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

1. Although President-elect Obama's proposal to overhaul the health care system would create some barriers for health plans, it also has the potential to boost enrollment and create wider profit margins, according to an analysis of the proposal from PricewaterhouseCoopers (PWC).

In a Nov. 12 conference call to discuss the report, Mike Thompson, a principal in the firm's Human Resource Services practice, suggested that reform efforts proposed by the president-elect, if successful, would create a "new and different" marketplace for health insurers.

An increase in the number of insured Americans could boost membership rates and add "significant revenue" to health plans, he told attendees.

However, PWC says health plans also would face new rules, such as guaranteed issue and community rating, which could dramatically alter the way in which health insurers do business. The federal government also could limit rate increases for plans offered through state insurance exchanges. Under the reform law in Massachusetts, health plans were limited to a 5% rate increase the first year. And the creation of health insurance exchanges also could decrease commissions paid to brokers by insurers and require health plans to do more work in marketing and member relations if brokers aren't given a role to play in the exchanges, according to PWC.

The report estimates the reform proposal, if enacted, would cost the federal government about $75 billion in its first year. Nearly two-thirds of those funds would be used to dramatically reduce the uninsured population.

PWC estimates that about one-third of the cost of Obama's proposal could come from existing funding for the uninsured, much of which now goes to compensate hospitals for uncompensated care. These funds, which come largely from federal, state and local tax support, could be eyed as sources of funding for the expansions in health insurance coverage. But a dramatic expansion of health coverage could lead to a shortage of primary care doctors, the analysis found.

While some industry observers have speculated that the bailout of the financial sector will take priority over the need for health reform, David Levy, M.D., principal of PricewaterhouseCoopers' health industries advisory practice, suggested that the financial crisis could actually accelerate health reform "rather than be a roadblock to it." Some industry observers suggest that a short-term stimulus package expected to be pushed through Congress to address the ailing economy could include some health care reform initiatives.

The complete 40-page report is available www.PwC.com/obamahealthreport.

2. Claiming that the intravenous immunoglobulin market is more stable than it was a few years ago, CMS is following through with its proposal to discontinue the payment for preadministration services for IVIG infusion. But advocacy groups say the market is anything but stable and that something still needs to be done to boost reimbursement to physicians. Without such a step, access to IVIG could continue to be limited, and patients will ultimately be the ones who suffer when they are denied this lifesaving therapy.

According to the Medicare physician fee schedule (PFS) for calendar year (CY) 2009, effective Jan. 1, physicians who administer IVIG in their offices will not be paid an additional amount to help them acquire the product. CMS initiated this payment in 2006 during a period of market instability. Mandated by the 2003 Medicare reform law, the shift to the average sales price (ASP) payment methodology for IVIG and other Part B drugs resulted in physician reimbursement taking a hit starting Jan. 1, 2005.

And CMS says in the CY 2009 outpatient prospective payment system (OPPS) final rule, announced Oct. 31, that a similar preadministration payment for hospital outpatient departments will be discontinued and instead packaged with the payment for IVIG administration. The final rule will appear in the Nov. 18 Federal Register.

CMS's reasoning, according to the PFS, is based on a report (OEI-03-05-00404) by the HHS Office of Inspector General (OIG) released in spring 2007. It found that for the third quarter of CY 2006, "just over half of IVIG sales to hospitals and physicians were at prices below Medicare payment amounts." Compared with the three previous quarters, says CMS, "this represented a substantial increase of the percentage of sales with prices below Medicare amounts." CMS says that a review of national claims data for IVIG utilization and the preadministration services code revealed "modest increases" in both areas, "which suggest that IVIG pricing and access may be improving."

The move to discontinue the payment is "not a surprise," says Michelle Vogel, executive director of the Alliance for Plasma Therapies, a national nonprofit organization established to provide a unified voice for patient organizations, health care providers and industry leaders advocating for fair access to plasma therapies for patients who benefit from them. The payment was "a temporary add-on fee put in place to help providers locate product and schedule patients," she says, noting that it was in place longer than CMS had originally intended it to be.

However, while CMS contends there has been "a lessening of the instability of the IVIG market," Vogel tells AIS that "we do not feel that the marketplace has stabilized." She maintains that the marketplace is inherently unstable just by virtue of the fact that these are products made from human blood, so the supply may vary. And in its response to the proposed PFS, the Plasma Protein Therapeutics Association (PPTA) says it "finds it difficult to believe that market stability can be found in a market where 44% of hospitals and 41% of physicians cannot purchase product at or below the Medicare payment rate." It also notes that CMS looked at the same OIG report last year — when it decided to extend the preadministration payment.

In response, CMS officials tell AIS that data from the PPTA show that supplies have increased the past two years. They add that there are no current plans to do an external study of the situation. But CMS officials do look at claims data, and they "will continue to look at these, as well as at ASP information," they say.

As far as the OIG report findings go, Vogel echoes comments included in the PFS. The ASP pricing system has a six-month lag between when manufacturers report pricing information and when that information is reflected in the ASP price. The third quarter CY 2006 prices that fell below Medicare payment amounts could be attributed to this six-month lag. This means, she says, that once manufacturers increased their prices again, there would be another six-month lag during which reimbursement was based on the previous, lower amount rather than the actual, higher amount. In fact, the 2007 OIG report acknowledged that "if manufacturers were to implement another across-the-board price increase, hospitals and physicians might face issues similar to those that they faced in the first two quarters of 2006."

CMS officials say they are "not sure the pattern suggested is actually there," but also acknowledge that this contention is based on "rolled-up numbers across purchasers."

In the PFS, CMS agrees that this ASP explanation "is likely." Nevertheless, it says, the preadministration payment "was designed to compensate the physician practice for the additional, unusual, and temporary costs associated with obtaining IVIG products and scheduling infusions during a temporary period of market instability. This payment was never intended to subsidize payment for drugs made under the ASP system."

Vogel asserts that providers need a payment that can "make up the difference in the loss in reimbursement." She says this points to the "need to fix reimbursement."

In addition, she contends that patients are not getting adequate treatment, and it will only get worse. Patients continue to be shifted among different sites of care, as sites grapple with not only decreased reimbursement but also the inability to acquire IVIG at or below Medicare's rates. The OIG report stated that 61% of the physicians who responded to the survey said "that they had sent patients to hospitals for IVIG treatment because of their inability to acquire adequate amounts of IVIG or problems with Medicare payment." But this may not be an option soon, as Part B drugs administered in the hospital outpatient setting will be reimbursed at ASP + 4% starting Jan. 1, rather than ASP + 6%, the rate at which Part B drugs administered in physician offices are paid.

"We have already seen a shift out of the hospital outpatient facilities due to reimbursement being reduced to ASP + 5% in 2008, so where are the patients going to receive their infusions if the hospitals can no longer afford to purchase IVIG at the new reduced rates?" asks Vogel.

The CMS officials say that 2007 is the last year for which they have data, so they cannot comment on 2008. "But even if we were to see such a change, I'm not sure what it would indicate," they say. "Maybe there is more [IVIG] availability in physician offices than in hospital outpatient departments."

Home infusion under Medicare Part D is an option for some patients, depending on whether their diagnosis qualifies them for D rather than B (although just the drug is covered under D, not the administration and supplies). But Vogel says that if reports indicating that reimbursement to these providers may be cut are acted upon, that will have a further impact.

"CMS took a situation that was already in jeopardy for these patients and made it worse," contends Vogel.

This constricting of physician and hospital payments is complicated by the fact that many private insurers are putting tighter restrictions on their drug coverage, says Vogel. Since physicians often use IVIG for indications it does not have FDA approval for but that are supported by various clinical studies, the product is especially vulnerable to insurer crackdowns. It takes time and money to appeal rejections, so this can be especially challenging at a time when both are in short supply.

View the 2009 Medicare Physician Fee Schedule (PFS) at www.cms.hhs.gov/center/physician.asp and the 2009 OPPS at www.cms.hhs.gov/HospitalOutpatientPPS.

3. Borgess Medical Center in Kalamazoo, Mich., will be the first hospital in the country to engage, with the HHS Office of Inspector General (OIG's) approval, in a quality-improvement program that calls for splitting with physicians an insurer's rewards for better patient care.

In a ground-breaking advisory opinion (08-16) issued last month, OIG gave the green light to a hospital-wide quality improvement program that allows hospitals to reward physicians for achieving quality targets. That's taking things in a different direction than the OIG-approved gainsharing plans that distributed a percentage of cost savings to physicians based on efficiencies but were limited to departments or service lines, according to attorneys Janice Anderson and Nathaniel Lacktman, both with Foley & Lardner LLP.

"This is all pretty much new territory," says Anderson, who requested the OIG opinion with Foley & Lardner colleague Charles Oppenheim. "Hospitals and physicians are aligning with each other around quality, which is a shared goal."

In the advisory opinion, Borgess asked OIG whether its plan to share with physicians certain performance-based compensation from an insurer would trigger civil monetary penalties (CMPs) that bar kickbacks and forbid hospital payments to physicians to limit services to Medicare or Medicaid beneficiaries.

Borgess participates in an insurer's pay-for-performance program. On top of the base compensation the insurer pays the hospital for treating patients, the insurer would pay Borgess a bonus if it meets certain standards of quality and efficiency. The bonus is a percentage of the base compensation from the first year of the program. The max in 2008 will be 4%.

Part of the bonus hinges on whether the hospital meets certain quality standards. For 2008, these standards relate to six conditions or procedures from CMS's Hospital Quality Initiative (e.g., heart attack, heart failure, pneumonia, surgical infection). The hospital has to report data for only two of them; the hospital must achieve certain performance standards on the other four, the opinion states. Because the conditions are drawn from CMS's Health Quality Initiative, hospitals know what they need to do to get the quality-based payments, Lacktman says. The insurer will base the bonus on the hospital's performance with all patients, including Medicare and Medicaid beneficiarie, and not just patients covered by the insurer.

Borgess told OIG it needs medical staff to help meet the quality targets. So the proposal envisions forming an entity composed of physicians who have been on the active medical staff for at least one year. The physicians will each make an equal capital contribution to fund the entity and must agree to adhere to the quality targets.

The plan is to forge a "quality enhancement professional services agreement" between the hospital and the physician entity. Physicians will help the hospital achieve the quality targets by, for example, developing policies and procedures, participating in quality reviews, conducting peer review and auditing medical records. As a reward, the hospital will pay the physicians a percentage of the insurer's bonus compensation.

In the advisory opinion, OIG said it would not seek sanctions against the hospital for its payments to the physicians under the pay-for-performance program even though it might violate the CMP law that bars incentives to limit care. The reason: OIG says there are enough safeguards to prevent any reduction in services.

For example, physicians get paid for behavior designed to improve patient care. The performance measures are "clearly and separately identified," which promotes public scrutiny and physician accountability for adverse events, OIG says. And the hospital has pledged to monitor implementation of the quality targets to keep an eye out for inappropriate limitations of patient care.

The advisory opinion also said the pay-for-performance program would violate the CMP law against kickbacks if there were an intent to induce referrals, but OIG will not pursue sanctions because of additional, relevant safeguards. For example, it's unlikely the hospital is using the payments to lure physicians' business because only physicians who have been on the medical staff for a year can participate (by joining the new entity). And their additional referrals won't help drive up the bonus compensation because it's calculated according to the base compensation of the first year of the deal, which can increase based on inflation but not based on volume. Also, participation is open to all physicians, not just the big referral sources. If any physician's referral patterns change significantly because of the program's rewards in a way that benefits the hospital, OIG says the hospital will terminate the physician from the program.

Anderson and Lacktman say a lot of hospitals are showing interest in this model. Although fraud-and-abuse laws are a common stumbling block, the advisory opinion should help clear the way, they say.

Meanwhile, the link between quality and payment continues to get a big push in the public sector. Anderson says the government is working to ensure that Medicare gets a quality bang for its buck. To promote that goal, CMS and other government agencies have employed a three-part approach:

(1) Payment reform. This includes the Hospital Quality Initiative, which docks hospitals' DRG payments if they fail to report to CMS on a number of designated quality measures (which will reach 42 by fiscal year 2010). Congress is also expected to enact a bill authorizing value-based purchasing, which is a step beyond reporting.

(2) Public reporting through Web sites like Hospital Compare, which is where CMS reports the results of the Hospital Quality Initiative. With more consumers educated through the Internet, providers feel the pressure to improve quality, Anderson says.

(3) Enforcement actions. False claims cases have been built on substandard quality. And though so far the failure to comply with Medicare conditions of participation (CoP) doesn't give rise to a false claim (cases have been built only on failure to comply with the conditions of payment), Anderson says "that could change once it becomes apparent to the courts through value-based purchasing that quality is required for payment. Even now, failure to comply with the CoP may trigger False Claims Act lawsuits."

Reprinted from the Nov. 17, 2008, issue of REPORT ON MEDICARE COMPLIANCE.

4. Watch for False Claims Act (FCA) cases dealing with the government's drug approval process, durable medical equipment and upcoding. That's the way one veteran whistle-blower attorney sees the FCA wind blowing. This past year has been a fruitful one for the Department of Justice (DOJ), which recovered $1.34 billion through FCA and fraud settlements and judgments during fiscal year (FY) 2008, according to a Nov. 10 announcement. The vast majority of these cases were brought by private citizens under the law's qui tam (whistle-blower) provisions, the government points out.

Nearly 80% of FY 2008 recoveries are associated with lawsuits that were filed by whistle-blowers on behalf of the government against those who filed false claims for federally funded programs like Medicare and Medicaid, defense contracts and disaster assistance, among other programs. Whistle-blowers were awarded $198 million in FY 2008, DOJ says.

Settlements from health care fraud cases make up "the lion's share" of the recoveries, accounting for $1.12 billion from both whistle-blower claims and government-initiated cases, DOJ says. The largest settlements were with drug companies. Three of them (Cephalon Inc., Merck & Co. and CVS Caremark Corp.) totaled $640 million in federal repayments and $430 million that was returned to state Medicaid programs.

DOJ says settlements with Staten Island University Hospital ($74 million) and St. Joseph's Hospital of Atlanta ($26 million) were major contributors to this year's recovery total:

The health care industry will probably see more large-value settlements from pharmaceutical companies, says Erika Kelton, an attorney in Phillips & Cohen LLP's Washington, D.C., office. "Some that were filed a while ago are ripening and will settle soon," she tells AIS. While these cases have focused on marketing issues, kickbacks and pricing, Kelton says a likely future trend will be more lawsuits looking at fraud in the Food and Drug Administration approval process (nondisclosure of unfavorable study results, skewed statistical analyses and other misleading submissions).

The durable medical equipment industry will also see more scrutiny, she predicts, not only of manufacturers, but also of the hospitals and providers giving products to patients.

A classic issue providers should continue to be wary of is coding and upcoding, Kelton adds. "Whistle-blowers are always calling [our firm] with those kinds of concerns."

Visit www.usdoj.gov and click on "Press Releases."

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New • Health Plan Facts, Trends & Data 2008-2009 • Health Plan Enrollment Stats: Comparative 5-Year Market Share, Trends, Data • High-Risk Areas in Medicare Billing • AIS's HIPAA Compliance Center Best Sellers • 2008 Managed Medicare & Medicaid Factbook • AIS's Directory of Health Plans • Health Plan Pay-for-Performance Programs: The Next Generation See full listing of products at AIS Marketplace