August 7, 2014

FDA to Bolster its Regulation of Diagnostic Testing

With the passage of the Food and Drug Administration Safety and Innovation Act (FDASIA) on July 9, 2012, Congress expanded the Food and Drug Administration's (FDA) authority to safeguard and advance public health. Exercising such authority, on July 31, 2014, the FDA notified Congress of its plan to publish a proposal to expand its oversight of laboratory developed tests (LDTs). LDTs are diagnostic tests, which are designed, manufactured, and used within a single laboratory. Previously, LDTs certified under the Clinical Laboratory Improvement Amendments (CLIA) could exist without FDA oversight. This exception existed because LDTs were primarily used for rare diseases. However, advances in molecular biology allowed laboratories to produce a broader range of LDTs, applicable to more common illnesses. The former exception has been touted by some as fostering laboratory independence, allowing for exponential innovation and accuracy in diagnostics. However, others like Senator Edward Markey (D-Mass.) claim that the newly implemented FDA oversight has been "long-overdue."

As a result of support from individuals like Senator Markey, more than 11,000 LDTs, housed in 2,000 different laboratories, may fall into the FDA's expanded regulations. The FDA has cited LDTs for illnesses like Lyme disease and cancer, as justification for the new regulatory framework. By subjecting LDTs to such scrutiny, the FDA's stated goal is to eliminate faulty tests that produce inaccurate diagnoses and cause patients to seek unnecessary treatment, or delay vital treatment. However, opponents of the new regulation contend that the prior independence allowed laboratories to diagnose and measure disease with far greater accuracy than ever before.

The FDA's regulatory expansion will take place over nine years and will first be applied to what are deemed the riskiest LDTs. However, some tests will remain excluded from FDA regulations. Such LDTs include those which treat rare diseases and those for which there is no FDA-approved test.

In its announcement, the FDA stated its intent to publish guidelines detailing how laboratories can notify the FDA regarding their current manufacturing and use of LDTs. Once these guidelines are released, laboratories that currently utilize LDTs should notify the FDA about their tests in order to avoid legal repercussions. The FDA will allow currently available LDTs to continue during the reviewing process, in order to prevent any disruptions.

If your laboratory utilizes LDTs or has any questions regarding the FDA's new regulations, please contact an experienced health care attorney at 248-544-0888 or email at wapc@wachler.com. Wachler & Associates will continue to keep you updated on breaking regulatory changes and other health care news.

August 1, 2014

Bipartisan House Bill Proposes Increased Medicare Coverage of Telemedicine

A bill amending Title XVIII of the Social Security Act will be proposed soon, marking the culmination of bipartisan efforts in the House of Representatives. Representatives Glenn Thompson (R-Penn.) and Mike Thompson (D-Calif.) are prepared to announce a new telehealth bill, titled the Medicare Telehealth Parity Act of 2014, which would reduce the Social Security Act's current limitations on reimbursable telemedicine technologies.

Currently, the Social Security Act only permits reimbursement for telemedicine uses in rural health professional shortage areas (HPSAs) and non-Metropolitan Statistical Areas (MSAs). Not only are these qualifications limiting, they are also difficult to discern. For example, in the 2000s, the Health Resource and Service Administration (HRSA) eliminated the "rural HPSA" category from its designations, resulting in confusion regarding the correct application of the term. The forthcoming bill seeks to slowly resolve these reimbursement complications through a cost-effective, four-year plan:

  • Within six months of the bill's passage, it would mandate that Medicare provide coverage for telemedicine in urban areas with a population of 50,000 or less. Additionally, the six month period would be used to increase care sites to include retail clinics.
  • Two years following the bill's passage, Medicare coverage would expand to urban areas with a population of 100,000 or less. Furthermore, the bill would include home telehealth to the list of care sites, while expanding reimbursable services to encompass physical and speech therapy.
  • Lastly, after four years have passed, the bill would make telemedicine reimbursable across the United States.
In addition to the four-year plan, the bill seeks to officially add remote patient monitoring (RPM) to the Social Security Act's list of reimbursable services. The bill defines RPM as "the remote monitoring, evaluation, and management of an individual with a covered chronic health condition . . ., insofar as such monitoring, evaluation, and management is with respect to such condition, through the utilization of a system of technology that allows a remote interface to collect and transmit clinical data between the individual and the responsible physician . . . or supplier." By offering government reimbursement for RPM services, thereby expanding RPM use, the bill hopes to increase Medicare savings over time.

Also, the Representatives' bill would task the Secretary of Health and Human Services (HHS) with developing standards for remote patient monitoring. Finally, the United States comptroller would be directed to conduct a study within two years of the bill's passage, to determine the efficacy and estimated Medicare savings from the expansion of telemedicine applications.

The bill does not address Medicaid, the Children's Health Insurance Program (CHIP), or other federal health plans, nor does it comment on licensure or liability issues. However, studies show that incorporating reimbursement strategies for telemedicine in Medicare alone will result in significant cost savings, not only in transportation costs, but also in models of delivery and access to care. According to a study conducted by Stanford University, the implementation of telemedicine is estimated to generate 7.7% to 13.3% spending reductions per Medicare patient, per quarter.

Wachler & Associates' health law attorneys will continue to monitor any further developments regarding the proposed bill and all other federal and state legislation. If you have any questions about how your entity will be impacted by the final rule or any other regulation, please contact an experienced health care attorney at Wachler & Associates via phone at 248-544-0888 or via email at wapc@wachler.com.

July 14, 2014

Senate Report Finds the RAC Program to be Ineffective in Reducing Improper Payment Rates and Burdensome on Providers

In a report released on July 9, 2014, the Senate Special Committee on Aging criticized the Centers for Medicare and Medicaid Services (CMS) for the increase in improper payments in the Medicare program, despite the increasing amount of audit activity and the resulting burden on Medicare providers.

The report noted that despite an increase in the number of contractors conducting pre and post-payment audits and in audits themselves, there has not been a reduction in the total rate of improper payments made to providers. In 2013, the rate jumped to 10.1%, from 8.5% in 2012. This was the highest rate in the last five years, despite significant efforts to combat improper payments.
The report also found numerous inefficiencies in the Recovery Audit Contractor (RAC) program and with other contractors more generally. For instance, the report noted that often times different audit contractors audit the same provider for claims that have been previously reviewed. This results in duplicative document requests that burden providers. The report recognized that providers often times providers must respond to documentation requests from contractors with their own unique timelines and specifications for proper documentation submission. The inconsistencies among contractors lead to significant confusion and, in some cases, denial of properly billed claims. Also noted was a problem well-recognized by the provider community, the withholding of Medicare funds during the later stages of the appeals process, despite the often the two, three even four year delay before providers receive an administrative law judge (ALJ) hearing decision. According to the report, one large hospital system has over $200 million withheld until its matters are adjudicated. The report recognized that for many providers, the ALJ level of appeal is successful. As an example, the report noted that for another health system, there was a 97% success rate for appeals at the ALJ level. The withholding of funds, especially when they have been properly billed, presents an enormous burden on all healthcare providers, even potentially forcing smaller providers to close their doors because they are unable to absorb the loss in revenue.

The Senate report also criticized the RAC program on some fundamental issues. The report was highly critical of what is termed the "pay and chase" model of reducing improper payments to providers. Although CMS announced its move away from this model to a more preventative model, the report concluded that the structure of the audit programs still encourages "pay and chase." Under this model, most of the audit contractors seek to recoup improper payments after they have been made to providers. This is problematic for numerous reasons, one of which is that under this model the RACs are paid on a contingency fee basis that is dependent upon the amount of improper claims that they identify. Thus, there is a potential incentive for RACs to keep improper payment rates high in an effort to increase RAC productivity. The report and members of the Senate Special Committee suggested that the RACs should be compensated by how effective they are at reducing the improper payment rate over a designated period of time or by how they prevent improper payments from occurring in the first place.

In order to lower the improper payment rate, the report recommends that:

  • CMS consolidate post-payment review programs to the extent possible;
  • CMS consider financial incentives aimed at reducing the improper payment rate, rather than at the amount of improper rates identified;
  • CMS assess the reliability of data within the RAC Data Warehouse and correct any data errors or omissions;
  • Pre-payment review programs should have defined objectives and scopes of operation related to reducing the improper payment rate, including how to achieve this goal through collaboration of the auditors;
  • CMS more stringently review contractor error rate reduction plans to ensure that Comprehensive Error Rate Testing (CERT)-identified problem areas are in accordance with the Office of Inspector General's recommendations;
  • CMS ensure that local coverage decisions target high cost, highly utilized services or items and do not create inconsistent access to care;
  • CMS should review the effectiveness of pre-payment review processes in terms of reducing improper payments; and
  • CMS place a greater emphasis on provider education as a means of reducing improper payments.
If you or your entity are currently being audited by CMS and need assistance with the Medicare appeals process or Medicare compliance to proactively prepare for an audit, please contact an experienced healthcare attorney at Wachler & Associates at 248-544-0888 or at wapc@wachler.com.

July 10, 2014

HHS Unveils Statistical Sampling Pilot Program for ALJ Hearings on Medicare Audit Appeals

Last week, the Office of Medicare Hearings and Appeals (OMHA) announced the Statistical Sampling Pilot Program (Pilot Program). The Pilot Program offers Medicare providers an alternative route, along with the Settlement Conference Facilitation Pilot, to reach a final determination for claims pending at the administrative law judge (ALJ) hearing level without enduring the 2-3 year delay for hearing. Although the Pilot Program offers a time-saving and perhaps more efficient option for Medicare providers, engaging in the Pilot Program also comes with risks as Medicare providers may "put all of their eggs in one basket" and rely on a single ALJ to issue a decision that affects a large volume of claims. In some cases, the provider may know the identity of the ALJ prior to agreeing to statistical sampling, but in other cases the provider will not.

The Pilot Program is available to Medicare providers that have requested an ALJ hearing following a Medicare Qualified Independent Contractor (QIC) reconsideration decision. At this time, the ALJ hearing requests must either be assigned to an ALJ or must have been filed between April 1, 2013 and June 30, 2013 and it must meet all jurisdictional requirements, including that it was filed timely. In order to be eligible for the Pilot Program, the Medicare provider must have a minimum of eligible 250 claims and the claims must be one of the following: (1) pre-payment claim denials; (2) post-payment non-RAC claim denials; or (3) post-payment RAC claim denials from one RAC. In addition, claims that are assigned to different ALJs or were requested in different consolidation groups may be incorporated into the request for statistical sampling.

A Medicare provider that meets the eligibility requirements for the Pilot Program may request statistical sampling by submitting a "Request for Statistical Sampling" form that is available on OMHA's website. The provider must also submit a spreadsheet, a template is also available on OMHA's website, that provides detailed information about the claims requested to be included in the statistical extrapolation.

After a request is submitted, if granted, a consent template will be sent to the Medicare provider. The consent template will request the Medicare provider to consent in writing to statistical sampling. After written consent is obtained, a pre-hearing conference will be held to confirm the consent, establish the universe of claims from which the sample will be taken and agree to other matters related to the hearing. Following the pre-hearing conference, the ALJ will issue an order and if no objections are received within 10 days of receipt of the order, the order will become binding. Once the pre-hearing conference order becomes binding, consent for the statistical sampling may not be withdrawn.

After the pre-hearing conference order becomes binding, OMHA will combine the universe of claim appeals agreed to in the pre-hearing conference under a single ALJ appeal number. The appeal will be assigned to the next ALJ on the rotation unless all of the appeals had been assigned to an ALJ prior to the statistical sampling request. The random statistical sampling will be compiled by a trained and experienced statistical expert who will develop appropriate sampling methodology in accordance with Medicare guidance. At the hearing, the ALJ will review the sample units and make a decision regarding those units. It is important to note that either CMS or a CMS contractor may participate in the hearing. The decisions on the sample units will be extrapolated to the universe of claims at issue.

The Pilot Program offers an opportunity to eligible Medicare providers with large volumes of claims to seek an alternative, and perhaps more efficient, avenue to final resolution of the claims. The new program is a welcomed creative development to solving the backlog of appeals waiting for assignment for ALJ hearing. However, Medicare providers should carefully consider before engaging in the process and fully understand the implications of agreeing to statistical sampling. Wachler & Associates will continue to provide updates on the developing Pilot Program. For more information on ALJ appeal strategies and the Pilot Program, please contact an experienced health care attorney at 248-544-0888 or wapc@wachler.com.

July 9, 2014

HHS Launches Pilot Program for Providers to Settle Medicare Overpayment Demands with CMS

Recently, the Department of Health and Human Services (HHS) announced its new pilot program - Settlement Conference Facilitation (SCF) Pilot - to provide an alternative dispute resolution process for settling appealed Medicare claims denials. Through the SCF program, providers have the opportunity to discuss with the Centers for Medicare and Medicaid Services (CMS) the potential of a mutually agreeable resolution to the claims appealed to an Administrative Law Judge (ALJ) hearing. According to HHS, the settlement conference facilitator, who is an employee of the Office of Medicare Hearings and Appeals (OMHA), will use mediation principles to assist the appellant and CMS in reaching a mutual settlement agreement. If a settlement is reached between the appellant and CMS, the facilitator will draft the settlement document to be signed at the settlement conference by both parties. Once a binding settlement agreement has been executed, any pending ALJ hearing requests for the claims covered by the settlement agreement will be dismissed and no further appeal rights will be attached to those claims. On the other hand, if the parties are unable to reach a settlement agreement and the facilitator believes further efforts to reach an agreement will be unsuccessful, the SCF process will be concluded and the appealed claims will return to the ALJ level of appeal in the order the hearing request was originally received by OMHA.

Initially, HHS is limiting eligibility for the SCF pilot program to claims by Medicare Part B providers who have filed requests for ALJ hearing in 2013 and are not currently assigned to an ALJ. For those eligible providers, the request for SCF must include all of the provider's pending ALJ appeals for the same item or service (i.e., all claims for the same item or service in which ALJ hearing requests were submitted in 2013). Appellants must include all appeals included in the applicable ALJ hearing requests, and may not request an SCF for some claims and proceed to the ALJ hearing for the remaining claims. Additional SCF eligibility requirements include that at least 20 claims must be at issue or, if fewer than 20 claims are at issue, at least $10,000 must be in controversy. Also, the amount of each individual claim must be less than $100,000. For claims subject to statistical sampling, the extrapolated overpayment amount at issue must be less than $100,000; however, HHS states that it will continue to explore expanding the SCF pilot program for larger extrapolated overpayment cases.

Although the SCF process is only available for a limited group of claims at this time, those providers whose appeals are currently ineligible (e.g., Part A providers) for the SCF pilot program may nonetheless view these developments as a silver lining as countless appealed claims are currently awaiting ALJ hearings to be scheduled - claims in which CMS has likely recouped all of the alleged overpayment amount. With the substantial volume of claims currently backlogged at OMHA causing two to three year delays before the appealed claims are finally adjudicated, appellants may soon be provided a forum to reach mutually agreeable resolutions with CMS and receive the timely payment in which the provider is entitled.

If you or your entity have questions related to the SCF pilot program, or would like assistance from experienced health care attorneys in representing you or your entity in the SCF process, please contact Wachler & Associates at 248-544-0888 or wapc@wachler.com.

July 8, 2014

Michigan Passes Law Allowing Direct Access to Physical Therapists

On June 26, 2014, Michigan Governor Rick Snyder signed into law SB 690, allowing a physical therapist or physical therapist assistant to treat a patient without a physician's referral. Pursuant to the new law, which goes into effect January 1, 2015, physical therapist may now treat self-referring patients without a prescription from a physician under the following circumstances: (1) for up to 21 days or 10 treatments, whichever comes first; or (2) the patient is seeking physical therapy services to prevent injury or promote fitness. With the signing of SB 690, all 50 states, as well as the District of Columbia, now provide for some kind of direct access to physical therapists.

Under the new law, when a physical therapist is treating a patient without a prescription from a physician, the physical therapist must refer the patient to a physician if the physical therapist has reasonable cause to believe that symptoms or conditions are present that require services beyond the physical therapist's scope of practice. In addition, the law provides that the physical therapist must consult with a physician if the patient does not show reasonable response to treatment in a time period consistent with the standards of practice. The new law also provides that the physical therapist must determine that the patient's condition requires physical therapy before delegating physical therapy interventions to a physical therapist assistant.

According to the House Committee's summary of Senate Bill, these rule changes "do not create an open door to [physical therapy] services; a patient would need to obtain a prescription if more than 10 visits or three weeks of treatment were needed." Moreover, as provided in concurrently adopted Senate Bills (SB691-SB694), an insurer would not be mandated to provide coverage for treatment that was not provided pursuant to a prescription from a physician.

Wachler & Associates will continue to keep you updated on legislation regarding patient access to care, as well as other national health care news. Please subscribe to the Wachler & Associates health law blog by adding your email address and clicking "Subscribe" in the window on the top right of this page. If you have any questions regarding the newly adopted laws, or have any other questions related to reimbursement rules for physical therapy, please contact an experienced health care attorney at 248-544-0888 or wapc@wachler.com.

July 7, 2014

CMS Affirms Physicians May Bill Certain Pharmacy Services as "Incident To" But Highlights Recent Regulatory Amendments Regarding Compliance with State Law

In a March 25, 2014 letter to the American Academy of Family Physicians (AAFP), CMS Administrator Marilyn Tavenner responded to an inquiry from the AAFP asking whether, if all of the "incident to" rules are met, may a physician bill Medicare for a Part B covered service provided by a pharmacist in the physician's practice.

In its January 2014 letter, AFFP noted the "increasing emphasis on team-based care in family medicine" particularly in the context of a "patient-centered medical home." Due to such changes, AAFP advised CMS that family medicine practices were employing pharmacists as part of the patient care team. Pursuant to the plan of care developed by the physician, these pharmacists were having and documenting direct, face-to-face encounters with patients where they reviewed "applicable patient history and medications" and counseled patients on the "risks and benefits of pharmaceutical treatment options" and "instructions for improving pharmaceutical treatment compliance and outcomes." The AAFP took the position with CMS that such encounters would meet the definition of an established patient evaluation and management services ("E/M service") and would be billed as an E/M service if the physician had provided the service. The AAFP also reviewed applicable Medicare rules on "incident to" billing, specifically section 60 of chapter 15 of the Medicare Benefit Policy Manual and stated that it "found nothing in Section 60 that would exclude pharmacists from this definition." Accordingly, AAFP requested confirmation that a physician who met all of the "incident to" rules would be permitted to bill Medicare for a Part B covered service provided by a pharmacist in the practice.

In her response, Administrator Tavenner stated that CMS agreed with AAFP's position that if all the requirements of the "incident to" statute and regulations were met, a physician may be reimbursed under Medicare Part B for services provided by pharmacists in the practice as "incident to" services.

Administrator Tavenner offered further guidance on this issue by directing AFFP's attention to the regulations at 42 CFR 410.26, which contained two new provisions as a result of CMS rulemaking for the calendar year 2014 physician fee schedule (PFS). Specifically, a phrase was added to the definition of "auxiliary personnel" in 42 CFR 410.26(a)(1), which requires that auxiliary personnel must "meet[] any applicable requirements to provide the services, including licensure, imposed by the State in which the services are being furnished" and a new section was added, 42 CFR 410.26(b)(7), which provides that, "[s]ervices and supplies must be furnished in accordance with applicable State law." Administrator Tavenner also referred AAFP to the CY 2014 PFS final rule and comments, found at 78 Fed. Reg. 74410, for more information. In light of these new provisions, she advised the AAFP to consider "applicable state laws" in addition to the other "incident to" requirements when considering when it is appropriate to bill for services "incident to" the physician's services.

As a result of this guidance from CMS and recent regulatory amendments, physicians and other providers wishing to bill under the "incident to" rules must carefully review not only the "incident to" rules themselves but also consider closely whether the "incident to" services are being furnished in compliance with applicable state laws such as licensure requirements for auxiliary personnel.

Wachler & Associates regularly counsels providers regarding the rules and regulations involving Medicare reimbursement, including "incident to" billing. If you have questions about "incident to" billing, or how these recent developments may impact your practice, please contact an experienced healthcare attorney at 248-544-0888 or at wapc@wachler.com. Please subscribe to the Wachler & Associates health law blog by adding your email address and clicking "Subscribe" in the window on the top right of this page.

July 3, 2014

CMS Proposes to Eliminate the Narrative Requirement for Documented Face-to-Face Encounters for Home Health Agencies

In a recently released proposed rule, the Centers for Medicare & Medicaid Services (CMS) proposes to eliminate the narrative requirement from the home health face-to-face encounter documentation requirement. Under the Patient Protection and Affordable Care Act (ACA) and implementing regulations, the certifying physician must document that the physician himself or herself or an allowed nonphysician practitioner conducted a face-to-face encounter with the beneficiary no more than 90 days prior to the home health start of care date or within 30 days of the start of home health care. As part of the home health certification requirements, the documented face-to-face encounter must include a brief narrative of why the clinical findings of the encounter support that the patient is homebound and in need of intermittent skilled nursing services or therapy services.

According to CMS, the narrative requirement was adopted in an effort to achieve greater physician accountability in certifying a patient's eligibility to receive home health care as well as establishing the patient's plan of care. However, as CMS noted in the proposed rule, the home health industry is experiencing numerous problems meeting the narrative requirement. Accordingly, since the effective implementation of the face-to-face encounter requirement in April 2011, many home health agencies have seen an increased number of claims denied by Medicare audit contractors due to inadequate narratives supporting the services. In its proposed rule, CMS acknowledges some of the challenges faced by home health agencies in meeting the face-to-face narrative requirement, including:

• A perceived lack established standards for compliance that can be understood and applied by physicians and home health agencies;
• Frustration in the industry of having to rely on physicians to satisfy the face-to-face requirement without incentives to encourage physician compliance;
• Concerns that the narrative requirement is redundant when detailed evidence to support the need for homebound status and medical necessity is available in clinical records; and
• The narrative requirement was not explicitly codified in the Affordable Care Act.


In agreeing with the industry's complaints, CMS now proposes to eliminate the narrative requirement for the documented face-to-face encounter. However, CMS noted that there should be sufficient evidence in the patient's medical record to demonstrate that the patient meets Medicare eligibility criteria for home health services. Also, CMS reaffirms in its proposed rule that the certifying physician would still be required to certify that a face-to-face encounter occurred no more than 90 days prior to the start of care date for home health services or within 30 days of the start of the home health services, and that the face-to-face encounter was related to the primary reason the patient requires home health services.

Finally, in situations where skilled nursing visits for management and evaluation of the patient's plan of care are ordered by the physician, the proposed rule provides that the physician must still include a brief narrative that describes the clinical justification for the management and evaluation service as part of the certification/recertification process.

If finalized in its current form, the provisions in the proposed rule would eliminate the brief narrative requirement for documented face-to-face encounters. However, home health providers should implement the necessary compliance protocols to ensure the medical documentation contains sufficient information to support the patient's need for home health services. Failure to meet this standard or any of the other certification requirements could result in an increased risk of claims being denied by Medicare audit contractors. If you or your entity has any questions related to the face-to-face encounter or certification/recertification requirements, or need assistance in defending against or proactively preparing for a Medicare audit, please contact an experienced healthcare attorney at 248-544-0888 or at wapc@wachler.com.

July 2, 2014

OIG Issues Special Fraud Alert Regarding Potentially Unlawful Laboratory Payments to Referring Physicians

On June 25, 2014, the U.S. Department of Health and Human Services Office of Inspector General (OIG) released a Special Fraud Alert (the Alert) regarding two kinds of compensation arrangements between clinical laboratories and referring physicians. The two arrangement types addressed by the Alert involve compensation paid by clinical laboratories to physicians for (1) blood-specimen collection, processing, and packaging and (2) submitting patient data to a registry or database. In the Alert, OIG recognized that these types of arrangements between physicians and labs create a considerable risk of fraud and abuse in violation of the Anti-Kickback Statute.

The specimen processing arrangements involve laboratories paying physicians to collect, process, and package patients' blood specimens. The OIG noted that these arrangements are typically made on a per-specimen or per-patient-encounter basis. In the Alert, the OIG discussed that physicians are already allowed to bill Medicare a specimen collection fee and for processing and packaging specimens for transport.
As noted by the OIG, the Anti-Kickback Statute prohibits a laboratory from knowingly and willfully paying physicians for services if even one purpose of the payment is to induce or reward referrals. Although the Anti-Kickback Statute is intent-based, the OIG stated, "the probability that a payment is for an illegitimate purpose is increased, however, if a payment exceeds fair market value or it is for a service for which the physician is paid by a third party, including Medicare."

In the Alert, OIG noted several characteristics of specimen processing arrangements that may be evidence of unlawful arrangements. Some examples are:

  • Payment exceeds fair market value for services actually rendered by the party receiving the payment.
  • Payment is for services for which payment is also made by a third party, such as Medicare.
  • Payment is made directly to the ordering physician rather than to the ordering physician's group practice, which may bear the cost of collecting and processing the specimen.
  • Payment is made on a per-specimen basis for more than one specimen collected during a single patient encounter or on a per-test, per-patient, or other basis that takes into account the volume or value of referrals.
  • Payment is offered on the condition that the physician order either a specified volume or type of tests or test panel, especially if the panel includes duplicative tests (e.g., two or more tests performed using different methodologies that are intended to provide the same clinical information), or tests that otherwise are not reasonable and necessary or reimbursable.
OIG also discussed registry arrangements that may violate the Anti-Kickback Statute. Registry arrangements typically involve labs paying physicians for services such as submitting patient information to the registry and reviewing registry reports. OIG acknowledged that payment for such services may be permissible. However, the Alert emphasized that such registry arrangements could encourage physicians to order unessecary or duplicative tests, or to order tests from labs that offer registry arrangements instead of other labs which may offer clinically superior services.

The Alert noted many characteristics registry arrangements that may be evidence of unlawful activity including, but not limited to, the following:

  • The laboratory requires, encourages, or recommends that physicians who enter into Registry Arrangements perform the tests with a stated frequency (e.g., four times per year) to be eligible to receive, or to not receive a reduction in, compensation.
  • The laboratory collects comparative data for the Registry from, and bills for, multiple tests that may be duplicative (e.g., two or more tests performed using different methodologies that are intended to provide the same clinical information) or that otherwise are not reasonable and necessary.
  • Compensation paid to physicians pursuant to Registry Arrangements is on a per-patient or other basis that takes into account the value or volume of referrals.
  • Compensation paid to physicians pursuant to Registry Arrangements is not fair market value for the physicians' efforts in collecting and reporting patient data.
In light of the Special Fraud Alert, clinical laboratories and physicians should reassess their relationships and business arrangements to ensure compliance with all fraud and abuse laws. Wachler & Associates healthcare attorneys regularly counsel providers regarding the Anti-Kickback Statute, Stark Law and other federal and state fraud and abuse laws. If you or your healthcare entity have any questions regarding the Anti-Kickback Statute or Stark Law, or wish to have your arrangement reviewed by our experienced attorneys, please contact our health care lawyers at 248-544-0888 or wapc@wachler.com.

June 27, 2014

Beaumont, Botsford, and Oakwood Approve Merger Agreement to Form Region's Largest Health System

Earlier this week, the boards of Beaumont Health System, Botsford Hospital, and Oakwood Healthcare approved a merger agreement to form a new $3.8 billion nonprofit organization--Beaumont Health. The deal, which still requires state and regulatory approval, would create the region's largest health system with 8 hospitals, 153 outpatient care sites, 5,000 physicians, 33,093 employees and 3,500 volunteers. Beaumont Health expects to receive approval by the Federal Trade Commission and Michigan Attorney General in time to close the transaction by this fall.

Beaumont Health joins the long list of mergers between hospital systems over the recent years as many hospitals seek to reduce costs and improve patient care through more streamlined operations, increase bargaining power with insurance companies, and take advantage of the cost-saving incentives included in the Affordable Care Act (ACA).

When news of the merger first broke, Fox 2 Detroit interviewed Wachler & Associates partner Andrew Wachler, who explained that the merger could allow patients access to each hospital's specialization, while allowing the hospitals to share costs. As Mr. Wachler explained, this type of cost sharing typically leads to improved health care quality and reduced costs.

Wachler & Associates will continue to keep you updated on any further developments regarding the merger, as well as all breaking Michigan and national healthcare news. Please subscribe to the Wachler & Associates health law blog by adding your email address and clicking "Subscribe" in the window on the top right of this page.

June 26, 2014

Michigan Supreme Court Issues Ruling on Michigan's Generic Drug Substitution Statute


On June 11, 2014, the Michigan Supreme Court issued its decision in Michigan ex rel. Gurganus v. CVS Caremark Corp., and ruled that Michigan law requires a pharmacist to pass on the difference in cost between the wholesale cost of a brand-name drug and the wholesale cost of a generic drug to the purchaser when a generic drug is substituted for a brand-name drug (and only then). The case involved two consolidated class actions and a qui tam action against multiple pharmacies alleging that the pharmacies violated MCL 333.17755(2) by failing to pass on the savings to customers when substituting brand-name drugs with generic drugs. The plaintiffs further alleged that the defendant pharmacies necessarily violated the Health Care False Claim Act (HCFCA), MCL 752.1001 et seq, and the Medicaid False Claims Act (MFCA), MCL 400.601 et seq., by violating MCL 333.17755(2) and then submitting claims for reimbursement to the state.

The trial court granted summary disposition to the defendants because it found that the plaintiffs failed to state a claim upon which relief could be granted. The trial court noted that the plaintiffs did not plead with specificity any transactions involving the defendants that purportedly violated MCL 333.17755(2). The plaintiffs relied on a small set of cost data from a single out-of-state pharmacy during a brief time period to support their allegations of systematic fraudulent activity in Michigan by the defendants. The Court of Appeals reversed the trial court's decision, finding that the plaintiffs' general allegations were sufficient to avoid summary disposition. The Court of Appeals then reached several issues related to whether the HCFCA and MFCA created private rights of action. The panel also held that MCL 333.17755(2) applied to all transactions in which a generic drug is dispensed - not just to transactions in which a generic drug is substituted for its brand-name equivalent.

In a unanimous decision (with one Justice concurring only in the result), the Michigan Supreme Court reversed the Court of Appeals and reinstated the trial court's ruling. The Court reversed the Court of Appeals' construction of MCL 333.17755(2) and its holding that the plaintiffs' pleadings were sufficient to survive summary disposition. It vacated the remainder of the Court of Appeals' decision as unnecessary to the resolution of the case.

The Supreme Court's ruling is significant for pharmacies and pharmacists in the state of Michigan.

The Court clarified that MCL 333.17755(2) "is clear: when a generic drug is substituted for a brand-name drug (and only then), the pharmacist must pass on the monetary difference between the wholesale cost of the brand-name drug and the wholesale cost of the generic drug." It rejected the plaintiff's argument that the statute applied more broadly to situations where there is no substitution and the prescription is for the generic drug and the generic drug is dispensed.

The Court also clarified what "savings in cost" means under subsection (2) of the statute. The relevant portion of subsection (2) states that a "pharmacist shall pass on the savings in cost to the purchaser" in a substitution transaction. MCL § 333.17755(2) defines "savings in cost" as "the difference between the wholesale cost to the 2 drug products." Based on this language, the Court held that the amount that a pharmacist must pass on to a purchaser or third-party payor is the difference between the costs of the two drugs (i.e., the brand-name wholesale cost minus the generic wholesale cost). Thus, the Court noted that subsection (2) provides a maximum allowable profit regardless of whether the pharmacist dispenses a generic drug or a brand-name drug (i.e., the pharmacist cannot make more from dispensing a generic drug than he could from a brand-name drug).

The Court's opinion is also worth noting as it relates to the pleading standards facing parties who may be alleging that a pharmacy violated MCL 333.17755(2). Because the plaintiffs' claims were based on alleged fraudulent activity, the heightened pleading standard for fraud claims applied. The Court noted that the plaintiffs relied on wholesale drug cost data from a single Kroger pharmacy in West Virginia to support their allegations of fraud. It held that the connection the plaintiffs tried to draw between this data and sales in Michigan was "simply too tenuous and conclusory to state a claim for relief." Given its interpretation of MCL 333.17755(2), the Court also noted that the plaintiffs "fail[ed] to particularly allege a single improper substitution transaction" to which that provision would potentially apply.

Wachler & Associates continually monitors significant developments in healthcare law both in Michigan and nationally. If you have any questions as it pertains to this case or state or Federal False Claims Act implications regarding your practice, please contact an experienced health care attorney at 248-544-0888 or at wapc@wachler.com.

June 25, 2014

Federation of State Medical Boards Adopts Model Policy for the Appropriate Use of Telemedicine Technologies

Technological advancements that allow for quicker and more secure electronic communication have encouraged telemedicine. The Federation of State Medical Boards (FSMB) defines telemedicine as "the practice of medicine using electronic communications, information technology or other means between a licensee in one location, and a patient in another location, with or without an intervening healthcare provider." Telemedicine technologies allow for easier access to health care in rural areas, as well as nearly immediate contact with specialists for individuals involved in an emergency situation. However, widespread usage of telemedicine is still developing and most states have yet to take the appropriate legislative initiative to enact guidelines for state medical boards and health providers to follow when implementing telemedicine systems. As a result, the Federation of State Medical Boards (FSMB), acknowledging the benefits that telemedicine offers, decided to step in.

On April 26, FSMB adopted a Model Policy for the Appropriate Use of Telemedicine Technologies in the Practice of Medicine (Model Policy). The Model Policy comes as a result of the collaborative efforts of the FSMB-appointed State Medical Boards' Appropriate Regulation of Telemedicine (SMART) Workgroup. The SMART Workgroup, made up of state medical board representatives and telemedicine experts, was tasked with creating uniform guidelines for state medical boards and health providers after:

  • Conducting a comprehensive literature review of telemedicine services and proposed and/or recommended standards of care;
  • Identifying and evaluating existing telemedicine standards of care developed and implemented by state medical boards;
  • Revising the FSMB's 2002 policy.
In the absence of state legislation, the Model Policy offers a uniform approach to guide state medical boards and health providers in several essential areas.

First, the SMART Workgroup emphasized that the physician-patient relationship is integral in maintaining the integrity of medical care. The Model Policy notes that, before giving any medical advice, physicians utilizing telemedicine should first:

  • Fully verify and authenticate the location and, to the extent possible, the requesting patient;
  • Disclose and validate the provider's identity and applicable credential(s); and
  • Obtain appropriate consents from requesting patients after disclosures regarding the delivery models and treatment methods or limitations, including any special informed consents regarding the use of telemedicine technologies.
In addition, the Model Policy notes that an appropriate physician-patient relationship has not been established when the physician's identity is unknown to the patient. Furthermore, a patient must not be randomly assigned to a physician, but rather have a choice, whenever appropriate. So long as the standard of care is met, the physician-patient relationship can be established using telemedicine technologies.

Second, in order to avoid legal complications related to licensure issues, the Model Policy mandates that a physician must be licensed by the medical board of the state where the patient is physically located at the time he or she is receiving medical services. The SMART Workgroup also noted that physicians who wish to provide telemedicine services online must be licensed in all jurisdictions where patients receive care. As of the publication of this blog 10 states offer special purpose licenses, which allow for health professionals to have the option of obtaining a limited license for the delivery of specific health services under particular circumstances in addition to holding a full license in the state where they primarily practice. Reciprocity legislation and special purpose licenses could mitigate telemedicine boundaries created by licensure constraints.

Third, with regards to applicable scope of practice, FSMB stressed that treatment and consultation recommendations made using telemedicine technologies must be held to the same scope of practice as those in traditional, in-person settings. Furthermore, under the Model Policy physicians cannot issue prescriptions based solely on a questionnaire. In fact, prior to any treatment, the Model Policy requires that the treating physician performs a documented medical evaluation and collects the patient's relevant clinical history.

Fourth, the Model Policy states that patients should be provided easy access to follow-up care or information from the physician who conducted the consultation, or the physician's designee. In addition to follow-up services, physicians utilizing telemedicine technologies are required to provide an emergency plan to patients when there are indications that a referral to an acute care facility or emergency room is necessary. The emergency plan must also detail a formal, written protocol appropriate to the services being rendered.

Lastly, the SMART Workgroup requires that physicians should meet or exceed all applicable federal and state legal requirements of protected health information (PHI) privacy, including compliance with the Health Insurance Portability and Accountability Act (HIPAA). The Model Policy mandates that sufficient privacy and security measures must be in place and documented to assure confidentiality and integrity of PHI. All transmissions of PHI must be secured with passwords, encrypted electronic prescriptions, or other reliable techniques.

Telemedicine will continue to be integrated into health care services in the coming years. The FSMB Model Policy serves as a helpful guide in the absence of state regulations. However, any provider interested in telemedicine should contact a Wachler & Associates attorney. Wachler & Associates will continue to keep you updated on breaking telemedicine legislation and other health care news. For more information on telemedicine or how to utilize telemedicine technologies in your practice, please contact an experienced health care attorney at 248-544-0888 or email at wapc@wachler.com.

June 23, 2014

Michigan Physicians Challenge UnitedHealthcare Terminations and Nonrenewals

Healthcare providers across the State of Michigan are continuing to experience terminations and non-renewals from UnitedHealthcare's Medicaid, MIChild, and Medicare Advantage plans. As previously discussed on this blog, the network exclusions are part of UnitedHealthcare's nationwide move to narrow networks. Narrow networks limit the amount of physicians available to plan subscribers, which some argue allow plans to better control costs and thus provide premiums that are competitive in the new insurance marketplaces. The real issue, however, is that the manner in which UnitedHealthcare is effectuating its narrow network eliminates patient choice by forcing patient's to stay with UnitedHealthcare until their anniversary date, despite the fact that they enrolled in UnitedHealthcare with the intent to be treated by their long-term primary care physicians.

In Michigan, providers receiving Terminations Without Cause and Nonrenewals from UnitedHealthcare are granted a limited appeal right via their Participation Agreements. The appeal process, however, is "limited to a review by a UnitedHealthcare panel to determine whether UnitedHealthcare acted in accordance with the provisions of your Participation Agreement." Accordingly, although an appeal must be filed in order to protect the provider's appeal rights, the appeal itself may not be effective and providers must look to alternate methods in order to protect physician and patient rights.

Our firm represents multiple primary care physicians facing without cause exclusions from UnitedHealthcare. As the appeal right provided by UnitedHealthcare is insufficient, our firm has contacted the Michigan Department of Community Health (DCH) as well as representative from the State's Attorney General office in order protect our clients' and their patients' rights and achieve a solution that either provides a meaningful appeal process or reinstates patients' rights to choice of provider.

We maintain that UnitedHealthcare's contractual obligations extend further than the providers' Participation Agreement. For example, in order to operate Michigan's Medicaid managed care program, UnitedHealthcare entered into a State Plan Contract ("Contract") with the State of Michigan that dictates UnitedHealthcare's contractual and legal obligations in operating their Medicaid managed care and MIChild plans. The Contract, as well as all applicable Medicaid laws, regulations and policies, serve to define the legal relationship between the State of Michigan, UnitedHealthcare, Medicaid providers, and Medicaid enrollees. The State Plan Contract includes provisions regarding network adequacy, network changes, and the enrollee's right to choose their primary care physicians. Specifically, the Contract includes language stating "[Plans] must make all efforts to honor the enrollee's choice of Primary Care Physician" and that "if [the Plan] cannot honor the enrollee's choice of Primary Care Physician, [the Plan] must allow the enrollee to either make a choice of an alternative Primary Care Physician or to disenroll." In addition to the Contract, we are examining provider and patient rights under Michigan's Medicaid State Plan, which includes, for example, Section 4.10 covering enrollees' rights to free choice of provider.

Our position is that UnitedHealthcare must comply with these authorities when effectuating their narrow network, and cannot extinguish the enrollees' right to choose their primary care physicians. We are challenging UnitedHealthcare's actions of inducing patients to sign-up for a specific plan in order to see their primary care physicians, and then excluding the physicians in a way that prohibits the enrollees from being treated by their long-term primary care providers. The patients must either be able to continue to see their primary care physicians until their renewal date or, alternatively, be given an opportunity to disenroll and choose another plan that their physician participates in.

Please let our firm know if you have received a Termination or Nonrenewal notice from UnitedHealthcare and seek assistance in protecting your medical practice and its patients. Wachler & Associates has represented healthcare providers across the country for over 25 years, including countless successful challenges to insurance company actions impacting providers. Our experience in these matters, as well as the fact that we are currently representing providers challenging UnitedHealthcare's unlawful exclusions, will allow us to effectively and efficiently fight to protect your providers' and patients' rights.

If you would like to speak to one of our experienced health care attorneys, please contact us via our website or call our firm at 248-544-0888.

June 20, 2014

HHS Releases Annual Reports on HIPAA Compliance and Information Breaches

Recently, the Department of Health and Human Services Office for Civil Rights (OCR), released its annual report on breaches of protected health information (PHI). Under the Breach Notification Rule, covered entities are required to issue notifications following breaches of unsecured PHI. Examples of covered entities include health care providers and health plans, such as HMOs. Covered entities must notify affected individuals of a breach without unreasonable delay and no later than 60 calendar days following discovery of the breach. Notification to the individuals affected by the breach must include:

  • Covered entity's contact information for individuals to ask questions and learn additional information;
  • A brief description of the breach, including the date of the breach and discovery of the breach, if known;
  • A description of the types of unsecured PHI involved in the breach;
  • Any steps individuals should take to protect themselves from potential harm resulting from the breach; and
  • A brief description of what the covered entity is doing to investigate the breach, mitigate harm to individuals, and to protect against future breaches.
In addition, for breaches implicating fewer than 500 individuals, covered entities must submit a report to OCR no later than 60 days after the end of the calendar year in which the breach was discovered. Breaches involving 500 or more individuals require the covered entity to provide notice to OCR at the same time the affected individuals are notified. Covered entities must notify OCR by filling out and electronically submitting a form available on OCR's website.

In its annual report to Congress on breaches of unsecured PHI, OCR reported 236 breaches of PHI which affected over 500 people in 2011 and 222 in 2012. The 236 breaches in 2011 affected in total 11,415,185 individuals, while 3,273,735 were affected in 2012. Per department policy, OCR conducted investigations of each breach that affected over 500 individuals.

Following their investigations, OCR found that the primary reason for breaches affecting over 500 people in 2011 and 2012 was theft of portable electronics or paper containing PHI. The second leading cause of breaches was unauthorized access of records containing PHI. For example, in 2011 the largest breach occurred because of a loss of backup tapes, affecting 4.9 million people. Similarly, in 2012, 116,506 individuals were affected when an unencrypted laptop containing PHI was stolen.

In addition to its report on PHI breaches, OCR released a report regarding complaints alleging Health Insurance Portability and Accountability Act (HIPAA) violations. In this second report, OCR noted that it received 77,190 such complaints. OCR stated that by the end of the 2012 calendar year, it resolved approximately 91% of the complaints. Among those resolved, OCR noted that 42,793 of the allegations did not warrant enforcement of the HIPAA Rules. With that said, of all the investigated complaints between 2003 and 2012, OCR resolved 18,559 of them by providing technical assistance to resolve compliance problems and requiring covered entities to take corrective action. However, in 8,907 complaints, OCR found no HIPAA violations.

Since the enactment of the HIPAA Privacy and Security Rules, Wachler & Associates has counseled covered entities in HIPAA compliance. To ensure they are compliant, covered entities and business associates should update security policies and procedures and provide ongoing employee HIPAA compliance training. Wachler & Associates can assist you in implementing these protections. If you have any questions or require assistance developing and implementing a compliance plan for your entity, please contact an experienced healthcare attorney at 248-544-0888.

June 19, 2014

Michigan Medicaid Audit Reveals $160 Million in Overpayments for Home Care Services - Should Providers be Worried?

The results of an audit conducted by the state of Michigan were released on Tuesday, June 17, 2014. The audit found that the state Medicaid program improperly spent $160 million over a three-year period - from October 2010 through August 2013 - on home care services under the Medicaid Home Help Program.

Home care services provide assistance to those residents with disabilities or cognitive impairments who wish to remain in their own homes instead of a care facility. Some services provided include assistance with eating, bathing, and dressing. The overpayments were the result of state administrators of the Medicaid Home Help program failing to obtain invoices and other required documents from service providers. Home care services differ from home health services in that home health services provide continuous medical treatment that a beneficiary would normally receive in an outpatient or inpatient setting, in the home, over extended periods of time. In order to be reimbursed for home health services, home health providers must also meet numerous requirements that home care providers are not subject to (e.g., the face-to-face requirements under the Affordable Care Act).

The Medicaid Home Help Program serves about 67,000 people per year and expenditures from the program account for about 18 percent of all joint federal-state Medicare spending in the state of Michigan. What is particularly important that providers should take note of - and keep a watchful eye out for - is that the state of Michigan may be required to pay back nearly $100 million to the Federal government under regulations governing the matching of state Medicaid expenditures with Federal dollars. If such a repayment is required, the state will likely seek to recoup part, if not all, of the funds from providers who were improperly paid. In fact, the director of the Department of Human Services (DHS) - one of the state agencies responsible for administering the program - says it has already begun the process of recouping payments from some providers. However, DHS notes that it does question the estimated amount of improper payments, challenging it on the basis that it was extrapolated from a small sample size.

The audit report also noted that the state of Michigan overpaid some $6.8 million to 80 home care agencies by not enforcing requirements that the agencies get higher fees than individual aides and also improperly paid $3.5 million for home care services when the beneficiaries were hospitalized or in a care facility.

As a result, home care providers should be on the lookout for audits of their payments. In order to best defend against these audits, providers should ensure that they have all necessary and proper documentation available, including patient notes and invoices. If you have any questions about the audit report, or are the subject of a Medicaid, Medicare or third party payor audit, please contact an experienced healthcare attorney at 248-544-0888 or via email at wapc@wachler.com.