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HISPANIC (H

Happy New Year! Potential Changes to HIPAA Requirements on the Horizon

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hospital

On December 12, 2018, the U.S. Department of Health and Human Services (HHS), Office for Civil Rights (OCR), requested public comments on potential changes to the Health Insurance Portability and Accountability Act’s regulations (HIPAA) that are perceived to be burdensome by the industry. The Request for Information (RFI) focuses on HIPAA requirements that limit or discourage coordination of care without meaningfully contributing to the protection of the privacy or security of individual’s protected health information.

In addition to promoting information sharing for treatment and care coordination, HHS also seeks broad comments on the sharing of patient information for adults facing health emergencies, with a particular focus on mental illness and the country’s ongoing opioid crisis. The RFI also touches on revisions to the accounting of disclosures requirements (reintroducing the long standing debate on this issue), and the elimination or modification of the requirement for providers to document their good faith effort to obtain an acknowledgement of receipt of the Notice of Privacy Practices.  In addition to a broad request for comments, the RFI also included 54 different questions which address a range of topics including:

  • A patient’s right to access their protected health information;
  • Timeframes for responding to information requests;
  • Potential exceptions to the minimum necessary disclosure requirements;
  • Promoting parental and caregiver involvement in care; and
  • Expanding health care clearinghouses access to protected health information.

This RFI indicates a potential substantial overhaul of HIPAA, with a particular emphasis on HIPAA’s Privacy Rule.  Public comments are due by February 11, 2019 through the Federal eRulemaking Portal or via mail.

For questions related to HIPAA, please feel free to contact the authors.



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A Proposed Agreement for Blockchain-Enabled Medical Staff Credentialing Process

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healthcare partnerships

The medical credentialing process, whether for a hospital, a hospital system or a health plan, has emerged as a potential early target for the application of blockchain technology and administration.1 It is a process that allows a secure database to be established over time and on a cumulative basis.

Medical credentialing involves verifying whether a candidate meets the applicable educational and training prerequisites for the position sought — appointment to a hospital’s medical staff or the ability to participate as a member of a health care delivery network, such as an independent practice association — and subsequent updating and verification throughout a career.

This process takes time and can be frustrating to complete, but it can be made more efficient by using simple storage techniques and avoiding duplication.

For Westlaw: “Copyright [2018] Westlaw, a Thompson Reuters publication.”

The full article is available here.



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CMS Proposes Changes to Lower Drug Prices

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pharmacy

On November 30, 2018, the Centers for Medicare & Medicaid Services (CMS) published 83 Fed. Reg. 62152, which proposes changes to Medicare Part D (prescription drug benefit) and drug plans offered by Medicare Advantage (managed care) in an effort to reduce out-of-pocket costs for beneficiaries. The proposed rule is part of the Trump Administration’s  four part strategy to effectuate its “Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs,” published in May 2018. The Administration’s strategy aims to lower prescription drug costs for patients with a mixed approach of “improved competition, better negotiation, incentives for lower list prices, and lowering out-of-pocket costs.”[1]

Increased Flexibility to Manage Protected Classes

Medicare Part D plans must cover two or more medications in a given therapeutic class. The protected class policy requires that Medicare Part D plan sponsors cover all or substantially all drugs for six specially designated therapy classes. Further, sponsors must list the medications in all six designated therapy classes on their formularies. The designated therapy classes include: (1) antidepressants; (2) antipsychotics; (3) anticonvulsants; (4) immunosuppressants for treatment of transplant rejection; (5) antiretrovirals; and (6) antineoplastics. This protected class policy was implemented when Part D began 12 years ago to provide medication access to beneficiaries while the program was in its early stages. As Part D plans have matured, CMS is now proposing to reduce these protections and increase plan sponsor flexibility with formulary design and negotiating prices for drugs. Specifically, the proposal includes three exceptions to the protected class policy.

  • First, the proposal would allow Part D sponsors to use prior authorization and step therapy for protected class drugs. In addition, CMS “would also allow indication-based formulary design and utilization management for protected class drugs.”[2] Indication-based formulary design would permit Part D sponsors to create drug formularies based on the disease indications they themselves choose, rather than having to cover all indications approved by the FDA.
  • Part D plan formularies designed under this exception would continue to be subject to CMS’s annual formulary review and approval process.
  • Second, Part D plan sponsors could exclude from their formularies any protected class drugs that are updated formulations of existing protected class drugs, regardless of whether the old formulation remains available.
  • The third exception would allow Part D sponsors to exclude protected a class drug from its formulary when the price for such drug rises faster than inflation over a designated period.

Increased Transparency Regarding Lower-cost Therapy Alternatives

Under the new proposal, Part D plan sponsors would be required to implement a Real-Time Benefit Tool by January 1, 2020. This system alerts prescribers about lower-cost therapy alternatives for their patient under the patient’s plan benefits.

In addition, CMS would require that the Part D plan sponsors’ Explanation of Benefits sent to beneficiaries include information regarding drug pricing and identify cost effective therapeutic alternatives. CMS anticipates that providing such information to beneficiaries will enable them to lower their out-of-pocket costs for prescriptions.

Gag Clause Prohibition

In October 2018, Congress passed the “Know the Lowest Price Act of 2018” (P.L. 115- 262). Beginning on January 1, 2020, this law will prohibit Part D sponsors from restricting pharmacies from discussing the cash price of a drug with patients when it is less than the amount of the his or her insurance copayment for the medication. CMS’ current proposal would align the Part D regulations with the 2020 gag clause prohibition.

Implications

On November 29, 2018, the Partnership for Part D Access (the Partnership) released a study, which casts doubt on the beneficial effects of the new proposal. Specifically, the study concluded that “Medicare’s existing protected classes policy is working as intended for Medicare beneficiaries with some of the most complex health conditions: cancer, HIV, transplant recipients, epilepsy, and mental illness among others.”[3] Further, the study demonstrated the current system controls costs in a variety of ways such as requiring copayments for expensive brand drugs and promoting generic versions of drugs. As such, changes to the current system motivated solely by overall cost could be detrimental for certain high risk patients who are receiving treatments including cancer, HIV, and kidney transplants that require expensive drugs with high copayments and no generic options.

There is further concern that reducing the protections of certain medications will ultimately lead to their exclusion from Part D plan formularies. Such exclusion would ultimately render drugs inaccessible to Part D beneficiaries and could leave patients in a position where they are unable to afford the medications on which they rely. CMS is accepting comments through January 25, 2019.

Looking Forward

As a part of its effort to lower prescription drug costs, CMS is also considering a proposal that would “require that the price a beneficiary pays at the pharmacy counter reflects the lowest possible cost.”[4] This proposal could eliminate various types of rebates and back-end negotiations strategies. CMS predicts that this requirement could be implemented as soon as 2020 and that it would save beneficiaries between 12 and 15 billion dollars over the next decade.

[1] https://www.cms.gov/newsroom/fact-sheets/contract-year-cy-2020-medicare-advantage-and-part-d-drug-pricing-proposed-rule-cms-4180-p.

[2] https://s3.amazonaws.com/public-inspection.federalregister.gov/2018-25945.pdf

[3] http://www.partdpartnership.org/newsroom/medicares-six-protected-classes-policy-ensures-patient-access-to-medications-while-simultaneously-driving-high-rates-of-generic-utilization

[4] https://www.cms.gov/blog/proposed-changes-lower-drug-prices-medicare-advantage-and-part-d 



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That ‘Hot’ Research Project May Land Your Lab in Hot Water

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drug testing

Most busy scientific research laboratories have a spectrum of projects underway at any given time. Some projects are producing exciting results, and others seem to be heading nowhere. Why not shift personnel from the losers to the winners?

Here’s one big reason: The government is watching. And unless you’re careful, simply moving a couple of post-docs from one project to another can generate False Claims Act (FCA) liabilities up to three times the amount of money the government thinks it was shortchanged.

Counting the hours

National Institutes of Health requirements give research institutions leeway on how they account for work funded by federal grants, but they demand consistency and good record keeping in exchange. Although this may make veteran principal investigators (PIs) grumble, keeping track of lab members’ hours is just one of the essential compliance duties research institutions must enforce, as both the Department of Justice and profit-motivated whistleblower lawyers place increasing scrutiny on research spending. The institutions that get this right will find not only are they protecting themselves against FCA liability over minor things like accounting for time and effort, but they’re also increasing the odds of uncovering major problems like falsification of data and plagiarism.

For Compliance Today: “Copyright [2018] Compliance Today, a publication of the Health Care Compliance Association (HCCA).”

The full article is available here.



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Sneak Preview of This Week’s Business of Personalized Medicine Summit

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Double Helix

This year marks the 15th anniversary of the completion of the Human Genome Project. In the decade and a half that has passed since, the genomic revolution has spurred an immeasurable level of excitement and support surrounding the promise of personalized medicine, setting high expectations for a new era of health care and rapidly transforming the field into a multi-billion dollar industry. While realizing that promise has turned out to be neither quick nor easy, recent scientific and technological progress has been impressive, pointing to a possible tipping point for mainstream clinical adoption as well as tremendous commercial growth potential for innovators, entrepreneurs, and investors. This Thursday, December 6, 2018, Foley and the Personalized Medicine Coalition will host the Business of Personalized Medicine Summit in South San Francisco, the birthplace of biotechnology, where we will dive into this potential and how to capitalize on it.

A unique, one-day thought leadership program, now entering into its fifth year, the Summit aims to explore sustainable business model solutions for entities that are already engaged in the personalized medicine marketplace as well as those seeking to enter the competitive space. Through a series of thought-provoking discussions with key executives from across multiple stakeholder perspectives, the program examines in depth the latest financial, regulatory, policy, R&D, and technology-related complexities, trends, and opportunities impacting the business of personalized medicine, and introduces strategies for successfully navigating the challenging and ever-evolving market.

Previous years’ programs have generated many layers of thought-provoking dialogue, thanks in part to a unique roster of speakers, and 2018 promises to be no exception. The day begins with Dr. Helmy Eltoukhy, co-founder and CEO of Guardant Health, a pioneer in the liquid biopsy space that is hot on the heels of an impressive $238M IPO debut – one of the largest in life sciences so far this year.  Dr. Eltoukhy will discuss lifecycle strategy and his company’s potentially game-changing technology for early cancer detection, Guardant’s growth trajectory in a promising yet complex and increasingly competitive field, and what the future holds in terms of innovation and market interest.

Mr. Harry Glorikian will close out this year’s program. Mr. Glorikian is an influential leader with more than 20 years of experience in life sciences, healthcare, and health IT who has been a driving force behind major business transformations that accelerated growth, efficiency gains, cost reductions, and competitive advantage for market leaders as well as up-and-coming innovators with next-generation ideas. Drawing from his most recent book, Mr. Harry Glorikian will offer his insights and advice for thriving in the new data-driven market.

In between our 2018 featured keynotes, an esteemed group of panelists from across multiple stakeholder perspectives will address such hot topics as:

  • Personalized Medicine Investors: Who Are They and What Are They Thinking?
  • Exploiting AI: From Discovery to Treatment
  • Disruptive Technologies Creating Revolutionary Opportunities
  • Collaborating With the FDA: What Has Worked and What Hasn’t?
  • Reimbursement: The Best-Laid Plans?
  • The Business of Integration: Exploring the Clinical Adoption Models of Three Distinct Institutions

You can view the full program agenda here.

To register for this can’t-miss day of industry networking and thought leadership, please click here. Registration is complimentary for life sciences and healthcare executives, entrepreneurs, investors, and academics. If you are not able to join us for this unique event, please watch this Blog for a post-conference summary.



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Orthopedic Surgical Practice Recapitalizations: Six Relevant Considerations

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orthopedics

The past decade has seen a tremendous amount of private equity investment in physician practice recapitalizations, primarily in hospital-based practices such as anesthesiology and radiology as well as “retail medicine practices” like dermatology and ophthalmology/optometry, to name a few. Orthopedics, on the other hand, has received less attention from investors, but we believe that trend is about to change, and in a significant way.

For those interested in orthopedic surgical practice investment, the following six considerations will be relevant to investors and physician practice owners alike.

  1. Valuations

The market for physician recapitalizations remains robust, as do valuations (some as high as the mid-teens multiplied by recast EBITDA). We fully expect the same level of valuation for orthopedic surgical practices, especially given the leverage and ability to generate significant cash flow apart from physician services. Many such practices have explored the ownership of ancillaries such as interests in ambulatory surgical centers or surgical hospitals, imaging, physical therapy and durable medical equipment (DME).  In addition to the above, orthopedics lends itself well to the increasing interest of the Medicare program and many private payers in alternative payment arrangements, such as the Bundled Payment for Care Improvement (BPCI) Initiative introduced by the Centers for Medicare and Medicaid Services (CMS) that will test a new iteration of bundled payments for 32 Clinical Episodes and aim to align incentives among participating health care providers for reducing expenditures and improving quality of care for Medicare beneficiaries. For example, the BPCI-Advanced model, recently introduced by CMS, will cover 29 procedures, nine of which are orthopedic in nature including spinal fusions, upper and lower extremity major joint replacements, and back and neck procedures, etc.

  1. Recasting EBITDA

In most transactions, forecasted EBITDA (free cash flow) is recast by:

  • restructuring physician compensation and
  • (ii) valuing projected growth initiatives and adding these amounts to base level EBITDA.

It is our experience that the greatest gains often come from restructured physician compensation. Meaning that physician owners will agree to reduce their projected compensation to levels historically paid to employed (non-owner) physicians (e.g., 45-50% of net collections). This reduced compensation is then added to base level EBITDA for purposes of practice valuation. As discussed below, since some owners will give up greater levels of compensation than others, this disparity is, generally, compensated for by allocating more purchase consideration to those physician owners who give up a disproportionate amount of compensation as compared to the other owners. Projected growth initiatives are often annualized and a full-year’s credit is usually granted for new providers proposed to join the practice. Other initiatives for which a practice will be given credit may include new clinic additions, ancillary services expansion, and changes in reimbursement.

  1. Purchase Price and The Importance of Tax

As an initial matter, it is important to understand that purchase price in recapitalization transactions is usually allocated between cash and equity in the recapitalized company, with the physician owners receiving between 60 and 90 percent of the purchase price in cash and remainder in equity (so-called “rollover equity”). The tax treatment of recapitalization transactions is important and, at times, can be complex. First, and foremost, these transactions only work if the rollover equity is received on a tax-free basis so as to avoid the recognition of “phantom income” (i.e., taxable income without the corresponding receipt of cash). As a general rule, the cash received should be taxed at long-term capital gains rates. One important caveat to the foregoing relates to excess purchase price allocated to physician owners who give up a disproportionate amount of compensation. If any owner receives an allocation of purchase price in excess of his or her percentage ownership in the practice, such excess is likely to be treated as compensation and taxed at ordinary income rates. Another consideration is the tax status of the practice. If it is a subchapter S corporation, care will need to be exercised to structure the retention of rollover equity in a fashion so as not to trigger any gain built into that equity.

  1. The Impact of the Move Toward Outpatient Settings

Closely related to the value-based payment alternatives described above is the push by payers to encourage more effective use of outpatient settings, such as ambulatory surgery centers (ASCs). CMS regularly approves additional procedures that can be completed in an ASC setting. When coupled with improved technology, the concept of recovery care center and other technological improvements, the ASC is going to hold a prominent place in the patient care setting. Orthopedic surgery practices are often investors in ASCs and, as such, those groups are likely to be prized by outside investors. In many of the deals we see, outside investors seek, at least, a majority interest in the ASC and a management relationship therewith (so as to allow for financial consolidation), with the physician investors retaining a significant minority ownership in the center. Should the group be a co-investor with a hospital or a management company, that co-investor relationship likely will need to be restructured as part of the recapitalization deal. ASC relationships between surgeons and ASCs also may implicate the federal Anti-Kickback Statute (AKS). Those relationships will undergo significant scrutiny with respect to, among other things, compliance with the Medicare safe harbors (e.g., the so-called “1/3 tests”), relationships with anesthesia providers, etc.

  1. Ownership of Ancillaries and Legal Considerations

Because orthopedics is one of the few practices that utilize multiple ancillary services, it is  critical that the relationships between those services and the physicians who refer them are structured correctly and comply with all applicable federal anti-referral laws, e.g., the federal Stark Law and the federal AKS. For example, referrals for designated health services such as imaging, physical therapy, and DME must be structured to comply with the so-called “in office ancillary services” exception to the federal Stark Law, a fairly complicated exception with strict requirements related to the structure of the physician practice, the situs, supervision and billing of the services provided, and the sharing of the profits therefrom. As noted above, ASC ownership and the distribution of profits to the federal AKS. Failure to structure these relationships in a legally compliant manner may not only subject the practice to recoupment of Medicare dollars, fines and penalties, but also may negatively impact the quality of a practice’s earnings, thus reducing overall practice value.

  1. Diligence Will Be Important

For the many reasons discussed above, investors are likely to focus on diligence in their assessment of these practices. Ownership of ASCs by orthopedic surgeons and/or their groups implicates the AKS and could be an area of focus for regulators in the coming years. Moreover, the ownership of, and referral to ancillaries, such as imaging, physical therapy and DME, if not structured properly, can result in violations of the Stark Law, as well as the AKS or other laws and rules that can increase enforcement risk. In addition, increasing use of extenders by orthopedic physicians has the potential for creating billing problems and irregularities. Finally, while usually not considered a “physician-centric” set of issues, investors are likely going to want to review relationships, such as clinical co-management or medical director arrangements with hospitals. The obvious reason for this review is to determine the legal and regulatory risk into which an investor could be buying. However, and equally as important, this review can have an effect on the quality of the practice’s earnings and, ultimately, the purchase price an investor is willing to pay.

With the coming wave of orthopedic practice acquisitions, it will be incumbent upon investors and physicians alike to be cognizant of the reasons for consolidation and the various considerations attendant to such transactions.



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Off-Campus Hospital Outpatient Departments Take Another Hit in CMS Final Rule

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On November 2, 2018, CMS released an on-line display copy of its Outpatient Prospective Payment System (OPPS) Final Rule implementing payment changes effective January 1, 2019. The official Federal Issuance is expected on November 21, 2018.  One anticipated set of changes in the Final Rule is related to off-campus outpatient hospital departments (OCODPs).

Background

Medicare reimbursement for these provider-based OCODPs has been under a sustained attack on multiple fronts for the past three years, starting with Section 603 of the Bi-partisan Budget Act of 2015, which drew a line in the sand that as of November 2, 2015, most OCODPs (with a couple of exceptions) not billing under OPPS prior to that date would be subject to significant payment reductions from Medicare. The grandfathered OCODPs are referred to as “excepted” from the payment reductions, and the others are considered “non-excepted.”  Congress softened the impact of Section 603 slightly the following year in the 21st Century Cures Act. This change allowed for the protection of grandfathered status for cancer hospitals and also OCODPs that were in the process of a “mid-build” in 2015 so long as they made certain filings by a February 11, 2017 deadline. (Audits of these mid-build attestations by a contractor are underway and expected to be concluded by the end of 2018.)

CMS finalized its Section 603 Payment Policy in the November 3, 2016 regulation setting reimbursement for the non-excepted OCODPs at 50% of the OPPS rate, subsequently further reduced to 40% of the OPPS rate (82 Fed. Reg. 53028 (Nov. 3, 2016)). Still, CMS indicated that further limitations on reimbursement for OCODPs were under consideration.

Over the past few years, as CMS has been reducing reimbursement for OCODPs, it has also been implementing significant reductions in payment for separately payable drugs billed through the OPPS system when those drugs are purchased under the 340B Program. The goal of these reductions is to reduce Medicare payments to approximate the reduced prices hospitals pay for drugs under the 340B Program. Since January 1, 2018, separately payable OPPS drugs purchased under 340B have been reimbursed at a rate equal to the Average Sales Price (ASP) minus 22.5% (as contrasted to reimbursement at ASP plus 6% for non-340B drugs).  The OPPS reductions for 340B drugs are “budget neutral,” meaning that the cost savings associated with reduced reimbursement for 340B drugs increase payments for other services reimbursed under the OPPS. In last year’s (CY 2018) OPPS, CMS’ 340B payment policy was not applied to non-excepted OCODPs (i.e., those OCODPs with reimbursement reduced to 40% of OPPS). However, CMS indicated that it was considering extending the rate cuts to non-excepted OCODPs.

Signaling its view that CMS didn’t think Congress went far enough, in the CMS Proposed Rule for cost year 2019, several additional proposals were considered to apply a number of payment reductions to both excepted and non-excepted OCODPs and to further extend the 340B cuts to OCODPs. The Final Rule displayed on November 2nd implements the most controversial of these proposals, each of which is addressed in our August 2018 blog entries on the Proposed Rule.

Payment Reductions for Clinic Visits for all OCODPs – Grandfathered or Not

Effective January 1, 2019, CMS will implement payment reductions for excepted OCODPs for hospital outpatient clinic visit for assessment and management of a patient (“clinic visits” described at HCPCS code G0463).  These services are the most common hospital outpatient services billed to Medicare. What this means is that for these outpatient clinic visits, when performed in an off-campus setting, Medicare will apply the same payment reduction methodology for both grandfathered and non-grandfathered OCODPs.

The payment reduction will be phased-in over two years, with a 30% reduction for CY 2019 and a 60% reduction for CY 2020 and thereafter.

340B Payment Reduction

Also effective January 1, 2019, CMS will reduce payment for separately payable drugs purchased under 340B and dispensed at a non-excepted OCODP to ASP minus 22.5%.  With this reduction, CMS has created parity in reimbursement for 340B drugs furnished at non-excepted and excepted OCODPs, as illustrated in the table below.

Reimbursement for 340B Hospitals of Drugs that are Separately Payable under the OPPS and Purchased under 340B

CY Site-Neutral HOPD Other HOPD
2017 ASP + 6% ASP + 6%
2018 ASP + 6% ASP – 22.5%
2019 ASP – 22.5% ASP – 22.5%

However, CMS has now created a significant disparity between reimbursement for separately payable 340B drugs dispensed at a non-excepted OCOPD of a 340B hospital and drugs paid through the physician fee schedule.  As a result of the 340B cuts, non-excepted OCOPDs that purchase drugs under the 340B program will now be reimbursed significantly less than a freestanding physician office for separately payable drugs.

Limitations on Grandfathered Sites to Same “Clinical Families of Services” NOT Imposed

One proposal under consideration in the Proposed Rule Link that CMS elected not to implement would have further limited the services excepted from the Section 603 payment reductions to only those services the grandfathered OCODP provided during a one-year baseline period prior to November 2, 2015.  This is a relief to hospitals that would have had to live with their grandfathered OCODPs frozen in 2015 indefinitely.

What do the New Medicare Changes Mean for the Hospital Community?

Future plans for outpatient services should recognize that more services will need to be performed on-campus in order to receive fair reimbursement from the Medicare program. On-campus outpatient departments are not affected by the OPPS payment reductions described above.

Hospitals should consider seeking litigation challenging the application of these payment reductions to OCODPs. Congress drew a bright line in 2015 grandfathering facilities in operation prior to November 2, 2015, and directed CMS to reduce reimbursement to new OCODPs. By choosing to impose payment reductions on the excepted OCODPs as well as the non-excepted, CMS has improperly expanded the direction and authority provided in the statute.

Similarly, the new 340B rate reductions for non-excepted OCODPs are inconsistent with Congress’ direction to pay non-excepted OCODPs the amounts they would receive under other applicable payment systems, such as the physician fee schedule. Because the physician fee schedule is not subject to 340B rate reductions, CMS may have overstepped in its authority in reducing rates below what a comparable physician’s office would receive. CMS’ proposal to reduce Medicare reimbursement for 340B drugs was not directed by Congress, and is currently being challenged in court.

What to do Next?

Significant payment reductions for millions of Medicare transactions will commence as of January 1, 2019, with deeper cuts rolling out in 2020. Hospitals that have budgeted for outpatient services, build-outs, staffing, and other costs anticipating Medicare reimbursement based on those costs will need to reopen those budgets due to Medicare’s rate cuts. In addition, hospitals that had counted on savings from the 340B program to continue to make non-excepted OCODPs financially viable will need to reevaluate in light of the proposed reductions.

The American Hospital Association promptly issued a press release that it, the Association of American Medical Colleges, and individual hospitals will bring a court challenge as “[t]hese actions clearly exceed the administration’s legal authority.”  Hospitals and Health Systems should consider participating in this process, as well as informing their Congressional delegations about the impact this will have on operations and budgets.  We have heard from some hospitals that the financial harms of these activities will be in the millions of dollars – and the delegations need to know this.



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Some Helpful Managed Care Guidance Provided in Advisory Opinion 18-11

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Granston Memo

Practitioners in the Medicare or Medicaid managed care space place heavy reliance on the protection of the Anti-Kickback Statute (AKS) Safe Harbor found at 42 C.F.R. § 1001.952(t), generally known as the “EMCO [eligible managed care organization] Safe Harbor,” as they look at incentive arrangements between providers and managed care plans. Although the language of the regulation is generally understood, there has not been any guidance from HHS’s Office of the Inspector General (OIG) since the publication of the final rule containing the safe harbor.

The case law has also not offered guidance with respect to the application of the Safe Harbor, but has indicated that the AKS clearly can be implicated by managed care arrangements. See United States ex rel. Wilkins v. United Health Group, 659 F.3d 295 (3d Cir. 2011) (A plan’s offer of payment to a physician group to move its patients from a competing plan to it can implicate the AKS and the False Claims Act.)

On October 18, 2018, in Advisory Opinion 18-11, the OIG has now offered some guidance to the application of the EMCO Safe Harbor. At issue, was a proposal by a Medicaid Managed Care plan to pay an increased amount of compensation to providers that meet benchmarks for increasing the amount of Early and Periodic Screening Diagnostic and Treatment (EPSDT) services to Medicaid recipients from birth to age 21. Under the proposed compensation plan with providers, there were three different compensation levels, based on an increasing amount of EPSDT services being provided.  That is, if a provider increased the services to existing enrollees by 10% over the base year, there would be an incentive payment of $1.00 per existing enrollee who received the services, if the percentage increase was 20%, there would be a $2.00 incentive payment, and if the percentage increase of 30% or greater, there would be a $3.00 incentive payment. Thus the payments would increase as more services were provided.

The arrangement would be set forth in a written agreement, signed by the parties, specifying the items or services covered and specifying that the provider could not claim payment in any form from a federal health care program for the items or services. The opinion requestor also stated that the proposed arrangement would not provide an incentive to recruit new Medicaid recipients, because the incentive payments would be based only on the percentage change in volume of the EPSDT services to existing enrollees from one year to the next. In addition, the requestor represented that there would not be any inducements to participate in other lines of business as part of the arrangement. Finally, the requestor certified that the purpose of the arrangement was not to increase its capitated payment rates in the future; nor did it assess the potential for increased capitation payments as a result of the increase in costs as a result of the arrangement.

In reviewing the proposed arrangement under the terms of the EMCO Safe Harbor, the OIG noted at the outset that the safe harbor excludes from the definition of “remuneration” for purposes of the AKS any payments between EMCOs and first tier contractors for providing or arranging for items or services covered by the plan, if the specific requirements of the safe harbor are met. What was unusual about this particular arrangement, was that the plan proposed to pay the providers to increase the volume of services provided.

Because the plan, in this case, was a Medicaid managed care plan that was capitated by the relevant State, the initial criterion that the plan be an eligible managed care organization was met. Similarly, because the providers were contracting directly with the plan, they clearly were first tier contractors. In addition, because the payments would be for increases in services provided by the plan to the Medicaid recipients, the incentive payments met the health care items or services definition. In reaching the conclusion that the proposed payment structure was included under the safe harbor, the OIG made it clear that the safe harbor protects “any payments” made, and the term “payments” is not further defined. Thus, it does not matter “whether payments…are price reductions …or payments…to accomplish certain care delivery goals under a capitated risk contract.” (Opinion, p. 7, fn. 6). In other words, the “method of payment” is not material, as the total federal payment exposure is fixed in accordance with the contract with the managed care organization.

With respect to the Safe Harbor’s requirement that “[n]either party shifts the financial burden of the agreement to the extent that increased payments are claimed from a federal health care program,”  42 C.F.R. § 1001.952(t)(1)(ii)(C), the OIG considered the possibility that the capitated payments made by the State to the Medicaid managed care plans could increase due to the increase of services under the arrangement, and delved into the intent of the requestor plan. The OIG believed that the potential increase was consistent with the State’s goal of ensuring appropriate services for this population, which services might allow detection and care to avert health problems as early as possible. This, coupled with the representation by the requestor that the purpose of the arrangement was not to increase rates in future years, was sufficient for the OIG to conclude the intent was not improper and did not suggest a violation of the AKS. It also seems likely that even without the requestor’s certification, the result would not have been different and the case could be made that by increasing the costs incurred through this arrangement, over time there would actually be a net savings. However, the OIG’s analysis seems suspect. The safe harbor’s requirement relates to the shifting of the financial burden under the agreement, whereas the capitated payment rates at issue here are set by the State and are outside the agreement between the requestor plan and the providers, and not within the control of the parties to the agreement. Moreover, the OIG’s consideration of the intent of the requestor seems odd, because the safe harbors are meant to protect arrangements that are structured in such a way as to be sufficiently innocuous so as to be outside the reach of  the AKS regardless of intent.  The purpose of the safe harbors is to provide parties bright line assurance that an arrangement will not be subject to prosecution under the AKS (or sanction under the Civil Monetary Penalty Statute) if it meets the requirements of a safe harbor.

Finally, the remaining elements of the EMCO Safe Harbor were easily met – the arrangement was reduced to writing, the term was for at least a year, and was not a part of a swapping arrangement.

In conclusion, the OIG has helpfully confirmed that the EMCO Safe Harbor does indeed protect “any payment,” but it has injected a measure of uncertainty as to what is meaning of the requirement that costs not be shifted, and whether and to what extent intent of the parties is relevant. That may have been because of the framing of the question by the requestor, or for some other reason. We hope, however, that it was superfluous to the conclusion, as to  conclude otherwise would seem inconsistent with the goals of the Safe Harbors.



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FDA’s Response to HHS’ Revised Common Rule: Four Things to Know

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drug testing

In a final rule published on January 19, 2017, HHS and several federal departments and agencies made revisions to the Common Rule, the federal policy for the protection of human subjects applicable to human subject research conducted or supported by participating federal departments and agencies.[1]  Compliance with the revised Common Rule is expected on January 21, 2019.[2]

In response, on October 12, 2018, the FDA published guidance directed toward sponsors, investigators, and Institutional Review Boards (IRBs) entitled, “Impact of Certain Provisions of the Revised Common Rule on FDA-Regulated Clinical Investigations”, which provides FDA’s current thinking regarding clinical research subject to the revised Common Rule and FDA’s human research protection regulations.[3]  Clinical investigations conducted or supported by HHS that involve an FDA-regulated product are subject to both 45 C.F.R. part 46 and 21 C.F.R. parts 50 and 56, which contain certain differences between HHS’ human subject regulations and FDA’s human subject regulations.

While FDA has stated that the agency intends to undertake notice and comment rulemaking to harmonize the FDA’s regulations with the revised Common Rule, FDA’s guidance attempts to quell confusion in the interim.  The guidance specifically addressed informed consent requirements, expedited review procedures, and IRB continuing review.

1. Informed Consent

FDA clarified that, despite inclusion of new informed consent requirements in the revised Common Rule, which include content, organization, and presentation changes to the consent form and process of consenting human subjects and changes to the basic elements of consent, the provisions of revised Common Rule are not inconsistent with FDA’s current policies and guidances.  In so doing, FDA noted that sponsors and investigators may not have to develop two informed consent forms for research subject to HHS and FDA human subject regulations.

2. Expedited Review Procedures and List

FDA regulations set forth expedited IRB review procedures for research involving no more than minimal risk as established through a Federal Register Notice.[4]  FDA established and published a list of categories of such research in the Federal Register.[5]  Under Section 56.110(b), IRB reviewers must find that the research on the list involves no more than minimal risk for the IRB to use the expedited review procedure. Despite the revised Common Rule providing for limited IRB review proceeding via the expedited review mechanism, FDA stated that IRBs must continue to use the list in the Federal Register when reviewing research subject to HHS and FDA human subject regulations.

3. IRB Continuing Review

FDA’s recent guidance clarifies that, where the regulations differ, the regulations that offer the greater protection to human subjects should be followed, as has been the historical position of FDA.[6]  For example, the revised Common Rule eliminated the requirement that research involving no more than minimal risk undergo an annual, continuing review.[7]  However, FDA maintains its requirement under  21 C.F,R . § 56.109(f) regarding studies required to undergo an annual, continuing review.

4. Future Rulemaking

FDA intends to issue three more guidances aimed at harmonizing the agency’s regulations with HHS’ Common Rule.  On October 17, 2018, the White House’s 2018 fall regulatory agenda indicated that the FDA will engage in the formal rulemaking process, including accepting and considering public comments, in advance of issuing the guidances: Part 50 Protection of Human Subjects and Part 56 Institutional Review Boards, which would add definitions, conform wording, and other changes to FDA regulations to harmonize with the revised Common Rule;[8] Institutional Review Board Waiver or Alteration of Informed Consent for Minimal Risk Clinical Investigations, which would permit an IRB to waive or alter the informed consent requirements under certain conditions for minimal risk clinical investigations;[9] and Institutional Review Boards; Cooperative Research, which would replace current FDA requirements for cooperative research so that any U.S. institution participating in multisite cooperative research could rely on approval by a single IRB for the portion of the research that is conducted in the U.S., with some exceptions.[10]

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[1] 82 Fed. Reg. 7149 (January 19, 2017); https://www.gpo.gov/fdsys/pkg/FR-2017-01-19/pdf/2017-01058.pdf.

[2] 83 Fed. Reg.  28497 (June 19, 2018); https://www.gpo.gov/fdsys/pkg/FR-2018-06-19/pdf/2018-13187.pdf.

[3] See 45 C.F.R .part 46; 21 C.F.R. parts 50 and 56.

[4] See 21 C.F.R. § 56.110(a).

[5] 63 Fed. Reg.  60353 (November 9, 1998;) http://www.gpo.gov/fdsys/granule/FR-1998-11-09/98-29748.

[6] See, e.g., “Use of Electronic Informed Consent Questions and Answers: Guidance for Institutional Review Boards, Investigators, and Sponsors,” (December 2016), https://www.fda.gov/downloads/drugs/guidances/ucm436811.pdf.

[7] See 45 C.F.R. § 4§6.109(f)(1).

[8] RIN: 0910-AI07, http://www.reginfo.gov/public/do/eAgendaViewRule?pubId=201810&RIN=0910-AI07.

[9] RIN: 0910-AH52, http://www.reginfo.gov/public/do/eAgendaViewRule?pubId=201810&RIN=0910-AH52.

[10] RIN: 0910-AI08, https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=201810&RIN=0910-AI08.



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Understanding Medicare’s New Remote Evaluation of Pre-Recorded Patient Information (Asynchronous Telemedicine)

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medicaid

Starting January 1, 2019, the Medicare program will cover certain medical services delivered via asynchronous telemedicine technologies. The Centers for Medicare and Medicaid Services (CMS) just published the final rule for the 2019 Physician Fee Schedule, introducing a new code, officially titled Remote Evaluation of Pre-Recorded Patient Information” (HCPCS code G2010). This article provides the top 10 things to know about the new code and explains how it will work.

Frequently Asked Questions
Medicare’s Remote Evaluation of Pre-Recorded Patient Information

1. What are Remote Evaluations of Pre-Recorded Patient Information? The code is defined as “Remote evaluation of recorded video and/or images submitted by an established patient (e.g., store and forward), including interpretation with follow-up with the patient within 24 business hours, not originating from a related E/M service provided within the previous 7 days nor leading to an E/M service or procedure within the next 24 hours or soonest available appointment).”

2. What Modalities are Allowed? This code is used only for store & forward / asynchronous telemedicine technologies that involve pre-recorded, patient-generated still or video images. However, images or video must be submitted by the patient; it cannot be solely based on a questionnaire or non-image data. CMS rejected proposals to include, within the scope of this code, email/messaging or questionnaires/assessments that do not include an image or other visual item. Other types of patient-generated information, such as information from heart rate monitors or other devices that collect patient health marker data, would not be within the scope of G2010, but could potentially qualify as remote patient monitoring. For more information, read the Medicare Remote Patient Monitoring Reimbursement FAQs.

After the practitioner reviews and interprets the image(s), the practitioner must provide a follow-up response to the patient within 24 hours. The follow-up need not be provided via asynchronous technology, and may instead be delivered via other telehealth modalities (i.e., phone call, audio/video communication, secure text messaging, email, or patient portal communication).

3. How Does this Service Differ from Virtual Check-Ins (HCPCS code G2012)? This service is distinct from virtual check-ins in that G2010 involves the practitioner’s evaluation of a patient-generated still or video image transmitted by the patient, and the subsequent communication of the practitioner’s response to the patient. In contrast, a virtual check-in is a service that occurs in real time and does not involve the asynchronous transmission of any recorded image. For more information, read the Medicare Virtual Check-Ins FAQs.

4. Can this Code be Used with New Patients? CMS limits this code to established patients only. With regard to what constitutes an “established patient”, CMS defers to CPT’s definition of this term. CPT defines an established patient as one who has received professional services from the physician or qualified health care professional or another physician or qualified health care professional of the exact same specialty and subspecialty who belongs to the same group practice, within the past 3 years.

It’s worthy to note that many industry advocates supported coverage of this code for new patients, particularly in dermatology and ophthalmology. This service could also be valuable in urology, as it would provide a way to assess new patients with conditions such as hematuria (blood in the urine) in a timely manner. However, the American Medical Association urged CMS to restrict the code only to established patients, arguing that the physician should conduct a face-to-face examination (either in-person or via interactive audio-video) if it is a new patient. CMS was ultimately persuaded by comments allowing separate payment only for established patients, not new patients.

5. Is There a Patient Co-Payment for Remote Evaluations of Pre-Recorded Patient Information? Yes, as a Medicare Part B service, the patient is responsible for a co-payment for the service. While several groups asked CMS to eliminate any beneficiary co-payment for the service, CMS explained that it does not have the authority to change the applicable beneficiary cost sharing for most physician services. Providers are cautioned to bill the patient (or the patient’s secondary insurer) for the co-payment, as routine waivers of patient co-payments can present a fraud & abuse risk under the federal Civil Monetary Penalties Law and the Anti-Kickback Statute.

6. Is Patient Consent Required? Yes, patient consent is required for this service.  The consent can be verbal or written, including electronic confirmation that is noted in the medical record for each billed service (i.e. every time the patient wants to obtain a virtual check-in). This is a bit frustrating for the patient’s user experience, particularly as CMS could have allowed a process where the patient gave consent once, and the practitioner kept a copy on file.

7. Who Can Deliver the Service? Remote Evaluations of Pre-Recorded Patient Information can be delivered by physicians or qualified health care professionals.

8. Are There Any Frequency Limits? There is no frequency limitation on this code.  Even without an express frequency limitation, Remote Evaluations of Pre-Recorded Patient Information, like all other practitioner’s services billed under Medicare, must be medically reasonable and necessary to be reimbursed.

9. Are There Any Timeframe Limitations? CMS considered and appreciated the comments to remove the timeframe limitations, but ultimately decided to retain them in the code. Of particular disappointment is that CMS retained the “or soonest available appointment” language.  CMS agreed that in each individual case, it might be challenging to prove whether or not other appointments were available prior to the visit, especially since beneficiary convenience is also presumably a factor for when appointments are scheduled. However, CMS concluded that as a whole, retaining the language in the code description could help to guard against the potential for abuse that would be present if CMS instead adopted a purely time-based window for bundling of this service. Here’s what the rules mean in plain English:

  • If the review of the patient-submitted image and/or video originates from a related E/M service provided within the previous 7 days by the same physician or other qualified health care professional, then the service is considered bundled into that previous E/M service and G2010 would not be separately billable (provider liable). In that event, do not bill either the patient or the Medicare program for G2010.
  • If the review of the patient-submitted image and/or video leads to an E/M service or procedure with the same physician or qualified health care professional within the next 24 hours or soonest available appointment, then the is considered bundled into the pre- or post-visit time of the associated E/M service, and therefore will not be separately billable (provider liable). In that event, do not bill either the patient or the Medicare program for G2010.

10. Are There Any Patient Location Requirements? The patient need not be located in a rural area or any specific originating site. The patient can be at home. Providers frustrated with the labyrinthine and narrow Medicare coverage of telehealth services can take comfort in the fact that Remote Evaluations of Pre-Recorded Patient Information are not considered a Medicare telehealth service.

Conclusion

Medicare’s coverage of asynchronous telemedicine services under G2010 represents a good step toward encouraging providers to efficiently use new technologies to deliver medical care. By reimbursing for asynchronous image reviews, the new code exemplifies CMS’ renewed vision and desire to bring the Medicare program into the future of clinically-valid virtual care services.

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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