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Health Law Alert
Summer 2007
From the Chair
As we work our way through the “summer doldrums,” we find that there are still many new developments relating to the area of health law. The most recent, and perhaps most significant, relates to the issuance by CMS, on July 12th, of the proposed 2008 Physician Fee Schedule. This document included a significant number of proposed changes and issues for consideration relating to the Stark physician self-referral law. Some of the most notable proposed changes relate to the Medicare reassignment and purchased diagnostic test rules, the in-office ancillary services exception to Stark, unit-of-service (per-click) payments in space and equipment leases, the Stark “set in advance” rules, Medicare rules relating to services furnished “under arrangements,” alternative methods for satisfying Stark exceptions, and the period of disallowance for noncompliant financial relationships.
In a number of areas, CMS has proposed specific changes. In others, they have simply requested comments and suggestions to assist in the development of proposed regulations to be published in the future. The publication also included a number of changes with respect to Independent Diagnostic Testing Facilities, Medicare Part B drug payment, as well as ESRD- and CORF-related issues.
The final changes to the Physician Fee Schedule and a number of the proposed Stark changes should be published later this year, in October or November, with an effective date of January 1, 2008. Additionally, as we wait for the temperature and humidity to drop, we also anticipate the publication of the Phase III Stark regulations in the near future (and probably before this issue of the Health Law Alert is published). Thus, you can expect a detailed discussion of the two documents in the next issue of the Health Law Alert.
Click to continue...Advisory Opinion on Sale of Ownership Interests Raises Questions
By: Julie E. Kass
On June 12, 2007, the OIG issued an unfavorable advisory opinion relating to the sale, by physician owners of an ambulatory surgery center (ASC), of a portion of their ownership interest to a local hospital. OIG Advisory Opinion 07-05. The fairly short opinion describes a proposed arrangement in which three orthopedic surgeons who currently own 94 percent of a multi-specialty ASC would sell some of those ownership units. After the transaction, the hospital would own a 40 percent interest in the ASC. The remaining physician owners, two gastroenterologists and two anesthesiologists who own a total of 6 percent of the ASC, would not sell any of their ownership units.
The requestors certified that the amount paid by the hospital to the orthopedic surgeons for the ownership units would be at current fair market value. This amount, however, would be greater than the initial investment by the orthopedic surgeons, who were the founding members of the ASC several years ago.
Click to continue...E-prescribing and Electronic Health Records Protection
Section 101 of the MMA directed the OIG and CMS to establish regulations that would protect arrangements involving the donation of technology used for receiving and transmitting electronic prescription drug information. In response, the OIG and CMS issued final regulations, published in the Federal Register on August 8, 2006, creating exceptions to both the federal antikickback statute and the physician self-referral (Stark) law not only for donations of e-prescribing technology, but additional protection under both laws for donations of certain electronic health record (EHR) technology and training services. The new rules, which are intended to encourage the development of widespread health information technology while addressing fraud and abuse concerns, became effective October 7, 2006. See 71 Fed. Reg. 45,110 (Aug. 8, 2006) (to be codified at 42 C.F.R. § 1001.952(x), (y)) (antikickback safe harbors); 70 Fed. Reg. 59,182 (Aug. 8, 2006) (to be codified at 42 C.F.R. § 411.357(v), (w), (x)) (Stark exceptions).
Click to continue...Physician Investments in Medical Device Industry
In an October 6, 2006, letter posted to the OIG’s website, the OIG confirmed and clarified its stance on physician investments in joint ventures involving the medical device industry. The letter was issued in response to a direct request for OIG guidance concerning (1) the application of the OIG’s 1989 Special Fraud Alert on Joint Ventures to medical device and distribution entities; (2) clarification of relevant factors in an OIG analysis of a joint venture under the antikickback statute; and (3) publication of OIG guidance specific to physician investment in medical device manufacturing and distribution entities.
Click to continue...OIG Advisory Opinions
By: William T. Mathias, Joshua J. Freemire, and Kristin Cilento Carter
No. 06-04: OIG Approves Charity’s Assistance with Medicare Premiums and Cost Sharing Obligations
OIG Advisory Opinion 06-04, issued April 27, 2006, considered a charitable organization’s plan to assist financially needy Medicare recipients with premiums and cost-sharing obligations under Medicare Parts B and D, Medigap, and Medicare Advantage. The OIG considered the arrangement under the prohibition against inducements to beneficiaries and the antikickback statute. The OIG concluded that it would not impose sanctions under the prohibition against inducements to beneficiaries. The OIG also concluded the program could potentially generate prohibited remuneration under the antikickback statute, but that it would not impose sanctions based on the facts of the situation.
New Enrollment Regulations: Protect Your Current Medicare Participation
By: John J. Eller and Donna J. Senft
On April 21, 2006, the Centers for Medicare and Medicaid Services (CMS) published its final rule, "Medicare Program: Requirements for Providers and Suppliers to Establish and Maintain Medicare Enrollment," which made changes to the existing Medicare rules that significantly affect existing providers and suppliers, as well as new enrollees. Although providers and suppliers have always been required to comply with the Medicare enrollment rules, both for initial enrollment and on a continuing basis thereafter, the new rules require that at some point in the near future, every provider or supplier will need to have a complete CMS 855 form on record. The new requirements contain procedural safeguards for CMS to verify that a provider or supplier is compliant with the enrollment requirements, and also contain significant sanctions for non-compliance. Understanding and adhering to the requirements is, therefore, not only important for a provider or supplier to ensure that initial enrollment is expeditiously obtained, but also critical to help ensure that its Medicare enrollment remains activated without interruption or the imposition of sanctions.
Click to continue...Behind the Scenes: Drug Company Patent Infringement Settlements
By: Royal W. Craig
The Hatch-Waxman Act (1984) created the Abbreviated New Drug Application (ANDA), a shortcut Food and Drug Administration (FDA) clearance process for generic drugs and a huge boost for their manufacturers. With some name brands clenching up to $10 billion in market share, the generics like it very much when barriers to entry fall, such as the FDA. Unfortunately (or not, depending on your perspective), there are other barriers. Two things are certain in this industry: taxes, and patents. The name brand drug makers collect patents like trading cards. They are so prevalent that ANDA applicants must name the brand drug maker’s patents and certify how they will be dealt with. A Paragraph III certification indicates that the generic drug maker is willing to wait for FDA approval until the patent(s) expire. A Paragraph IV certification indicates the generic’s belief that the patents are invalid, not infringed, or unenforceable. Of course, the paragraph IV certification is somewhat inflammatory, especially since notice is sent directly to the name brand drug maker, who usually sues for patent infringement. Under the Act the patent lawsuit triggers a stay to the ANDA approval process pending resolution of the lawsuit. As a bonus, if the ANDA applicant is the first to file for approval of a particular generic drug, and wins its patent lawsuit, the applicant gets a 180-day period of market exclusivity for its generic equivalent, during which the FDA cannot approve other competing ANDAs.
Click to continue...FY 2007 Wage Index and the Occupational Mix Adjustment
By: Carel T. Hedlund
As it does every year in conjunction with the final rule for the Inpatient Prospective Payment System (IPPS), CMS made changes to the wage index for fiscal year 2007. This time, the major change in fiscal year (FY) 2007 wage index concerned the occupational mix adjustment, driven by the April 3, 2006 decision of the Second Circuit in Bellevue Hospital Center v. Leavitt, 443 F.3d 163 (2d Cir. 2006). That decision caused a delay in the calculation of the final wage index numbers.
Although the final IPPS rule for FY 2007 went on display on August 1, 2006, and was published in the Federal Register on August 18, 2006 (71 Fed. Reg. 47,870), the actual wage index numbers were not posted to the CMS Web site (www.cms.hhs.gov/ AcuteInpatientPPS/downloads/cms-1488-n.pdf) until September 29, just two days before their effective date on October 1, 2006. (This notice was published in the Federal Register on October 11, 2006. 71 Fed. Reg. 59,886.) This delay also resulted in delayed calculations of the final relative diagnosis related group (DRG) weights, the final standardized amount, the final outlier threshold, and budget neutrality factors.
Click to continue...Medical Education Under Medicare: Confusion over Didactic Time
By: Thomas W. Coons
Over most of the past decade, CMS has constantly modified its Medicare policies governing payment for direct graduate medical education (DGME) and indirect medical education (IME). Last year was no exception. Unlike in prior years, however, where the focus has largely been on Medicare affiliation agreements or non-hospital training agreements, CMS’s focus in 2006 was on didactic time. CMS has announced a new policy, which it has labeled a “clarification,” that significantly could affect hospitals’ ability to claim reimbursement for resident time spent in didactic activities. CMS’s new policy on didactic time — that is, time spent by residents in journal duties, seminars, classroom lectures, and other scholarly pursuits — appears both illogical and difficult to implement, as commenters have pointed out. Nevertheless, CMS remains firm in its conviction that this new approach is appropriate. As a consequence, hospitals can expect that their Medicare contractors will make additional payment cuts in IME and DGME reimbursement for future years and, because this is a policy “clarification,” for past years.
Click to continue...Final DMEPOS Quality Standards
By: Julie E. Kass
Competitive Bidding Program
Section 302(b) of the MMA, which amended § 1847 (a) and (b) of the Social Security Act, mandated a competitive bidding program for durable medical equipment, prosthetics, orthotics and supplies (DMEPOS) furnished to Medicare beneficiaries under Medicare Part B. Initially, the goal of the competitive bidding program was to improve the accuracy of Medicare’s payments for certain DMEPOS, reduce beneficiaries’ out-of-pocket expenses, and save the Medicare program money while ensuring beneficiary access to quality DMEPOS items and services. As it has developed, however, the competitive bidding program is also being viewed as a way to control fraud under the DMEPOS benefit by limiting those suppliers that can participate in the program.
CMS Plan Focuses on Physician Ownership in Specialty Hospitals
By: Emily H. Wein
Specialty hospitals, as referred to under federal law, are hospitals that are exclusively or primarily engaged in the caring of cardiac patients, orthopedic patients and/or surgical patients. Though specialty hospitals provide high levels of health care services, because many such hospitals have physician owners, regulatory agencies have questioned whether specialty hospitals’ focus is on profitable patients rather than the quality of care. The DRA spoke to this concern by requiring CMS to develop a “strategic and implementing plan” that addresses the following issues related to physician investment in specialty hospitals: (1) the proportionality of investment return; (2) bona fide investments; (3) annual disclosure of investment information; and (4) specialty hospitals’ provision of care to patients who are Medicaid eligible or receive benefits under a section 1115 waiver and charity care; and (5) appropriate enforcement.
Click to continue...OIG Guidelines for Evaluating State False Claims Acts
The DRA contained several provisions whose purpose was to promote increased activity by state law enforcement authorities in combating alleged health care fraud. Among these provisions was an incentive for states to legislate and then enforce their own false claims laws. Under this portion of the DRA, states now may retain 10 percent of the federal portion of a Medicaid fraud recovery under its false claims act, provided that their acts are structured similarly to the federal False Claims Act. Previously, states were required to yield to the federal government the entirety of recovered funds representing the federal match received by the state under the Medicaid program.
Under section 1909 of the DRA, state false claims acts qualify for this incentive provided that they have the following minimum characteristics:
- The law must establish liability for false or fraudulent claims to the Medicaid program.
- The law must contain rewards for whistleblowers that are equal to or greater than those under the federal False Claims Act.
- The law must provide for a minimum seal period of 60 days for qui tam actions filed under the state False Claims Act.
- The penalties provided by the law must be equal to or greater than those authorized under the federal False Claims Act.
Rule 9(b) Does Not Require Pleading of Specific Claims
A district judge in Pennsylvania has ruled that Federal Rule of Civil Procedure 9(b) does not require a qui tam relator to identify specific claims for payment in a False Claims Act complaint that is based on an allegedly improper referral arrangement between a hospital and a medical practice. United States ex rel. Singh v. Bradford Medical Center, No. 04-186, 2006 U.S. Dist. LEXIS 65268 (W.D. Pa. Sept. 13, 2006).
The defendants, a hospital and doctors involved in the allegedly unlawful referral arrangement, argued that the qui tam relators failed to plead the alleged fraud with sufficient particularity primarily because they did not provide specific information with respect to the alleged claims filed with Medicare, Medicaid and other government health programs.
Click to continue...Heed Insurance Coverage in Constructing and Renovating Health Care Facilities
We tend to regard our heath care facilities as much more than the buildings they occupy. They are, after all, the unique venues for the administration and delivery of our nation’s medical care, and are a critical component of the well being of our communities. But they are also buildings, and, like all real estate improvements, they are subject to the nuances of construction law. Whether at the stage of initial construction, or as part of a renovation or repair, issues relating to a health care facility project will be governed by the applicable construction contract documents.
Click to continue...Planning to Charge a Yearly “Overhead” Fee? Proceed with Caution
By: Joshua J. Freemire and Marc K. Cohen
Faced with rising overhead costs and shrinking reimbursement rates doctors are increasingly turning to “overhead” or “maintenance” fees as a source of practice revenue. Typically between 20 and 50 dollars, these fees are charged to patients on a yearly basis over and above whatever copay, deductible, or private-pay fees the patient may have incurred during the year. Though often characterized as fees for “noncovered” services, these fees are not necessarily triggered by or even nominally linked to any particular service; rather, they are usually related to increases in general overhead, including office expenses, insurance premiums, and administrative and staff costs. General overhead fees like these, where patients are being asked to pay for services that are arguably part of any physician office visit, may violate federal laws and regulations, physicians’ contracts with private payors, and even state consumer protection laws.
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