United States: Health Law Update - December 15, 2016

  • 21st Century Cures: Not Just a Biomed Bill 
  • 21st Century Cures: Ambitious Medical Innovation Bill Has Broad Focus 
  • Providers Breathe Sigh of Relief with New Anti-Kickback Safe Harbors and CMP Exceptions
  • IRC Section 501(r): An ACA Provision That's Likely Here to Stay
  • Publication Notice
  • Events Calendar
21st Century Cures: Not Just a Biomed Bill

Congress Excepts Mid-Build and Cancer Hospitals from BBA Site-Neutral Payment Policies

The 21st Century Cures Act signed into law on December 13, 2016 is gaining significant attention as landmark legislation promoting medical innovation. But the massive Cures Act goes much further and includes some relief (though not a complete cure) for certain hospitals impacted by the site-neutral payment policies of Section 603 of the Bipartisan Budget Act of 2015 (BBA). The Cures Act incorporates provisions of the Helping Hospitals Improve Patient Care Act passed by the House in June. Section 603 addresses the differential in reimbursement to providers based on whether a location is operated as a provider-based hospital department, paid under the higher Hospital Outpatient Prospective Payment System (OPPS) rates, or a freestanding facility paid under applicable Medicare Part B payment systems. Under the BBA and CY 2017 OPPS Rule, only "excepted" off-campus departments may bill under the OPPS effective January 1, 2017.

Relief for Departments of Cancer Hospitals

Off-campus departments of certain cancer hospitals may qualify as excepted hospitals if they submit a provider-based attestation within 60 days of enactment of the Cures Act or, in the case of new departments, within 60 days after the date provider-based requirements are satisfied.

Relief for Mid-Build Departments

Hospital departments that satisfy the mid-build requirements of the Cures Act will be excepted from the BBA's site-neutral reimbursement policy starting January 1, 2018. To qualify as "mid-build," the provider must have had a binding written agreement for the actual construction of the off-campus department with an outside unrelated party by November 2, 2015. Additionally, the provider must satisfy the following requirements:

  1. Submit a provider-based attestation (pursuant to 42 C.F.R. Sec. 413.65) within 60 days of the Cures Act's enactment;
  2. Include the department as part of the provider on its CMS 855A enrollment form; and
  3. Submit a written certification (for receipt by the U.S. Department of Health and Human Services [HHS] not later than 60 days after the Cures Act's enactment) from the chief executive officer or chief operating officer of the provider that the department met the mid-build requirement on November 2, 2015.

Qualifying hospitals will be subject to site-neutral payments in 2017 but can bill under the OPPS starting January 1, 2018. The legislation requires HHS to audit each hospital department's compliance with the mid-build requirements no later than December 31, 2018.

New Measures Furthering Payment Neutrality and Transparency

The Cures Act contains further provisions addressing payment neutrality and transparency.  Section 4012 directs the Centers for Medicare & Medicaid Services (CMS) to create a searchable internet website for Medicare beneficiaries to compare the expenses and out-of-pocket costs of surgeries in ambulatory surgery centers with those in outpatient departments. And Section 15001 requires CMS to develop HCPCS codes (used for outpatient services) associated with 10 surgical MS-DRGs (used for inpatient services) that commonly have a one-day hospital stay. This will enable CMS to develop a crosswalk identifying surgeries appropriate for site-neutral payment between inpatient and outpatient settings.

So, while the Cures Act introduces relief from Section 603 for certain hospitals, further scrutiny of site-of-service payment rates is on the horizon. Stay tuned for updates and details on additional provider-focused provisions of the Cures Act.

21st Century Cures: Ambitious Medical Innovation Bill Has Broad Focus

In a health policy landscape fraught with partisan rancor, congressional members from both sides of the aisle came together to pass the 21st Century Cures Act. Championed over the past three years by bill sponsor and House Energy and Commerce Committee Chairman Fred Upton (R-MI), the Cures Act primarily overhauls the FDA's drug and device approval process. Secondarily, the new law provides much needed-funding to combat the opioid drug crisis, support individuals with mental illness, and advance biomedical research.

FDA Approval Process

The Cures Act is viewed as an effort to modernize the FDA's approach to drug and device approval and emphasizes a patient-centered outlook. The legislation creates an accelerated approval pathway for drugs and devices considered to be breakthrough medical technologies in the hopes of providing life-saving treatments to those patients who currently have few options. To reduce approval time, the FDA is now authorized to use biomarkers and similar drug development tools to shorten drug development time.

The Cures Act also instructs the FDA when evaluating clinical trials to focus more on real-world evidence and "patient experience data" that provides information about the disease or treatment's effect on patients' lives.

On the device side, the Cures Act expands the humanitarian exemption of devices treating diseases and conditions affecting fewer than 4,000 patients to those affecting up to 8,000 patients. The FDA is also required to review and update its Class I and Class II device lists and will now need to consider only the "least burdensome" means of medical device safety prior to approval.

For combination products, the Cures Act improves the process for product approval by requiring the FDA to meet with the product sponsor during early development.  Specifically, this meeting will facilitate an understanding between the sponsor and the FDA about what standard the agency will use for approval and how the sponsor should best study the product.

Finally, in an effort to increase patient autonomy, the Cures Act requires pharmaceutical companies to make their compassionate use policies publicly available, potentially increasing access to not-yet-approved drugs that have the potential to treat serious or life-threatening diseases.

The legislation also provides $500 million in additional funding to support the new goals and programs at the FDA.

Opioid Drug Crisis

The Cures Act provides $1 billion in grant money to support states trying to stem the opioid abuse epidemic. This grant money will target prescription drug monitoring programs and prevention activities, and expand access to addiction treatment.

Mental Health Funding

Considered the biggest advancement in support for mental health since the Mental Health Parity Act in 2008, the Cures Act strengthens the rules in the 2008 law, provides grant funding for psychologists and psychiatrists in an effort to increase access to mental health practitioners, and requires states to use 10 percent of their mental health block grant on early intervention.

The legislation authorizes an "assertive community treatment" grant program, which is widely considered to be one of the best courses of treatment for individuals with schizophrenia and other serious mental illnesses. It also provides funding for assisted outpatient treatment programs to support those in court-ordered care. Both programs are authorized in the Cures Act but require future congresses to appropriate the funding.

Biomedical Research

The Cures Act allows the National Institutes of Health (NIH) to finance high-risk, high-reward research projects through the creation of a special procurement process, outside the traditional NIH grants program. The legislation requires the director of the NIH to create a "EUREKA prize" competition as a way to improve biomedical research and advance treatments. Additionally, the Cures Act creates programs – including the "Next Generation of Researchers Initiative" which will improve opportunities for younger researchers – to support aspiring biomedical researchers. It also expands the scope and amount of the NIH Loan Repayment Program which reduces the student loan burden, allowing medical researchers to more easily enter public service.

The legislation authorizes $4.8 billion over 10 years to the NIH, including $1.5 billion for the Precision Medicine Initiative, $1.6 billion for brain disease research and $1.8 billion for the Cancer Moonshot Initiative that President Barack Obama announced during his last State of the Union address, which has thus far been spearheaded by Vice President Joe Biden.

Providers Breathe Sigh of Relief with New Anti-Kickback Safe Harbors and CMP Exceptions

On December 7, 2016, the HHS Office of Inspector General (OIG) finalized a set of rules first proposed in 2014 adding new anti-kickback law safe harbors and protecting additional conduct from enforcement under the civil monetary penalties (CMP) law related to beneficiary inducements. The OIG's stated purpose in adopting the rule is to allow greater flexibility for providers and other stakeholders to address the evolving delivery systems and payment changes resulting from the Affordable Care Act (ACA). The final rule sets forth the OIG's vision to engage in future rulemaking to encourage efficient care. On the same day, the OIG also adopted rules codifying provisions in the CMP law that expand the scope of conduct that can result in penalties, assessments, and exclusions.

Final Anti-Kickback Safe Harbors

The OIG finalized a new safe harbor that protects certain complimentary local transportation arrangements from enforcement under the anti-kickback law. Such arrangements have been the topic of several advisory opinions and the adoption of the safe harbor gives providers absolute certainty that arrangements meeting the safe harbor requirements will not be subject to enforcement. The safe harbor is limited to free or discounted transportation (excluding air, luxury and ambulance transportation) provided by an eligible entity to established patients for the purpose of obtaining medically-necessary items or services that meet certain requirements. The final rule provides flexibility in the definition of "local," stating that the patient should not be transported more than 25 miles in urban areas or 50 miles in rural areas.

Durable medical equipment suppliers and pharmaceutical companies are not eligible entities under the final safe harbor. The OIG clarified that "established patients" include new patients who have selected and initiated contact with the provider to schedule an appointment, even though they may not have received services from the provider at the time of the initial transportation. The OIG declined to protect transportation for non-health-related purposes, instead limiting the safe harbor to transportation to obtain-medically-necessary items and services. The final rule permits local transportation arrangements in the form of shuttle services, which are not required to be limited to established patients and health-related purposes. Providers should also be aware of discussion in the final rule allowing accountable care organizations to participate in these transportation arrangements.

The final rule adopted the expansion of the anti-kickback safe harbor for waivers of cost-sharing amounts to incorporate certain waivers or reductions of federal healthcare program cost-sharing amounts offered by pharmacies to financially-needy beneficiaries. The OIG also adopted the proposed new safe harbor protecting drug manufacturers' discounts for certain beneficiaries under the Medicare Coverage Gap Discount Program.

A new safe harbor protecting waivers of federal healthcare program cost-sharing amounts for emergency ambulance services furnished by ambulance providers owned or operated by a state or a tribal health program was adopted. The safe harbor is limited to emergency ambulance services. The final rule included a correction to the safe harbor for referral services and adopted a new safe harbor codifying the statutory exception for certain remuneration between a federally-qualified health center and a Medicare Advantage organization.

Beneficiary Inducement Exceptions

The OIG's final rule codifies three new exceptions to the definition of remuneration under the beneficiary inducement provision of the CMP law that were added by the ACA. The first is the statutory provision protecting arrangements that promote access to care and pose a low risk of harm to Medicare and Medicaid beneficiaries. This new exception is limited to benefits that improve a beneficiary's ability to obtain items and services that are payable by Medicare or a state healthcare program such as Medicaid. Reimbursement of parking expenses and the provision of free child care during appointments were two examples of benefits that may fit within the new regulatory exception. On the other hand, the OIG stated that rewards for compliance with a treatment regimen would not be protected under the exception.

The second statutory exception that was codified protects the offer or transfer of items or services for free or less than fair market value to an individual in financial need if the items and services are not advertised or tied to the provision of other items or services reimbursed by the Medicare or state healthcare programs (including Medicaid) and there is a reasonable connection between the items or services and the medical care of the individual. The OIG's commentary attempted to clarify how an item can have the required reasonable connection to a patient's medical care while not being tied to a reimbursable service, stating that the remuneration cannot be conditioned on the purchase of the reimbursable service. Providers should consider this distinction when structuring arrangements to fit within the exception. The guidance states that the phrase "reasonable connection to medical care" can be interpreted broadly to include items "crucial to a patient's safety," such as car seats. Finally, the OIG cautioned that remuneration that is disproportionately large would not have a reasonable connection to the patient's medical care, but declined to identify a value limit.

The final rule adopts the proposal to codify the statutory exception for retailer rewards resulting from the ACA. This exception permits retailers more flexibility to include federal healthcare program beneficiaries in their normal promotions activities so long as the promotion is not directly conditioned on the purchase of goods or services reimbursed by a federal healthcare program. The OIG also codified the statutory exception for waivers by a PDP sponsor of a Part D plan or Medicare Advantage organization of copayments for the first fill of a covered Part D generic drug.

Finally, the OIG's existing guidance permits non-monetary gifts of nominal value, and this rulemaking increased the nominal value limits to $15 per item and $75 in the aggregate annually per patient. Of note, the OIG stated that a raffle could be of nominal value if the value of the prize divided by the number of participants with an equal chance to win the prize does not exceed the individual nominal value threshold.

Overall, the OIG's tone in this final rule indicates that it has listened to the feedback from stakeholders who are struggling to meet the demand for efficient, coordinated care resulting from changes to the healthcare system under the ACA, while steering clear of potential non-compliance with the fraud and abuse laws.

New CMP Authority

The OIG's second rule of the day did not strike such a hopeful tone with providers. The rule incorporates statutory provisions added to the CMP law by the ACA that permit the OIG to impose penalties and exclusion for the following conduct:

  • Failure to grant the OIG timely access to records, upon reasonable request;
  • Ordering or prescribing while excluded;
  • Making false statements, omissions, or misrepresentations in an enrollment or bid application;
  • Failure to report and return an overpayment; and
  • Making or using a false record or statement that is material to a false or fraudulent claim.

New penalty rules applicable to Medicare Advantage and Part D plans were also finalized.

IRC Section 501(r): An ACA Provision That's Likely Here to Stay

For tax-exempt hospitals, the Section 501(r) Internal Revenue Code (IRC) requirements of the Affordable Care Act are "old news" by now. However, despite the recent focus on repeal of the ACA, it is worth noting that this provision is likely here to stay. Sen. Charles Grassley (R-IA), a long-time advocate for low-income, uninsured, and underinsured patients, co-authored this section of the ACA, which is the culmination of years of advocacy for transparency in hospital billing practices. And the Internal Revenue Service (IRS) has wasted no time with its enforcement of the 501(r) rules.

Section 501(r) sets forth detailed financial assistance and billing and collection practices that tax-exempt hospitals must comply with. And while the statutory language of Section 501(r) is fairly straightforward, the corresponding rules, finalized on December 31, 2014, and effective for a hospital's first taxable year beginning after December 29, 2015, establish a detailed and fairly complex legal framework that imposes numerous and stringent compliance obligations on 501(c)(3) hospitals. Failure to comply with the 501(r) rules may result in audits, investigation, corrections, public disclosure of violations and potential loss of tax-exempt status.

Recent IRS Enforcement

The IRS stated in its Tax Exempt and Government Entities FY 2017 Work Plan, published on September 28, 2016, that it had completed 692 reviews of tax-exempt hospitals for compliance with the 501(r) rules and referred 166 hospitals for field examinations as of June 30, 2016 – only six months after hospitals were required to be in compliance with the 501(r) rules. The reasons for referral include:

  • Lack of a Community Health Needs Assessment in violation of IRC Section 501(r)(3),
  • Failure to have Financial Assistance and/or Emergency Medical Care Policies as required by IRC Section 501(r)(4), and
  • Failure to comply with Billing and Collections requirements pursuant to IRC Section 501(r)(6).

It is worth noting that while the 501(r) rules apply to a tax-exempt hospital's first taxable year beginning after December 29, 2015, the IRS is ensuring hospitals are in compliance with Section 501(r) and previous IRS guidance going back as far as a hospital's first tax year beginning in 2012. Given the potential for IRS scrutiny of a hospital's compliance with Section 501(r), it is important to understand the agency's approach to compliance enforcement.

Understanding the Enforcement Framework

The 501(r) rules require hospitals to identify, correct and sometimes publicly disclose violations of Section 501(r) as a requirement for maintaining tax-exempt status. The IRS understands that errors can occur even when hospitals take all proper steps to ensure compliance. In light of this, not all failures to comply with Section 501(r) are treated the same. Instead, errors or omissions are grouped into one of three categories, each of which imposes a different requirement on the hospital:

  • Minor and inadvertent omissions or errors, due to reasonable cause, which must be promptly corrected, but not disclosed.
  • Failures that are not willful or egregious, which must be corrected and disclosed.
  • Willful or egregious failures, which must be corrected and disclosed, and could threaten the hospital's tax-exempt status.

Minor Omissions

If a violation is minor and either inadvertent or due to reasonable cause, and the hospital promptly corrects it after discovery, the IRS will treat it as not having occurred. This category is narrow, however. In the case of multiple omissions or errors, these failures are considered minor only if they are minor in the aggregate. Further, if the same omission or error has been made and corrected in the past, it may not be considered inadvertent and therefore could fall outside this category. To correct minor failures, a hospital must establish and review its practices and procedures aimed at Section 501(r) compliance.

Excusable Failures

These errors either (1) have a broader scope and greater impact on individuals in the community than Minor Omissions, or (2) would not be considered inadvertent or due to reasonable cause. However, because these failures do not rise to the level of being willful or egregious, a hospital may remedy an Excusable Failure by correcting and disclosing the error in accordance with procedures promulgated by the IRS in Revenue Procedure 2015-21 (which include disclosing the correction on a hospital's Form 990 for the taxable year in which the failure is discovered). Disclosure is not necessary for any Excusable Failures that occurred in tax years beginning before 2016 and did not reoccur or continue in 2016. Instead, a hospital should correct the failure and document its compliance or how it was complying with a reasonable, good-faith interpretation of the 501(r) rules.

Willful Failures

The 501(r) rules explain that a Willful Failure includes a (1) failure due to gross negligence, reckless disregard or willful negligence, or (2) egregious noncompliance, which the IRS has stated encompasses serious failures that undermine the intent of Section 501(r) as a whole. Although the IRS refused to adopt a proposed rebuttable presumption approach to gauging Willful Failure, a failure that is corrected and disclosed may still be deemed willful even though disclosure would tend to show otherwise. Like Excusable Failures, Willful Failures must be promptly corrected and disclosed in accordance with Revenue Procedure 2015-21.

Complying with the IRS's Enforcement Framework

Overall, a hospital's policies and procedures and good-faith practices are key to avoiding and possibly reducing the severity of the Section 501(r) violation. As explained above, the IRS's determination of whether a violation is minor or excusable hinges on the effectiveness of a hospital's approach to compliance. In the event of a more serious compliance deviation, self-correction and disclosure can help avoid referral to the IRS and reduce the degree of violation.

Accordingly, to help your organization ensure compliance with the 501(r) rules, consider the following:

  • Review your Financial Assistance, Emergency Medical Care, and Billing and Collections policies and practices for compliance with the 501(r) rules.
  • Be mindful of policy publication requirements. For example, the 501(r) rules require that a hospital's Financial Assistance Policy be widely publicized within the community served by the hospital, which includes making paper copies of the policy documents available upon request and without charge in public locations in the hospital.
  • Hospitals are responsible for the errors of their vendors; therefore, consider reviewing revenue cycle vendor and sub-vendor arrangements for compliance with the 501(r) rules and implementing internal procedures to monitor vendor compliance.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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