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July 16, 2015

U.S. Court of Appeals for the Fourth Circuit Upholds $237 Million Judgment Against Toumey Healthcare System

On July 2, 2015, the U.S. Court of Appeals for the Fourth Circuit upheld a $237 million verdict against Toumey Healthcare System ("Toumey) for violations of the federal Stark law ("Stark") and, consequently, the federal False Claims Act. The verdict marks the latest decision in the government's longstanding legal battle against Toumey, a community hospital in South Carolina, and serves as a reminder to healthcare providers of the significant liability that can result from compensation arrangements that fail to comply with Stark's safe harbor requirements.

In this case, the lower court determined that Toumey entered into part-time employment agreements with physicians that violated Stark. The agreements violated Stark's limitations on physician compensation arrangements by varying with, or taking into account, the volume or value of the physicians' referrals to the hospital. Under the False Claims Act, claims submitted for payment arising out of referrals prohibited by Stark constitute false claims, and subject providers to treble damages. In this case, the jury found that Toumey knowingly submitted 21,730 false claims, which amounted to $39.3 million in Medicare payments. The court awarded treble damages as well as other penalties.

The Fourth Circuit's decision analyzed Toumey's argument that since Toumey relied upon the advice of lawyers in determining that the compensation arrangements were permissible under Stark, Toumey could not have knowingly violated the False Claims Act. In rejecting this argument, the Fourth Circuit highlighted the fact that Toumey consulted with multiple attorneys, one of which raised serious concerns about the compensation arrangements, and that Toumey effectively lawyer-shopped for legal opinions that approved the employment contracts. Accordingly, the case should provide notice to providers to proceed with caution if they are contemplating obtaining multiple legal opinions in order to determine that an arrangement is compliant with health care fraud and abuse laws because of how the opinions may be scrutinized in hindsight.

The Court also upheld the lower court's award of damages and other penalties. The Court determined that the damages properly took into account all referrals by the physicians to the hospital, not just those referrals addressed by the impermissible compensation arrangements, and also that the $237 million verdict did not violate the Excessive Fines Clause of the Eight Amendment or the Due Process Clause of the Fifth Amendment. Further, in a technical discussion of how the compensation arrangements violated Stark, the Court cited testimony that compensation arrangements that pay a physician an amount greater than the physician's collections demonstrates that the arrangements are not fair market value and instead evidences that the hospital intends to reward the physician for the physician's referrals to the hospital. Toumey argued that the compensation arrangement did not, on its face, vary with the volume or value of referrals. The Court, however, agreed with the government, finding that under Stark, aggregate compensation cannot vary with the volume or value of referrals, or otherwise take into account the volume or value of referrals. In addition to the payments being above fair market value, the physician's referrals for personally performed services included a facility fee payable to the hospital and, as such, the productivity bonus in the compensation arrangement varied based on the amount of referrals to the hospital.

In general, the Toumey case highlights the complexity in analyzing physician compensation arrangement under Stark, and demonstrates the amount of liability that can attach to impermissible financial arrangements between physicians and health care entities to which the physicians' refer patients. Wachler & Associates continues to stay up to date on all legal developments under Stark, as well as state laws governing physician referrals. Our attorneys regularly analyze physician compensation arrangements and other contracts under Stark and other healthcare fraud and abuse laws. If you or your health care entity have any questions regarding Stark, physician compensation arrangements, or other healthcare laws governing the relationships between healthcare providers, please contact an experienced healthcare attorney at (248) 544-0888 or via email at wapc@wachler.com. You may also subscribe to our health law blog to stay up to date on all developments in healthcare regulatory compliance by adding your email at the top right of this page.

July 9, 2015

Proposed Rule Shifts Medicaid Managed Care Enrollment Function to States

On June 1, 2015, the Centers for Medicare and Medicaid Services (CMS) released a proposed rule revising the Medicaid managed care regulations. One of the key components of the proposed rule is the revision to the states' responsibilities relating to the screening and enrollment of network providers of managed care organizations (MCOs), prepaid inpatient health plans (PIHPs) and prepaid ambulatory health plans (PAHPs).

Specifically, the proposed rule provides that the state must enroll all network providers of MCOs, PIHPs and PAHPS (collectively, managed care entities (MCEs)) that are not already enrolled with the state to provide services to Medicaid fee-for-service (FFS) beneficiaries. The provisions would apply to all providers that order, refer or render health services in the context of Medicaid managed care to ensure these providers are appropriately screened and enrolled. As stated by CMS, the requirements contained in the proposed rule are to "ensure that there are no 'safe havens' for providers who, though unable to enroll in Medicaid FFS programs, shift participation from managed care plan to manage care plan to avoid detection."

While the screening and enrollment of network providers is currently a role performed by the MCE, CMS believes transferring this function to the state will eliminate the need for each MCE to perform duplicative screening activities. However, the proposed rule would not prevent the MCEs from carrying out their own provider screening beyond those performed by the state. In addition, the proposed system would enable states to apply the risk classification protocols to all providers that furnish services to managed care or Medicaid FFS beneficiaries, in which screened providers would be categorized as "limited," "moderate" or "high" risk, permitting site visits for moderate and high risk providers.

Even though the proposed rule would shift the screening and enrollment of network providers to the state, the rule would not require the network provider to also render services to Medicaid FFS beneficiaries. Finally, the proposed rule leaves unchanged the MCEs' duty to not discriminate against those providers that serve high-risk populations or specialize in conditions that require costly treatment.

Wachler & Associates will continue to monitor CMS' proposed rule and other developments in Medicaid managed care. If you or your health care entity have any questions regarding the Medicare, Medicaid, or managed care plan enrollment process, please contact an experienced healthcare attorney at 248-544-0888 or via email at wapc@wachler.com. Subscribe to our health law blog to stay updated on the latest CMS news.

May 19, 2015

Senate Finance Committee Examines Medicare Appeals Backlog

On April 28, 2015, the U.S. Senate Finance Committee held a hearing to address the rising Medicare appeals claims backlog. At the hearing, Nancy Griswold, Chief Administrative Law Judge (ALJ) at the Office of Medicare Hearings and Appeals (OMHA), blamed the backlog on a lack of funding and an unprecedented amount of appeals. ALJ Griswold stated that the average processing time for each claim has soared to 550 days, more than quadrupling over the past five years. There are currently over 500,000 Medicare appeals pending review.

While appeals continue to stack up, OMHA's budget was increased from $69 million to $82.3 million over the past fiscal year (FY). Additionally, OMHA's staff has expanded from 492 employees to 514 employees for the same FY. However, ALJ Griswold claimed that this boost in resources is still not enough. In FY 2013, OMHA received 700,000 claims, which represents an astonishing increase from the 60,000 claims received just two years prior. Despite the staggering amount of claims, only 60 officers are assigned to handle cases.

Although Senate Finance Committee Chairman Orrin Hatch acknowledged the importance of preventing improper Medicare payments, he emphasized the seriousness of the backlog is due to the "insurmountable increase in appeals." Senator Hatch also noted that 60 percent of appeals are found in favor of defendants, and questioned how initial decisions are being made and whether providers are facing undue burdens.

At the hearing, ALJ Griswold urged senators to support President Obama's proposed budget, which would increase OMHA's budget by approximately $300 million. OMHA reported that the funding would be allocated towards doubling the office's capacity to process cases. In the alternative, ALJ Griswold suggested a refundable filing fee to prevent providers from filing claims just to "game the system." In support of ALJ Griswold, Sandy Coston, CEO of Medicare administrative contractor Diversified Service Options, suggested that CMS could reform the initial level of appeals in order to streamline access to subsequent appeals levels. Although Senator Hatch did not offer any endorsements, he continued to express the seriousness of the backlog in appeals and its detrimental effect on the Medicare system.

Wachler & Associates continues to monitor the OMHA appeal backlog, and our attorneys have attended two OMHA Medicare Appellant Forums hosted by OMHA and CMS in Washington D.C. Although we support the various initiatives and pilot programs presented by OMHA, we agree with ALJ Griswold that a significant increase in OMHA resources is needed to address the appeal backlog.

Despite the appeal backlog and processing time, Medicare providers and suppliers must continue to appeal Medicare contractors' overpayment determinations and preserve their appeal rights. Wachler & Associates represents healthcare providers and suppliers in a variety of healthcare matters, including appeals of Medicare overpayment determinations at all levels of review. If you or your healthcare entity have any questions regarding the Senate hearing, or seek help in defending an overpayment demand by a recovery audit contractor (RAC), please contact an experienced healthcare attorney at 248-544-0888 or via email at wapc@wachler.com. To remain up-to-date on healthcare regulatory developments, please subscribe to our blog by adding your email address in the window on the top right of this page.

April 28, 2015

Proposed Stage 3 Meaningful Use Rules

On Friday March 20, 2015, the Centers for Medicare & Medicaid Services ("CMS") announced the release of the new Stage 3 meaningful use proposed rules. Concurrently, the Office of the National Coordinator for Health Information Technology ("ONC") released its new EHR certification requirements, which are linked to its previously released interoperability roadmap. CMS says that the new rules "will give providers additional flexibility, make the program simpler, and drive interoperability among electronic health records, and increase the focus on patient outcomes to improve care."

With the announcement of the new rules came the release of the two proposals: one outlining the Stage 3 meaningful use requirements for hospitals and providers and one outlining the new EHR certification requirements. The proposed Stage 3 meaningful use rule is intended to specify the meaningful use criteria that eligible professionals, eligible hospitals, and critical access hospitals must meet in order to qualify for Medicare and Medicaid EHR incentive payments and avoid downward adjustments under Medicare for Stage 3 of the EHR incentive program. According to the summary of the proposed rule, it would continue to encourage submission of clinical quality measure ("CQM") data for all providers where feasible in 2017, propose to require the electronic submission of CQMs where feasible in 2018, and establish requirements to transition the program to a single stage for meaningful use. Also, the Stage 3 proposed rule, according to CMS, would change the EHR reporting period so that all providers would report under a full calendar year timeline with a limited exception under the Medicaid EHR Incentive Program for providers demonstrating meaningful use for the first time.

In the proposed rule regarding EHR certification requirements, CMS introduces a new edition of certification criteria, proposes a new 2015 Edition Base EHR definition, and proposes to modify the ONC Health IT Certification Program "to make it open and accessible to more types of health IT and health IT that supports various care and practice settings." It would also establish the capabilities and specify the related standards and implementation specifications that Certified EHR Technology ("CEHRT") would need to include to, at a minimum, support the achievement of meaningful use by eligible professionals, eligible hospitals, and critical access hospitals under the Medicare and Medicaid EHR Incentive Programs when such edition is required for use under these programs.

The Department of Health & Human Services ("HHS") Secretary, Sylvia Burwell, stated that, "[t]he steps we are taking today will help to create more transparency on cost and quality information, bring electronic health information to inform care and decision making, and support population health."

CMS will make additional changes to the meaningful use rules in 2015 that will include instituting a shorter reporting period: moving from the current one year period down to ninety days. Patrick Conway, the acting principal deputy administrator and chief medical officer at CMS, confirmed this notion, stating that, "in an effort to make reporting easier for health care providers, we will be proposing a new meaningful use reporting deadline soon."
CMS is seeking comments on the proposed Stage 3 meaningful use rules and on the new EHR certification requirements until May 29, 2015.

Wachler & Associates will continue to monitor CMS rule making and guidance related to EHR meaningful use criteria, as well as other breaking healthcare news. Subscribe to our health law blog to stay up to date on the latest CMS rule making and guidance. If you need help understanding the meaningful use requirements or assistance with negotiating EHR contracts, please contact an experienced healthcare attorney at 248-544-0888 or email at wapc@wachler.com.

April 17, 2015

FDA Gives Finalized Guidance on Medical Device Data Systems, Mobile Apps, and Medical Image Storage and Communications Devices

The Food and Drug Administration (FDA) issued non-binding guidance on February 9, 2015 finalizing its position on regulatory compliance of medical device data systems (MDDS), medical image storage and communications devices and mobile medical applications. In its recently issued guidance, the FDA explained that it will not enforce compliance with the regulatory controls that apply to MDDS, medical image storage devices and medical image communications devices because the devices pose a low risk to the patients and play an important role in the advancement of digital health care. Under FDA regulations, MDDS is defined as hardware or software that electronically transfers or stores medical device data, electronically converts medical device data from one format to another, or electronically displays medical device data. A medical image storage device stores and retrieves medical images and a medical image communication device electronically transfers medical image data between medical devices.

As a result of the FDA's position, manufacturers of MDDS or medical storage and communication devices will not have to register with the FDA, submit to pre-market review or post-market reporting, and can avoid quality system regulation, thereby saving manufacturers time and money. The FDA further stated that it will not enforce compliance with pre-market notification for MDDS, or medical image storage and communication devices that would have otherwise required such notification under the regulations.

Additionally, on February 9, 2015 the FDA issued non-binding guidance specific to mobile apps. The issued guidance contains three appendices that explain and provide examples of apps that are within FDA enforcement, outside of FDA enforcement, and those over which the FDA abstains from enforcing the regulations. The first appendix gives examples of apps that are not "devices" under FDA regulations; the second appendix gives examples of apps that may meet the definition of "device," but but regulations will not be enforced as the apps are considered low risk to patients and users; and the third appendix gives examples of what the FDA considers "mobile medical apps" over which the FDA does intend to enforce its regulations. The FDA defined "mobile medical apps" as apps that meet the definition of a "device" and are intended to be used as an accessory to a regulated device or are intended to transform a mobile platform into a device. In its guidance on mobile apps, the FDA stated many mobile devices do not fall under its definition of a "device" in 21 USC § 321(h) and are therefore not regulated by the FDA. The FDA did, however, strongly recommend that manufacturers of mobile apps that may qualify as a "device" follow the FDA's Quality System regulation in developing and designing apps. Lastly, while the FDA acknowledged that many current mobile apps do not constitute "devices" under FDA regulations, or are simply not regulated by the FDA, current and new mobile medical devices are subject to FDA enforcement.

In sum, the dually issued FDA guidance on MDDS, medical image storage and communication devices, and mobile apps in large part constitutes an abstention on behalf of the FDA, perhaps signalizing the FDA's recognition that strict enforcement of FDA regulations on MDDS, medical image storage and communication devices, and mobile apps will unduly burden manufacturers, slow the development of digital health care and fail to provide any greater protection to the public. However, mobile medical apps are subject to FDA regulation and enforcement and developers are encouraged to engage in open dialogue with the FDA to discuss potential regulatory requirements.

If you have any questions relating to MDDS, medical image storage and communication devices, or mobile application compliance with FDA regulations or any other compliance issues, please contact a Wachler & Associates attorney at 248-544-0888 or at wapc@wachler.com. For further updates on FDA regulatory requirements and other healthcare news, please subscribe to Wachler & Associates' health law blog by adding your email address and clicking "Subscribe" in the window on the top right of this page.

April 3, 2015

CMS Offers Clarification to HHA Contradictory Guidance

On March 18, 2015, Wachler & Associates attorneys, Andrew Wachler and Jessica Forster, highlighted contradictory guidance released by the Centers for Medicare and Medicaid Services ("CMS") relating to home health agencies ("HHAs") face-to-face encounter documentation. When the calendar year ("CY") 2015 Home Health Final Rule ("Final Rule") went into effect on January 1, 2015, new rules for HHAs face-to-face encounter documentation were implemented. Most prominently, the revised Final Rule eliminated the brief narrative requirement in almost all cases for home health face-to-face encounter documentation. Although the brief narrative requirement was removed, CMS mandated that the certifying physician's medical record include all required elements for the physician certification. Additionally, CMS stated in the Final Rule that a HHA may communicate with and provide information to the certifying physician about the patient's homebound status and need for skilled care and the certifying physician could incorporate the information into his or her medical record for the patient.

In two separate CMS conference calls, representatives provided contradictory information with regards to physician documentation responsibilities. The first conference call held by CMS properly reinforced the Final Rule's statement that HHAs could provide information to the certifying physician that the physician could incorporate into his or her medical record (a) if the physician signed/dated the documentation and (b) if the physician's own entries corroborated the information from the HHA. The Final Rule and the first conference call both said that this information from the HHA would be considered by medical reviewers to determine if the certification requirements were met. It was only during the second conference call, on March 11, that CMS contradicted prior guidance by stating that the physician's own documentation must meet the certification requirements and that medical reviewers were advised of this instruction. The CMS representative reiterated that even if a certifying physician signs and dates a HHA's documentation that does not mean that the documentation becomes part of the physician's medical record. Wachler & Associates reached out to CMS for clarification.

On March 23, 2015, CMS clarified the contradiction. In its reply, CMS stated that the patient's medical record must support the certification of eligibility and documentation in the patient's medical record shall be used as a basis for certification of home health eligibility. Importantly, CMS also noted that reviewers will consider HHA documentation if it is incorporated into the patient's medical record and signed off by the certifying physician.

Wachler & Associates will continue to monitor and provide timely updates on important HHA developments. Interested parties should listen to the next CMS Special Open Door Forum, which is scheduled for April 28, 2015 at 1:30pm ET. If you have any questions regarding the Final Rule, or HHAs in general, please contact an experienced healthcare attorney at 248-544-0888 or via email at wapc@wachler.com.

March 2, 2015

CMS to Audit All Home Health Agencies

In response to a report issued by the U.S. Department of Health and Human Services Office of Inspector General ("OIG") titled Limited Compliance with Medicare's Home Health Face-to-Face Documentation Requirements, the Centers for Medicare and Medicaid Services ("CMS") has decided to audit all home health agencies ("HHAs") in the country. In its report, OIG detailed its findings stemming from a review of 644 home health face-to-face encounter documents that were analyzed to determine if they confirmed encounters and contained the required elements. OIG reported that 32 percent of home health claims that required face-to-face encounters did not meet Medicare requirements. OIG estimated that this resulted in $2 billion in inappropriate payments. After reviewing the study's results, OIG recommended that CMS:

  • Consider requiring a standardized form to ensure that physicians include all elements required for the face-to-face documentation;
  • Develop a specific strategy to communicate directly with physicians about the face-to-face requirement; and
  • Develop other oversight mechanisms for the face-to-face requirement.
At the end of the OIG report, CMS concurred with these three recommendations. In response, CMS reported that it is implementing an oversight plan of HHAs through the Supplemental Medical Review Contractor ("SMRC"), one of CMS's newest tools meant to ensure program integrity. CMS stated that "the SMRC will perform approximately five document-only reviews for every HHA in the country to validate that the most recent/valid face-to-face encounter is in the medical record." CMS reported that this will be a one-year, service-wide review of every HHA and CMS will provide further recommendations after reviewing the results.

Additionally, CMS has published proposed electronic and paper versions of its clinical documentation template to assist physicians in documenting their home health face-to-face encounters. Because it is the first time CMS has provided the healthcare industry templates for a progress note, it is soliciting comments on the templates. Those interested in the home health face-to-face proposed templates may participate in Special Open Door Forums occurring in March, April and May 2015. Should the templates be adopted, their use will be voluntary. CMS's proposal for the templates comes at a time when HHAs are revising their policies and protocols for face-to-face encounter documentation in light of the elimination of the physician brief narrative requirement in most cases effective January 1, 2015.

HHAs should be aware of the imminent nationwide SMRC audit. It is important that HHAs develop an effective compliance program that provides proactive measures to educate staff and certifying physicians on documentation requirements and prepare for an audit. If you have any questions regarding CMS's impending audit or need assistance in creating a compliance plan to meet the home health face-to-face encounter documentation requirements, please contact an experienced healthcare attorney via email at wapc@wachler.com or 248-544-0888.

February 23, 2015

President's 2016 Budget Proposes Changes to Recovery Audit Procedures

On February 2, 2015, the White House released President Obama's budget report for fiscal year 2016. A significant portion of the report is dedicated to healthcare issues. The report proposes several reforms to the Medicare program and purports a projected savings of $407.2 billion in the next 10 years. Additionally, the report includes a $403 million multi-year investment towards preventing, detecting, and prosecuting healthcare fraud and abuse. Moreover, the 2016 budget provides for a $201 million investment to continue to fund the full Health Care Fraud and Abuse Control discretionary cap adjustment, increase funding to recovery auditors to take on more corrective actions, and provide more funds to the Medicaid Integrity Program. The President's budget states an intention to increase such funding to $4.6 billion over the next 10 years.

The budget brief published by the U.S. Department of Health and Human Services ("HHS"), proposes numerous measures in an attempt to curb the Medicare appeals backlog. Suggestions made by the Office of Medicare Hearings and Appeals ("OMHA") are summarized as follows:

  • Invest new resources at all levels of appeal to increase adjudication capacity and implement new strategies to alleviate the current backlog;
  • Take administrative actions to reduce the number of pending appeals and prevent new cases from entering the system; and
  • Propose legislative reforms that provide additional funding and new authorities to increase efficiency and address the volume of incoming appeals.
The investment increases suggested by OMHA are part of its requested budget of $140 million, a $53 million increase from fiscal year 2015. Aside from bolstered investment, OMHA also proposed several reforms that would impact the Medicare audit process. One such proposal is the implementation of a per-claim filing fee charged to providers at each level of the Medicare appeals process. The proposal allows for a refunding of the fee, but only in such instances where appellants receive a fully favorable appeal decision. OMHA projects that these filing fees will amount to $5 million, which will in turn fund 119 ALJ teams. The increase in ALJ teams is intended to decrease the backlog by improving efficiency and responsiveness.

OMHA also proposed the authorization of sampling and extrapolation techniques throughout the appeals process. This proposal would allow providers to consolidate all of their appeals into a single administrative appeal at all levels of the appeals process. If enacted, the proposal would require parties who are appealing claims included within an extrapolated overpayment, or consolidated previously, to file one appeal request for any such claims in dispute.

While HHS claims that these measures should assist in alleviating the backlog, the bulk of the reforms miss their mark. Ideally, HHS should rework the entire RAC process. For example, many industry stakeholders believe the financial incentives for RACs to deny claims are misguided. Wachler & Associates regularly counsels entities on how best to proactively prepare for an audit and mitigate audit risks. If you or your healthcare entity have questions regarding the outlined proposals, or are currently undergoing an audit and need assistance defending claims, please contact an experienced healthcare attorney at 248-544-0888 or via email at wapc@wachler.com.


February 20, 2015

CMS Considers Shortening the Meaningful Use Reporting Period

On January 29, 2015, the Centers for Medicare and Medicaid Services ("CMS") announced that it will consider shortening the meaningful use reporting period for electronic health record ("EHR") systems. Specifically, CMS stated that it intends to reduce the 2015 reporting period from 12 months to 90 days. Under the meaningful use incentive program, providers have faced the risk of a Medicare penalty if they failed to satisfy the program's requirements. A shortened reporting period of 90 days may increase compliance with Stage 2 of the program and reduce the reporting burden on providers. Additionally, providers can schedule their reporting period for the second half of 2015, providing additional time for providers to implement the EHR systems at Stage 2.

In a statement following CMS's announcement, the President of the American Medical Association ("AMA"), Steven J. Stack, MD, expressed the organization's support of the proposed shortening of the reporting period. However, Stack criticized the incentive program, stating that "EHRs are intended to help physicians improve care for their patients, but unfortunately, today's EHR certification standards and the stringent requirements of the meaningful-use program do not support that goal and decrease efficiency."

In its announcement, CMS also stated its intent to align the meaningful use reporting periods to the calendar year in an effort to give hospitals more time to integrate the 2014 Edition software and better coordinate with CMS quality programs. Although the proposed changes to the reporting period will not delay CMS's rollout of the forthcoming Stage 3 proposed rule, expected in March, CMS plans to limit the scope of the Stage 3 proposed rule to the criteria and requirements for meaningful use in 2017 and subsequent years.

Wachler & Associates will continue to monitor CMS rule making and guidance related to EHR meaningful use criteria, as well as other breaking healthcare news. If you need help understanding the meaningful use requirements or assistance with negotiating EHR contracts, please contact an experienced healthcare attorney at 248-544-0888 or email at wapc@wachler.com.

February 17, 2015

CMS Modifies Manual Medical Review Process for Outpatient Therapy Claims Above Cap

The Protecting Access to Medicare Act of 2014 extended the process for exceptions to Medicare's outpatient therapy caps through March 2015. Exceptions to Medicare's outpatient therapy caps are allowed for medically necessary and reasonably therapy services. However, claims above $3,700 for physical therapy and speech language pathology services combined, and above $3,700 for occupational therapy services, are subject to manual medical review by recovery audit contractors (RACs). The caps are calculated per beneficiary, per year. While manual medical reviews of outpatient therapy claims above the cap were put on hold last year, existing RACs received approval on January 16, 2015 to resume sending additional documentation requests (ADRs) to Part B providers.

However, CMS recently introduced a new post-payment review system that requires RACs to review outpatient therapy claims using a new manual medical review process. RACs will now be required to review claims using a tiered approach to ADRs. The process allows for 100% review of provider claims above the $3,700 therapy caps ("eligible claims"), but prevents the RACs from requesting large and potentially unmanageable amounts of records at one time.

Beginning in January 2015, the new manual medical review process permits RACs to review 100% of a provider's eligible claims using a 5-step approach to ADRs. A RAC's first ADR may only review one claim, but additional ADRs may request records for an increasing percentage of claims. The second ADR may review up to 10% of eligible claims, the third ADR may review up to 25% of eligible claims, and the fourth ADR may review up to 50% of eligible claims. Finally, a RAC's fifth ADR to a particular provider may review 100% of the provider's total eligible claims. Please note that the new tiered approach retains the RAC's cycle of 45 days between ADRs.

The new manual review process meets the congressional mandate of a 100% review rate for outpatient therapy claims above the outpatient therapy cap. However, CMS believes the new manual review process will meet the congressional mandate in a more equitable manner. For now, the review process is limited to claims reviewed by existing RACs for claims made from March 1, 2014 to December 31, 2014. CMS has not yet finalized the process for claims made in 2015. The manual medical review process is also limited to claims made by Part B outpatient therapy providers, including but not limited to therapists' private offices, offices of physicians, Part B skilled nursing facilities (SNFs), home health agencies (HHAs), and hospital outpatient departments.

Wachler & Associates represents all types of therapy providers in a variety of matters, including responding to ADRs and appealing Medicare overpayment demands. If you or your healthcare entity has any questions regarding Medicare's new manual medical review process for therapy claims above the outpatient therapy cap, or seek help in defending an overpayment demand by a RAC, please contact an experienced healthcare attorney at 248-544-0888 or via email at wapc@wachler.com. To stay up to date on healthcare regulatory developments, subscribe to our blog by adding your email address in the window on the top right of this page.

February 6, 2015

Pharmaceutical Company Pays $39 million to Settle Anti-Kickback and False Claims Allegations

On January 9, 2015, the Federal Bureau of Investigations and Department of Justice, along with several state Medicaid programs, announced that Daiichi Sankyo Inc. ("Daiichi"), a U.S. subsidiary of a Japanese pharmaceutical company, agreed to pay $39 million to settle alleged violations of the Anti-Kickback Statute and False Claims Act ("FCA").

In March 2010, a qui tam lawsuit was filed in the U.S. District Court for the District of Massachusetts. The allegation contained in the lawsuit related to speaker programs that Daiichi hosted between January 2004 and March 2011. The qui tam plaintiff, a former Daiichi sales representative, asserted that Daiichi inappropriately compensated physicians that participated in the speaker programs. The six primary allegations included:

  • The program honoraria recipient only spoke to member of his or her own staff in his or her own office;
  • Physicians took turns accepting speaker honoraria for duplicative discussions;
  • The audience include the honoraria's spouse;
  • The honoraria recipient did not speak at all because the event was previously canceled;
  • The program dinners exceeded Daiichi's internal cost limitation of $140 per person; and
  • Drugs that were promoted at the programs (Azor, Benicar, Tribenzor, and Welchol) were used for off-label purposes.
The Government contended that the meals, honoraria, and other remuneration paid to participating physicians amounted to illegal kickbacks that ultimately induced the physicians to prescribe the drugs for off-label use. Furthermore, this resulted in pharmacies unknowingly submitting false prescription drug claims because prescriptions for off-label uses are typically not eligible for reimbursement.

In addition to paying $39 million, Diiachi agreed to enter into a corporate integrity agreement that obligates it to implement dramatic internal reforms over the next five years. Specifically, the corporate integrity agreement mandates that Diiachi enact compliance programs to prevent similar improper practices from reoccurring. For the qui tam plaintiff's services, the former employee will receive $6.1 million of the Government's recovery.

Wachler & Associates regularly counsels providers regarding the FCA, Anti-Kickback Statute, and other federal and state fraud and abuse laws and assists in developing compliance programs to address these laws. If you or your healthcare entity have any questions regarding the FCA, Anti-Kickback Statute, and/or other federal and state fraud and abuse laws, please contact an experienced healthcare attorney at 248-544-0888 or via email at wapc@wachler.com.


January 28, 2015

CMS Announces New RAC Contract for DME, Home Health and Hospice Claims

On December 30, 2014, the Centers for Medicare & Medicaid Services (CMS) announced that they had awarded the Region 5 Recovery Audit Contract (RAC) to Connolly, LLC. CMS contracts with RACs to identify and correct improper payments. Connolly, which has been the RAC for Region C, was awarded the Region 5 contract which covers claims for durable medical equipment, prosthetics, orthotics and supplies (DMEPOS), home healthcare and hospice providers. With the awarding of the new RAC contract focused on DME, home health and hospice providers, these provider types can expect increased scrutiny of their Medicare claims.

CMS also outlined a number of "improvements" to the RAC program that will take effect with each new RAC contract awarded, beginning with the Region 5 contract awarded on December 30, 2014.

One of the "improvements" brought by the new RAC program is that the CMS has reduced the RAC look-back period to 6 months from the date of service for patient status reviews where hospitals submitted the claim within 3 months of the date of service. Previously, the look-back period for RACs was from 3 years and hospitals had to submit a claim within one year from the date of service in order to comply with the timely filing rules, leaving hospitals with the inability to rebill denials from patient status reviews. Another improvement is that the CMS has established new Additional Documentation Request (ADR) limits based on a provider's compliance with Medicare rules. Specifically, the ADR limits will align with providers' denial rates (i.e., providers with low denial rates will have lower ADR limits), and ADR limits will be adjusted as a providers' denial rates decrease.

With the new RAC contract awarded, DME, home health and hospice providers should be prepared for increased audit activity from the new RAC. If you are currently undergoing an audit and need assistance defending claims denials, or have any questions about how to proactively prepare for an audit or mitigate audit risk, please contact an experienced healthcare attorney at 248-544-0888 or via email at wapc@wachler.com. To continue to stay updated on 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.

January 13, 2015

House Republicans Release Proposal to Eliminate Two-Midnight Rule

In November 2014, Republicans in the U.S. House of Representatives circulated a "discussion draft," which proposed significant reforms to the process by which Medicare reimburses hospitals for short stays. Perhaps most notably, the GOP proposal would eliminate the two-midnight rule. Since its enactment, the two-midnight rule has remained controversial among healthcare providers. Under the two-midnight rule, an admission is appropriate only when the patient remains in the hospital for two midnights. However, since its adoption, the rule has created confusion and elicited criticism from providers who claim that it undermines their clinical decision-making process. Acknowledging the issue, the Centers for Medicare and Medicaid Services (CMS) limited enforcement of the two-midnight rule and solicited stakeholders for suggestions on improving it.

The discussion draft also proposes the establishment of a new Medicare payment system for hospital stays. Under the proposal, the payment system would go into effect in fiscal year 2020 and unify the currently separate inpatient and outpatient payment systems. During the five years before the implementation, CMS would be tasked with developing a transitional, per-diem payment system for short-term hospital stays. Additionally, CMS would restrain Recovery Audit Contractors (RAC) until the new payment system is adopted. This reprieve is important when establishing a new payment system because of the RAC program's onerous presence in the healthcare industry. Just last year, the RAC program recouped over $3 billion in Medicare overpayments, and audit appeals have created such a backlog that many appellants are waiting over three years for a decision. The backlog of appeals violates the statutory requirement for Administrative Law Judges to decide Medicare appeals within 90 days of the request for hearing.

Also included in the GOP's discussion draft is a partial elimination of the Patient Protection and Affordable Care Act's (ACA) moratorium on the expansion of physician-owned hospitals. Currently, the law prohibits new physician-owned hospitals, expansion of existing physician-owned hospitals, and an increase in the percentage of physician ownership in existing physician-owned hospitals. Any reduction of the physician-owned hospital limitation would be welcomed news in the physician community. Further, in an effort to curb costs, the proposal also includes provisions that would promulgate a nationwide bundled payment program. Upon analyzing these proposals, many stakeholders believe that the circulation of the discussion draft indicates the direction of the anticipated Medicare debate in Congress and expect several of these provisions to be at the forefront of discussions in the next congressional session.

Wachler & Associates has been involved in policy formation regarding the two-midnight rule and we believe that any change to the rule will have widespread impact on providers and the Recovery Audit program. Our firm will continue to monitor breaking national healthcare news and provide timely updates. If you have questions regarding the discussion draft, the two-midnight rule, the moratorium on physician-owned hospitals, or any other health law compliance matter, please contact an experienced healthcare attorney at 248-544-0888 or via email at wapc@wachler.com. To remain updated on healthcare news, subscribe to Wachler & Associates' health law blog by adding your email address and clicking "Subscribe" in the window on the top right of this page.

December 22, 2014

Final Rule Tightens Provider Enrollment Policies, Expands CMS Authority

On December 3, 2014, the Centers for Medicare and Medicaid Services ("CMS") released a final rule that broadens its authority to deny providers or suppliers from enrolling in Medicare and revoke providers already participating. The final rule, which is scheduled to go into effect on February 3, 2015, permits CMS to deny or revoke enrollment of providers with abusive billing patterns or practices, deny enrollment of providers affiliated with unpaid Medicare debt and deny or revoke enrollment of providers if a managing employee has been convicted of certain felonies.

CMS plans to identify improper billing by analyzing several factors such as:

  • The percentage of denied claims;
  • The reason for the denials; and
  • The length of any billing irregularities.

Providers and suppliers affiliated with entities with unpaid Medicare debt may prevent the enrollment denial or revocation if they agree to a structured repayment plan or pay the debt in full. The purpose of this provision is to prevent entities from incurring substantial Medicare debt, exiting the program and then re-enrolling as a new entity. Currently, CMS can only deny enrollment to those who have overpayments. The final rule explicitly expands this power to include Medicare debt, which includes overpayments as well as other financial obligations.

The final rule also authorizes CMS to deny or revoke enrollment to entities that continue to retain a managing employee that has been convicted of a certain felonies within the past ten years. CMS identified felonies that it deems detrimental to beneficiaries and the Medicare program, including assault, income tax evasion, and embezzlement.

The final rule also restricts reimbursement for ambulance suppliers by eliminating their ability to bill Medicare for the year prior to their enrollment. Additionally, the final rule brings ambulance providers into the same fold as practitioners by requiring that they submit all claims within sixty days of enrollment revocation. CMS estimates that these provisions will save Medicare $327 million annually.

Wachler & Associates regularly counsels providers regarding CMS rules and regulations. If you have any questions about CMS' final rule, or how the new billing parameters may impact your practice, please contact an experienced healthcare attorney at 248-544-0888 or via email at wapc@wachler.com. To continue to stay updated on 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.

December 12, 2014

CMS Issues Proposed Rule Postponing ACO Penalties

On December 1, 2014, the Centers for Medicare and Medicaid Services (CMS) issued a proposed rule that would postpone penalties against accountable care organizations (ACOs) for three years. The proposed rule is one of the latest measures CMS has taken to encourage ACOs to stay in the Medicare Shared Savings Program. In 2012, as part of the rollout of the Patient Protection and Affordable Care Act, the Medicare Shared Savings Program was initiated in an effort to curb spending, while improving quality of care. Since its enactment, industry stakeholders have pushed for leniency, primarily because the Medicare Shared Savings Program penalizes ACOs after the first three years unless the ACOs voluntarily take on financial risk earlier, in exchange for larger bonuses if they perform well. While policymakers supported the penalties as a means of incentivizing change in the healthcare market, providers, particularly less experienced providers, pushed back--arguing that a more moderate approach would ease the financial risk and foster more growth. Recently, the National Association of ACOs released the results of a survey, which reported that approximately 200 of the 300 ACOs in the program were somewhat or highly unlikely to continue if they were required to accept penalties.

With the issuance of the proposed rule, CMS conveyed that it wants less experienced ACOs to remain in the program. By postponing the penalties, CMS acknowledged that some ACOs might not be ready to accept the financial risks and fear these providers might exit the program in lieu of exposing their entity to liability.

However, ACOs must abide by specific criteria if they want to take advantage of the postponement. Under the proposed rule, ACOs must have reduced their spending in their first two years in the program and be prepared to assume the financial risk of penalties after six years. Additionally, CMS plans to encourage ACOs to exit the safer track and take on more risk by decreasing the safe track bonuses from fifty percent to forty percent. Furthermore, CMS proposed a third track, which would implement new methods to determine which patients are included in the ACO. Specifically, the ACOs would start the year with a list of patients, and manage those patients' costs and care. This new system should benefit ACOs because CMS will identify the patients at the start of the year, allowing for more focused improvement efforts. Lastly, the third track will also include potential bonuses and penalties.

Wachler & Associates frequently counsels healthcare providers regarding ACOs, compliance with ACO requirements, and other healthcare fraud and abuse laws. If you have any questions regarding ACOs or how CMS's proposed rule may impact your healthcare entity, please contact an experienced healthcare attorney at 248-544-0888 or via email at wapc@wachler.com.