lack of regulatory guidance provided by the U.S. Department of Justice, the World Wide Web Consortium’s Web Content Accessibility Guidelines are frequently considered the industry standard governing website accessibility standards.

In addition, employers should take steps to ensure third-party service providers maintaining accessibility standards. In Gil, the Court determined the store had an obligation to require its third-party website manager to comply with accessibility standards. Accordingly, it is important for employers to understand their duties to employees and the public more generally.

While the issue is not limited to health care entities, it would apply fully to them and claims have been asserted against health care companies. Health care companies should consult with legal counsel or other consultants experienced in ADA accessibility to help ensure accessibility issues are identified and addressed so that employees and customers alike enjoy equal access and the health care company avoids potential claims.

[1] Civil No.16-23020-Civ-Scola (S.D. Fla. June 13, 2017).

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The Good and the Bad of the New MassHealth Telemedicine Rule



The Massachusetts Medicaid Program (known locally as MassHealth) issued a new All Provider Bulletin in January, setting forth new policies for certain behavioral health services delivered to MassHealth covered patients.  The guidance received mixed responses from the telehealth industry.

  • The good: MassHealth-participating Community Health Centers, Community Mental Health Centers, and Outpatient Substance Use Disorder providers can enjoy Medicaid coverage and reimbursement of certain mental health and substance use disorder services delivered via telehealth.
  • The bad: only interactive audio-video is covered, and the bulletin imposes a variety of telehealth practice standards (including written policies and training program conditions) that are not required under Massachusetts professional licensing laws and which do not apply to Massachusetts providers outside the MassHealth program. It also requires ongoing in-person exams when prescribing controlled substances, as an additional layer on top of the federal Ryan Haight Act

The MassHealth coverage of telehealth-based mental health services went live January 1, 2019.  Providers who submit claims for services delivered via telehealth must use place of service code 02.  There is no originating site facility fee available.  The telehealth modality must “conform to industry-wide compressed audio-video communication standards for real-time, two-way, interactive audio-video transmission.”  Asynchronous or interactive audio with store & forward is not an eligible modality under the bulletin.  Only behavioral health professionals who have been trained in the provision of services via telehealth, including training in the use of the telehealth equipment, may provide telehealth services.  Moreover, providers delivering services via telehealth must have a training program in place to ensure the competency of all staff members involved in the delivery of services via telehealth.

With regard to prescribing controlled substances, the bulletin’s recurring in-person exam requirement erects a hurdle even higher than the federal Ryan Haight Act.  In order to prescribe Schedule II controlled substances, telehealth prescribers must conduct an initial in-person exam plus recurring in-person exams every 3 months while that provider is prescribing medication to the patient.  The ongoing examinations may be performed by a primary care provider if the results of the examination are shared with the telehealth prescribing provider.  This requirement could undermine the access to care benefits typically enjoyed by patients who use telehealth for their mental health and substance use disorder treatment.  It could represent an even more glaring obstacle once the DEA’s forthcoming telemedicine special registration rules are promulgated later this year.

Read the entire MassHealth All Provider Bulletin 281 and its requirements here.

Want to learn more?

Join a deeper discussion of telemental health and telepsychiatry issues at the American Telemedicine Association’s 2019 Annual Conference and Expo in New Orleans on April 14-16, 2019.  Read the current program agenda and register here.

For more information on telemedicine, telehealth, virtual care, remote patient monitoring, digital health, and other health innovations, including the team, publications, and representative experience, visit Foley’s Telemedicine & Digital Health Industry Team.

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Revoking Controlled Substances Registrations: the DEA’s Weapon to Fight Abusive Prescribing and Dispensing



In response to the opioid crisis, the Drug Enforcement Administration (DEA) is cracking down on pharmacies, pharmacists, and prescribers by leveraging an old enforcement weapon: revocation of controlled substance registrations. The DEA actively revived this enforcement mechanism in February and March of 2018 when it arrested 29 people and revoked 147 controlled substance registrations throughout the country.1 Revocations carry the harsh consequence of preventing pharmacies, pharmacists, and prescribers from dispensing or prescribing federally controlled substances, which effectively renders the affected provider out-of-business. This article will discuss the DEA’s authority to revoke registrations, the revocation process and appeal options, and implications for pharmacies, pharmacists, and prescribers.

DEA Registration, Suspension, and Revocation Authority:

Once licensed by their states, manufacturers, distributors, and dispensers of controlled substances must register with the DEA. All three types of registrants must renew their DEA registrations periodically and keep the DEA apprised of changes to information on file with DEA. Under 21 U.S.C. § 824, the United States Attorney General or the DEA may revoke or suspend a controlled substance registration for a variety of reasons:

  • Materially falsifying filings with the DEA;
  • Certain felony convictions relating to controlled substances;
  • Suspension, revocation, or denial of state licensure related to the registrant’s authority to manufacture, distribute, or dispense controlled substances;
  • Actions that would render the registration inconsistent with public interest; and
  • Exclusion from participation in federal health care programs.2

When suspending a license under subsection (a), the DEA must serve the registrant an order that demonstrates cause for the suspension or revocation (Order to Show Cause). Further, the Order to Show Cause must include a time for the registrant to appear before the DEA not less than 30 days after the order was issued and provide the registrant the opportunity to submit a corrective action plan for consideration on or before the date of appearance.4 This hearing process is distinct from any criminal prosecutions or other proceedings related to the underlying conduct of the registrant.

For example, on February 23, 2015, the DEA issued an Order to Show Cause to Pharmacy Doctors Enterprises d/b/a Zion Clinic Pharmacy, a retail pharmacy located in Hallandale Beach, Florida.5 The DEA proposed to revoke the pharmacy’s controlled substance registration on the grounds that its continued regis­tration is inconsistent with the public interest.6 Specifically, the Show Order Cause listed “red flags” that “prior Agency deci­sions found… were so suspicious as to support a finding that the pharmacists who filled them violated the Agency’s corresponding responsibility rule due to actual knowledge of, or willful blindness to, the prescriptions’ illegitimacy.”7 These “red flags” include:

  • Patients traveling unusually far distances to fill their prescriptions;
  • Nearly identical prescriptions written by the same doctor for two people with the same last name and same address;
  • Filling prescriptions for drug cocktails;
  • Patients paying for drugs in cash;
  • Filling prescriptions for the same drug in different quantities for the same patients; and
  • Early refills.

The pharmacy requested a hearing. On October 16, 2015, the Chief Administrative Law Judge John. J. Mulronneey, II issued his Recommended Decision that five of the seven allegations be sustained. Both parties subsequently filed Exceptions to the Recommended Decision.8 On February 12, 2018, acting Admin­istrator Robert W. Patterson revoked the pharmacy’s registration and ordered that any subsequent applications for registration be denied effective April 12, 2018.9

Red Flags of Diversion:

As noted in the case discussed above, the DEA has informally identified a number of “Red Flags” that due to the “circumstances surrounding the presentation of a controlled substance prescrip­tion that does or should raise a reasonable suspicion as to the validity of the prescription.”10 Often, claims that a pharmacy is ignoring such are used as justifications in revocation or suspen­sion Show Cause Orders issued by the DEA as discussed above.

The DEA issued an Order to Show Cause to Trinity Pharmacy, Inc. on July 10, 2015 which listed seven reasons supporting the revocation of the pharmacy’s license, including that its “continued registration is inconsistent with the public interest.”11 From 2012 through 2014, the Order alleged that the pharmacy “filled [prescriptions for] and dispensed controlled substances on numerous occasions outside the usual course of pharmacy prac­tice and in contravention of their corresponding responsibility,” and that such pharmacists did so even when such prescriptions “contained one or more ‘red flags’ [f]or drug abuse or diversion without resolving the red flag(s) and, in certain circumstances, w[h]ere the red flags were unresolvable.”12 Specifically, the phar-macy’s operations allegedly ignored the following six red flags:

  1. Early refills. Nine customers sought to refill or submit new prescriptions before they should have completed their supply from their last refill;
  2. Unusual distance traveled by patients;
  3. Cocktail prescriptions. Eight customers each sought to fill a combination of opioid, a benzodiazepine, and a muscle relaxer for the same patient;
  4. Duplicative Drug Therapies;
  5. Two prescriptions for the same medication presented on the same day; and
  6. Pattern of prescribing. Multiple patients presented prescriptions for the same drugs issued by the same prescriber on the same day.

The Order further alleged that the pharmacy acted “outside the usual course of professional practice” by:

  • Violating federal law by dispensing a Schedule II drug when the patient had 12 days left on a prescription that was issued by a different prescriber;
  • Dispensing Schedule II drugs to patients in violation of the prescriber instructions to not fill the medication until a specified date;
  • Dispensing a drug five times more potent than what was specified on the prescription;
  • Using non-pharmacists to fill prescriptions for controlled substances; and
  • Failing to maintain accurate records of who filled controlled substance prescriptions.

Ultimately, the judge found that the pharmacy’s certificate of regis­tration should be revoked and that it be denied any applications to renew or modify its controlled substance registration indefinitely.13

Suspension and Revocation Authority Due to Imminent Danger to Public Health or Safety

Separately, the DEA may revoke or suspend a controlled substance registration without having to provide an Order14 described above in cases of imminent danger to public health or safety.15

the Attorney General16 may, in his discretion, suspend any registration simultaneously with the institution of proceedings under this section, in cases where he finds that there is an imminent danger to the public health or safety. A failure [by dispensing practitio­ners] to comply with [registration requirements] may be treated under this subsection as grounds for immediate suspension of a registration granted under such section. A suspension under this subsec­tion shall continue in effect until the conclusion of such proceedings, including judicial review thereof, unless sooner withdrawn by the Attorney General or dissolved by a court of competent jurisdiction.17

In May 2018, the DEA issued its first Immediate Suspension Order in six years.18 This Immediate Suspension Order was issued to Morrison & Dickson Company’s distribution center in Shreve­port, Louisiana on May 4, 2018 and required the company to stop distributing controlled substances immediately.19 The DEA had been investigating the company’s distribution of suspiciously large quantities of controlled substances to independent pharmacies

(sometimes six to ten times an expected amount). On May 8, 2018, U.S. District Court Judge Elizabeth Foote entered a temporary restraining order against the DEA because there was a substantial likelihood that the agency’s action was arbitrary and capricious. The DEA subsequently rescinded the order on May 18, 2018.20


While the DEA’s power to revoke controlled substance permits is not a new tool, it has been quite effective in allowing the DEA to take quick, and often decisive action, against manufacturers, distributors, prescribers, and dispensers as the federal government takes enforcement action against the supply chain fueling the opioid epidemic. It remains to be seen if this trend will continue, but it is highly likely to continue to be an arrow in the quiver of federal law enforcement. The use of DEA permit revocation authority, when successful, carries the ultimate result of permanently shuttering the business of offenders. As such, it is imperative to work with your drug supply chain clients to ensure they have meaningful compli­ance policies, procedures, and monitoring in place. Further, take steps to confirm that your clients have the appropriate resources and commitment to implement their compliance program.



2 21 U.S.C. § 824(a).

3 21 U.S.C. § 824(c).

4 21 U.S.C. § 824(c)(2).

5 83 Fed. Reg. 10876 (Mar. 13, 2018).

6 21 U.S.C. § 824(a)(4).

7 83 Fed. Reg. 10876, 10896 (Mar. 13, 2018).

8   121 C.F.R. § 1316.66(a) “Within twenty days after the date upon which a party
is served a copy of the report of the presiding officer, such party may file with the Hearing Clerk, Office of the Administrative Law Judge, exceptions to the recommended decision, findings of fact and conclusions of law contained in the report. The party shall include a statement of supporting reasons for such exceptions, together with evidence of record (including specific and com­plete citations of the pages of the transcript and exhibits) and citations of the authorities relied upon.”

9 83 Fed. Reg. 10876, 10903 (Mar. 13, 2018).

10 march_2013/carter.pdf.

11 21 U.S.C. § 824(a)(4).

12 83 Fed. Reg. 7304 (Feb. 20, 2018).

13 83 Fed. Reg. 7304, 7336 (Feb. 20, 2018).

14 21 U.S.C. § 824(c)(5) Noting that “the requirements of this subsection shall not apply to the issuance of an immediate suspension order under subsection.”

15 21 U.S.C. § 824(d)(2) defining imminent danger to the public health or safety as “due to the failure of the registrant to maintain effective controls against diversion or otherwise comply with the obligations of a registrant under this subchapter or subchapter II, there is a substantial likelihood of an immediate threat that death, serious bodily harm, or abuse of a controlled substance will occur in the absence of an immediate suspension of the registration.”

16 21 U.S.C. § 1301.36(a) noting that the DEA Administrator may also suspend or revoke a controlled substance registration under this section.

17 21 U.S.C. § 824(d)(1).



20 See Morris and Dickson Co LLC v. Sessions, No. 5:18-cv-00605.

Copyright 2019, American Health Lawyers Association, Washington, DC. Reprint permission granted.

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Ambulance Suppliers: CMS Launches ET3 – A New Triage Model for EMS


On February 27, 2019, CMS will hold its first webinar to provide an overview on its new Emergency Triage, Treat, and Transport (ET3) Model for suppliers of emergency medicine services (EMS) and ambulance suppliers.

On February 14, 2019, CMS’ Innovation Center announced ET3’s upcoming availability, which emphasizes the need for EMS suppliers to partner with other health care providers in order to triage and treat patients more effectively. For the first time, the Medicare program will reimburse EMS suppliers for treating patients in-place and transporting emergency patients to alternative destinations like urgent care centers or physician practices rather than emergency departments.

This new approach is destined to change the way patients interact with emergency service providers in this country. According to Alex Azar, Secretary of HHS, in a recent press release, this “model will create a new set of incentives for emergency transport and care, ensuring patients get convenient, appropriate treatment in whatever setting makes sense for them. A value-based healthcare system will help deliver each patient the right care, at the right price, in the right setting, from the right provider.” (February 14, 2019).

The new ET3 model will allow participating ambulance suppliers and other health care providers to work together to deliver treatment in-place (either on-the-scene or through telehealth) and with alternative destination sites (such as primary care doctors’ offices or urgent-care clinics) to provide care for Medicare beneficiaries following a medical emergency for which they have accessed 911 services. Additionally, the model will encourage development of telephonic triage centers for low-acuity 911 calls in regions where participating ambulance suppliers and providers operate. The ET3 model will run for five years and start in 2020.

While continuing to pay for 911 transports under the current system, the ET3 model will test two new ambulance payments circumstances:

  • Payment for treatment in place with a qualified health care practitioner, either on-the-scene or connected using telehealth; and
  • Payment for unscheduled, emergency transport of Medicare beneficiaries to alternative destinations (such as 24-hour care clinics) other than destinations covered under current regulations (such as hospital emergency departments).

Qualified health care practitioners or alternative destination sites that partner with participating ambulance suppliers would receive payment as usual under Medicare for any services rendered.

The model will use a phased approach in regions across the country. CMS wants the EMS participants in the ET3 Model to partner with participants in the delivery of emergency care such as cities, counties, doctors, telemedicine centers, and urgent care facilities.

CMS will release its Request for Applications in Summer 2019 to solicit Medicare-enrolled ambulance suppliers and providers. In Fall 2019, to implement the triage lines for low-acuity 911 calls, CMS will release a Notice of Funding Opportunity for a limited number of two-year cooperative agreements, available to local governments, their designees, or other entities that operate or have authority over one or more 911 dispatches in geographic locations where ambulance suppliers and providers have been selected to participate. More information can be found here.

For more information on Foley’s experience with Ambulance and EMS suppliers, visit Foley’s Health Care Industry Team.

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An Artful Deal? Critics Question Administration’s Prescription Drug Negotiation Tools for Medicare Advantage


drug testing

Co-Author: Nina Zhang, Stephenson Acquisto & Colman

This article addresses the high-level challenges of tackling drug pricing policy related to prices that seniors and government programs pay, as well as the potential effects that the Trump administration’s policy efforts could have on those prices.1 Starting in January 2019, the Centers for Medicare & Medicaid Services (CMS) will provide Medicare Advantage plans—private health insurance plans that provide Medicare benefits to 20 million Medicare beneficiaries (a third of all beneficiaries in Medicare)—the option of negotiating prices for Part B drugs.2 This will allow Medicare Advantage plans that also offer a Part D benefit to cross-manage Part B and Part D drug costs.3 Through the allowed “step therapy” program, insurers may require patients to try a less expensive drug before shifting to a more expensive drug, with the goal of causing manufacturers to compete more on price for their drugs to secure drug formulary status with insur­ance companies.4

As background, in 2015 the government and beneficiaries spent $25.7 billion on Part B drugs.5 By contrast, in the commercial market, health insurers negotiate discounts averaging 15% to 20% on the same drugs for which Part B has paid full price.6

The medication treatments subject to the change include infusions for rheumatoid arthritis, eye injections to treat certain conditions that cause vision loss, as well as some cancer therapies, among others.7 As an example, rheumatoid arthritis injections Humira and Enbrel from AbbVie Inc. and Amgen Inc. respectively, are covered under Part D, while Remicade from Johnson & Johnson, an infused therapy for the same disease, is covered under Part B.8 With the new negotiating tools, Medicare Advantage plans could decide if and how they want to manage such therapy as a class.

However, critics believe such a shift could unintentionally create barriers to care because of the differences in payment, cost sharing, reimbursement, and settings of care in Part B and Part D.9 Under Medicare Part B, providers administer a drug and submit a claim to Medicare for reimbursement that covers both the medication and its administration. Conversely, standalone Part D plan sponsors contract with pharmacies to make the medi­cations available directly to beneficiaries. For patients, benefit variability, lack of transparency, and potential for balance billing could pose challenges for specialty drugs.10

Physicians who prescribe Part D drugs for administration in their offices face numerous barriers in financing and adminis­tering care. Under Part B, Medicare pays providers the average sales price plus 6%.11 The added reimbursement covers the proper storage, management, handling, and administration of the covered medications.12 Part D does not cover these expenses. Also, physicians not included in the Part D plan’s network may rely on “brown-bagging” or “white-bagging”13 for medication supply, adding another obstacle to treatment. Such medications may be inadvertently damaged during shipping or patient transit, risking patient safety and presenting liability issues. In addi­tion, because they are out of network, physicians may be unable to verify beneficiary coverage and cost-sharing liability, posing another difficulty. In a study of vaccinations, which also have split coverage between Part B and Part D, the Government Account­ability Office found that 80% of physicians said the time needed to identify beneficiary coverage and submit claims posed a hurdle to administering Part D vaccines.14

Also, requiring patients to “fail first” under step therapy programs may inhibit patient care. Groups such as the American College of Rheumatology have openly criticized the program, saying that the change threatens patient access to drugs covered under Medicare Part B by placing control over treatment plans in the hands of insurance companies.15 They also claim the new policy is an intru­sion into the doctor-patient relationship.16

Studies are mixed on the effectiveness of step therapy. A 2007 study found that step therapy saved patients an average of 13% on blood pressure medicine.17 Another study from 2006 showed a 9% savings on antidepressants.18 A 2010 review of 15 studies concluded that “although formulary restrictions are intended to reduce costs while maintaining or improving quality, few comprehensive studies support these claims.”19 The review

observed, “Further research is needed to quantify the effect of formulary restrictions such as step therapy.”20

Perhaps anticipating such criticisms, CMS also instructed Medi­care Advantage organizations to design patient care coordination activities such as the following:

  • Interactive medication review and associated consultations for enrollees to discuss all current medications and perform medi­cation reconciliation and follow-up when necessary;
  • Providing educational materials and information to enrollees about drugs within the drug management care coordination program; and
  • Implementing medication adherence strategies to help enrollees with their medication regimen.21

The step therapy program may face legal challenges. Formally, CMS rescinded a 2012 memorandum prohibiting step therapy in Medicare Advantage plans administering Part B drugs.22 That memo cites CMS regulations requiring Medicare Advantage plans to “provide coverage of, by furnishing, arranging for, or making payment for, all services that are covered by Part A and Part B of Medicare … and that are available to beneficiaries residing in the plan’s service area.”23 In 2012, CMS interpreted that regulation to mean that if traditional, fee-for-service Part B cannot use step therapy (as it still cannot today), neither can Medicare Advantage plans administering Part B benefits.24 The argument would be that the use of step therapy violates the terms of these regulations, because Medicare Advantage plans would not be “provid[ing] coverage” in the same way that such services are “available to” traditional fee-for-service Medicare patients.

It remains to be seen what impact step therapy efforts will have on prescription drug pricing. Regardless, it is important to closely watch this developing area to see whether the critics’ concerns materialize and how CMS responds.


1   With the American Patients First Act, the Trump administration has identified four challenges in the drug pricing market: (1) high list prices for drugs, (2) seniors and government programs overpaying for drugs due to lack of the negotiation leverage, (3) high out-of-pocket costs for patients, and (4) foreign governments “free-riding” off American innovation. He has proposed four strategies: (1) improved competition, (2) better negotiation, (3) incentives for lower list prices to manufacturers, pharmacy benefit managers, and whole­salers, and (4) lowering out-of-pocket costs. Dept. Health & Human Serv., American Patients First: The Trump Administrations ’ Blueprint to Lower Drug Prices and Lower Out-of-Pocket Costs (2018).

2   CMS Empowers Patients With More Choices and Takes Action to Lower Drug Prices, (last visited Dec. 7, 2018).

3 Anna Edney, Trump Forces Pharma to Face More Medicare Drug-Price Negotia­tion (Dec. 7, 2018). trump-forces-pharma-to-face-more-medicare-drug-price-negotiation.

4   Seema Verma, Prior Authorization and Step Therapy for Part B Drugs in Medicare Advantage,

5 Edney, supra note 3.

6   Id. This is likely the average wholesale price.

7 Id.

8 Id.

9   Avalere Health, Shifting Drugs from Medicare Part B to Part D, Learnings from Medicare Coverage of Vaccines (2018), nt/12909/f-0569/1/-/-/-/-/20180625%20-%20B%20to%20D%20Vaccines%20 White%20Paper%20-%20FINAL.pdf.

10 Id.

11 Id.

12 Id.

13 “Brown-bagging” is when a patient obtains a drug or vaccine from a pharmacy and takes it to the physician’s office for administration. “White-bagging” is when a pharmacy ships the product directly to the physician office on demand in advance of the patient’s visit. Id.

14 U.S. Gov’t Accountability Office, Many Factors, Including Administrating Chal­lenges, Affect Access to Part D Vaccinations (GAO-12-61) (2011).

15 David Daikh, ACR Condemns CMS Decision to Allow Step Therapy for Part B drugs, online/%7Bfa435388-545e-44a1-b334-01c1ab210890%7D/acr-condemns-cms-decision-to-allow-step-therapy-for-part-b-drugs.

16 Rahul K. Nayak and Steven D. Pearson, The Ethics of “Fail First’: Guidelines and Practical Scenarios for Step Therapy Coverage Policies, 33 HEALTH AFFAIRS 10 (Oct. 1, 2014),

17 Krista Yokoyama, et al. Effects of a step-therapy program for angiotensin receptor blockers on antihypertensive medication utilization patterns and cost of drug therapy, 13 J. MAN. CARE & SPEC. PHARM. 235 (2007).

18 Jeffrey Dunn, et al. Utilization and drug cost outcomes of a step-therapy edit for generic antidepressants in an HMO in an integrated health system, 12 J. MAN. CARE & SPEC. PHARM. 294 (2006).

19 Rashad I. Carlton, et al. Review of Outcomes Associated with Formulary Restricts: Focus on Step Therapy, AM. J. PHARM. BEN. (April 6, 2010),

20 Id.

21 See supra, note 4.

22 Id.

23 Danielle R. Moon, Prohibition on Imposing Mandatory Step Therapy for Access to Part B Drugs and Services, step_therapy_memo_091712-2.pdf.

Copyright 2019, American Health Lawyers Association, Washington, DC. Reprint permission granted.

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Increased Interoperability of Health Information: Two New Proposed Rules


data mining

The U.S. Department of Health and Human Services (HHS) recently proposed two new rules designed to increase patient and provider access to health records. As stated by HHS in its press release, the proposed rules “will support seamless and secure access, exchange, and use of electronic health information.” These proposed rules stem from two separate components within HHS – the Centers for Medicare & Medicaid Services (CMS) and the Office of the National Coordinator for Health Information Technology (ONC). The rules have much in common, with both sharing the same goal of increased health information interoperability in order to improve access to, and the quality of, health information.

A Snapshot of the Proposed Rules

  • On February 11, 2019, CMS and ONC proposed complementary rules facilitating patient access to and the flow of health information.
  • Health care providers would be required to implement, test, and monitor open standards-based application programming interfaces (APIs) to make patient information more available to patients through third-party applications and developers.
  • Payers would have to support electronic exchange of data for transitions of care as patients move between plans.
  • Plans would have until 2020 to comply with the proposed rule, should it go into effect.
  • To ensure both patients and providers have easy access to information, plans would be required to make information about in-network providers available to enrollees and prospective enrollees through API technology.
  • Health care organizations would be incentivized to participate in “trusted exchange networks” such as health information exchanges (HIEs) in order to facilitate the flow of health information.
  • “Information blocking” would be curtailed through public reporting of and enforcement actions against organizations that engage in practices that prevent or significantly restrict the effective and efficient flow of patient information.
  • Patients would be enabled to easily access their health information electronically and at no cost.

What Are the Key Takeaways?

The CMS Proposed Rule

The CMS proposed rule, CMS-9115-P, strives for greater interoperability in the health care industry by requiring that all governmental health plans as well as all health plans offered through the federal Affordable Care Act (Covered Plans) provide patients with free control of, and increased access to, their HIPAA protected health information (PHI). Issuers of these Covered Plans would have until 2020 to comply with the proposed rule, should it go into effect. The reach of this rule would be extensive, as Covered Plans provide insurance for nearly 125 million patients.

Patient Access and Information Flow through APIs

Among other things, the CMS rule would require Covered Plans to implement, test, monitor, and maintain PHI APIs to:

  1. Make patient claims and other PHI available to patients through third-party applications and developers
  2. Simplify and increase the ease and access for patients to transition between insurance plans and providers by facilitating the flow of PHI.

Generally, APIs are sets of code which allow multiple software programs to interact and communicate with each other (more on this under the ONC Rule). Covered Plans are encouraged to join an “exchange network,” with certain payers being required to join, with the goal of facilitating the flow of information.

Restricting “Information Blocking” Practices

Both rules address the practice often referred to as “information blocking” – when a health care provider or vendor unreasonably interferes with or prevents access to electronic health information (for example, when an organization charges fees which makes information exchange cost prohibitive, or when policies or contract terms prevent or disincentive sharing information with patients or other health care providers). Under CMS’ proposed rule, CMS would publicly post information about health care organizations that submit information indicating the engagement in some form of information blocking. The reporting would apply to clinicians under the Merit-based Incentive Payment System (MIPS), hospitals participating in Medicare and/or Medicaid, and critical access hospitals in rural areas serving residents otherwise far from emergency care.

Increased Adoption and Use of Health Information Networks (HIEs)

Transmitting health information through the internet requires a ‘trust framework’ that addresses the privacy and security of the information. Trusted networks such as HIEs are those in which plans and providers can easily share information regardless of various health IT systems and networks. The CMS rule recognizes the need to expand and integrate more plans and providers into these networks.  The rule would incentivize payers to join any health information network they choose and be able to participate in regional and nationwide exchange of data. Certain CMS qualified plans would be required to participate in trust networks to improve interoperability.

The ONC Proposed Rule

Common API Criteria and Standards to Improve Access

The ONC rule, RIN 0955-AA01, addresses more technical and granular issues than the CMS rule. Similar to the CMS rule, the ONC rule attempts to increase health care network interoperability through the use of APIs. The ONC rule is more detailed than the CMS rule in this regard, proposing new API criteria in an effort to standardize APIs in the health care industry to promote and facilitate secure access to health information on smartphones and other mobile devices. The proposed rule sets forth standards on data classification as well as other specifications for the API-enabled access and services. The goal of these aspects of the rule is to facilitate the sharing of the myriad different formats currently used, and to make patient information available using mobile technology.

More on Information Blocking

Like the CMS proposed rule, the ONC proposed rule would also address information blocking in an effort to lessen use of the practice in non-constructive or beneficial ways. Curtailing information blocking is key to the HHS goal of health information interoperability and exchange. The ONC rule provides further requirements to discourage information blocking, with a few important exceptions focused on preventing harm and promoting privacy, which the ONC deems reasonable and necessary under certain conditions. In an effort to provide additional clarity to health care providers and vendors, the proposed rule identifies reasonable and necessary activities that do not constitute information blocking. These aspects of the rule as well as the API criteria and standards are designed to help ensure that patients can electronically access their electronic health information at no cost.

How to Submit Comments

Interested parties will have until mid-April to provide comments on the proposed rules to CMS and ONC (the exact date will be 60 days from when the rules are posted on the Federal Register, expected to be February 15). Commenters can provide their responses either online or through mail to the contact information provided in the rules. Instructions on how to comment are provided below.

In addition, CMS is requesting specific feedback and commentary on adopting health information technology for use in post-acute care settings, and the role of patient matching through data interoperability, resulting in improved patient care.  ONC is also seeking specific input regarding what types and kind of information would help increase transparency for health care industry costs.

To learn more about the proposed rules, or for assistance in providing a comment, contact any of the authors for more information.

For the CMS Rule:

  • Visit the Federal eRulemaking Portal. Be sure to follow the instructions for submitting comments
  • Send written comments by regular mail to the following address:

Centers for Medicare & Medicaid Services
Department of Health and Human Services
Attention: CMS-9115-P
P.O. Box 8016
Baltimore, MD 21244-8016

  • Send written comments by express or overnight mail to the following address:

Centers for Medicare & Medicaid Services
Department of Health and Human Services
Attention: CMS-9115-P
Mail Stop C4-26-05
7500 Security Boulevard
Baltimore, MD 21244-1850

For the ONC Rule:

  • Visit the Federal eRulemaking Portal. Be sure to follow the instructions for submitting comments
  • Send one original and two copies by regular, express, or overnight mail (or by hand delivery or courier) to the following address:

Department of Health and Human Services, Office of the National Coordinator for Health Information Technology
Attention: 21st Century Cures Act: Interoperability, Information Blocking, and the ONC Health IT Certification Program Proposed Rule
Mary E. Switzer Building
Mail Stop: 7033A
330 C Street, S.W.
Washington, D.C. 20201

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Chair’s Column: Deciphering Medicare’s Mysteries


nurse station

In November 2018, I had the honor and pleasure of speaking at the AHLA Fundamentals of Health Law program in Chicago. This is a conference that is designed for attorneys (and others) who are relatively new to health law. I spoke on the exciting topic of “Medicare Parts A and B.”

As I prepared for this session, the first thought I had was that it was too hard a topic, even though I have been working with Medicare issues for more than 30 years. And then I wondered if I could possibly do credit to the topic in the time allotted. Medicare is a program that has been in place since 1965 but continually evolving, seemingly at warp speed, since the Affordable Care Act passed in 2010.

As one court noted,

There can be no doubt but that the statutes and provisions in question, involving the financing of Medicare and Medicaid, are among the most completely impenetrable texts within human experience. Indeed, one approaches them at the level of specificity herein demanded with dread, for not only are they dense reading of the most tortuous kind, but Congress also revisits the area frequently, generously cutting and pruning in the process and making any solid grasp of the matters addressed merely a passing phase.1

Identifying what I thought were key concepts to cover in a very short allocation of time actually turned into a fun chal­lenge. Based on my own history, I was reminded just how hard it must seem for those new to health law to under­stand where to start to analyze Medicare questions. Even at this stage in my career, I sometimes think “it’s just too hard” as I try to decipher the position of the Centers for Medicare & Medicaid Services (CMS) on a particular issue. (There is an interesting decision involving the assertion of the “it’s too hard” defense, albeit in a Medicaid rather than Medi­care matter.2) Over time, however, I have come to respect the structure of the Medicare program and understand the fit and interdependence of its parts (with some outliers).

Here are some examples of the conundrums that come to mind when thinking about the challenges of Medicare research and analysis.

  • Medicare is a defined benefit program—the services covered are broadly defined in the Act, and to be covered an item or service must fit into one of the speci­fied benefit categories, of which there are at least 55.3 However, I have been unable to locate a complete list of benefit categories despite much searching (and outreach to the CMS library).
  • Operational and payment details often appear in subregulatory guidance, and a search limited to statutes and regulations may not provide the complete picture.
  • Key definitions appear in multiple locations (statutes, regulations, manuals, and other subregulatory guidance) and are not always entirely consistent. For example, “provider” and “supplier” are key concepts but the terms may have different meanings depending upon context and the applicable definition(s) must always be checked to see if the provision is applicable.
  • Some items or services may be paid under Part A or Part B, depending upon various circumstances. For example, some services provided in nursing homes may be paid under Part B after Part A coverage is exhausted. Again, context is always critical.
  • Some drugs may be paid seperately under Part B or D, depending upon the circumstances. For example, insulin delivered with a pump is covered under Part B, but if used without a pump is covered under Part D. There may be significant reimbursement differentials. The CMS website has a helpful publication entitled “Medicare Part B versus Part D Drug Coverage Determinations” (MLN SE0652), searchable as the easily remembered “Part B versus Part D.”
  • Hospital laboratories may serve inpatients, outpatients, and nonpatients, with different provisions applicable to each.

I often rely upon AHLA’s resources as a research tool (including past program presentations, toolkits, publica­tions, and the online Communities when I really can’t find any guidance). Participation in the Regulation, Accredita­tion, and Payment Practice Group (RAP PG) has enhanced my knowledge base and provided colleagues with whom to discuss the thorniest of Medicare issues. Many Medicare-related resources can be found on the AHLA website at the RAP PG webpage. The RAP PG also offers many opportunities for involvement in speaking, writing, and getting to know those who are similarly seeking answers to Medicare’s mysteries.

Please join our RAP PG monthly calls for a “quick hit” discussion of a timely topic and information about volunteer opportunities. The RAP PG welcomes your involvement.

1   Rehabilitation Ass’n v Kozlowski, 42 F.3d 1444, 1450 (4th Cir. 1994).

2   See Al-Shaikh v [California] State Department of Health Care Services, 21 Cal. App. 5th 918 (2018).

3 64 Fed. Reg. 22619, 22620 (Apr. 27, 1999).

Copyright 2019, American Health Lawyers Association, Washington, DC. Reprint permission granted.

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Virginia Lawmakers Pass Bill Requiring Insurance Coverage for Remote Patient Monitoring


remote monitoring

Virginia lawmakers have taken new steps to expand the use of remote patient monitoring among the State’s residents, with both the House and Senate unanimously passing bipartisan legislation ensuring that commercial health plans and the Virginia Medicaid program will cover remote patient monitoring services. The bill now heads to the office of Governor Ralph Northam for signature.

The legislation (HB 1970 and SB 1221) amends Virginia’s current telehealth commercial insurance coverage law (Va. Code § 38.2-3418.16) to expressly add remote patient monitoring as a covered service.  It defines remote patient monitoring as follows:

“ ‘Remote patient monitoring services’ means the delivery of home health services using telecommunications technology to enhance the delivery of home health care, including monitoring of clinical patient data such as weight, blood pressure, pulse, pulse oximetry, blood glucose, and other condition-specific data; medication adherence monitoring; and interactive video conferencing with or without digital image upload.”

The bill also adds remote patient monitoring coverage to the State Medicaid program, administered by the Virginia Department of Medical Assistance Services. Prior to this bill, Virginia had sought to advance telemedicine and digital health in the State, including promulgating forward-looking telemedicine guidelines.

Remote patient monitoring is positioned to become the next big thing in patient-centered digital health care. User-friendly software and equipment already exist; there simply has been little third party reimbursement historically to drive adoption. This is quickly changing however, led by CMS’ addition of three new remote patient monitoring codes for 2019. In addition to the three new codes, Medicare also covers a fourth remote patient monitoring code.

Ensuring that payers and health insurance plans pay for remote patient monitoring as a covered member benefit will incentivize providers to invest in these technologies. This will equip them to better monitor and manage patient care needs, allowing patients to avoid unnecessary hospitalizations, and more proactively manage chronic conditions.

Entrepreneurs and companies offering remote patient monitoring technologies and services should take steps now to understand these new billing opportunities under Medicare and state laws. With the new CPT codes live, remote patient monitoring will become an area of significant upside potential over the coming years. Hospitals and providers using remote patient monitoring and other non-face-to-face technologies to develop patient population health and care coordination services should take a serious look at these new codes, and keep abreast of developments that can drive recurring revenue and improve the patient care experience.

Want to learn more?

Join us for a deeper discussion of remote patient monitoring and digital health at the American Telemedicine Association’s 2019 Annual Conference and Expo in New Orleans on April 14-16, 2019. Read the current program agenda and register here.

For more information on telemedicine, telehealth, virtual care, remote patient monitoring, digital health, and other health innovations, including the team, publications, and representative experience, visit Foley’s Telemedicine & Digital Health Industry Team.

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