Government News
of the Week:
Medicare Compliance, Medicare Advantage and Part D, and Other Federal and State Developments

1. CMS has made some changes to the Stark self-referral ban that will stick this time, and a few could have a significant effect on hospital-physician relationships. They appeared in the final inpatient prospective payment system (IPPS) regulation unveiled July 31 and due for publication in the Aug. 19 Federal Register.

The industry will soon have to navigate new Stark rules on percentage-based compensation, per-click arrangements and the "stand-in-the-shoes" analysis. And it's time to sunset "under arrangements" with physicians because CMS finalized its revised definition of entities that provide designated health services (DHS) under Stark. But CMS also cleared a path for returning to Stark compliance over unsigned physician contracts, and clarified how providers can end the "period of disallowance," when a Stark violation renders Medicare claims unpayable.

"Some of the changes that have come out in the final IPPS rule are not expected because of what existed in the IPPS rule for [fiscal year] 2008 and the Medicare physician fee-schedule rule," both of which had Stark proposals, says Washington, D.C., attorney Paul Danello, who is with Squire Sanders & Dempsey LLP. In certain areas, "they represent a major impact on hospital-physician relationships."

The Stark self-referral law bans Medicare payments to entities providing DHS if they were provided to patients referred by physicians with an ownership, investment or compensation relationship with the DHS entity.

Here's a description of some of the key changes:

Stand in the shoes: After a lot of back and forth with the industry, CMS has simplified this provision, lawyers say, though at least one attorney questions the very purpose of the final version. When CMS introduced stand in the shoes, the idea was to prevent fraud and abuse through indirect compensation. CMS was concerned that hospitals used intermediaries to circumvent Stark (i.e., individual physicians hiding behind group practices so they can get money from DHS entities without having to meet a Stark exception). So CMS basically said that for the purposes of determining whether a financial relationship must qualify for a Stark exception, a physician had to stand in the shoes of its "physician organization" (e.g., group practices). Once the physician stood in the shoes of his group, there was no applicable exception for mission-support payments from the hospital to its affiliated group practice. An outcry followed from academic medical centers (AMCs) and integrated delivery systems (IDSs), which routinely provide financial support to their owned physician practices to stay afloat. So CMS delayed the implementation of stand in the shoes for AMCs and IDSs for a year. Now, in the final IPPS rule, CMS has devised a new way to do stand in the shoes that permits mission-support payments. "We are finalizing revisions to the physician 'stand in the shoes' provisions to deem a physician who has an ownership or investment interest in a physician organization to stand in the shoes of that physician organization," says the rule.

So what does this mean? Patsy Powers, an attorney with Waller Lansden Dortch & Davis, LLP in Nashville, Tenn., says this is a great improvement. First, CMS says physicians stand in the shoes of their group practice to determine if they have to meet a Stark exception only if they are part owners of the group practice. But Powers says true physician owners are not common in the type of situations where group practices are part of a hospital system (e.g., AMCs and faculty practice plans).

CMS says stand in the shoes doesn't apply to physicians with only a titular ownership interest. A titular owner is a physician without the ability or right to receive the financial benefits of ownership or investment. This is common in states with corporate practice of medicine laws, Powers says.

Because stand in the shoes does not apply to compensation arrangements under the final rule, employed and independent-contractor physicians are not required to stand in the shoes of their group practices to determine whether they qualify for a Stark exception. "So if a hospital needed to infuse money into a group practice — like mission-support payments — the hospital could do that," Wade says. "Mission-support payments can continue to be made to physician organizations because physicians who have only a compensation arrangement don't need to stand in the shoes of their physician organizations."

Also, CMS has, for now, put the stand-in-the-shoes provision for other entities on ice.

Definition of DHS entity (and its impact on under arrangements): CMS will require most under arrangements with a physician-owned entity to be restructured or terminated by Oct. 1, 2009, Danello says. The reason: It has redefined a DHS entity. An under arrangement is a contractual arrangement between a hospital and another entity from which the hospital buys technical services and bills Medicare as if the services were provided directly by the hospital. For example, hospitals might have under arrangements with a physician-owned management company to run a hospital dialysis department. It used to be that a DHS entity was defined by the fact it billed Medicare. Now CMS says entities also trigger Stark if they perform DHS. That little bit of tinkering would subject under arrangements between hospitals and referring physicians to the Stark ban. When the definition was just about billing, under arrangements were allowed under Stark because the entity providing DHS was not the entity that billed for the service. But with the revised definition, an entity that provides DHS will include both the person or entity that performs the DHS, as well as the person or entity that submits claims to Medicare for the DHS. Many lawyers have complained about the end to most under arrangements, saying CMS is overreacting. But Powers thinks CMS has "reached the right conclusion because it is consistent with the spirit of the law. Stark has never permitted physician ownership in a department of a hospital, and many under arrangements came very close to joint venturing a department."

Reprinted from the Aug. 11, 2008, issue of REPORT ON MEDICARE COMPLIANCE.

2. Minnesota Gov. Tim Pawlenty (R) unveiled a series of initiatives intended to give consumers greater control of their health care, starting by giving each of the 50,000 state employees up to $250 in a health reimbursement arrangement (HRA) in 2009.

"Minnesota's health care must be market-driven, patient-centered and quality focused," Pawlenty said in a statement late last month. "Now Minnesota will lead the nation in the development of portable personal health records and expanded consumer-directed health care spending accounts for state employees."

Pawlenty proposed giving all Minnesota residents access to a personal health portfolio (PHP) by 2011, and as a first step directed the state Department of Finance and Employee Relations (DFER) to seek proposals for a secure and portable online PHP system for state employees by 2009.

Similar to a personal health record, the PHP will be a Web-based set of tools that allow consumers to access and coordinate their health information, and share parts of that information available to providers and others who need it. The PHP will store prescription history, immunizations, lab results and other medical records from providers and health plans, according to material released by the governor's office.

In addition to the one-time HRA contribution, Pawlenty directed DFER to create a debit card to help state employees manage their HRAs and existing flexible spending accounts (FSAs).

The governor also reiterated support for a statewide Web site in which health plans have agreed to post pricing and quality data. The Web site is scheduled to be online by Jan. 1, 2009.

Pawlenty — often mentioned as a possible vice presidential running mate for Sen. John McCain (R-Ariz.) — introduced the initiatives at a July 29 meeting of a public/private health care purchasing coalition.

Brian McClung, Pawlenty's spokesperson, says that the HRA is a one-time proposition, with funding resulting from better-than-expected trends in the Minnesota Advantage Health Plan, and will not necessarily be repeated in subsequent years.

"Because we have a surplus in our state employee health program, we're going to use those funds to establish health reimbursement arrangements for all state employees," he says.

A few years ago, when the state had a surplus of employee health benefit funds, the excess was used for a one-month "premium holiday" for state workers. "This time we're taking the opportunity to encourage state employees to take a more consumer-oriented role in their health care," McClung says.

All in all, says a state employee union official, workers would have preferred a break on premiums. But the HRA is a nice gesture that should help out many state employees, says Jim Monroe, executive director of the Minnesota Association of Professional Employees, a union representing 11,500 state employees, mainly in midlevel positions requiring a college degree.

The HRA "is a help" to state employees struggling with health care costs, Monroe says. "That amount of money helps people meet their copays and other front-end costs. It's better than nothing."

McClung explains to AIS that the HRA will roll over from year to year. However, "we want the ability to move accounts with low balances or long idle periods to other options," he says. "Some of these details need to be negotiated with state employee unions before they are implemented."

Monroe says that state employees favor the cost and quality database. Also, a debit card to access health-related accounts "makes sense," he adds. "We have historically had low participation in FSAs, and that is largely due to the antiquated paper system that most of them operate under."

According to McClung, only about 30% of state employees use an FSA. "Hopefully, the debit card will encourage more people to use an FSA," he says.

Minnesota does not yet offer state employees a high-deductible health plan (HDHP) or an HSA. However, state lawmakers mandated that an HSA/HDHP be offered to commissioners and management-level employees starting in 2010, according to Monroe.

The initiatives proposed by Pawlenty can be implemented by the state's executive branch without the approval or involvement of state lawmakers, according to McClung.

Sweeping changes in health benefits, such as those proposed by Pawlenty, often are easier to achieve in states such as Minnesota, which requires health plans to be not-for-profit. Consequently, there is a relatively small number of health plans in the state, and their enrollments tend to be large.

Reprinted from the Aug. 15, 2008, issue of INSIDE CONSUMER-DIRECTED CARE

3. Blue Cross and Blue Shield of North Dakota has warned the state insurance commissioner that it will lose millions if it is not allowed to raise premium rates on its products.

The insurer is appealing North Dakota Insurance Commissioner Adam Hamm's (D) disapproval of a rate-increase request for its individual products even as it waits for approval of a rate increase for its group products. But Hamm contends that it's unclear whether the insurer will increase payments to providers, chief among the reasons he gives AIS for approving a prior rate-increase request.

Despite the disapproval of the rate-increase request and substantial fluctuations in net income over the past few years (see table, this page), at least one ratings company is maintaining its current rating on the plan.

The North Dakota Blues plan has more than 350,000 members, according to plan President Michael Unhjem. Last year it posted net income of $18 million, and as of June 30, the plan said it had almost $218 million in reserves. All told, the plan covers roughly 90% of those with health insurance in the state, according to the commissioner.

The plan submits two rate-increase proposals each year — one for individual products and one for group products. Last year, Hamm says, he agreed to a 9.9% increase for the North Dakota Blues plan's group products — a reduction from the insurer's requested 17.3% rate increase — partly because of a pledge the Blues plan made to raise payments to network providers serving group members by 5.6%.

On May 6, 2008, the plan requested a 14.8% rate increase for individual plans and said that if this proposal was approved, it would extend the 5.6% reimbursement-rate increase to providers serving individual members as well. "Then, during the review process for the individual plans [on May 29], they said that as of August, they would reduce rates to providers by up to 2.5%," Hamm tells AIS.

Hamm asserts that "what happened here is they told this department one thing in the process, but on the back end they are giving themselves the ability to keep more of the money themselves. Once those numbers become a moving target, they're not reliable to me." He adds that the department asked the insurer "a number of detailed questions" about the slated 2.5% reduction in payments to providers. Although Hamm requested a response by July 1, the plan sent incomplete answers July 3. And beyond the provider-payment dispute, Hamm asserts that "the requested increase of 14.8% was not justified either — it was far too high. That is not the first time it's happened."

The plan has since stated that it will not withhold funds from payments to providers. And in a prepared statement, Unhjem contended that the "department did not request information about the impact the proposed provider payment withhold would have on our May 2 or May 6 rate-filing submissions." He further argued that "the May 2 and May 6 rate-filing submissions were made before the company contemplated a provider payment withhold, and information regarding such payment withholds could not possibly have been contained in those materials."

North Dakota Blues plan spokesperson Denise Kolpack tells The AIS Report that the rate-increase denial will cost the company roughly $1 million a month. She says an administrative law judge already has been assigned to consider the premium-increase proposal. Under the current situation, the plan has projected an underwriting loss of $20 million to $25 million for 2008, she says. That loss includes the rate-increase disapproval and the decision not to withhold payments to providers.

Standard & Poor's (S&P) thus far has maintained its "A," or stable, rating on the North Dakota Blues plan, analyst Hema Singh tells The AIS Report.

She says S&P is reviewing the insurer now but contends that the rate disapproval is "just one part of their business and a smaller part of their business." She adds, "We haven't taken any action, [although] they did alert us" to the situation.

Hamm likens the hearing to a "mini-trial." Following the hearing, the administrative law judge will issue a recommendation to Hamm, who makes the final decision regarding rate increases. If the Blues plan still disagrees with Hamm's decision, it can appeal to the state district court.

Hamm says he's working to increase competition in the state. And although he declines to name the insurer, he says, "there is one large national health insurance company that has a plan to gain market share in the next couple of years.…I'd like to see increased competition, less utilization and better Medicare reimbursement."

Reprinted from the August 2008 issue of The AIS Report on Blue Cross and Blue Shield Plans.

4. Investigators with the Government Accountability Office (GAO) were able to "easily" set up false durable medical equipment (DME) companies with approval from CMS, according to a report (GAO-08-955) released Aug. 4. HHS and CMS have said that fraud in this industry has "grown more elaborate in recent years," the report says. GAO staff set up two false DME companies by faking contracts with nonexistent wholesale suppliers to show CMS that they had access to supplies. Investigators gave CMS a phone number for these contracts that rang on a telephone in GAO's office building. "When [CMS] left a message looking for further information related to the contracts, a GAO investigator left a vague message in return, pretending to be the wholesale supplier," the report says. "As a result of such simple methods of deception, both fictitious [DME] companies obtained Medicare billing numbers." GAO staff also created fake Medicare beneficiaries and found physician identification numbers on the Internet, the report says. In response, CMS says that it sees there are still gaps in oversight of DME companies and that it will continue to strengthen the enrollment process. Read more at www.gao.gov/cgi-bin/getrpt?GAO-08-955.

Reprinted from the Aug. 11, 2008, issue of REPORT ON MEDICARE COMPLIANCE.

5. Presbyterian Hospital of Dallas and members of a peer-review panel are protected by the Health Care Quality Improvement Act (HCQIA), the U.S. Court of Appeals for the Fifth Circuit said July 23. The judges threw out a $33 million judgment against the hospital in connection with a peer-review finding against a cardiologist, who had sued the hospital when its peer-review panel declared that he provided substandard care. According to the appeals court decision, the lawsuit began with one patient who almost died in 1998 after undergoing a procedure performed by the cardiologist. This put the case before the hospital's clinical risk review committee and internal medicine advisory committee, which was already reviewing some of his other cases, the court explains. Hospital officials decided to have 44 of his cases peer reviewed and to temporarily restrict his access to the cath lab. That analysis showed that the cardiologist gave substandard care in more than half the cases, according to the opinion. His cath lab access was suspended, a move upheld by the hospital's medical board and trustees. The cardiologist filed a lawsuit in 2000 against the hospital and other cardiologists on the panel, alleging defamation. In 2004, a jury awarded him more than $360 million in damages, most of which was for mental anguish, injury to career and punitive damages. The court reduced the award to about $33 million. The hospital appealed, and the appeals court reversed the decision. "To allow an attack…upon the ultimate 'truth' of judgments made by peer reviewers supported by objective evidence would drain all meaning from the [HCQIA]. The congressional grant of immunity accepts that few physicians would be willing to serve on peer review committees under such a threat," the court says. The case is Poliner vs. Texas Health System.

Reprinted from the Aug. 11, 2008, issue of REPORT ON MEDICARE COMPLIANCE.

6. The HHS Office of Inspector General (OIG) continues to review states' false claims laws to determine whether they qualify for a financial incentive, according to letters dated July 24 that have been posted on its Web site. The Deficit Reduction Act (DRA) offers states a reward for enacting a state false claims law that mirrors the federal False Claims Act (FCA). The reward is an extra 10% of recoveries from Medicaid suits brought under the state law (states and the feds share Medicaid recoveries). In this latest round of letters, OIG tells Rhode Island and Georgia that their laws meet the DRA requirements. But New Hampshire, Oklahoma and New Mexico will have to make changes to their laws, OIG says. In late 2006, 10 states originally contacted OIG to review their laws, and OIG told seven that their laws don't qualify them for the bonus. Of those, OIG tells California and Indiana that their laws now meet the DRA requirements, but Florida, Louisiana and Michigan still have work to do, according to the letters.

Reprinted from the Aug. 11, 2008, issue of REPORT ON MEDICARE COMPLIANCE.

7. The Retailers Association of Massachusetts (RAM) says regulations proposed Aug. 11 by Gov. Deval Patrick (D) would make it more difficult for some employers to comply with the state's mandatory health coverage rules. Under the existing law, most employers with more than 10 full-time employees must pay a penalty of $295 per employee if they choose not to offer health coverage. To avoid the penalty, employers have the option of either paying at least 33% of employee premiums or making sure that at least 25% of full-time employees are enrolled in a health plan offered by the employer. The proposed regulations would require employers to meet both requirements or pay the penalty. In a prepared statement, RAM President Jon Hurst said small businesses that employ secondary wage earners or retirees who receive their health coverage elsewhere "will be put in a difficult position." The regulations, if enacted, would take effect Oct. 1 and raise about $45 million this fiscal year, according to the Boston Globe. A public hearing is scheduled for Sept. 5.

8. An advisory referendum seeking guaranteed health coverage for every Wisconsin resident will appear on the November ballot in two Milwaukee suburbs, after more than 3,500 residents of those communities signed a petition for the measure, the Milwaukee Business Journal reported Aug. 11. The referendum calls for the health reform measure to be enacted by Dec. 31, 2009. Communities in other parts of the state also have submitted signatures, the newspaper reports.

Reprinted from the Aug. 18, 2008, issue of HEALTH PLAN WEEK.

9. BlueCross BlueShield of Tennessee has agreed to pay $2.1 million to settle allegations that it violated the False Claims Act, the Justice Dept. said Aug. 11. The settlement resolves allegations that the Tennessee Blues plan, while the primary Medicare Part A fiscal intermediary for the state of New Jersey, failed to adjust the cost-to-charge ratios for many New Jersey hospitals in a timely manner between 2000 and 2002. According to the Justice Dept., the failure resulted in excessive "outlier payments" by Medicare to those facilities. The Justice Dept. made no allegation of fraud against the company. Part A fiscal intermediaries are private health plans that process and pay Medicare claims.

Reprinted from the Aug. 18, 2008, issue of HEALTH PLAN WEEK.

10. The Arkansas Department of Human Services (DHS) issued an order to terminate Medicaid payments to Gilead Family Resource Center, an Arkansas-based provider of mental health services, after a Pulaski County Circuit Court judge lifted a temporary restraining order against DHS. A joint audit of Gilead by DHS's Division of Medical Services and Division of Behavioral Health concluded that there were numerous alleged irregularities in Gilead's Medicaid billing, including insufficient documentation, double billing, and misuse of billing codes to obtain excessive payments.

Reprinted from the August 2008 issue of The HCCA-AIS MEDICAID COMPLIANCE NEWS

11. The owner of several New York City pharmacies was sentenced to 3.3 to 10 years in prison after pleading guilty to billing Medicaid for more than $5 million for prescriptions that allegedly were never filled, said New York Attorney General Andrew Cuomo (D). According to Cuomo, Rauf Ahmad is "one of the kingpins in charge of a massive Medicaid fraud ring," and was 'involved in a complex network of criminal Medicaid fraud" from November 2005 to October 2006. During that time, he allegedly purchased bogus prescriptions and Medicaid beneficiary cards from partners and used them to bill Medicaid on behalf of the pharmacies he owned.

Reprinted from the August 2008 issue of The HCCA-AIS MEDICAID COMPLIANCE NEWS

12. OIG has issued a follow-up audit of Illinois' drug rebate program, finding that the state did not collect rebates on single-source drugs administered by physicians or establish controls over and accountability for their collection (A-05-08-00011). According to the state, it experienced problems with the billing information provided by its drug rebate contractors, and it planned to bill for rebates totaling $308,030 for the first quarter of 2006 in June 2008, and subsequently thereafter. OIG recommended that Illinois implement policies and procedures to collect and submit utilization for single-source drugs administered by physicians so that drug rebates can be obtained, collect the rebates and bill for and collect rebates for subsequent periods. The state agreed with all of OIG's recommendations.

Reprinted from the August 2008 issue of The HCCA-AIS MEDICAID COMPLIANCE NEWS

13. WellPoint subsidiary Blue Cross and Blue Shield of Georgia on July 23 filed an appeal of the May 22 decision by the Georgia Department of Community Health (DCH) not to renew the insurer's contract for the State Health Benefit Plan (SHBP). The award of the contract to UnitedHealthcare, Inc. and CIGNA Corp. was "unlawful and void because DCH failed to appropriately consider costs in its selection process as required by Georgia law and failed to properly score the evaluations," according to spokesperson Cynthia Sanders. DCH spokesperson Matia Edwards responds that the Georgia Blues plan ranked fourth in a ranking of bidders on quality, provider access and other measures. "SHBP fully complied with the DCH procurement policy, which allows the purchase of health care that emphasizes quality and access while still factoring in cost savings," she says.

Reprinted from the August 2008 issue of The AIS Report on Blue Cross and Blue Shield Plans.

14. The New York State Insurance Department on July 21 fined HealthNow New York, Inc. $1 million for improperly denying claims for infertility treatment and other violations of insurance law. The insurance department's investigation was triggered by a single enrollee, but the health plan has agreed to reprocess and pay similar claims for up to 2,500 women. State law requires that group insurance policies cover infertility treatment, except for certain procedures such as in vitro fertilization, the department says. HealthNow responds that it has made changes in processes, procedures, employee training and personnel.

Reprinted from the August 2008 issue of The AIS Report on Blue Cross and Blue Shield Plans.

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