April 2012 Archives

April 27, 2012

Important Deadlines Looming for Healthcare Providers Who Treat Medicare Patients

In this rapidly-changing healthcare environment, providers need to remain cognizant of important deadlines that could affect their bottom lines. Here are several such deadlines under the Medicare program which could significantly impact cash flow.

Saturday, June 30, 2012 - "E-Prescribing" - In order to qualify for an e-prescribing hardship exemption for calendar year 2013, eligible professionals ("EPs") who are not otherwise exempt from Medicare's e-prescribing program must request a hardship exemption on or before June 30, 2012. Without a hardship exemption, all EPs who are not exempt from the program are expected to be e-prescribing. If they are not, then they will be penalized by having their Medicare reimbursement rates reduced by 1.5% for all services rendered by them in 2013.

The final rule provides a number of ways in which EPs who are not otherwise exempt can avoid the e-prescribing penalty that is scheduled to begin on January 1, 2013. Below are the significant hardship exemption categories that an EP can apply for to avoid the penalty:

• His/her practice is located in a rural area without high speed internet access.
• His/her practice is located in an area without sufficient available pharmacies for e-prescribing.
• He/she is unable to electronically prescribe due to local, State or Federal law or regulation (e.g., physicians who mainly prescribe narcotics but because of State law cannot submit these prescriptions electronically can apply for this exemption category).
• He/she prescribed fewer than 100 prescriptions between January 1, 2012 and June 30, 2012.

Sunday, July 1, 2012 - "5010 Implementation" - Recently, the Centers for Medicare & Medicaid Services (CMS) announced that it will delay for 90 days any enforcement action against any HIPAA-covered healthcare provider which has failed to complete its implementation of the Version 5010 format for electronic claims submissions. The "toll" on enforcement actions by the Government will end on July 1, 2012.

During the additional 90 days in which CMS will not initiate enforcement penalties, healthcare providers should collaborate with their trading partners on appropriate strategies to resolve any remaining problems. CMS has identified two steps that providers can take to ensure a smooth upgrade. They are:

1. Establishing a line of credit: To avoid potential cash flow disruptions, providers should consider establishing or increasing a line of credit. By doing so, they can prepare for possible delays and denials in payer claims reimbursements if noncompliant Version 5010 transactions are submitted.

2. Check partner readiness: Because a provider's Version 5010 upgrade can be dependent upon his or her billing vendor, it is important for providers to be aware of their vendor's transition status. If a healthcare provider's vendor is behind schedule for Version 5010 adoption, the healthcare provider should get confirmation of the vendor's timeline to become compliant, and encourage the vendor to take action so that it will be prepared to handle the provider's claims when the enforcement "toll" ends on July 1st.

Monday, October 1, 2012 - "EHR Incentive Program" - In order to qualify for the maximum incentive amount available under the Medicare portion of the Electronic Heath Record ("EHR") incentive program, EPs must start participating no later than October 1, 2012. The incentive program offers up to $44,000 for those EPs participating under the Medicare portion of the program and up to $63,750 for those participating under the Medicaid portion of the program.


• To qualify for Medicare EHR incentive payments, Medicare EPs must successfully demonstrate meaningful use for each year of participation in the program.

• Incentive payments are made based on the calendar year. The reporting period for the first year is any 90 continuous days during the calendar year. The reporting period for all subsequent years is the entire calendar year.

• EPs who delay and do not qualify for Medicare EHR incentive payments until 2013 can receive up to $39,000 in total incentive payments (i.e., $5,000 less than if they qualified in 2012). Similarly, EPs who delay and do not qualify for Medicare incentive payments until 2014 can receive up to $24,000 in total incentive payments (i.e., $20,000 less than if they qualified in 2012).

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April 23, 2012

Antitrust Lawsuit Against Blue Cross Blue Shield Dismissed

By an order dated March 30, 2012, the United States District Court for the Eastern District of Michigan dismissed an antitrust claim brought by the City of Pontiac against Blue Cross Blue Shield (BCBS), the largest private health insurance provider in Michigan. In the case of City of Pontiac v. Blue Cross Blue Shield of Michigan, the City alleged that BCBS' practice of requiring hospitals to charge higher fees to competitor insurance carriers is anti-competitive and results in higher prices for other insurers, thereby threatening their ability to remain viable. BCBS essentially trades higher payments for services to the hospitals in consideration of their agreement to this provision. This practice, which is known as "most favored nation plus" status, was asserted to be a "violation per se" of antitrust laws, resulting in higher prices for competitors.

To make a determination of whether an arrangement is a "per se" violation, one must first evaluate whether the collaborative arrangement involves agreements--such as jointly agreeing on prices--that are inherently anticompetitive. If so, the arrangement must demonstrate the following to avoid being determined per se unlawful:

1. the arrangement has the potential to yield significant benefits or efficiencies for consumers; and

2. the arrangement's anticompetitive agreements and practices are subordinate to and reasonably necessary to achieve these potential benefits and/or efficiencies.

The court dismissed the City's complaint because it determined that the arrangement was not horizontal in nature (i.e., among the hospital providers themselves who are direct competitors), but rather, was one of a vertical nature (i.e., between the provider and an entity at a different level within the same market; meaning, BCBS as a purchaser of hospital services). Horizontal arrangements are initially evaluated by the "per se" rule. An arrangement that is not "per se" unlawful is instead subject to the "rule of reason" analysis.

The "rule of reason" analysis primarily involves an assessment of whether a collaborative arrangement is likely to have anticompetitive effects--for example, result in prices above competitive levels--and if so, whether these potential effects are outweighed by any procompetitive efficiencies which would justify the collaborative arrangement or agreement. When assessing potential anticompetitive effects, one consideration is whether providers and health plans are capable of raising, and likely to raise, prices in their market above competitive levels. Another consideration is whether a collaborative arrangement is likely to prevent or impede the operation of other health
plans or providers.

In order to survive the motion to dismiss, the City had to allege sufficient facts to justify proceeding on a "rule of reason" claim (because the arrangment was vertical instead of horizontal), but it failed to state factual bases for such allegations since it focused on the "per se" allegations. The complaint was, in short, determined to be inadequate.

The U.S. Department of Justice (DOJ) and the Michigan Attorney General also previously filed an antitrust action on the same matter (United States of America v. Blue Cross Blue Shield of Michigan), which is still proceeding. The parties to the DOJ case initially acknowledged that the "rule of reason" analysis applies.

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April 11, 2012

New Hampshire House Passes Sweeping Rules Regarding Physician Relationships with Medical Device Companies

On March 29, 2012, with veritably no debate and less fan-fare, the New Hampshire House of Representatives recommended for passage HB 1725. HB 1725 is broad-reaching, and would prohibit all medical practitioners from prescribing or referring any FDA class II or class III implantable device in cases where they would gain profit, directly or indirectly from the sale of the device, or from performing any procedure involving the device. HB 1725 is currently being fast-tracked - the New Hampshire Senate Committee on Health and Human Services has scheduled a hearing on HB 1725 on April 19, 2012.

Supporters of the bill assert that it is necessary to protect New Hampshire from the perceived problems associated with physician-owned distributors ("PODs"), which appears to be pre-textual insofar as it is believed that no PODs are currently operating in New Hampshire, though supporters have argued the law is necessary as a preventative measure. As drafted, however, the bill goes significantly further than merely outlawing PODs; HB 1725 would essentially prohibit physicians from continuing to practice in their specialty in New Hampshire if they have legitimately developed medical devices and received payment for the same. Thus, even in the absence of any potential abuse or evidence of over-utilization, those physicians would effectively be barred from practice in the State.

Opponents of the bill argue that it could have significant unintended patient safety implications, as New Hampshire would effectively have outlawed the process by which physicians and legitimate medical device manufacturers continuously develop, promote, test, obtain feedback on, and improve life-saving medical devices. Additionally, HB 1725 could have significant chilling and anti-competitive effects on innovators, small businesses/medical device startup companies, and hospitals that employ physicians who develop intellectual property (such as university hospitals and others who engage in significant research and pay royalties to physicians).

Most of the potentially negative effects of HB 1725 occur because of the breadth of the bill, its lack of exceptions, and the fact that it layers upon a statutory definition in New Hampshire's current "self-referral" law, which currently merely requires disclosure of certain ownership interests to patients (a la the Stark In Office Ancillary Services exception's disclosure requirement for certain imaging services). That statute defines an "ownership interest" broadly as being:

"any and all ownership interest by a health care practitioner or such person's spouse or child, including, but not limited to, any membership, proprietary interest, stock interest, partnership interest, co-ownership in any form, or any profit-sharing arrangement. It shall not include ownership of investment securities purchased by the practitioner on terms available to the general public and which are publicly traded."

HB 1725, as drafted, would prevent a practicing physician (or their spouse/children) from receiving royalties for intellectual property that they have developed and licensed to a medical device manufacturer. Further, an innovative and entrepreneurial physician would be subject to liability if they, or their spouse or children, decided to create or invest in a medical device company for otherwise legal purposes. HB 1725, as drafted, does not distinguish between legitimate physician/medical device company interactions (e.g., bona fide businesses, as opposed to a marketing tool of a device manufacturer, or a sham entity designed to provider remuneration to referring physicians), and creates a near-absolute prohibition on physicians capitalizing on their intellectual property while continuing to practice in their field of specialty.

Opponents of the bill include the New Hampshire Medical Society, which questions the need for the legislation as no PODs currently exist within the state, and is concerned about the effect the law may have on medical innovation and legitimate cost savings vehicles, including ACOs and other payment/purchasing modalities. The Medical Society has further questioned whether the bill is necessary given developments in Federal law, and whether the legislature would be better off amending the bill to include the guidelines adopted by the AMA instead of a wholesale restriction on such activities.

To date, the legislative passage of New Hampshire's HB 1725 has not been widely publicized. The next significant legislative step occurs on April 19, 2012, when New Hampshire Senate Committee on Health and Human Services has scheduled a hearing on HB 1725.

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April 2, 2012

Significant Stark Law Case Overturned by the Fourth Circuit Court of Appeals

In an opinion issued March 30, 2012, the United States Court of Appeals for the Fourth Circuit overturned a $45 million judgment against Tuomey Healthcare System, Inc. ("Tuomey"), a private, nonprofit corporation which owns and operates Tuomey Hospital in Sumter County, South Carolina. A former physician brought a qui tam action against Tuomey alleging that certain contracts entered with physicians violated the Stark Law and that billings resulting from referrals from those physicians constituted false claims under the False Claims Act. The United States government intervened in the action, which proceeded to a jury trial, with the False Claims Act violations and other equitable theories pursued by the government, such as unjust enrichment and payment by mistake.

The jury found that the contracts between Tuomey and the physicians violated the Stark Law, but also found that Tuomey did not violate the False Claims Act. After the jury verdict, the District Court set aside the jury verdict and ordered a new trial on the False Claims Act allegations. Additionally, the District Court found that because the jury had found that the contracts in question violated the Stark Law, the government was entitled to judgment against Tuomey on the equitable claims. The District Court then entered judgment against Tuomey for approximately $45 million plus interest on the equitable claims.

The Fourth Circuit vacated the decision of the District Court to enter judgment against Tuomey on the equitable claims, finding that the Judge's decision to set aside the jury verdict and order a new trial on the False Claims Act allegations precluded his use of the jury's finding of Stark Law violations to enter judgment against Tuomey on the government's equitable claims. The Fourth Circuit found that the manner in which the District Court reached his conclusions violated Tuomey's Seventh Amendment rights. A new trial should take place in the near future.

Going forward, this will be an important case to monitor for further developments as they related to the Stark Law and the physician compensation arrangements.

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