NOVEMBER REGULATORY UPDATE SUMMARY
This issue of McDermott'sHealthcare Regulatory Check-Uphighlights regulatory activity for November 2024. We discuss several US Department of Justice (DOJ) enforcement actions involving the False Claims Act (FCA) and the Anti-Kickback Statute (AKS). We also review various audits and reports by the Office of Inspector General (OIG) pertaining to hospital price transparency rule compliance, Medicare payments to acute care hospitals, and management and performance challenges for the US Department of Health and Human Services (HHS). Finally, we examine other notable healthcare regulatory and legislative updates, including anticipated changes under the new administration.
NOTABLE ENFORCEMENT RESOLUTIONS AND ACTIVITY
DRUG COMPANY, CEO TO PAY $47M FOR ALLEGED KICKBACK SCHEME TO PHYSICIANS
A pharmaceutical company and its CEO agreed to pay the United States $47 million to settle FCA allegations that the company offered kickbacks in the form of free carbon-13 breath testing services to induce claims for the company's drug. According to the DOJ, the basis for the settlement began in 2018, when the company started distributing carbon-13 breath test kits to healthcare providers and asked them to give the kits to patients with common gastrointestinal symptoms. The company then paid a laboratory to analyze the breath tests, report the results to healthcare providers, and provide the results to the company for use in marketing its drug to healthcare providers. The settlement arises from aqui tamcase brought by former company employees.
COMPOUND INGREDIENT SUPPLIER SETTLES ALLEGATIONS OF INFLATED WHOLESALE PRICES FOR $21.75M
The DOJ reached a settlement agreement with a compound ingredient supplier resolving FCA allegations that the company falsely inflated average wholesale prices for two ingredients used in compound prescriptions. The two ingredients were used in prescriptions paid for by the Defense Health Agency, which administers the TRICARE programs for the US Department of Defense and the US Department of Labor Office of Workers' Compensation Programs.
HOSPITAL SYSTEM AGREES TO $23M FCA SETTLEMENT RESOLVING FRAUDULENT BILLING ALLEGATIONS
A hospital system agreed to pay $23 million to resolve allegations that it improperly coded certain claims for emergency department visits using higher level codes than the codes that most accurately described the services.
OPHTHALMOLOGY PRACTICE WILL PAY $1.3M TO RESOLVE ALLEGED FRAUDULENT CRANIAL ULTRASOUND CLAIMS
A Florida-based ophthalmology practice agreed to pay $1.3 million to resolve allegations regarding medically unnecessary transcranial Doppler ultrasounds (TCDs). The settlement concerns allegations under the FCA, AKS, and Stark Law that the ophthalmology practice and a third-party provider performed TCDs on patients who had been diagnosed with common health conditions, including hypertension and diabetes, for which a TCD was not medically necessary.
TELEMEDICINE FRAUD ENFORCEMENT YIELDS $1M IN RECOVERIES FOR MEDICARE
On November 18, 2024, the US Attorney's Office for the Western District of Michigan announced the second wave of enforcement actions in nationwide telemedicine fraud schemes. Operation “Happy Clickers” resulted in criminal convictions and civil settlements with five doctors who allegedly authorized fraudulent Medicare spending by ordering medically unnecessary orthotic braces and genetic testing.
CALIFORNIA PHYSICIANS SETTLE KICKBACK ALLEGATIONS FOR $2.4M
The US Attorney's Office for the Eastern District of California announced on November 21, 2024, that physicians in Fresno, California, agreed to pay more than $2.4 million to resolve allegations of unlawful kickbacks in exchange for directing prescriptions to mail-order pharmacies controlled by an individual.
MEDICAL CENTER SETTLES MEDICARE, STARK LAW ALLEGATIONS FOR $14.2M
A Texas medical center entered into a $14.2 million settlement to resolve alleged FCA and Stark Law allegations. The medical center disclosed that it failed to include a PN modifier and location on claims for services provided at non-excepted off-campus outpatient facilities. The medical center also disclosed certain financial relationships with physician-owners through management and lease agreements that did not meet an exception to the Stark Law. The settlement credits the medical center for voluntarily disclosing the misconduct and cooperating with the investigation.
NEW YORK AG SECURES $45M SETTLEMENT, REFORMS FOR FOUR NURSING HOMES
New York Attorney General Letitia James announced a $45 million settlement with the owners and operators of four nursing homes following allegations of significant financial fraud and resident neglect. The settlement includes $35 million to directly fund improved resident care and staffing, and $8.75 million in restitution to Medicaid and Medicare programs. The investigation revealed alleged chronic understaffing and mistreatment of residents, including unsanitary conditions and neglect of basic needs.
The settlement also mandates continued oversight by an independent healthcare monitor and an independent financial monitor to ensure compliance and prevent future fraud.
CMS REGULATORY UPDATES
CMS RELEASES CY 2025 OPPS, ASC PAYMENT SYSTEM FINAL RULE
On November 1, 2024, the Centers for Medicare & Medicaid Services (CMS) released the calendar year 2025 Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems Final Rule. This rule finalizes changes to payment rates for Medicare services provided under the outpatient prospective payment system (OPPS) and the ambulatory surgical center (ASC) system. The changes went into effect on January 1, 2025.
In the final rule, CMS increased payment rates for several services. The outpatient department fee schedule increased by a factor of 2.9%, which is based on the 3.4% increase to the final inpatient hospital market basket under the hospital inpatient prospective payment system, reduced by a final productivity adjustment of 0.5%. The rule increased payment rates by 2.9% for ASCs that meet quality reporting requirements. CMS estimates that total payments to ASCs will increase by approximately $308 million compared to 2024. These rate adjustments are based on claims data available for the past two years.
A more detailed overview of the rule and its impact is available here.
CMS ANNOUNCES 2025 PAYMENT POLICIES FOR PFS, MEDICARE PROGRAMS
On November 1, 2024, CMS released the calendar year 2025 Revisions to Payment Policies Under the Physician Fee Schedule (PFS) and Other Revisions to Medicare Part B Final Rule. This rule includes significant changes to Medicare physician payment and the Quality Payment Program. The 2025 conversion factor is set at $32.3465, a reduction of more than 2.83% from 2024. CMS also finalized policies related to telemedicine, the Merit-Based Incentive Payment System (MIPS), and the Medicare Shared Savings Program. Key updates include expansion of the add-on code for complexity, new telehealth policies, and efforts to move MIPS reporting towards the MIPS Value Pathways by 2029. The rule introduces a new prepaid shared savings option and health equity initiatives. The rule also includes significant changes to the Medicare overpayment statute regulations, discussed in greater detail here.
A more detailed overview of the rule and its impact is available here.
FIVE STATE MEDICAID PLAN AMENDMENTS APPROVED
The Biden-Harris administration, through CMS, approved five Medicaid section 1115 demonstration amendments regarding continuous Medicaid eligibility for children in Colorado, Hawaii, Minnesota, New York, and Pennsylvania. Continuous eligibility generally ensures that an individual can maintain health insurance regardless of changes in circumstances that may make someone ineligible, such as a change in income. Under the amendments, four of the five states expanded continuous eligibility for children in Medicaid and the Children's Health Insurance Plan (CHIP) until a child's sixth birthday. Colorado amended continuous eligibility for children in Medicaid and CHIP until a child's third birthday. These amendments also expand eligibility for young adults up to age 21 and, for some states, include increased eligibility for individuals leaving incarceration who meet certain high-risk criteria. CMS has previously approved similar requests in nine other states for different populations.
OIG UPDATES
OIG 2024 REPORT: MAJOR MANAGEMENT AND PERFORMANCE CHALLENGES FOR HHS
OIG highlighted HHS's ongoing efforts to address public health challenges, financial integrity, Medicare and Medicaid services, beneficiary safety, and data and technology security. Key issues include the mental health and substance use disorder crises, improper payments, fraud prevention, quality of care in nursing homes, and cybersecurity threats. Despite progress, significant challenges remain, such as improving maternal health, ensuring financial stewardship, combating fraud, enhancing care quality, and protecting sensitive data. The report concluded that addressing these challenges is crucial for HHS to fulfill its mission of safeguarding public health and delivering high-quality care and services.
OIG RECOMMENDS ENHANCEMENTS TO OCR'S HIPAA AUDIT PROGRAM TO IMPROVE EPHI PROTECTION
OIG conducted an audit to evaluate the Office for Civil Rights' (OCR's) HIPAA audit program. The audit revealed that OCR's implementation was too narrowly scoped, assessing only eight out of 180 HIPAA rules requirements. Of those eight, only two related to security rule administrative safeguards and none to physical and technical security safeguards. OIG found that OCR's oversight was ineffective in improving cybersecurity protections at covered entities and business associates. OIG recommended that OCR expand the scope of its audits to include physical and technical safeguards, ensure timely correction of deficiencies identified during audits, and define metrics to monitor the effectiveness of the audits in enhancing electronic protected health information (ePHI) protection. OCR concurred with three of the recommendations and outlined steps it plans to take in response.
OIG RECOMMENDS IMPROVEMENTS FOR HHS INFORMATION SECURITY PROGRAM
OIG announced that it audited HHS's compliance with the Federal Information Security Modernization Act of 2014 (FISMA) for fiscal year 2024. The audit found that HHS's information security program was rated “not effective” for the second consecutive year. This rating was due to HHS's failure to meet the “managed and measurable” maturity level for key FISMA metrics across several functional areas, including identify, protect, detect, respond, and recover. OIG made six recommendations to improve HHS's information security program, and HHS concurred with five of those recommendations. HHS did not agree with the recommendation to complete the implementation of a cybersecurity risk management strategy, asserting that its current strategy was sufficient.
OIG REVIEWS CDC, SAMHSA DATA COMPILATION PROCESSES FOR NATIONAL DRUG CONTROL ASSESSMENT
OIG prepared a data brief on the processes that the Centers for Disease Control and Prevention (CDC) and the Substance Abuse and Mental Health Services Administration (SAMHSA) used to compile their respective fiscal year 2023 evaluations of progress. The data brief highlighted that both agencies faced significant challenges in timely reporting due to delays in data availability. CDC's data on overdose deaths often required lengthy investigations, causing delays in finalizing death certificates. Similarly, the timing of grant performance data submissions hindered SAMHSA's data collection. OIG recommended that both agencies improve their data collection and reporting processes to ensure timely and accurate submissions to the Office of National Drug Control Policy.
OIG ISSUES AUDIT REPORT ON MEDICARE PART B PAYMENTS TO ACUTE CARE HOSPITALS
OIG conducted an audit of Medicare payments to acute care hospitals for outpatient services provided to hospice enrollees from 2017 to 2021. The audit revealed that Medicare improperly paid $190.1 million for services that should have been covered by hospices' per diem payments, as these services palliated or managed the enrollees' terminal illnesses and related conditions. OIG found that the prepayment edit process was not properly designed and that Medicare guidance lacked details, leading to these improper payments. OIG recommended that CMS improve system edit processes, educate hospitals on analyzing outpatient services, and clarify Medicare guidance.
OIG ISSUES AUDIT REPORT ON HOSPITAL PRICE TRANSPARENCY RULE COMPLIANCE
OIG audited a sample of hospitals to assess compliance with the hospital price transparency rule. The audit revealed that 37 out of 100 hospitals did not meet one or more requirements, such as publishing comprehensive machine-readable files or displaying shoppable services in a consumer-friendly manner. OIG estimated that 46% of the 5,879 hospitals required to comply with the rule did not make their standard charges available to the public. In light of these findings, OIG recommended that CMS review noncompliant hospitals and enforce measures as applicable. OIG also suggested that CMS provide written guidance on “shoppable services” and develop a training program for smaller hospitals.
OIG ISSUES AUDIT REPORT ON HOSPICE COMPLIANCE WITH PROVIDER RELIEF FUND REQUIREMENTS
OIG audited 30 hospices to access compliance with the Provider Relief Fund (PRF) requirements. The audit revealed that 23 hospices used PRF funds for allowable expenditures and lost revenues attributable to COVID-19, while seven hospices did not comply or may not have complied with federal requirements. These seven hospices, which received $98.1 million in PRF payments, had issues such as claiming unallowable expenditures and inaccurately reporting lose revenues. OIG recommended that the Health Resources and Services Administration require these hospices to return any allowable expenditures or ensure proper accounting. This audit underscores OIG's commitment to ensuring that PRF funds are used appropriately and in accordance with federal guidelines.
OIG REVIEWS NATIONAL BACKGROUND CHECK PROGRAM FOR LONG-TERM CARE PROVIDERS
OIG reviewed the National Background Check Program established in 2010 by the Patient Protection and Affordable Care Act, which provided federal financial assistance to states for developing systems to conduct background checks on prospective long-term care employees. OIG found that the program helped states create efficient procedures to disqualify employees with concerning criminal convictions, and reported minimal unintended consequences. Despite challenges such as lack of state legislative authority, the report concluded that the program successfully aided states in enhancing their background check systems. OIG had no further recommendations for CMS.
OIG ANNOUNCES RESULTS COMPARING ASP, MANUFACTURER PRICES FOR Q2 2024
OIG recently compared average sales prices (ASPs) and average manufacturer prices (AMPs) for Medicare Part B drugs for the second quarter of 2024. OIG found that five drug codes met CMS's price-substitution criteria by exceeding the 5% threshold for two consecutive quarters or three of the previous four quarters. OIG recommended that CMS implement price substitutions for these drug codes to ensure accurate reimbursement. OIG identified 12 other drug codes with ASPs exceeding AMPs by at least 5%, but these did not meet other CMS criteria for price substitution.
OTHER NOTABLE DEVELOPMENTS
POST-ELECTION CHANGES EXPECTED TO SHIFT HEALTHCARE LANDSCAPE
In November 2024, President-elect Donald Trump won a second presidential term. President-elect Trump's win coupled with a Republican majority in both the US Senate and the US House of Representatives could lead to major changes in the US healthcare system. For a comprehensive discussion of congressional changes under the new administration and their implications for healthcare policy, please review our McDermott+ colleagues' takeaways here and our article in Law360 here. For post-election considerations specifically for pharmacy regulation, please review our article here.
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