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December 19, 2014

CMS Implements Final Rule Changes for the Open Payments Program

The Centers for Medicare and Medicaid Services ("CMS") is charged with the implementation of the Physician Payments Sunshine Act. CMS developed the Open Payments Program to keep track of data on consulting fees, research grants, travel reimbursements and other gifts made by certain manufacturers and organizations to physicians and teaching hospitals. Since the implementation of the Open Payments Program in February 2013, CMS has encouraged and received feedback from the public regarding certain aspects of the reporting requirements set forth in the Open Payments regulations. Based on this feedback, CMS made the following revisions to the regulations as a part of the 2015 Medicare Physician Fee Schedule (see, Final Rule published November 13, 2014):

• Deleted the Continuing Education Exclusion in its entirety because it is redundant with the exclusion for indirect payments where the manufacturer does not know the identity of the recipient during the reporting year or by the end of the second quarter of the following reporting year (see, 42 C.F.R. 403.904(i)(r)). Therefore, if a continuing education payment meets the exclusion in § 403.904(i)(r), it will remain unnecessary to report the payment even in light of the deleted exclusion;
• Made the reporting of the marketed name of a covered drug, device, or biological required, as opposed to optional, even if the marketed name may not be recognizable to the general public;
• Required reporting of stocks, stock options, or any other ownership interest as distinct categories; and
• Removed the definition of "covered device" because it is duplicative.

The revisions were effective as of October 31, 2014 and will be implemented for the 2016 program year, with reporting to CMS in 2017.

Continue reading "CMS Implements Final Rule Changes for the Open Payments Program" »

December 15, 2014

OIG Releases 2015 Work Plan

On October 31, 2014, the Department of Health and Human Services ("HHS") Office of the Inspector General ("OIG") released its Fiscal Year ("FY") 2015 Work Plan summarizing its new and ongoing investigative, enforcement, and compliance priorities for the upcoming fiscal year.

For FY 2014, the OIG reported recoveries of over $4.9 billion, consisting of nearly $834.7 million in audit receivables and about $4.1 billion in investigative receivables. Additionally, it reported exclusions of 4,017 individuals and entities from participation in Federal healthcare programs; 971 criminal actions against individuals or entities that engaged in crimes against HHS programs; and 533 civil actions, which include false claims and unjust-enrichment lawsuits filed in Federal district court, CMP settlements, and administrative recoveries related to provider self-disclosure matters.

The OIG states that it will continue to focus on emerging payment, eligibility, management, and IT systems security vulnerabilities. Additional areas of focus include: quality and access in Medicare and Medicaid, public health and human services programs, and the appropriateness of Medicare and Medicaid payments.

A complete copy of the Work Plan is available here. Below is a summary of key provisions which provide significant insight on the OIG's objectives for FY 2015:


• New Inpatient Admission Criteria: The OIG continues to focus on inpatient hospital admissions. For FY 2015, it will determine the impact of new inpatient admission criteria on hospital billing, Medicare payments, and beneficiary co-payments. Its review will also determine how billing varied among hospitals in FY 2014. Beginning in FY 2014, new criteria state that physicians should admit Beneficiaries for inpatient care who are expected to require care that crosses at least two midnights (known as "the two-midnight rule"). Beneficiaries whose care is expected to last fewer than two midnights should be treated as outpatients.

• Analysis of Salaries Included in Hospital Cost Reports: OIG will review data from Medicare cost reports and hospitals to identify salary amounts included in the operating costs reported to and reimbursed by Medicare. Additionally, OIG will determine the potential impact on the Medicare Trust Fund if the amount of the employee compensation that could be submitted to Medicare for reimbursement on future costs reports had limits. Employee compensation may be included in allowable provider costs only to the extent that it represents reasonable remuneration for managerial, administrative, professional and other services related to the operation of the facility and furnished in connection with patient care.

• Medicare Oversight of Provider-Based Status: OIG will determine to the extent which provider-based facilities meet CMS's criteria. Provider-based status allows facilities owned and operated by hospitals to bill as hospital outpatient departments. Provider-based status can result in higher Medicare payments for services furnished at provider-based facilities and may increase beneficiaries' co-insurance liabilities.

• Comparison of Provider-Based and Free-Standing Clinics: OIG will review and compare Medicare payments for physician office visits in provider-based clinics and free-standing clinics to determine the difference in payments made to clinics for similar procedures and assess the potential impact on the Medicare program of hospitals' claiming provider-based status for such facilities. Provider-based facilities often receive higher payments for some services than do freestanding clinics. The requirements to be met for a facility to be treated at provider based are at 42 CFR § 413.65(d).

• Critical Access Hospitals--Payment Policy for Swing Beds: OIG will compare reimbursement for swing-bed services at critical access hospitals ("CAHs") to the same level of care obtained at a traditional SNFs to determine whether Medicare could achieve savings through a most cost effective payment methodology.

Nursing Homes

• Questionable Billing Patterns for Part B Services During Nursing Home Stays: OIG will identify questionable billing patterns associated with nursing homes and Medicare providers for Part B services provided to the nursing home residents during stays not paid under Part A.

Other Provider & Suppliers

• Ambulatory Surgical Centers--Payment System: OIG will review the appropriateness of Medicare's methodology of setting ASC payment rates under the revised payment system. Additionally, it will also determine whether payment disparity exists between the ASC and the hospital outpatient department payment rates for similar surgical procedures provided in both settings

• Anesthesia Services--Payments for Personally Performed Services: OIG will review Medicare Part B claims for personally performed anesthesia services to determine whether they were supported in accordance with Medicare requirements. Additionally, OIG will determine whether Medicare payments for anesthesia services reported on a claim with the "AA" service code modifier met Medicare requirements. Physicians report the appropriate anesthesia modifier code to denote whether the services were personally performed or medically directed.

• Diagnostic Radiology--Medical Necessity of High-Cost Tests: OIG will review Medicare payments for high-cost diagnostic radiology tests to determine whether the tests were medically necessary and to determine the extent to which use has increased for these tests.

• Imaging Services--Payments for Practice Expenses: OIG will review Medicare Part B payments for imaging services to determine whether they reflect the expenses incurred and whether the utilization rates reflect industry practices. For selected imaging services, OIG will focus on practice expense components, including the equipment utilization rate. Practice expenses may include office rent, wages, and equipment.

• Selected Independent Clinical Laboratory Billing Requirements (new): OIG will review Medicare payments to independent clinical laboratories to determine laboratories' compliance with selected billing requirements. The results of the reviews will be used to identify clinical laboratories that routinely submit improper claims and recommend recovery of overpayments where appropriate. Prior OIG audits, investigations and inspections have identified independent clinical laboratory areas at risk for noncompliance with Medicare billing requirements.

• Physicians--Place-of-Service Coding Errors: OIG will review physicians' coding on Medicare Part B claims for services performed in ASCs and hospital outpatient departments to determine whether they properly coded the places of service. Prior OIG reviews determined that physicians did not always correctly code non-facility places of service on Part B claims submitted to and paid by Medicare contractors. Federal regulations provide for different levels of payments to physicians depending on where services are performed.

• Portable X-Ray Equipment--Supplier Compliance with Transportation and Setup Fee Requirements: OIG will review Medicare payments for portable x-ray equipment services to determine whether payments were correct and were supported by documentation. We will also asses the qualifications of the technologists who performed the services. Prior OIG work found that Medicare may have improperly paid portable x-ray suppliers for return trips to nursing facilities (i.e., multiple trips to a facility in 1 day). Medicare generally reimburses for portable x-ray services if the conditions of coverage are met.

Information Technology Security, Protected Health Information, and Data Accuracy

• Controls over Networked Medical Devices at Hospitals: OIG will examine whether CMS oversight of hospitals' security controls over networked medical devices is sufficient to effectively protect associated electronic protected health information ("ePHI") and ensure beneficiary safety. Computerized medical devices, such as dialysis machines, radiology systems, and medication dispensing systems that are integrated with electronic medical records ("EMRs") and the larger health network, pose a growing threat to the security and privacy of personal health information. Such medical devices use hardware, software, and networks to monitor a patient's medical status and transmit and receive related data using wired or wireless communications.

Other Medicaid Services, Equipment, and Supplies

• Billing & Payments, Transportation Services--Compliance with Federal and State Requirements: OIG will review Medicaid payments by States to providers for transportation services to determine the appropriateness of the payments for such services. Federal regulations require States to ensure necessary transportation for Medicaid beneficiaries to and from providers (42 CFR § 431.53). Each state may have different Medicaid coverage criteria, reimbursement rates, rules governing covered services, and beneficiary eligibility for services.

Medicaid Managed Care

• Medicaid Managed Care Entities' Identification of Fraud and Abuse: OIG will determine whether Medicaid MCOs identified and addressed potential fraud and abuse incidents. We will also describe how States oversee MCOs' efforts to identify and address fraud and abuse. A prior OIG report revealed that over a quarter of the MCOs surveyed did not report a single case of suspected fraud and abuse to their State Medicaid agencies in 2009. The report also found that MCOs and States are taking steps to address fraud and abuse in managed care and they remain concerned about their prevalence. All MCOs are required to have processes to detect, correct, and prevent fraud, waste, and abuse. However, the Federal requirements are general in nature (42 CFR § 438.608), and MCOs vary widely in how they deter fraud, waster, and abuse.

• Oversight of Managed Care Entities' Marketing Practices: OIG will review State Medicaid agencies' oversight policies, procedures, and activities to determine the extent to which States monitor Medicaid MCOs' marking practices and compliance with Federal and State contractual marketing requirements. Additionally, OIG will also determine to the extent to which CMS ensures that States comply with Federal requirements involving Medicaid MCO marketing practices. No marketing materials may be distributed by Medicaid MCOs without first obtaining States' approval. (Social Security Act, § 1932(d)(2)). States are permitted to impose additional requirements in contacts with MCOs about marketing activities. (42 CFR § 438.104).

Takeaways from the OIG Work Plan

The OIG Work Plan is a valuable resource to healthcare organizations as it serves as a tool in identifying compliance risk areas. Organizations should consider utilizing the plan as a roadmap drafting their corporate compliance programs--though the Plan should not be the only resource relied upon.

Continue reading "OIG Releases 2015 Work Plan" »

December 9, 2014

AHA Submits Comments to OMHA on ALJ Backlog

In a letter dated December 4, 2014, the American Hospital Association ("AHA") submitted comments in response to the Office of Medicare Hearings and Appeals ("OMHA") request for information on current and potential initiatives to resolve the current backlog of appeals at the administrative law judge ("ALJ") level.

In its letter, the AHA takes the position that "fundamental reform of the recovery audit contractor ("RAC") process is at the heart of an effective and permanent solution to the appeal backlog problem." According to the AHA, "excessive and inappropriate" RAC denials have forced hospitals to continuously appeal claims resulting in an influx of appeals reaching the ALJ level. Moreover, the AHA highlighted problems with the RAC contingency fee structure which encourages RACs to find overpayments "with impunity." The AHA believes that assessing financial penalties on RACs for inappropriate denials would promote more appropriate and accurate assessments.

Accordingly, the AHA provided additional administrative changes that would enhance audit accuracy and reduce burden on hospitals and the appeals system, including:

• Codifying in regulation CMS's assertion in the preamble of fiscal year 2014 inpatient prospective payment system final rule that the RACs are limited to determining whether an inpatient is medically necessary based on the medical documentation available at the time the admission decision was made.

• Eliminating the application of the one-year filing limit to rebilled Part B claims. The AHA believes that hospitals should be able to submit a subsequent Part B claim for the services provided so long as the Part B claim is submitted within 180 days of a final determination. This would allow hospitals to pursue their appeal rights and receive a final determination on the Part A claim before rebilling under Part B.

• Limiting RAC approval for auditing approved issues (such as inpatient short stays) to a particular defined time period, instead of approving them indefinitely. Additionally, a senior CMS official should be designated to be accountable for the approval of audit issues. After the issue's audit time period has run, RACs must stop auditing the issue. CMS would then analyze the audit results and provide education to its provides in that jurisdiction, if warranted. A RAC would need to seek new approval from CMS to audit for the same issue, but must wait a certain defined time period to allow providers to incorporate education before requesting new approval.

Additionally, the AHA asserted that the lack of critical operational information discourages hospitals from participating in the OMHA established pilot program. Accordingly, the AHA listed the following questions and concerns surrounding the operation of the Statistical Sampling Pilot, including:

• Use of Extrapolation: The OMHA states that a "Medicare contractor" will extrapolate the ALJ's decision on the sample set of claims to the larger universe of claims for which the sample was drawn; however it is not clear which Medicare contractor would perform extrapolation. The AHA strongly opposes CMS's use of RACs to extrapolate the ALJ's decisions, given the significant financial incentives the RACs have to increase hospital claim denials. In addition, the AHA believes that the OMHA does not provide details on how the extrapolation would be conducted and it is unclear whether or how hospitals would be able to challenge the validity of the extrapolation.

• Part B Rebilling: The OMHA states that the ALJ cannot extrapolate the amount that a hospital would receive if it submits denied Part A admissions for rebilling under Part B. Although OMHA does not directly address whether hospitals would have the right to rebill denied Part A admissions that were part of a universe of claims, it seems impossible from a practical perspective that hospitals would be able to do so. Therefore, the AHA believes that the use of statistical sampling for denials of Part A admissions may result in hospitals forgoing their ability to receive any payment for those claims

• Effect of Withdrawing Consent: Hospitals will be able to withdraw consent for participation in a statistical sampling until the ALJ has issued a pre-hearing conference order. However, the AHA believes that once a hospital withdraws consent, it is not clear whether appeals that would have been subject to statistical sampling will remain in queue for a hearing by an ALJ or if they will go to the back of the line.

The AHA notes that although improvements to the Statistical Sampling Pilot program may make the settlement more attractive to hospitals, it nonetheless remains an "inadequate substitute" for a timely ALJ hearing. The AHA believes that it is at the ALJ stage of the Medicare appeals process where hospitals are entitled to "independent and objective" review of their claims and historically, have had the greatest rate of success in overturning inappropriate RAC denials. Accordingly, the AHA emphasized that the focus should remain on ensuring that RAC denials truly represent improper payments which requires "fundamental reform" of the RAC process.

Continue reading "AHA Submits Comments to OMHA on ALJ Backlog" »

December 9, 2014

AMA Urges CMS to Make Changes to the RAC Program

In a letter dated December 3, 2014, the American Medical Association ("AMA") urged the Centers for Medicare and Medicaid Services ("CMS") to resolve the two-year backlog of Medicare and Medicaid appeals. The AMA noted that while it appreciated the recent efforts of the Office of Medicare Hearings and Appeals ("OMHA") to address the issue, the problem does not lie with the OMHA. Rather, the fundamental issue driving the appeals backlog lies within the RAC program.

In fiscal year 2013, more than 60 percent of RAC determinations appealed by physicians were overturned. That same year, the OHMA experienced a 506% increase in appealed RAC claims compared to fiscal year 2012. In light of these statistics, the AMA commented that "this [data] demonstrates that the RAC program must be reformed in order to resolve this backlog."

The AMA also highlighted problems with the RAC contingency fee structure which encourages RACs to find overpayments "with little regard for the accuracy of their findings." Currently, RACs are paid approximately 9.0-12.5 percent for denied claims and must only pay back the contingency fee if a claim is later overturned. According to the AMA, this structure provides little incentive for RACs to ensure that they limit their audits.

Additionally, the AMA pointed out the significant cost of RAC appeals. Based on research conducted by the AMA, the total cost of appeals in fiscal year 2012 was approximately $455,468. The AMA added that physicians spend significant financial resources on compliance efforts to ensure compliance with payment rules and regulations. In fact, the AMA found that physicians spend approximately $1,622 per year on probe audits, internal and external chart reviews, and legal and educational expenses.

Accordingly, the AMA strongly urged CMS to consider the following changes to the RAC program:

• RACs should be subject to financial penalties for inaccurate audit findings and physicians should receive interest when they win on appeal of a RAC audit
• Physicians should be permitted to rebill for recouped claims for a year following recoupment
• CMS should provide an optional appeals settlement to physicians similar to that provided to hospitals for short-term care
• CMS should retain the current medical record request limits and allow medical record reimbursement for physicians
• RAC audits of physicians should be performed by a physician of the same specialty or sub-specialty licensed in the same jurisdiction

Continue reading "AMA Urges CMS to Make Changes to the RAC Program" »

November 26, 2014

Documents needed for a BCBSM pharmacy audit

In the December 2014 issue of BCBSM's The Record, BCBSM reminds pharmacies that the following documents should be available to BCBSM if contacted for an audit in order to avoid preventable findings which could result in significant financial recoupment:

Prescriptions. Original prescriptions for written and verbal orders must be submitted by the pharmacy printed copies of electronic and faxed prescriptions are permissible. Scans of written and verbal prescriptions will not be accepted. If the claim was submitted with a "compound 2" indicator, the pharmacy must also supply the compound record, including the national drug codes and the quantities used.

Dispensing histories. A printout of the dispensing history of each prescription (i.e., the date of each dispense for the life of the prescription as well as the quantity dispensed) must be produced including any changes in the medication, drug strength or quantity for any dispense. The pharmacy's software should be able to produce such printout. If not, the dispensing history can be written on a photocopy or back of each prescription.

Signature logs. All BCSM and BCN prescription drug programs require a signature from the member, their representative or their caregiver at the time of dispense to verify receipt of their medications. BCBSM/BCN accepts a member's/representative's/caregiver's signature on a manual or electronic log, including signatures from drive-through customers, as proof that the member received the prescription. For prescriptions that pharmacies mail to members, the pharmacy should provide a dated "proof of delivery/receipt" signed by the member/representative/caregiver.

Members' rights notice. BCBSM is required to report to the Centers for Medicare & Medicaid Services whether network pharmacies are compliant with the requirement to give Medicare Part D patients a copy of the Medicare Prescription Drug Coverage and Your Rights Standardized Pharmacy Notice (CMS-10147/OMB 0938-0975) if the prescription cannot be filled. Please have this notice printed to show the auditor.

Record retention. For BCBSM and BCN commercial, a pharmacy must keep prescription records for a minimum of five (5) years from the last date of service. Michigan law requires that every prescription has to be preserved for at least five (5) years. The federally administered Medicare plan requires that prescriptions be retained a minimum of 10 years after the last date of service.

If your pharmacy is contacted by BCBSM for an audit, you should contact an experienced attorney to assist you in order to reduce the likelihood of significant overpayment demands. The earlier the involvement of experienced legal counsel, the better the opportunity for a successful outcome.

Continue reading "Documents needed for a BCBSM pharmacy audit" »

November 21, 2014

House Ways & Means Health Chair Introduces Draft Legislation Impacting RAC Audits and Short-Term Hospital Admissions

On November 19, 2014, the House Ways & Means health subcommittee Chair Kevin Brady (R-TX) introduced draft legislation that would revamp the Medicare payment structure for short-term hospital admissions, aiming to resolve the backlog of appeals and to improve the current Recovery Audit Contractor ("RAC") program.

The draft bill--called the Hospital Improvement for Payment ("HIP") Act of 2014, provides for a new payment model called the Hospital Prospective Payment System ("HPPS") that would apply to short-term stays. Short-term stays are defined under the bill as: (1) stays that are less than 3 days; (2) stays that have a national average length of stay less than 3 days; or (3) stays that are "among the most highly ranked discharges that have been denied for reasons of medical necessity." The Department of Health and Human Services ("HHS") would be permitted to raise the 3-day threshold "if justified."

HHS would also be required to establish a base rate of payment for the new HPPS through the rulemaking process. The base rate would be calculated by blending the base operating rate for short stays and an equivalent base operating rate for overnight hospital outpatient services.

The draft bill also impacts policies associated with the two-midnight rule--a standard that presumes inpatient hospital stays are reasonable and necessary if the stay crosses two or more midnights. Under the new legislation, the 0.2 percent ($200 million per year) reduction that CMS implemented with the two-midnight rule would be repealed.

Representative Brady's bill also sets out to improve the current RAC program by reducing the current statutory look-back period for RAC audits to 3 years. Additionally, the bill would statutorily mandate that a 30-day discussion period would be available to providers and suppliers prior to issuing a full or partial payment denial. Further, in order to prevent duplicative audits, all Medicare contractors who perform pre- and post-payment reviews would be required to enter active audits into the RAC data warehouse.

The legislation also extends the moratorium on RAC audits by six months to September 30, 2015. Previously, Congress restricted RACs from auditing short-stay admissions under the two-midnight rule through the end of March 2015. RACs would also be prohibited from conducting audits on short-term hospital stays until the HPPS is available.

Finally, the legislation aims to address the staggering increase in provider appeals. In fact, there is a current backlog of more than 800,000 claims at third-level appeals which Brady called "a complex problem" requiring a "comprehensive solution." Brady's bill sets out to relieve the backlog by extending a voluntary settlement process where hospitals would be reimbursed at a settlement rate that is "empirically derived through the rulemaking process."

Continue reading "House Ways & Means Health Chair Introduces Draft Legislation Impacting RAC Audits and Short-Term Hospital Admissions" »

November 18, 2014

PSC Challenges Ruling Implicating RAC Contract Awards

On November 7, 2014, the Professional Services Council ("PSC"), a national trade association of the government technology and professional services industry, filed an amicus brief with the U.S. Court of Appeals for the Federal Circuit to overturn a ruling which would allow Centers for Medicare and Medicaid ("CMS") to modify payment terms for Recovery Auditor ("RAC") contracts.

In August 2014, the U.S. Court of Federal Claims upheld CMS' decision to withhold payments to RACs until the second level of appeal has been exhausted, despite challenges raised by a RAC that the new payment terms were inconsistent with customary commercial practices.

The appeal submitted to the Federal Circuit focuses on the application of the Federal Acquisition Streamlining Act of 1994 ("FASA") and the Federal Acquisition Regulation ("FAR") to the General Services Administration's Federal Supply Schedule ("FSS") program--the program through which CMS contracts RACs.

In its brief, PSC argues that under the FASA and FAR, agencies can only use contract clauses that are "consistent with standard commercial practice." Allowing Federal agencies to add non-commercial terms to orders from the FSS would "unfairly alter the terms of the original FSS Contract bargain and cause contractors to not participate in or leave the FSS program."

PSC agrees with the RAC that if the decision form the Court of Federal Claims is upheld, commercial companies would be discouraged from bidding on federal procurements, undercutting the objectives that FASA originally set out to achieve.

Continue reading "PSC Challenges Ruling Implicating RAC Contract Awards" »

October 23, 2014

Wall Street Journal Article Highlights Increased Scrutiny on In-Office Ancillary Services But Incorrectly Calls This a Loophole

Over the years, there have been attempts to limit the "in-office ancillary services" exception to the physician self-referral law (the "Stark Law"). We have addressed a number of these attempts on our blog (see, for example, Imaging Self-Referrals Could Raise Costs, Hurt Patients, GAO Report Says and Congressional Bill Introduced to Close the In-Office Ancillary Services Exception under the Stark Law). By way of brief background, the Stark Law prohibits a physician from referring Medicare (or other government health plan) patients for certain healthcare services in which the physician has a financial interest. However, in general, the "in-office ancillary services exception" exempts services that are: (1) furnished by a referring physician or member of the same group practice; (2) furnished in a building where the referring physician or group practice furnishes other non-designated health services or in a building used by the group practice for the provision of clinical laboratory services or centralized provision of the group's designated health services; and (3) billed by the physician performing or supervising the services, by the group practice, or by an entity wholly owned by the physician or group practice.

The topic of whether the government should limit this exception to the Stark Law has reached the mainstream media in an article published yesterday in the Wall Street Journal. However, the article contains a number of inaccuracies about the "in-office ancillary services" exception. The article addresses an ongoing investigation by the Office of Inspector General ("OIG") of certain services rendered by a national chain of oncology practices. Although the OIG investigation relates to the medically necessity of services rendered - not a Stark Law violation - a considerable portion of the article criticizes the use of the "in-office ancillary services" exception. It is also important to note that the matter is an investigation only with no proven wrongdoing.

Specifically, the article mischaracterizes the exception as a "loophole" used to exploit the Stark Law. To the contrary, the exception is a lawful, statutory mechanism with hundreds of pages of regulatory commentary supporting, debating, and limiting its use. It is designed to enhance the efficiency of patient care, and it allows for integrated care delivery within a practice. It is not limited to "simple, routine procedures," which the article incorrectly states was the intention behind the exception. Rather, it may be used for more complex procedures and tests as long as all of the requirements of the exception are met. In fact, the author of the article admits that the government has not challenged the interpretation that the exception applies to more complex procedures and tests.

In summary, the article does not offer any new or groundbreaking information on the Stark Law or the "in-office ancillary services" exception. The use of the exception is appropriate when all of its requirements are met. However, the article highlights: (i) the increased scrutiny being placed on the medical necessity of high-value services with a high rate of utilization; and (ii) the increased media and regulatory scrutiny of, and attacks on, the "in-office ancillary services" exception. Therefore, even if the referral is compliant with the Stark Law or one of its exceptions, providers should take care to increase documentation practices to assist in supporting medical necessity of services rendered. In those instances where providers are relying upon the "in-office ancillary services" exception, it is appropriate to confer with healthcare legal counsel to ensure that, in practice, the group meets the "group practice" definition, complies with the "in-office ancillary services" exception, and is otherwise compliant with the Stark Law.

Continue reading "Wall Street Journal Article Highlights Increased Scrutiny on In-Office Ancillary Services But Incorrectly Calls This a Loophole" »

October 23, 2014

The Sunshine Act: Providers Should Correct Disputed 2013 Open Payments Data By October 31st

On September 30, 2014, the Centers for Medicare & Medicaid Services released the first round of "open payments" data pursuant to the Sunshine Act. Currently, the Open Payments Program lists data on consulting fees, research grants, travel reimbursements, and other gifts the healthcare industry provided to physicians and teaching hospitals during the last five months of 2013. The intention behind the program is to provide consumers with greater transparency of the financial relationships between physicians and healthcare manufacturers and companies.

Providers may submit corrections to disputed data at any time. However, for the corrections to be reflected in the next publication to occur on or before December 31, 2014, providers must submit corrections by close of business on Friday, October 31, 2014. Step-by-step instructions for the data correction process can be found on the Quick Reference Guide: Industry Record Review and Dispute Instructions.

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October 23, 2014

Cardiologists Settle False Claims Act Allegations Stemming From Sham Management Agreements with a Hospital

On October 21, 2014, the U.S. Department of Justice ("DOJ") announced that two Kentucky-based cardiologists agreed to pay $380,000 to resolve qui tam allegations of purported Stark Law and Anti-Kickback Statute violations (thereby resulting in a False Claims Act violation). The cardiologists purportedly entered into sham management agreements with a hospital in exchange for the referral of cardiology and other healthcare services to the hospital. Pursuant to the management agreements, the physicians were paid to provide management services that were, apparently, never performed by the physicians. This particular settlement was based on the physicians' ability to pay. Additionally, the physicians agreed to enter into integrity agreements with the Department of Health and Human Services, Office of Inspector General, which will "obligate them to undertake substantial internal compliance reforms and to commit to a third-party review of their claims to federal health care programs for the next three years."

The purpose of the Stark Law and Anti-Kickback Statute is to safeguard against improper financial incentives that compromise a physician's medical judgment and encourage unnecessary referrals, which in turn increase healthcare costs for federal healthcare programs. This recent settlement highlights that the DOJ is no longer simply focusing just on hospitals and larger entities, but is also now enforcing against physician practices. In fact, on August 14, 2014, the DOJ announced that a New York-based cardiology practice agreed to pay $1,336,636.98, plus interest, to settle allegations that the practice violated the Stark Law, and thereby also violated the False Claims Act. (A summary of this settlement may be viewed here.) Additionally, just a month earlier, the DOJ announced that an Alabama-based health system and a physician practice agreed to pay $24.5 million to resolve False Claims Act allegations stemming from purported violations of the Stark Law and Anti-Kickback Statute. (The DOJ press release may be viewed here.)

These three settlements demonstrate that the federal government is using the full breadth of its power to target entities of all types and sizes - not just hospitals - for Stark Law and Anti-Kickback Statute violations. Physicians and non-hospital providers should take a proactive approach to compliance with these laws. This is a good time for providers to review their practices' compensation guidelines and financial relationships with hospitals and other providers. In particular, providers who have management contracts with hospitals should ensure that the management services are actually rendered and that there is a bonafide need for those services.

Continue reading "Cardiologists Settle False Claims Act Allegations Stemming From Sham Management Agreements with a Hospital" »

October 7, 2014

New Compounding Pharmacy Law In Michigan

On June 28, 2014, Governor Snyder signed a new comprehensive law imposing significant regulations on compounding pharmacies and pharmacists that compound both sterile and non-sterile pharmaceuticals including criminal sanctions for certain violations. This new law took September 26, 2014 (i.e., 90 days from the date it was signed into law). The law was in response to growing concerns on the safety of sterile compounding after the New England Compounding Center (NECC) fiasco arose in the Fall of 2012 wherein an outbreak of rare fungal meningitis was reported throughout the United States and the etiology was traced by the Centers for Disease Control and Prevention (CDC)to contaminated epidural steroid injections packaged and marketed by NECC, a compounding facility in Massachusetts. Of the 20 states adversely affected, Michigan had the highest number of fungal infections (264) and the highest number of related fatalities (19) according to the CDC (see

The new law amends Part 161 (General Provisions) and Part 177 (Pharmacy Practice and Drug Control) of the Public Health Code and includes, but is not limited to the following changes:

(1) a person providing compounding services in Michigan is required to be licensed as a pharmacy or manufacturer, and an outsourcing facility is required to be licensed as a pharmacy;
(2) an applicant for a pharmacy license for a pharmacy that would provide compounding services for sterile pharmaceuticals is required to submit verification of current accreditation through a national accrediting organization (e.g., PCAB);
(3) an application process and standards for a pharmacist or pharmacy compounding pharmaceuticals are to be created for a prescriber, health facility, or agency without a prescription;
(4) a pharmacist is prohibited from compounding commercially available pharmaceuticals unless the commercially available pharmaceutical was modified to produce a significant difference and was not available in normal distribution channels to meet the patient's needs in a timely manner;
(5) a pharmacy is required to notify the Department of Licensing and Regulatory Affairs (LARA) of a complaint regarding compounding activities filed by another state for violation of that state's pharmacy laws, an investigation by Federal authorities regarding a violation of Federal law, or an investigation by any agency into a violation of accreditation standards, within 30 days of knowledge of the investigation or complaint;
(6) an out-of-State applicant or licensee is required to reimburse LARA for expenses incurred in an inspection or investigation of the applicant or licensee;
(7) LARA is required to maintain, post, and update on a quarterly basis, a list of pharmacies and pharmacists authorized to compound pharmaceuticals for a prescriber, health facility, or agency;
(8) LARA has the authority to promulgate rules regarding conditions and facilities for compounding pharmaceuticals;
(9) a pharmacist is required to maintain records of compound sterile pharmaceuticals;
(10) a pharmacy, manufacturer, or wholesale distributor is required to designate a licensed pharmacist as the pharmacist in charge (PIC), and establish the duties
of a PIC;
(11) certain applicants for new pharmacies, manufacturers, or wholesale distributors are required to undergo a criminal history check;
(12) there are criminal penalties imposed for violations of certain statutory provisions and requirements; and
(13) LARA may summarily suspend a pharmacy license if it receives a notice of imminent risk to public health or safety from the FDA or the CDC.

The new law in its entirety is available at:

Continue reading "New Compounding Pharmacy Law In Michigan" »

October 6, 2014

Pharmacy Technicians Must Be Licensed In Michigan

On September 23, 2014, Governor Snyder signed a new law requiring pharmacy technicians to be licensed in the State of Michigan. This new law is take effect on December 22, 2014 (i.e., 90 days from the date it was signed into law). Pharmacy technicians will be required to submit an application for licensure, have graduated high school or passed the GED and submit proof of passing a certified pharmacy technician examination. There is a provision within the law that allows an employer to provide training in lieu of such examination but such training program must be pre-approved by the Board of Pharmacy. Furthermore, the examination requirement is not required if the individual is a student in a pharmacy technician program approved by the Board of Pharmacy or is applying for a temporary license [which is available for students preparing to take the examination but is only good for 210 days from the date the temporary license is issued] or limited license [which is available for an individual who (i)was employed as a pharmacy technician on the effective date of the new law and has been continuously employed by the pharmacy since the effective date, (ii) submits a completed licensure application and pays the applicable fee, and (iii) provides satisfactory proof of employment as a pharmacy technician for at least 1,000 during the 2-year preceding the application] as set forth in the new law. Once licensed, a pharmacy technician will be required to complete at least 20 hours of Board-approved continuing education courses/programs every 2 years. The new law in its entirety is available at:

It should be noted that under the new law, pharmacy technicians cannot handle the transfer of controlled substance prescriptions and cannot receive verbal orders for controlled substance prescriptions. For pharmacies and pharmacists who have been plagued by theft by pharmacy technicians this new law will make it much more difficult for such technicians to seek employment elsewhere if the theft is reported to the Board of Pharmacy since they will now be held accountable and would likely lose their licenses thereby preventing them from working elsewhere.

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October 3, 2014

The OIG Proposes Revisions to the Safe Harbors Under the Anti-Kickback Statute, and to the Civil Monetary Penalties Rules on Beneficiary Inducements and Gainsharing.

On October 3, 2014, the Office of Inspector General published a proposed rule to amend the safe harbors under the Anti-Kickback Statute, as well as to revise the definition of "remuneration" under the Civil Monetary Penalties regulations and add a gainsharing CMP provision into the regulations. If adopted, the final rule would have a major impact on the Anti-Kickback Statute and Civil Monetary Penalties regulations. The proposed rule, 79 FR 59717, may be found here.

Please check back for a complete summary of the proposed rule...coming soon to the HLP Blog.

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September 19, 2014

DOJ to Scrutinize False Claims Act Investigations and Lawsuits for Criminal Conduct

The Department of Justice's ("DOJ") Criminal Division announced, through its Assistant Attorney General, Leslie R. Caldwell, that the DOJ is closely scrutinizing civil False Claims Act investigations and lawsuits for criminal conduct. Speaking at the Taxpayers Against Fraud Education Fund's annual conference in Washington D.C., Ms. Caldwell asked attorneys contemplating filing qui tam lawsuits to reach out to criminal authorities, just as they would reach out to the civil counterparts in the DOJ and U.S. Attorney's Offices. Ms. Caldwell emphasized that there are resources available to the DOJ's Criminal Division that aren't available to other agencies, such as search warrants, wiretaps, consensual recordings, undercover operations, confidential informants, and legal assistance requests to foreign governments for evidence in other countries.

The DOJ's practice of combing through civil False Claims Act cases in the healthcare arena is not new. However, through this announcement, the DOJ clearly intends to expedite and streamline its internal referral process and the examination of cases for criminal conduct. Ms. Caldwell explained that "experienced prosecutors in the Fraud Section are immediately reviewing the qui tam cases" upon arrival to determine whether to pursue criminal charges.

In summary, those facing civil exposure under the False Claims Act should be aware that the DOJ may be using a fine-tooth comb to sift through the qui tam complaint for criminal conduct. If the DOJ finds criminal conduct, the negotiations will likely shift from avoiding or reducing fines to avoiding criminal charges. Therefore, the DOJ may use the threat of criminal charges as leverage to negotiate larger fines.

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September 11, 2014


In an attempt to combat prescription drug abuse, on August 22, 2014, the U.S. Drug Enforcement Administration ("DEA") published a final rule (here) elevating Hydrocodone-combination products ("HCPs") to the more restrictive schedule II category of drugs under the Controlled Substances Act ("CSA"). Since the enactment of the CSA in 1971, HCPs have been classified as schedule III drugs. Under the final rule, effective October 6, 2014, DEA registrants are required to adhere to more stringent prescribing, dispensing, security, and recordkeeping requirements with respect to HCPs. The final rule applies to "all pharmaceuticals containing hydrocodone currently on the market in the United States," which includes, but is not limited to, Vicodin, Lortab, Hycodan, and Tussionex.

How Will The New Rule Affect Prescribers?

Under the final rule, prescribers may no longer authorize refills for HCP prescriptions. Previously, authorized prescribers could prescribe a 30-day supply of HCPs with up to five refills. Under the final rule, practitioners may issue multiple prescriptions authorizing patients to receive up to a 90-day supply of HCPs, provided certain regulatory requirements are met. However, the DEA will allow pharmacists to refill legitimate HCP prescriptions until April 8, 2015, if the prescription allows refills and was issued prior to October 6, 2014. Additionally, like other schedule II controlled substances, prescribers will no longer be able to "call in" or "fax in" HCP prescriptions to a pharmacy absent an emergency.

Moreover, prescribers must prepare for a potential increase in the need for physician office visits for patients using HCPs and should expect greater regulatory scrutiny concerning the prescribing of HCPs. In fact, the DEA cautioned that prescribers must determine whether multiple prescriptions (i.e., up to the allowed 90-day supply of HCPs) are appropriate for a particular patient, and they must base their decision "on sound medical judgment and in accordance with established medical standards."

How Will The New Rule Affect Manufacturers, Distributors, and Pharmacies?

Under the final rule, manufacturers, distributors, and pharmacies must meet heightened security and recordkeeping standards. More specifically, manufacturers that repackage or re-label HCPs must obtain a quota in order to repackage or re-label HCPs. However, the DEA will allow repackaging and re-labeling without meeting the quota requirement until December 8, 2014.

For distributors, the primary change is that they must physically store HCPs in a vault that meets certain requirements. For pharmacies, the final rule requires them to use a DEA Form 222 in order to obtain HCPs from a distributor. Pharmacies will also be required to keep HCP records separate or readily retrievable. In addition, pharmacies should move quickly to update ordering systems with new National Drug Code numbers.


The DEA published the final rule merely 45 days prior to the effective date, and health care entities and professionals must move quickly to implement the more stringent schedule II requirements. Furthermore, it is important to remember that each state has its own rules regarding controlled substance prescribing that must be followed as well. Prescribers and dispensers of controlled substances are well advised to follow the more restrictive/conservative requirements when there is a conflict between federal and state law. E.g., under the subject final rule, any legitimate prescription for HCPs that are issued before October 6, 2014 that authorizes refills may be dispensed by a pharmacy if such dispensing occurs before April 8, 2015; however, under Michigan's Administrative Rules, a prescription for a controlled substance listed in schedule II shall not be refilled. Thus, in Michigan, as of October 6, 2014, prescribers should not write prescriptions with refills for HCPs and dispensers should not dispense HCPs pursuant to a prescription refill. Additionally, health care entities and professionals should review any state specific legal or regulatory requirements that emerge as a result of this final rule. For example, the Ohio Board of Pharmacy issued a companion publication (here) addressing Ohio-specific compliance issues related to the final rule. While the rescheduling is not without opposition, the change is here and the October 6, 2014, effective date is right around the corner.