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Telemedicine Investors Roundtable Focuses on Progress, Barriers, and ROI



As telemedicine continues to see significant traction, health care organizations are working to implement telemedicine programs and  create technology infrastructures all while working within the current legislative requirements. Foley & Lardner LLP and Ziegler recently had an opportunity to sit down with 15 leaders in telemedicine to discuss the progress, barriers, and return on investment as the industry shifts from infancy to adolescence.

The session was led by three telemedicine industry trailblazers: Iris Berman RN, MSN, CCRN-k, VP, Telehealth Services,  Northwell Health;  Evan Cohen, Corporate Development Director, Genoa Healthcare; and Shawn Farrell, East VP of Business Development, American Well. American Well, including its recent acquisition of Avizia, offers a full end-to-end telemedicine solution for health systems, providers, and payers. Northwell Health is the largest clinically-integrated healthcare network in New York State, with 21 hospitals, and a patient base of eight million. Northwell has expanded its telemedicine program and utilizes its own installed telemedicine platform outsourced to American Well to help facilitate their telemedicine program; and  Genoa offers a  telepsychiatry division serving community-based mental health centers.

Signals of Growing Telemedicine Momentum

While health systems have competing goals on capital investment,  information technology is becoming a central strategy for organization leadership,  not just the information technology department. CEOs understand the importance of this investment and are making technology a priority.

Joint Ventures – More and more health systems are introducing a venture arm and are looking to invest in innovative technologies where systems own a piece of a technology platform. This enables the organization to have a  say in the software development and ensures that it is customized to their needs. Telemedicine is a technology that has seen an increase in such investment.  As a result, organizations are showing ROI and not an ongoing expense  for payment of subscription fees.

Payer/Provider Collaboration – Payers are collaborating with providers to provide telemedicine services. Medicare Advantage plans especially are likely to push telemedicine and also have the flexibility to incentivize providers and make the necessary investments.

In addition, according to Ziegler, behavioral health, post-acute care, senior housing and chronic care management are all areas expected to see significant growth in telemedicine.

Current Obstacles

Interoperability –Although not unique to telemedicine, interoperability remains one of the biggest barriers. This is especially true within hospital systems that acquire another hospital using a different EMR platform. At Northwell, for example,  interoperability is a must and a requirement that they place on their technology vendors.  Technology needs to be seamless and easy for end users in order to provide value.

Credentialing – Credentialing of a treating physician can be an issue for telemedicine especially when the destination hospital treats the patient who returns to another State or country.  Getting peer credentialed amongst payers and provider and common State physician licensure remain material obstacles to telemedicine.

Ownership of the Patient—Does the provider or the payer  “own” the patient relationship?  The law indicates the provider,  but narrow networks and value-based payment will reduce provider choice. Plans may drive telemedicine  adoption more than any other player especially as payer-provider convergence trends continue.

The Secret to Measuring Return on Investment

When a health care organization begins to plan for a telemedicine investment, how do providers or payers make an investment decision on telemedicine? What’s the right ROI measurement? What does this show about adoption more broadly to influence private equity (PE) investment in the space? Last year, the National Quality Forum (NQF) released a framework for measuring the quality and impact of telehealth services. To assess telehealth, NQF focuses on four areas: patient access to care, financial impact on patients and providers, patient and clinician experience and effectiveness of clinical and operational systems. Aside from the 17 NQF-endorsed measures to measure telehealth quality, there is no other standard for measuring return on investment.

For Northwell, its telemedicine efforts began with an e-ICU monitoring product.  The strategy was to introduce this capability internally, rather than direct to consumer, in order to build out capabilities. Subsequently, Northwell issued an RFI to vendors to purchase technology to support their initiative. Return is not measured on revenue but rather on cost containment, outcomes, and driving referrals from community hospitals for specialty work.  Also, cost savings are measured based on the ability to leverage technology in order to reduce physician time per episode. The new CMS proposed rule on asynchronous codes, e-visits, and remote monitoring will help accelerate ROI and adoption.

Shawn discussed how in a prior role for Avizia, he helped a Boston-based academic medical center roll out a telemedicine platform in its community network. ROI was measured off: a) reducing length of stay, complications, readmissions and associated costs not necessarily revenue generation;  and b) admission to flagship system for specialty care.

Evan Cohen indicated Genoa ‘s focus is different . They are looking to provide access and reimbursement to providers for care and to some extent cost reduction  due to early intervention/avoidance of crisis care. In certain cases, such as diabetic retinal screening, the per click annual fee  in itself is worth the investment given the diagnostic value of early treatment.

For other destination type hospitals like a New York-based Cancer Hospital,  the goal of telemedicine may be dual: a) attracting out of geography patients to NY; b) ability to care for sicker patient remotely to affect outcomes.

Above all, the transfer of our reimbursement system from Fee-for-Service to Value-based Care, will drive adoption of telemedicine technology  as the ability to control outcomes and costs will be accelerated.

For more information on telemedicine, telehealth, virtual care, and other health innovations, including the team, publications, and other materials, visit Foley’s Telemedicine and Digital Health Industry Team and read our 2017 Telemedicine and Digital Health Executive Survey.

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Public Policy August Recess Health Care Newsletter  


Public Affairs

Foley’s  Bipartisan Public Policy Team is pleased to share our Public Policy August Recess Health Care Newsletter  in which we compiled the top health care policy news and legislation from this month. The House was not in session and the Senate came back mid-month to focus on passing appropriation bills and presidential nominations.

This Week in Health Care Policy (August Recess 2018)


Legislation and Committee Activity  

Politico: Senate passes giant spending package in hopes of averting shutdown – The Senate on Thursday overwhelmingly passed an $857 billion spending package that Republican leaders are counting on to convince President Donald Trump to back down from threats of a government shutdown in September. Read More

Trump’s Plan on Drug-Pricing Transparency Takes Step Forward White House staff are reviewing a proposal that may require pharmaceutical companies to be more transparent about their pricing, a key piece of President Donald Trump’s plan to lower drug costs. The Office of Management and Budget has received a proposed regulation by the Department of Health and Human Services that deals with drug-pricing transparency in the U.S. Medicare and Medicaid systems. Read More

WRGB Albany: Gillibrand:  U.S. Senate Set to Vote on Opioid Legislation – Sen. Kirsten Gillibrand (D-NY) says the U.S. Senate is poised to vote on critical opioid legislation. Gillibrand says the senate will likely vote on a bill that included $3.7 million in federal funding for treatment and prevention efforts in combatting the opioid epidemic. Read More

Walden and Hatch Call on OMB to Consider Economic Consequences of Proposed Drug Rebate Rule – On Aug 9, House Energy and Commerce Committee Chairman Greg Walden (R-OR) and Senate Finance Committee Chairman Orrin Hatch (R-UT) urged the Office of Management and Budget (OMB) Director Mick Mulvaney to consider the full economic effects of a proposed Health and Human Services (HHS)/Office of Inspector General rule that would alter the use of rebates that are common in negotiations between drug manufacturers and pharmacy benefit managers. Read More

Washington Post:  Trump Urges GOP-led Senate to Pass Bill Cracking Down on Fentanyl Shipments – On Monday, President Trump urged the Republican-led Senate to pass legislation intended to crack down on shipments of illicit fentanyl through the international postal system, writing on Twitter: “No more delay! Leaders from both chambers announced a bipartisan agreement in June on the Synthetics Trafficking and Overdose Prevention Act(S.372) , which the House passed shortly thereafter. The Senate has yet to act on the bill, as Majority Leader Mitch McConnell (R-KY) has focused on confirming federal judges and passing appropriations bills. Read More

Cortez Masto, Kennedy Introduce Legislation to Protect Seniors from Opioid Abuse On Aug 15, Senators Catherine Cortez Masto (D-NV) and John Kennedy (R-LA) introduced the Stop Excessive Narcotics in our Retirement (SENIOR) Communities Protection Act (S.3327), legislation that would protect seniors from criminals who misuse the Medicare system to illicitly acquire opioids. Read More

Walden Holds Roundtable on Opioid Crisis with FDA Commissioner Gottlieb On Aug 7, Energy and Commerce Committee Chairman Greg Walden (R-OR) held a roundtable in his district to discuss the opioid crisis and current efforts to combat it. Joining the chairman was Food and Drug Administration (FDA) Commissioner, Dr. Scott Gottlieb. Read More

Roll Call:  Red-State Democrats Zero In on Opioid Epidemic – Vulnerable red-state Democrats are highlighting their work to address the opioid crisis in an effort to hold on to their congressional seats, even as it remains unclear whether the Senate will take key action before the midterm elections. Read More

Walden and Hatch Call on OMB to Consider Economic Consequences of Proposed Drug Rebate Rule – On Aug 9, House Energy and Commerce Committee Chairman Greg Walden (R-OR) and Senate Finance Committee Chairman Orrin Hatch (R-UT) urged Office of Management and Budget (OMB), Director Mick Mulvaney, to consider the full economic effects of a proposed Health and Human Services (HHS)/Office of Inspector General rule that would alter the use of rebates that are common in negotiations between drug manufacturers and pharmacy benefit managers. Read More

Cassidy, Colleagues Introduce Bipartisan Synthetic Drug Awareness Act U.S. Senators Bill Cassidy, M.D. (R-LA), Maggie Hassan (D-NH), Doug Jones (D-AL), and Todd Young (R-IN) introduced the Synthetic Drug Awareness Act (S. 3356), bipartisan legislation to help address addiction and the drug abuse epidemic. The bipartisan bill would require the U.S. surgeon general to report to Congress on the health effects of new psychoactive substances, including synthetic drugs, on young adults ranging from 12-18 years of age. Read More

Grassley Requests Robust Antitrust Review of Pharmaceutical Supply Chain Mergers On Aug 14, Senate Judiciary Committee Chairman Chuck Grassley (R-IA)  wrote to Assistant Attorney General for Antitrust Makan Delrahim requesting that the Department of Justice conduct a vigorous review of the proposed mergers of Cigna Corp. with Express Scripts Holding Co., and CVS Health Corp. with Aetna Inc., each of which play significant roles in the price of prescription drugs for U.S. consumers. Read More

E&C Leaders Press 340B Contract Pharmacies for Information – On Aug 1, Energy and Commerce Committee leaders sent letters to nine contract pharmacies that participate in the 340B Drug Pricing Program (340B Program), requesting information about their participation in the program. Read More

Brady, Roskam Release Medicare Report On Aug 15, House Ways and Means Committee Chairman Kevin Brady (R-TX) and House Ways and Means Subcommittee on Health Chairman Peter Roskam (R-IL), released a report discussing how lawmakers and the Administration can cut excessive red tape and regulatory burdens in the Medicare program. Read More

Examining CMS’s Efforts to Fight Medicaid Fraud and Overpayments – The Senate Committee on Homeland Security and Governmental Affairs held a hearing on efforts by the Centers for Medicare and Medicaid (CMS) to cut Medicaid fraud. Read More

Burgess Introduces Bill on Medicaid Rebates On July 31, Rep. Michael Burgess introduced a bill to amend title XIX of the Social Security Act to sunset the limit on the maximum rebate amount for single source drugs and innovator multiple source drugs. Read More

House, Senate Lawmakers Introduce Bill to Modernize Medicare Program That Helps Seniors Live at Home – On Thursday, U.S. Reps. Jackie Walorski (R-IN) and Earl Blumenauer (D-OR) and U.S. Sens. Tom Carper (D-DE), Pat Toomey (R-PA), Bob Menendez (D-NJ), and Bill Cassidy (R-LA)  introduced bipartisan, bicameral legislation to speed up the modernization of Programs of All-Inclusive Care for the Elderly (PACE), which allow seniors with complex care needs to continue living at home. Read More

The Hill:  McCaskill Presses Trump Official on Lawsuit Against Pre-existing Condition Protections On Tuesday, Senator Claire McCaskill (D-MO) pressed a top Trump administration official about a lawsuit challenging ObamaCare’s pre-existing condition protections. McCaskill, who is facing a tough reelection race this year, used a Senate Homeland Security and Governmental Affairs Committee hearing to press the head of the Centers for Medicare and Medicaid Services (CMS) about the lawsuit. Read More

Senate Dems’ Hearing w/Americans at Risk of Losing Health Coverage Due to Pre-Existing Conditions – On Aug 16, Senate Democrats held a hearing “America Speaks Out:  Protecting Care for Americans with Pre-Existing Conditions.” The Senators heard testimony on the Administration’s short term health insurance plans. Read More

Prioritizing Cures: Science and Stewardship at the National Institutes of Health The Senate HELP Committee heard testimony from National Institute of Health’s Director Francis Collins about prioritizing cures at NIH. Read More

Senators Introduce Bill to Help Americans Hurt by Medical Debt On Aug 16, Senators Jeff Merkley (D-OR), Richard Blumenthal (D-CT), Dianne Feinstein (D-CA), Elizabeth Warren (D-MA), Dick Durbin (D-IL), Bob Menendez (D-NJ) and Maggie Hassan (D-NH) introduced the Medical Debt Relief Act (S. 3351). This legislation would prevent medical debt from continuing to damage consumers’ credit scores after it has been paid off or settled, ensuring that otherwise-creditworthy consumers are able to find affordable credit to buy a home or a car or take out a loan. Read More

Shaheen, Collins Introduce Legislation to Expand Access to Diabetes Self-Management Training U.S. Senators Jeanne Shaheen (D-NH) and Susan Collins (R-ME) introduced the Expanding Access to Diabetes Self-Management Training Act of 2018 (S. 3366). This bipartisan legislation would expand Medicare coverage for diabetes self-management training (DSMT) sessions, where diabetes educators help train Medicare patients on how to manage their glucose, maintain a healthy weight, eat healthy foods, manage their insulin levels, and improve general care for their diabetes. Read More

Senators Ernst and Baldwin Introduce Bipartisan Reform to Ensure Coverage for Children Born with Congenital Anomalies or Birth Defects – On Thursday, U.S. Senators Joni Ernst (R-IA) and Tammy Baldwin (D-WI) introduced bipartisan legislation to ensure health insurance coverage for needed treatments and procedures for individuals with a congenital defect, birth abnormality, or disorder. Read More


Politico: Trump Readies New Round of Controversial Medicaid Changes The Trump administration is preparing to let conservative-led states impose additional restrictions on the nation’s health program for the poor that could push tens of thousands of people off coverage. Read More


100 Days of Action on the President’s American Patients First Blueprint – On Aug 21, HHS marked 100 days since the release of President Trump’s American Patients First Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs. In this short period of time, an unprecedented number of actions have been taken toward structurally rebuilding this entire segment of the economy to lead to enduring lower prices that are sustainable, support innovation, and put American patients first. Read More

HHS Secretary Azar Meets with Specialty and Patient Groups Regarding Drug Pricing On Aug 16, Secretary Alex Azar met with representatives of specialty-physician and patient groups to discuss the Trump Administration’s efforts to offer new tools for Medicare Advantage plans to negotiate lower drug prices for patients. Read More

HHS Awards $125 million to Support Community Health Center Quality Improvement On Aug 15, the U.S. Department of Health and Human Services (HHS) announced $125 million in Quality Improvement grant awards to 1,352 community health centers across all U.S. states, territories and the District of Columbia. Funded by the Health Resources and Services Administration (HRSA), health centers will use these funds to continue to improve quality, efficiency, and the effectiveness of health care delivery in the communities they serve. Read More

HHS Announces Grantees for Title X Family Planning Program Services On Aug 2, HHS Office of Population Affairs announced the 96 grantees to whom HHS intends to award Title X family planning service grants for fiscal year 2018. Twelve of the intended awards go to grantees who are new to Title X.  Read More


CMS announces new model to address impact of the opioid crisis for children – On Thursday, the Centers for Medicare & Medicaid Services (CMS) announced a new Innovation Center payment and service delivery model as part of a multi-pronged strategy to combat the nation’s opioid crisis. Read More

CMS Empowers Patients with More Choices and Takes Action to Lower Drug Prices – On Aug 7, CMS delivered on President Trump’s promise to negotiate better deals for Medicare patients and create competition between drugs used to treat the same conditions, with more than half of the savings required to be passed on directly to patients. Read More

CMS Releases Formal Approach to Ensure Medicaid Demonstrations Remain Budget Neutral On Aug 22, CMS released a letter to State Medicaid Directors that clearly describes CMS’s current approach to calculating budget neutrality expenditure limits for Medicaid section 1115 demonstration projects. Medicaid demonstration projects allow states to design innovative ways to better serve the nation’s more than 65 million Medicaid recipients.

CMS Streamlines Medicaid Review Process, Achieves Significant Reduction in Approval Times On Aug 16, CMS announced significant improvements in managing the Medicaid program in partnership with states. Identified early as a priority for both the Trump Administration and the National Association of Medicaid Director’s (NAMD), CMS has implemented changes resulting in faster processing of state requests to make program or benefit changes to their Medicaid program through the state plan amendment (SPA) and section 1915 waiver review process.  Read More

CMS Awards $8.6 Million in Funding to States to Help Stabilize Markets – On Aug 20, CMS awarded $8.6 million in funding to 30 states and the District of Columbia to provide State insurance regulators with the opportunity to enhance States’ ability to strengthen their respective health insurance markets through innovative measures that support market reforms and consumer protections under the Patient Protection and Affordable Care Act (PPACA) . Read More

CMS Issues Proposed Additional Rule to Address Risk Adjustment Program for the 2018 Benefit Year On Aug 8, CMS issued a notice of proposed rulemaking, “Patient Protection and Affordable Care Act; Methodology for the HHS-operated Permanent Risk Adjustment Program for 2018 Proposed Rule,” proposes to adopt the risk adjustment methodology that HHS previously established for the 2018 benefit year which uses the statewide average premium in the payment transfer formula. Read More

Proposed Pathways to Success for the Medicare Shared Savings Program On Aug 9, CMS issued a proposed rule that would set a new direction for the Medicare Shared Savings Program. Read More

Medicare Advantage Prior Authorization and Step Therapy for Part B Drugs On Aug 7, CMS introduced much-needed competition and negotiation into the market for physician-administered and other Part B medications that will result in better deals and lower drug costs for patients. Read More


FDA Approves First Generic Version of Epipen – On Aug 16, The U.S. Food and Drug Administration approved the first generic version of EpiPen and EpiPen Jr (epinephrine) auto-injector for the emergency treatment of allergic reactions, including those that are life-threatening (anaphylaxis), in adults and pediatric patients who weigh more than 33 pounds. Read More

FDA Allows Marketing of First Direct-To-Consumer App for Contraceptive Use to Prevent Pregnancy On Aug 10, the U.S. Food and Drug Administration permitted marketing of the first mobile medical application (app) that can be used as a method of contraception to prevent pregnancy. Read More

Statement by FDA Commissioner Scott Gottlieb, M.D., on New Steps to Advance the Development of Evidence-Based, Indication-Specific Guidelines to Help Guide Appropriate Prescribing of Opioid Analgesics As we all work to confront the staggering human and economic toll created by the opioid crisis, we recognize the critical role that health care providers play in addressing this public health priority – both in reducing the rate of new addiction by decreasing unnecessary and/or inappropriate exposure to opioids and ensuring rational prescribing practices, while still providing appropriate treatment to patients who have medical need for these medicines. Read More

FDA Takes New Steps to Encourage the Development of Novel Medicines for the Treatment of Opioid Use Disorder – On August 6, The U.S. Food and Drug Administration  issued new scientific recommendations aimed at encouraging more widespread innovation and development of novel medication-assisted treatment (MAT) drugs for the treatment of opioid use disorder (OUD). New draft guidance that has been issued  outlines new ways for drug developers to consider measuring and demonstrating the effectiveness and benefits of new or existing MAT products. Read More

FDA Approves New Treatment for a Rare Genetic Disorder, Fabry Disease On Aug 10, The U.S. Food and Drug Administration  approved Galafold (migalastat), the first oral medication for the treatment of adults with Fabry disease. The drug is indicated for adults with Fabry disease who have a genetic mutation determined to be responsive (“amenable”) to treatment with Galafold based on laboratory data. Read More

FDA Approves First-Of-Its Kind Targeted RNA-Based Therapy to Treat a Rare Disease On Aug 10, The U.S. Food and Drug Administration approved Onpattro (patisiran) infusion for the treatment of peripheral nerve disease (polyneuropathy) caused by hereditary transthyretin-mediated amyloidosis (hATTR) in adult patients. This is the first FDA-approved treatment for patients with polyneuropathy caused by hATTR, a rare, debilitating and often fatal genetic disease characterized by the buildup of abnormal amyloid protein in peripheral nerves, the heart and other organs. Read More

FDA Approves First Generic Drug Under New Pathway Aimed at Enhancing Market Competition for Sole Source Drugs On Aug 8, The U.S. Food and Drug Administration approved several strengths of potassium chloride oral solution as the first generic drugs to receive a Competitive Generic Therapy (CGT) designation. Read More

Veteran Affairs

Forbes: VA, Walgreens Partner To Coordinate Veterans’ Prescriptions The U.S. Department of Veterans Affairs is expanding its partnership with Walgreens Boots Alliance to better coordinate medication and immunization histories of the nation’s veterans. Read More


Washington Examiner:  Trump Administration Gives $8.6 Million to States to Help With Obamacare – The Trump administration is making $8.6 million in leftover funds available to states to help develop their Obamacare markets. The Centers for Medicare and Medicaid Services awarded the grants to 30 states and the District of Columbia so they can meet the requirements set under Obamacare to make sure that plans cover a range of services. The funds are used for hiring, reviewing policies, developing studies, or expanding the number of health plans residents have available to them. Read More

NPR:  Ohio Gov. Kasich Stumps Again In Support Of Medicaid Expansion Four years after going out on a limb to get Medicaid expansion enacted in Ohio, outgoing Republican Gov. John Kasich is worried about the future of the program. So he is now defending it — through a study and through the stories of people who have benefited from the coverage expansion. Read More

ABC News: Kentucky Governor Loses Another Round in Medicaid Fight Kentucky’s Republican governor lost another round Monday in a legal fight over his efforts to revamp the state’s Medicaid program to require poor people to get a job to keep their benefits. The latest setback for Gov. Matt Bevin came in his home state when a federal judge dismissed his lawsuit that sought a ruling validating the Medicaid changes. Read More

Arizona, Florida, and Oklahoma voters head to the polls next week for primary elections and a runoff. Read More

Foley Health Care Law Today

Our attorneys at Foley pride themselves on having a first-hand understanding of health care’s business and legal challenges. Health Care Law Today is your go-to resource for information and perspectives on the latest news and developments in health care law and how it relates to and impacts the industry and those with related business interests. For some of the blog’s top stories see below:

Proposed Overhaul to the Medicare Shared Savings Program Would Mean More Risk for ACOs On Aug 9, CMS introduced a proposed rule that would substantially overhaul the Medicare Shared Savings Program (MSSP), requiring Accountable Care Organizations (ACOs) that participate in the MSSP to accept some downside risk and tightening other requirements to increase program integrity. Read More

CMS Continues to Tighten the Belt on Hospital Off-Campus Provider-Based Departments Hospitals with off-campus provider-based departments (PBDs) may want to rethink their end of summer vacation plans in order to focus on a recent slate of proposed regulations from the Center for Medicare and Medicaid Services (CMS) that seek to rein in Medicare reimbursement for outpatient hospital services – including at excepted/grandfathered off-campus locations. Read More

When Is Compensation Unreasonable? Just what is reasonable compensation in the Medicare world is not a clearly defined, black and white concept. Instead, it is somewhat in the eye of the beholder, with the parties to each situation where that is an issue seeking to reach out for third party support for their conclusions. But sometimes when the government gets a chance to look at the conclusions, it is a “bridge too far.” Read More

Health Care Information Exchanges and Price Transparency Initiatives: CMS Requests Input from Providers On July 12, 2018, the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule introducing changes to the Medicare physician fee schedule, and soliciting comments from providers on CMS data sharing initiatives.  Read More

The Association Health Plan Challenge: The States Initiate Litigation Challenging the Final Rule In our blog post of July 10, 2018, we discussed the key elements of the Final Rule issued on June 21, 2018 with respect to Association Health Plans (AHPs). As we noted, the expansion of ERISA’s definition of an employer and the other elements of the Final Rule designed to expand insurance opportunities for small employers, including sole proprietorships had been opposed by a variety of interests, including the Attorneys General of a number of States, some of whom promised litigation to stop the implementation of the Final Rule prior to the potential effective date of September 1, 2018 for fully insured AHPs. Read More

Looking Ahead

The Senate is in session next week and the House is in recess and will return on Sept 4th.

On Wednesday, the Senate HELP Committee will hold a hearing on “FDA Oversight: Leveraging Cutting-Edge Science and Protecting Public Health.” Read More

Foley & Lardner LLP’s (“Foley”) Bipartisan Public Policy Team has a proven track record of helping clients achieve their policy priorities at the federal, state and local levels, with extensive experience advocating on behalf of clients involved in various aspects of government engagement. Our team employs a comprehensive approach to government relations. Our work combines high-level policy development, tactical engagement with policymakers, grassroots, business and public relations strategy and targeted lobbying, along with legal representation of an international law firm, when requested by our clients. Our team maintains strong relationships with key Members of Congress, including those in House and Senate Republican and Democratic leadership, and on key committees. The Foley team is your go-to resource in Washington, D.C., for notable health care developments.

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When Is Compensation Unreasonable?



Just what is reasonable compensation in the Medicare world is not a clearly defined, black and white concept. Instead, it is somewhat in the eye of the beholder, with the parties to each situation where that is an issue seeking to reach out for third party support for their conclusions. But sometimes when the government gets a chance to look at the conclusions, it is a “bridge too far.”

The recent federal district court decision in Choice Care Health Plan, Inc.(CCHP) v. Azar [Case No: 1:17-CV-00311(TNM),2018 WL 3543498 (D.D.C. July 23, 2018)] (referred to as “Choice Care”) shows just what can happen when compensation is scrutinized. The issue was the reasonableness of claimed reimbursement on health plan cost reports submitted to Medicare for the owner and CEO of CCHP, as well as a practicing cardiologist and the owner and CEO of a medical group, Quality Medical Care, or QMC. More specifically, a claim for $435,000 was asserted for work as the CEO of CCHP, $300,000 for work as CEO of QMC, $300,000 as a bonus for work as a CEO, and $2.1 million for cardiology services. These amounts were audited by a CMS auditor to determine the reasonableness of the costs claimed. The auditor determined that it was unreasonable to pay the physician/CEO what were perceived as “multiple full-time salaries” based on the claim that he was working about 127 hours/week for two years—when CCHP had no auditable, contemporaneous documentation of his hours. Ultimately, the CMS auditor recommended an allocation of 55% of  the physician/CEO’s time to his cardiology services, and directed CCHP to return nearly $5.75 million of the reimbursement it had received for payments it had made to the physician to the Medicare program. An administrative appeal was taken, and the Administrator ultimately determined that CMS correctly apportioned the salaries. Federal District Court litigation to review the Administrator’s (CMS) decision followed.

The Reasonable Compensation Standard

The standard applied to reimbursement of HMOs that have a cost based contract is “reasonable cost,” with the compensation for physician clinical work is to be “commensurate with the compensation paid for similar services performed by similar physicians practicing in the same or similar locality.” [42 C.F.R. §417.800(c), 417.544(a)(1)] Finally the Court cited as one of the standards it was considering, a generally regulatory statement with respect to the principles of cost reimbursement where compensation of providers based on reimbursable cost, “Adequate data capable of being audited is consistent with good business concepts [and] is a reasonable expectation on the part of any agency paying for services on a cost-reimbursement basis. 42 C.F.R. § 413.24(c).

Applying the Standard in Choice Care

The allocation of 55% of the physician’s time to the provision of cardiology services was based on a statement to the CMS auditor by the QMC CFO about what she “thought.” The counter argument made by Choice Care was, in essence, that because the physician spent more time practicing cardiology than the average cardiologist he should be reimbursed as a full-time cardiologist, and ample time was also spent to justify full-time reimbursement for administrative duties. The problem was that there was no auditable record made on a contemporaneous basis to support that claim. While the plan sought to provide support by showing the number of procedures, and the time they take, thereby backing into what the numbers might have actually been, such “extrapolations” did not meet the test for “adequate cost data” required under the regulation. The court also found that the estimates, which yielded over sixty hours a week as a cardiologist, in addition to whatever time was spent on the administrative side (as the CEO), was ultimately seen as “hardly credible.”  Thus, CMS’s calculation based on 55% of “a top paid” FTE cardiologist was the appropriate measure of reimbursement for that element of his time.

Ascertaining the Appropriate Amounts to be Paid to the Physician

The next inquiry was how to determine what the 55% time was actually worth. CMS looked at the 100th percentile based on and corroborated that with the amount of actual compensation paid to a cardiologist working for a “different health plan in a nearby city.”  CMS was of a view that is was reasonable to use because that source ostensibly reports compensation information only based on “statistically significant data” tested against “other market data such as data from the Bureau of Labor Statistics.” Whereas there was a dispute as to how the 100th percentile was actually calculated, CMS ultimately determined that is was reasonable to simply pay “a salary considerably above the 75th percentile” for the time worked.

CCHP attacked this finding by arguing that what should have been used was MGMA data, as the “gold standard,” and that the manner of calculation was flawed. The Court, however, ruling under the Administrative Procedure Act standards, affirmed the CMS decision, which review was limited to the record before it. And on that record, the Court could not find that there had been an arbitrary or capricious determination, or that there was no evidence in the record to support the decision. As the Court put it, the record did not show a “miserly effort to deny a hard working doctor his due, but [a determination which] provides high compensation to a doctor who inflated his Medicare reimbursement claims by millions of dollars.”

The Lessons

Choice Care is a decision that takes place in the context of plan reimbursement. But there are two important lessons here:

  • First, while fair market value and reasonable compensation are not the same thing, the requirements of documentation and the need for such documentation to be contemporaneous with the effort to support the conclusion, apply to both.
  • Second, the case illustrates the skepticism that will attach to after the fact rationalization of time allocations when physicians have multiple positions. This is likely to be exacerbated when seven figure sums are involved.

One interesting element is the lack of any reference to expert testimony. Instead, both CMS and the plaintiff appeared to simply use standard compensation resources to support their claims, and this was deemed by each to be sufficient to support their claims. Had the provider been able to document the validity of the compensation with an expert in this case, would it have made a difference? Likely not.

Another element worth noting is the use of MGMA and The fact that CMS used is noteworthy in that it provides a validation of that resource. In our experience, MGMA data is what is most often used, and few providers would actually rely on That may deserve another look.  Finally, although Choice Care involved the question of what is reasonable cost reimbursement for a prepaid health plan under section 1876 of the Medicare Statute, the issue can arise also for critical access hospitals (CAHs) that are paid under a reasonable cost methodology and which may employ physicians that serve in an administrative capacity while also furnishing patient care.

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CMS Continues to Tighten the Belt on Hospital Off-Campus Provider-Based Departments



Hospitals with off-campus provider-based departments (PBDs) may want to rethink their end of summer vacation plans in order to focus on a recent slate of proposed regulations from the Center for Medicare and Medicaid Services (CMS) that seek to rein in Medicare reimbursement for outpatient hospital services – including at excepted/grandfathered off-campus locations.

On July 25th, CMS issued a proposed rule for the 2019 Outpatient Prospective Payment System (OPPS), making it clear that CMS believes that Section 603 of the Bipartisan Budget Act of 2015 (codified at 42 U.S.C. § 1395l; 81 Fed. Reg. 79562 (Nov. 14, 2016)) (BiBA Section 603) did not go far enough to address some of its concerns related to shifts in settings of care and overutilization in the hospital outpatient settings.  As proposed, the CY 2019 change would:

  • Revert to CMS’ earlier proposed prohibitions on “expansion of services,” effectively limiting excepted PBDs from seeking higher hospital-based rates for services outside of a defined clinical family of services that were provided at the PBD between November 1, 2014 and November 1, 2015.
  • Cap the Medicare OPPS rate for clinic visit services furnished by any off-campus PBD, whether excepted (grandfathered) or non-excepted, to equal the site-specific Physician Fee Schedule (PFS) payment rate. In other words, all outpatient clinic visits would be reimbursed on a site-neutral basis, at equivalent rates to physician offices if furnished in an off-campus location.

At this time, it is unclear whether any of these changes will be finalized. CMS is soliciting comments on this proposal through September 24, 2018.

Separately, on July 12, 2018, CMS published proposed rule CMS-1693-P (83 Fed. Reg. 35704 (July 27, 2018)),  under which it  proposes to continue the current 40% downward adjuster on non-excepted PBD reimbursement rates, and the reimbursement rates currently applied for partial hospitalization programs (PHP) for the indefinite future. CMS is soliciting comments on its proposal for CY 2019 through September 10, 2018.

Finally, CMS continues to take aim at the use of 340B drugs furnished in hospital off-campus outpatient departments, proposing a dramatic rate reduction for such drugs furnished in non-excepted PBDs, at the rate equivalent to the rate at excepted PBDs, average sales price (ASP) minus 22.5 percent.

Background on Changes to OPPS

BiBA 603, together with its implementing regulations 42 C.F.R. § 416.1 et. seq. issued one year later, caused new, off-campus, non-excepted hospital PBDs to no longer be reimbursed under the OPPS. In other words, the former financial advantage to locations holding provider-based status largely disappeared for new outpatient projects, with payment approximating what would be paid for the service if performed in a physician office. Off-campus PBDs billing under OPPS as of November 2, 2015, were deemed “excepted” for purposes of BiBA 603, and were insulated from rate reductions.

Notwithstanding BiBA 603, CMS remains concerned over the OPPS’ continued high rate of growth, and believes the current payment scheme — rather than patient needs — continues to drive site-of-service decision-making.

Foley Insight on the Changes – We are deeply concerned with this proposal as it seeks to implement so-called site neutral payment reductions in off-campus outpatient departments beyond those Congress intended.  If Congress had meant to apply site neutrality to excepted sites, it would have done so itself. But, of course, that is not what Congress did. Instead, Congress established a compromise as to those off-campus PBDs that would be restricted in reimbursement and those that would not.  In its wisdom, Congress drew a line in the sand around those that had been billing OPPS prior to November 2, 2015.  CMS is proposing to create law, and override the will of Congress, by erasing the benefits of the except (grandfathered) locations.  If CMS implements this proposal, it will be challenged.

No Budget Neutrality

CMS is proposing to implement its proposed method in a non-budget neutral manner. By statute, adjustments under the OPPS must be made in a budget neutral manner, i.e., so that the estimated amount of expenditures for the year would not vary from the estimated amount had the adjustments had not been made.  Arguing that implementing its proposals in a budget neutral manner would not appropriately reduce the overall unnecessary volume of covered PBD services, CMS is taking a convenient position that its proposals refer to a method for controlling increases in the volume of covered PBD services, rather than an adjustment that would be limited by the budget neutrality provisions of the Social Security Act.

Foley Insight on Budget Neutrality – We respectfully disagree with this interpretation.  In our view, while this may be a different flavor of rate adjustment implemented by CMS, it is still a rate adjustment.  And Congress has spoken that rate adjustments must be made (if at all) on a budget neutral basis.

Site Neutrality – Proposed Limits on Expansion of Services

The proposed rule aims to limit off-campus PBDs’ ability to expand the services they provide. CMS grouped various services together as “clinical families of services” (Table 32 of the proposed rule). As proposed, if an off-campus PBD wants to provide a new service that is not included as part of the “clinical family of services” that it offered – and billed for – during the baseline period from November 1, 2014 through November 1, 2015, then it will be paid for the new service at the lower PFS rate. CMS is accepting public comment on whether a different baseline period, such as three or six months, should be used for off-campus PBDs that began furnishing services and billing after November 1, 2014, or that met the mid-build requirement.

New Reimbursement Proposals

Removing the Off-Site Payment Differential/Capping OPPS Payment for Other Services

As noted above, CMS proposes capping OPPS payments for clinic visit services furnished by both excepted and non-excepted off-campus PBDs at the equivalent site-specific PFS rate (HCPCS code G0463). Although the rule is currently only proposing site-neutrality for clinic visit services, CMS is soliciting comments to help identify other items and services furnished at PBDs that should also receive similar payment reduction.

CMS is accepting comment on other proposals that would further reduce the rates of PBD utilization, including how Medicare might define the terms “unnecessary” and “increase” for services (other than clinic visits) that can be performed in multiple settings of care.

One intriguing question raised by CMS is whether prior authorization should be considered as a method for controlling overutilization of services.  This would be a fundamental change to Medicare reimbursement, taking a page from the commercial payer playbook.  It may be a useful approach for certain services, particularly high-cost procedures that have high denial rates or uncertain coverage status (such as gender-reassignment surgery).  It may also cut down on retroactive medical necessity denials for providers.  Other commercial payer business models, like utilization review, are also being considered at CMS.  These strategies merit thoughtful consideration.

CY 2017 PFS Fixing Certain BIBA 603 Rates in Place

Under the CY 2017 PFS, CMS proposes to continue its current approach of allowing non-excepted off-campus PBDs to bill for non-excepted items and services on an institutional claim using a “PN” modifier,  with an adjustment percentage of 40%.  Originally proposed as an interim solution to address technological challenges in implementing BiBA 603’s rate structure,  the relativity adjuster and 40% discounted rate would continue in place as the payment mechanism in CY 2019 and for future years until a viable option comes to fruition.

The proposed rule for CY 2019 would also continue to set the payment rate for partial hospitalization program (PHP) services offered by non-excepted off-campus PBDs at the lower per diem rates applicable to Community Mental Health Centers (CMHCs). PBDs would not be required to enroll as CMHCs for such purpose.  CMS is proposing to keep this rate in place for the foreseeable future, until updated data or other considerations indicate that a change to the approach is warranted.


CMS is using OPPS CY 2019 as an opportunity to reduce advantages currently enjoyed by excepted PBDs. This may foreshadow a trend to eliminate payment differentials between except and non-except off-campus facilities. Many facilities work hard to maintain this status for their off-campus locations. If finalized, the proposals will force providers to rethink how and where they furnish certain items and services.  We encourage interested stakeholders to submit comments by the deadlines noted above.

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Proposed Overhaul to the Medicare Shared Savings Program Would Mean More Risk for ACOs


hospital staff

On August 9, 2018, CMS introduced a proposed rule that would substantially overhaul the Medicare Shared Savings Program (MSSP), requiring Accountable Care Organizations (ACOs) that participate in the MSSP to accept some downside risk and tightening other requirements to increase program integrity. At the same time, the proposed rule would allow ACOs increased flexibility in other areas, in keeping with changes established by the Bipartisan Budget Act of 2018.

ACOs have been viewed as a critical tool in moving from payment systems based on volume towards a payment system that rewards value and improved outcomes of care.  While ACOs have been used in a variety of governmental and commercial programs, the MSSP has been the most popular alternative payment program that CMS has offered and in which ACOs have participated, with 561 ACOs reportedly participating in the MSSP. CMS has expressed concerns, however, about the current status of the MSSP, noting that the vast majority of ACOs participating in the program are doing so through Track 1, the one-sided “upside-only” model (in which only savings are shared by ACOs), while substantially more reduced costs to the Medicare program are coming through the relatively few ACOs participating in the two-sided models (Tracks 2 and 3), which require ACOs to share potential losses in addition to savings.

A Proposed CMS Rule to Accelerate the Assumption of Downside Risk

Under the proposed rule, titled “Pathways to Success,” CMS would accelerate the move of ACOs to the two-sided model, redesigning the program from the current three-track system to require ACOs to enter in one of two tracks: BASIC or ENHANCED.

  • The BASIC track would create a “glide path” to move the ACO from a one-sided model by phasing in increasing levels of risk over a five-year term of participation.
  • The ENHANCED track (based on the current Track 3) would represent the highest level of risk for ACOs and accordingly offer additional tools and flexibility to ACOs that select it.

ACOs that select the BASIC track will automatically advance to the next risk/reward level at the start of each performance year, although they can also elect to move more quickly to a higher level of risk. Critically, under the proposed redesign to the MSSP, ACOs would be forced to assume risk after the first two years in the program (Levels A and B). Beginning with Level C, the first risk/reward year, ACOs would face loss-sharing rates of 30 percent. No longer would an ACO be able to participate in the MSSP without taking on down-side risk at some point in the contracted term.

By eliminating the three-track system, and instead replacing it with a two-track model, CMS is effectively pushing ACOs more quickly from an upside-only model to a true risk-based model in which the ACOs assume some liability for inefficient performance. CMS has explained that the need for this accelerated system is rooted in the agency’s concerns about the extent to which a number of ACOs on the current Track 1 are generating losses and therefore increasing Medicare spending, while still benefitting from access to fraud and abuse waivers. Further, CMS has emphasized that overall, the ACOs in the two-sided models under the current MSSP have shown “significant savings” in Medicare program dollars—approximately $32 million in net savings in 2016.  It estimates a savings of $2.24 billion over the next 10 years associated with decreases in claims costs and shared savings to ACOs.         

Will the ACOs Stay if Taking on Downside Risk is Required?

One of the principal considerations in evaluating the impact of these proposed changes is assessing how the ACOs that currently participate in the savings-only track (Track 1) will respond to being propelled forward into a riskier program.  Track 1 currently houses the vast majority of ACOs, and over 70 percent of them have indicated that having to assume risk is likely to make them leave the MSSP, according to a survey by the National Association of ACOs (NAACOS).

CMS’ own internal estimates indicate that over 100 ACOs would leave the program over the next 10 years, attributing this overall drop in participation to the reduced attractiveness of forming an ACO in the coming years as the number of risk-free years available to ACOs is diminished, along with a lower maximum sharing rate in the savings-only levels.  However, CMS has emphasized that because numerous ACOs in the current Track 1 are costing the government more money, having these organizations drop out is not detrimental to the overall health of the MSSP.  The agency has further indicated that the other changes to the structure of the program, including reducing the savings rate in the two savings-only years from 50 to 25 percent, will help to mitigate losses.

For its part, NAACOS has stated that it “encourages ACOs to prepare to move to risk and strongly supports ACOs that are ready to do so,” but is not in favor of forcing ACOs to assume risk prematurely.  It has expressed concern over the potential that ACOs will stop their participation because they are forced to assume downside risk, emphasizing that this outcome would be detrimental to the substantial progress being made by ACOs.

How Will the Transition Work?

CMS proposes to roll out the changes by introducing a special one-time July 1, 2019 agreement period start date (in lieu of a January 1, 2019 start date, which will no longer be an option) to give ACOs time to prepare to transition to the new BASIC track or the ENHANCED track.  ACOs with participation agreements ending at the end of 2018 could elect to extend their current agreement period by six months, to June 30, 2019, and the first automatic advancement would occur at the beginning of performance year 2021.  Thus, the first entrants to the BASIC program would have a maximum of two and a half years in the savings-only model, with ACOs identified as having previously participated in Track 1 of the program restricted to one and a half years.

The proposed changes are not surprising, after prior comments made by CMS Administrator Seema Verma, who had criticized MSSP ACOs in the past, asserting that upside only ACOs did not sufficiently incentivize providers to reduce costs or improve outcomes. To date, the majority of providers have been unwilling to move to downside risk, and it remains to be seen whether this redesign will be the push necessary for providers to take on more risk.

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