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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 http://www.cdc.gov/hai/outbreaks/meningitis-map-large.html).

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: http://www.legislature.mi.gov/documents/2013-2014/publicact/pdf/2014-PA-0280.pdf.

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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: http://www.legislature.mi.gov/documents/2013-2014/publicact/pdf/2014-PA-0285.pdf.

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.

Continue reading "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." »

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

DEA ELEVATES HYDROCODONE-COMBINATION PRODUCTS TO THE MORE RESTRICTIVE CATEGORY OF SCHEDULE II DRUGS

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.

Conclusion.

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.

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September 9, 2014

Modifications to the Electronic Health Record Meaningful Use Incentive Program

On September 4, 2014, the Department of Health & Human Services, Centers for Medicare & Medicaid Services ("CMS"), published a final rule (See, 79 FR 52910) modifying the Medicare and Medicaid Electronic Health Record Meaningful Use Incentive Program ("EHR Meaningful Use Incentive Program"). The reason for the modification is that health care providers were unable to upgrade to the 2014 certified electronic health record technology ("CEHRT") due to product delays and availability. The final rule allows more flexibility in how providers use CEHRT to meet meaningful use for an EHR Meaningful Use Incentive Program for the 2014 reporting period. CMS reports that this flexibility will allow more providers "to participate and meet important meaningful use objectives like drug interaction and drug allergy checks, providing clinical summaries to patients, electronic prescribing, reporting on key public health data, and reporting on quality measures."

The final rule states that CMS will allow providers to use 2011 CEHRT to meet Stage 1 objectives or a combination of 2011 and 2014 CEHRT to meet Stage 1 or Stage 2 objectives. However, providers still using 2011 CEHRT must attest to the failure to implement 2014 CEHRT due to delays beyond their control. Additionally, all eligible providers will be required to use 2014 CEHRT beginning in 2015. The final rule also finalizes the extension of Stage 2 through 2016 for certain providers, and extends the Stage 3 start date from January 1, 2016, to January 1, 2017, for providers who first became meaningful users in 2011 or 2012.

The final rule is effective October 1, 2014.

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August 14, 2014

OIG Posts New Guidance for Submitting a Contractor Self-Disclosure

On August 12, 2014, the Office of Inspector General ("OIG") posted new guidance for contractors self-disclosing violations of federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations or violations of the civil False Claims Act in connection with U.S. Department of Health and Human Services contracts or subcontracts. The Federal Acquisition Regulation ("FAR") requires federal contractors with contracts valued over $5 million to disclose to the OIG when they have credible evidence of one of these violations. The FAR contractor self-disclosure rule provides, in part:

(3)(i) The Contractor shall timely disclose, in writing, to the agency Office of the Inspector General (OIG), with a copy to the Contracting Officer, whenever, in connection with the award, performance, or closeout of this contract or any subcontract thereunder, the Contractor has credible evidence that a principal, employee, agent, or subcontractor of the Contractor has committed-- (A) A violation of Federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations found in Title 18 of the United States Code; or (B) A violation of the civil False Claims Act (31 U.S.C. 3729-3733). (See, 48 CFR 52.203-13(b)(3)(i).)

The newly posted guidance instructs that self-disclosure made under the rule "are made with no advance agreement regarding possible OIG resolution of the matter and with no promises regarding potential civil or criminal actions by the U.S. Department of Justice." However, the guidance states that prompt disclosure, along with full cooperation, completed access to necessary records, restitution, and adequate corrective actions indicate an attitude of integrity even when self-disclosing potential criminal conduct.

The Guidance for Submitting a Contractor Self-Disclosure, the Contractor Self-Disclosure Form, and Frequently Asked Questions regarding the self-disclosure program are available on the OIG's website at https://oig.hhs.gov/compliance/self-disclosure-info/contractor.asp.

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July 16, 2014

Halifax Health to Pay $1M Settlement in False Claims Case

One of the most widely viewed False Claims Act (FCA) cases filed against a hospital is coming to an end--Florida hospital, Halifax Health, is preparing to pay $1 million to settle a $73 million dollar Medicare overbilling case. Potentially, maximum damages in the trial could have exceeded $200 million, which would then be followed by an $85 million dollar settlement that the health system paid in March to settle the first half of the case. Although the False Claims Act makes it illegal for hospitals to submit inaccurate bills to Medicare, Judge Presell, who presided over this case, ruled that it doesn't necessarily trigger the FCA to bill Medicare for cases in which the medical record lacks enough information to justify admission for inpatient stays.

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July 16, 2014

D.C. Circuit Restores Attorney-Client Privilege Protection for Internal Investigations

Companies doing business in highly-regulated industries, including the health care industry, were left holding their breath after a D.C. district court ruled that the attorney-client privilege doctrine did not attach to a company's internal investigation conducted under the direction of in-house legal counsel. United States ex rel. Barko v. Halliburton Co., No. 05-cv-1276 (D.D.C. Mar. 6, 2014). The decision shattered the previously-held belief that, in most cases, the attorney-client privilege attaches to communications made in the course of an internal investigation led by legal counsel.

However, these industries, and their legal departments in particular, can now breathe easy after the D.C. Circuit Court overturned the district court's decision and restored the attorney-client privilege to its previously-recognized applicability to internal investigations. In Re: Kellogg Brown & Root, Inc., et al., No. 1:05-cv-1276 (D.C. Circuit, May 7, 2014).

Factual Background and District Court's Ruling

Harry Barko, a former employee of defense contractor Kellogg Brown & Root, Inc. ("KBR"), filed a False Claims Act compliant under the qui tam provision alleging that KBR defrauded the federal government by inflating costs and accepting kickbacks while administering military construction contracts in Iraq. During discovery, Barko requested that KBR produce certain documents related to KBR's previously-conducted internal investigations looking into the alleged fraudulent activity. The investigations were conducted at the direction of KBR's in-house legal counsel, and KBR asserted the attorney-client privilege in refusing to produce the documents.

In a potentially groundbreaking decision, the district court held that the attorney-client privilege did not attach to the requested documents because "the communication would not have been made 'but for' the fact that legal advice was sought." The district court concluded that KBR's internal investigation was conducted for a business, not legal, purpose and "undertaken pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice."

In so holding, the district court distinguished the facts in KBR from those in the landmark U.S. Supreme Court case Upjohn Co. v. United States, 449 U.S. 383 (1981), in which the Supreme Court held that the attorney-client privilege applies to corporations. The district court held that Upjohn did not apply because: (i) outside counsel was not involved in KBR's investigation; (ii) non-attorneys conducted many of the interviews; and (iii) KBR did not inform the interviewees that one purpose of the interviews was to assist KBR in obtaining legal advice.

The district court's ruling caught the attention of the health care industry, among others, where internal investigations into fraudulent or illegal activity are common and, in some instances, required by law. Many health care businesses lack the necessary resources to involve outside counsel in every internal investigation or to have an attorney conduct every employee interview, and the district court's ruling threatened the presumed protections of the attorney-client privilege doctrine.

Circuit Court's Ruling

In a much anticipated decision, and to the relief of the health care industry, the circuit court overturned the district court's decision and held that the attorney-client privilege attached to the requested documents.

The circuit court found that the facts of KBR were "materially indistinguishable" from the facts in Upjohn and rejected the reasoning used by the district court to distinguish the two cases. First, the circuit court held that Upjohn does not require the involvement of outside counsel. Rather, the "general rule...is that a lawyer's status as in-house counsel 'does not dilute the privilege.'" Second, the circuit court held that, while the interviews in Upjohn were conducted by attorneys, "communications made by and to non-attorneys serving as agents of attorneys in internal investigations are routinely protected by the attorney-client privilege." Third, the circuit court held that there is no requirement in Upjohn that a company use "magic words" to advise its employees that the investigation is being conducted to assist the company in obtaining legal advice. Nevertheless, the circuit court found that, as in Upjohn, the KBR interviewees "knew that the company's legal department was conducting an investigation of a sensitive nature and that the information they disclosed would be protected."

More importantly, the circuit court rejected the "but for" test applied by the district court as inapplicable to the attorney-client privilege analysis. The circuit court clarified the "primary purpose test" and held that the proper test asks the question: "Was obtaining or providing legal advice a primary purpose of the communication, meaning one of the significant purposes of the communication?" If so, then the attorney-client privilege attaches, regardless of whether the internal investigation was conducted pursuant to company policy, a statute or a regulation.

Implications

The circuit court acknowledged the significance of its decision when it branded the district court's opinion a "novel approach" that "would eradicate the attorney-client privilege for internal investigations conducted by businesses that are required by law to maintain compliance programs, which is now the case in a significant swath of American industries."

In an ever-changing industry where some health care providers are subject to compliance program requirements for Medicare enrollment under the Patient Protection and Affordable Care Act (or are encouraged to implement voluntary compliance programs), health care businesses should take note of both the circuit court's and the district court's opinions. These opinions are a reminder of the importance of having attorneys actively direct the internal investigation and document their involvement. This includes providing written instructions to non-attorneys working on the investigation clarifying that they are working at the direction of the legal department and that a significant purpose of the investigation is to assist the business in obtaining legal advice.

The circuit court's opinion also reminds us that the attorney-client privilege protects against the disclosure of privileged communications, not the underlying facts if the facts can be obtained through non-privileged sources. Additionally, only confidential communications are protected. Therefore, it is important to ask interviewees to keep communications confidential. Also, although "magic words" are not required for the attorney-client privilege to attach, it is prudent to inform the interviewees that the interview is for the purpose of obtaining legal advice for the business. Once conveyed to the interviewee, the interviewer should memorialize in writing that the instructions were conveyed to and understood by the interviewee.

Lastly, it remains to be seen whether other courts will follow the D.C. Circuit's opinion. Therefore, out of an abundance of caution and if the resources are available, businesses should consider having legal counsel conduct employee interviews and should consider engaging outside counsel, if appropriate.

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July 14, 2014

Office of Medicare Hearings & Appeals Announces Settlement Conference Facilitation Pilot Program

The landscape of the Medicare appeals process is quickly changing with the launch of the Settlement Conference Facilitation ("SCF") pilot program. The program is designed to be an alternate dispute resolution process where the appellant and the Centers for Medicare & Medicaid Services ("CMS") come together to discuss a potential mutually agreeable resolution of claims appealed at the Administrative Law Judge ("ALJ") level.
The settlement conference facilitator, an employee of the Office of Medicare Hearings and Appeals ("OMHA"), will oversee the process. He or she will not make determinations based on the merits of the claims nor will serve as a fact finder. Rather, the facilitator will use mediation principles to achieve the goal of reaching a mutually agreeable resolution. The facilitator may, however, help the appellant and CMS identify the relative strengths and weaknesses of their respective positions.
In the event a resolution is reached, the settlement facilitator will draft a document, signed by both parties, to reflect the agreement. As part of the agreement, the requests for an ALJ hearing for the claims covered in the settlement will be dismissed.

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July 8, 2014

ALJ Backlog May Soon Be Alleviated by Statistical Sampling Pilot

On July 8, 2014, the Office of Medicare Hearings and Appeals ("OMHA") posted to its website a new sampling pilot initiative to address large volumes of claims pending at the ALJ stage of appeal. The sampling request can be initiated by an appellant, or OMHA may offer an appellant the sampling pilot.

To be eligible for the statistical sampling pilot:
- A request for hearing must appeal a Medicare Qualified Independent Contractor (QIC) reconsideration decision.

- The appellant must be a single Medicare provider or supplier (if multiple providers or suppliers with multiple National Provider Identifiers (NPIs) are owned by a single entity, the owning entity may serve as "a single provider or supplier" provided that the owning entity agrees to accept any payment that may be due from Medicare as a single payment, or agrees to make any payment that may be due to Medicare as a single payment).

- All jurisdictional requirements for a hearing before an Administrative Law Judge must be met for the request for hearing and all appealed claims.

- The beneficiary must not have been found liable after the initial determination or participated in the QIC reconsideration.

- The claims must be currently assigned to one or more Administrative Law Judges or have been filed during the time period currently being assigned by OMHA Central Operations - at this time, that includes appeals that were filed between April 1, 2013, and June 30, 2013.

- No hearing on the claim has been scheduled or conducted.

- There must be a minimum of 250 claims and all claims must fall into only one of the following categories: (a) Pre-payment claim denials; (b) Post-payment overpayment non-Recovery Audit Contractor ("RAC") claim denials; or (c) Post-payment (overpayment) RAC claim denials from one RAC.

- There cannot be an outstanding request for Settlement Conference Facilitation for the same claims.

Appellants who are eligible and interested in the pilot must complete a written request for sampling along with a detailed spreadsheet of claims for consideration. OMHA has included template request documents which can be accessed here.

Many hospitals may be interested in evaluating whether or not initiating the pilot will be beneficial. While this may expedite the adjudication of long-awaiting appeals, the downsides of this project should also be considered prior to making a final determination to seek entry into the pilot.

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July 3, 2014

Settlment Conference Facilitation Pilot Announced

The landscape of the Medicare appeals process is quickly changing with the launch of the Settlement Conference Facilitation ("SCF") pilot program. The program is designed to be an alternate dispute resolution process where the appellant and the Centers for Medicare & Medicaid Services ("CMS") come together to discuss a potential mutually agreeable resolution of claims appealed at the Administrative Law Judge ("ALJ") level.

The settlement conference facilitator, an employee of the Office of Medicare Hearings and Appeals ("OMHA"), will oversee the process. He or she will not make determinations based on the merits of the claims nor will serve as a fact finder. Rather, the facilitator will use mediation principles to achieve the goal of reaching a mutually agreeable resolution. The facilitator may, however, help the appellant and CMS identify the relative strengths and weaknesses of their respective positions.

In the event a resolution is reached, the settlement facilitator will draft a document, signed by both parties, to reflect the agreement. As part of the agreement, the requests for an ALJ hearing for the claims covered in the settlement will be dismissed.
To determine eligibility for the SCF process, OMHA has provided guidelines available here.

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June 20, 2014

HHS Proposed Rules Would Expand Authority to Exclude Providers and Impose Monetary Penalties

On May 9 and May 12, 2014, the United States Department of Health and Human Services ("HHS") published two proposed rules that would significantly expand the authority of the Office of Inspector General ("OIG") to exclude providers from participation in federal health care payor programs and impose civil monetary penalties. The proposed rules are authorized pursuant to the Affordable Care Act of 2010 ("ACA") as the ACA expanded the authority of OIG to protect federal health care programs from fraud and abuse.

The May 9, 2014 proposed rule would expand the OIG's current powers to include permissive exclusion where an individual or entity is convicted of an offense that involves obstruction of an audit. Currently, the OIG's exclusion authority only extends to convictions for obstructing an investigation into any criminal offense described under the mandatory exclusion authorities and certain permissive exclusion authorities.

In addition, the May 9, 2014 proposed rule would expand the OIG's permissive exclusion authority regarding the failure to provide certain payment information. The OIG currently has authority to exclude only entities and individuals who directly provide services and fail to provide required payment information for those services. The proposed rule would expand this authority to include not only the individual or entity directly providing the services, but also any individual or entity ordering, referring, or certifying the need for such services.

The May 9, 2014 proposed rule also adds new exclusion authority for instances where an individual or entity knowingly makes, or causes to be made, a false statement, omission, or misrepresentation of a material fact in any application or contract to participate as a provider in a federal health care program.

HHS also proposes to remove the six-year statute of limitations for exclusions. This means that, under the proposed rule, an individual or entity could be subject to exclusion for actions that occurred at any time, including several years after any alleged wrongdoing has ended or been corrected.

Under the May 14, 2014 proposed rule, the OIG would be granted expanded authority to impose civil monetary penalties on providers and suppliers of federal healthcare. The proposed rule would allow a $10,000 per day penalty on providers and suppliers who fail to timely report and return an identified overpayment. The proposed rule also seeks to add a $15,000 per day penalty for failing to grant timely access to records. False statements, omissions, or misrepresentations of a material fact in any application, bid, or contract to participate or enroll as a provider under a federal health care program would be punishable with a fine up to $50,000 under the proposed rule.

Moreover, the May 14, 2014 proposed rule would also expand existing monetary penalties for arranging or contracting for the provision of services with an excluded individual or entity. A penalty of up to $10,000 is possible under the proposed rule for each separately billable item or service provided, furnished, ordered, or prescribed by an excluded individual, plus an assessment of not more than three times the amount billed for the item or service. If an item or service is not separately billable, the OIG will determine the penalty based on the number of days the excluded person was employed or contracted, and the person's total compensation.

The May 9, 2014 proposed rule can be viewed here. The May 12, 2014 proposed rule can be viewed here. Both proposed rules are open to public comment. The deadline for public comments for the May 9, 2014 proposed rule is July 8, 2014. The deadline for the May 12 2014 proposed rule is July 11, 2014. Public comments can be submitted online at http://www.regulations.gov.

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May 21, 2014

CMS Considering Potential Alternatives to "Two-Midnight Rule"

On May 19, 2014, Centers for Medicare and Medicaid Services ("CMS") announced that it is considering new ways to define and pay for hospital short-stays. In October 2013, CMS implemented the "Two-Midnight Rule" with the goal of bringing clarity to billing for Part A inpatient hospital admissions. However, the Rule has been faced with ongoing criticism and significant pushback from hospitals.

The Two-Midnight Rule was intended to provide clear guidelines regarding when hospitals should bill for inpatient versus outpatient services, such as observation. The rule provides that at the time of admission, the admitting physician must document an expectation that a patient receive 2 midnights or more of hospital care. The medical record must contain sufficient information to support this expectation as a condition of payment. Dr. Ann Sheehy testified at the House Health Subcommittee May 20, 2014 that the rule "does not distinguish between clinical populations because it is a time based policy with no basis in sound clinical judgment."

The distinction between inpatient and outpatient hospital services can significantly impact how much Medicare pays a hospital for the services it provides to beneficiaries. In fact, Medicare has historically paid nearly 3 times more for a short inpatient stay than an observation stay on average. The House Health Subcommittee heard testimony from HHS Regional Inspector General Jodi Nudelman that differing payment rates have resulted in some hospitals admitting short-stay inpatients more than others. In fact, she testified that some hospitals attribute over 70% of their inpatient stays to short stay admissions while others admit short-stay inpatients less than 10% of the time.

Growing confusion surrounding the rule and potential unintended consequences have made it clear that the Two Midnight Rule must be carefully reevaluated. Now CMS is considering new alternatives and is seeking comments on an alternate pay system. According to CMS Deputy Administrator, Sean Cavanaugh, one potential alternative could be modeled after the per-day payment system that is already used for patients who transfer from one hospital to another during an episode of care. Additionally, CMS is soliciting comments on whether reimbursement rates for specific inpatient services should be capped at the outpatient rate for the equivalent service.

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May 21, 2014

2014 PEPPER Guidelines add Target Areas to Identify Improper Billing for Short Stays May 19, 2014

The Program for Evaluating Payment Patterns Electronic Report ("PEPPER") is an electronic data report under contract with the Centers for Medicare & Medicaid Services ("CMS") that helps guide hospital's auditing and monitoring services.

In 2014, PEPPER published new target areas for Short-Term Acute Care hospitals that were identified as prone to improper Medicare payments. Significantly, 6 new target areas related to patient "status" were established (i.e., to determine whether a beneficiary was appropriately admitted as an "inpatient"). Of note, while 4 of these target areas focus on hospital stays that did not cross 2 midnights, two of the target areas focus on 2 day hospital stays. Thus, it is clear that even if a hospital stay crosses 2 midnights, hospitals will be called upon to establish that the hospitalization itself was medically necessary.

Although the Recovery Auditors (i.e., "RACs") presently are prohibited from conducting patient status reviews, Medicare Administrative Contractors ("MACs") have been tasked to conduct "Probe and Educate" medical reviews, for the purposes of determining whether CMS' new 2 midnight rule was satisfied.

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