Proposed Changes to Methodology to Update ACO Benchmarks

The Medicare Shared Savings Program provides financial rewards to Accountable Care Organizations (ACO’s) that successfully manage overall health care costs for a defined population of beneficiaries while meeting quality of care standards.    An ACO’s performance each year is based on comparison to the ACO’s financial benchmark.   One challenge facing the Shared Savings Program has been criticism of the methodology utilized to establish and update the financial benchmark for each ACO.

Under the current methodology, CMS establishes an initial financial benchmark for each ACO based on the historical healthcare costs for the ACO’s population of beneficiaries.   The ACO is then evaluated based on its ability to reduce cost of care from the benchmark number.   The benchmark number is revised on an annual basis  to reflect (i) updates in the demographics of the ACO’s assigned beneficiaries, (ii) an adjustments based on Medicare’s actual increase in per capital expenditures each year measured on a national basis, and (iii) for years after the first agreement period, adjustments based on the amount of savings generated by the ACO in the prior period.

CMS recently proposed changes to the methodology for adjusting/updating the ACO’s benchmark.   The changes are intended to improve the financial incentives for ACO’s by (i) comparing costs of care within the ACO to care provided outside of the ACO in the same geographic region, and (ii) limiting the link between the ACO’s past shared savings and its future benchmark (i.e., addressing the issue that ACO’s are currently  penalized in future years based on successful cost savings in prior agreement periods).   More information regarding the proposed changes can be found at:  https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2016-Fact-sheets-items/2016-01-28-2.html

If you are interested in learning more about ACO’s, would like to start an ACO or have questions regarding how recent changes within CMS’s Shared Savings Program may impact your organization, please contact a member of our healthcare practice group.

Joy Hord

Joy Hord

Joy Hord focuses her practice on regulatory and compliance matters specifically related to the health care industry. Her clients include hospitals, physicians, pharmacies and other health care providers. Ms. Hord also has significant experience representing health care professionals and organizations with business law and transactional issues, such as mergers, acquisitions and joint ventures. Ms. Hord leads Parker Poe’s Health Care Practice, which includes attorneys from the firm’s North Carolina and South Carolina offices.

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Site Neutral Payments for Off-Campus Locations Established after Nov 1, 2015

Provider‐based off-campus hospital outpatient departments (OC-HOD’s) established after November 1, 2015 will be subject to a new site-neutral payment limitation starting Jan. 1, 2017 as a result of provisions in the Balanced Budget Act of 2015.

Prior to the effective date of the new law, hospitals will continue to receive higher reimbursement for certain types of services, such as evaluation and management services, procedures and surgeries, provided to Medicare beneficiaries at OC-HOD’s, regardless of when the OC-HOD is established.  Commencing on the effective date, however, services provided at OC-HOD’s established after November 1, 2015 will be reimbursed under the Ambulatory Surgical Center or the Medicare Physician Fee Schedule – the same fee schedules currently utilized to reimburse for services provided at free-standing physician offices and ambulatory surgery centers.   OC-HOD’s established prior to November 2, 2015 will be grandfathered and will continue to be reimbursed for services to Medicare beneficiaries pursuant to the Medicare Hospital Outpatient Prospective Payment System (OPPS) – at least for now.

The change could have a significant impact on the rate of hospital acquisitions of certain types of suppliers – specifically physician practices– given that the hospital may no longer be able to realize a higher income stream from the provision of physician services by designating the site as “provider-based”.

Proposed regulations issued between now and the effective date will likely address issues such as (i) how a hospital will differentiate between services provided at an OC-HOD site established before or after the effective date of the new law, (ii) the impact of the rule on OC-HOD sites established as provider based prior to November 2, 2015, but subsequently amending their Medicare enrollment application, (iii) what it means to have an “established” OC-HOD location as of November 1, 2015, and (iv) the ability to include OC-HOD established after November 1, 2015 on hospital cost reports (for instance, for purposes such as 340B eligibility) and how inclusion on the cost-report may impact accreditation requirements.

The healthcare attorneys at Parker Poe know and understand the rules and regulations governing provide-based locations and are able to guide clients through the various considerations related to the establishment and operation of provider‐based off-campus hospital outpatient departments.

Joy Hord

Joy Hord

Joy Hord focuses her practice on regulatory and compliance matters specifically related to the health care industry. Her clients include hospitals, physicians, pharmacies and other health care providers. Ms. Hord also has significant experience representing health care professionals and organizations with business law and transactional issues, such as mergers, acquisitions and joint ventures. Ms. Hord leads Parker Poe’s Health Care Practice, which includes attorneys from the firm’s North Carolina and South Carolina offices.

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Developments in Cybersecurity for Healthcare Providers

The Cybersecurity Act of 2015, included in the Omnibus Appropriations and Tax Reform Package adopted into law in December, 2015 (link), specifically addresses cybersecurity in the healthcare industry.

Broadly, the Act (A) establishes the Department of Homeland Security (DHS) as the clearing-house for sharing of cybersecurity threats for the federal government, and (B) provides new rights for network operators (i) to monitor their own  networks for the purpose of protecting the network from attempts at hacking, denial of service attacks and other network weaknesses, and (ii)  to share cyber threat indicators, and related defensive measures, with others.

Section 405 of the Cybersecurity Act specifically addresses cybersecurity in the healthcare industry by:

1.    Requiring the Department of Health and Human Services (DHHS) to develop a report outlining responsibility within DHHS for coordinating efforts regarding cybersecurity threats;
2.    Creating a new healthcare industry cybersecurity task force comprised of healthcare stakeholders, cybersecurity experts and federal agencies with specific assignments, which include (i) analyzing how industries, other than the healthcare industry, have implemented strategies to address cyberliability threats, (ii) analyzing barriers that private healthcare entities face to address cyber attacks, (iii) reviewing challenges to securing networked medical devices of software that connects to an electronic health record, and (iv) developing information to be provided to healthcare providers for purposes of improving preparedness for, and response to, cybersecurity threats;
3.    Requiring DHHS to establish guidelines and best practices that serve as a resource for cost-effectively reducing cyberliability risks consistent with HIPAA and other relevant laws.

Members of Parker Poe’s HIPAA and Security Team are available to answer questions regarding the Cybersecurity Act as well as to assist clients to address cybersecurity concerns.

Joy Hord

Joy Hord

Joy Hord focuses her practice on regulatory and compliance matters specifically related to the health care industry. Her clients include hospitals, physicians, pharmacies and other health care providers. Ms. Hord also has significant experience representing health care professionals and organizations with business law and transactional issues, such as mergers, acquisitions and joint ventures. Ms. Hord leads Parker Poe’s Health Care Practice, which includes attorneys from the firm’s North Carolina and South Carolina offices.

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Potential Data Breach Could Affect Over 1,000 Medicaid Patients

The confidential health information of 1,615 Medicaid patients may have been compromised by the North Carolina Department of Health and Human Services (NC DHHS) on August 19, 2015, though the fact that this potential breach occurred was not made public until October 19, 2015.  According to Kendra Gerlach, a spokeswoman for NC DHHS, the potential breach occurred when an NC DHHS employee:

inadvertently sent an email to the Grenville County Health Department without first encrypting it.  The information disclosed included the individuals’ first and last name, Medicaid identification number, provider name, provider ID number and other information related to Medicaid services.  The social security number of two individuals who used this number as their Medicare ID number was also disclosed.  Even though it cannot be confirmed at this time whether the unencrypted email was intercepted, all individuals that may have been affected were mailed a breach notification letter on October 16, 2015.

For those individuals who were potentially affected by this breach and individuals that may find themselves on the receiving end of a breach notification letter from a physician practice or other entity, it is beneficial that you contact one of the three nationwide consumer reporting companies and place an initial fraud alert on your credit reports.  This alert will help prevent someone from opening new credit accounts in your name.  A report to one agency is sufficient, because the agencies are by law required to share that information with each other.  The three main consumer credit reporting agencies can be reached as follows:

Equifax:                  Equifax Credit Information Services, Inc.
P.O. Box 740241
Atlanta, GA 30374-0241
1-888-766-0008
www.equifax.com

Experian:                Experian
1-888-397-3742
www.experian.com

TransUnion:           TransUnion
P.O. Box 6790
Fullerton, CA  92834-6790
1-800-680-7289
www.transunion.com

In addition to placing an initial fraud alert, individuals should regularly check their bank account statements and credit card bills for any activity that appears to be out of the ordinary.

It is important to carefully review the breach notification letter that you receive carefully so that you understand what specific information was disclosed, when it was disclosed and to whom it was disclosed.  If you have any questions, contact the person designated in the letter as soon as possible.

Chara O'Neale

Chara O'Neale

Chara O’Neale focuses her practice primarily on the representation of hospitals, physician groups and other health care providers in the resolution of legal, regulatory and business issues for entities involved in the health care industry.

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Pharmacy Board Proposed Regulations: The Next Step for Telemedicine in North Carolina

The future of telemedicine has become a hot topic in the health care industry nationwide, and the momentum seems to be in telemedicine’ s favor.   Indeed, the North Carolina Medical Board recently issued revised policy statements that loosened restrictions on prescribing medication through a telemedicine encounter.

Although the Medical Board’s position represented a major sea change, an existing regulation applicable to pharmacists licensed in North Carolina has made those changes difficult to implement.  Specifically, North Carolina Rule 21 NCAC 46.1801 bars a pharmacist, except in limited circumstances, dispensing prescription drugs if the pharmacist has knowledge that the prescriber has not conducted a physical examination of the patient.  Although, as a practical matter, a pharmacist would likely not know whether a physical examination has occurred, there have been several reported cases of pharmacists refusing to dispense medication after learning from their customers that the orders were obtained from a telemedicine encounter.

It now appears that the Board of Pharmacy is ready to lift this restriction based on a recently proposed amendment to 21 NCAC 46.1801.  The proposed regulation, which was published in the April 15, 2015 edition of the North Carolina Register, replaces the prohibition on dispensing medication without a physical examination with new language that allows pharmacists  to use their professional judgment to refuse to fill a prescription in cases in which the order’s accuracy, validity, or authenticity or the patient’s safety is at issue.  The revised regulation also states that a prescription order is valid if it is a lawful order, made for a legitimate medical purpose, and in the course of legitimate professional practice “as recognized by the occupational licensing board governing the health care provider.”  This proposed change is important because it expressly incorporates the North Carolina Medical Board’s new position that orders for prescriptions that result from telemedicine examinations are not prohibited but must meet appropriate standards of care.

The proposed effective date of the new regulation is August 1, 2015.  A public hearing on the proposed revision to 21 NCAC 46.1801 will be conducted by the North Carolina Board of Pharmacy on June 16, 2015 at 9:00 a.m.  Further, comments to this proposed regulation may be directly submitted to the Board of Pharmacy.  Given the current tenor of the telemedicine debate in North Carolina and elsewhere,  it is likely that the new regulation will be adopted.  On August 1, 2015 North Carolina will take one more step to embracing what many see as the future of health care.

Robb Leandro

Robb Leandro

Robb Leandro assists his client with a broad range of legal issues relating to health care, administrative law and public policy. His legal practice focuses on helping health care providers navigate the minefield of regulations that they face in their practices. Robb routinely assists his clients with issues including Medicaid and Medicare regulations; Medicaid and Medicare audits; Certificate of Need Applications and litigation; licensure, surveys, and certification issues; and HIPAA and privacy laws. Robb also provides counsel to health care providers with complex government contract procurement issues.

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Cloud Computing Contracts Top Issues for Healthcare Providers

An increasing number of health care providers are outsourcing the hosting and maintenance of software applications, the storage of data, and related support services.  Outsourcing can provide cost savings, rapid deployment, system scalability, other efficiencies, and appropriate data security.  It also introduces additional issues into the provider’s risk management analysis, largely based on the fact that a third party rather than the provider has possession and control of vital and sensitive assets and information.  Before you enter into a contract that includes a cloud computing component, you should consider some of the following:

  • No business decision or activity is risk free.  Risk management is a balancing process based on the particular facts and circumstances.  For example, a provider may be less concerned about its inability to access its web-based job application submission portal than its electronic health record application.  Not all risks are the same, and a provider should devote more attention and resources to managing its greatest risks.
  • Risk management is a team sport.  Effective risk management requires the participation and interaction of representatives of the intended user group, financial analysts, compliance officers, information technology and data security experts, and legal counsel experienced in advising on and negotiating the particular type of contract.

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Steve Hunting

Steve Hunting

Steve has successfully guided health care providers, electric utilities and other clients through complex information technology, transmission, generation and other commercial projects and contract negotiations for more than 25 years. His experience as in-house counsel helps him provide seasoned, practical advice and have a better understanding of the daily challenges his clients face. His objective is to help his clients achieve their business goals effectively and efficiently.

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Physicians Finally Get Permanent Medicare Payment Solution

On April 16, 2015, President Obama signed into law a permanent sustainable growth rate (“SGR”) fix.  The Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”) eliminates the Medicare SGR methodology, which has been used to determine annual updates to the Medicare Physician Fee Schedule (“MPFS”).

Background
Initially enacted as part of the Balanced Budget Act in 1997, the SGR was intended to limit Medicare spending on physician services.  However, the SGR methodology has called for negative updates annually since 2002, causing Congress to pass 17 short-term “doc fix” bills since 2003.  In April 2015, MACRA, a permanent fix, passed both chambers with bipartisan support despite the estimated $141 billion increase in federal budget deficit that will be attributed to it over the next 10 years.  This new model incorporates a move from fee-for-service to pay-for-performance for physician services.

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Varsha Gadani

Varsha Gadani

Varsha Gadani focuses her practice on the health care industry. Her clients include hospitals, physicians, behavioral health care providers, long-term care facilities, and other providers. Prior to joining Parker Poe, Ms. Gadani served as Assistant Counsel at the North Carolina Medical Society (NCMS). In this role, she performed a variety of legal functions for the NCMS. She monitored and analyzed emerging state and federal health law issues and advised physicians on health policy matters.

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Look Out for Meaningful Use Audits by the Office of Inspector General

The Medicare and Medicaid Electronic Health Care Record (“EHR”) Incentive Program (commonly referred to as “Meaningful Use”) provides incentive payments to eligible physicians and hospitals for adopting, implementing, upgrading, or demonstrating meaningful use of certified EHR technology.  Medicare incentive payments are authorized over a 5-year period (2011 through 2016).  As of February 2015, total EHR incentive payments exceeded $29.5 billion.

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Supreme Court Case Does Not Directly Challenge Obamacare, But Could Lead to Its Implosion.

The media coverage in the run-up to today’s Supreme Court oral arguments in King v. Burwell has described King as an attack on Obamacare. That isn’t quite right. Understandably, some of the imprecise language is due to the need to make the “news fit.” But some of the media descriptions create confusion about what the action is and what the implications to the federal health law would be were the Supreme Court to decide in the challengers’ favor.

The King plaintiffs are not challenging the constitutionality of the Affordable Care Act (“ACA”) or Obamacare. In the last Supreme Court case grappling with the ACA, National Federation of Independent Business v. Sebelius, 132 S. Ct. 2566 (2012) (“NFIB”), the challenger was directly challenging the ACA. In NFIB, the main issue was whether Congress had the authority to mandate that individuals purchase health insurance or pay a penalty.  Because the provision was enacted as part of the ACA, there was no dispute that Congress intended to impose the individual mandate when enacting the ACA. Ultimately, in an opinion authored by Chief Justice Roberts and joined by a majority of the justices, the Supreme Court determined that Congress had the authority to impose individual mandates under Congress’ taxing power.

In the King case, the challengers are not attacking the constitutionality of the ACA. The challengers are not attacking the ACA itself. Instead, the challengers are questioning the IRS’ implementation of the ACA in extending tax subsidies to individuals who have purchased health insurance plans in States that have not set up their own health insurance exchanges and instead rely upon the default federal exchange. The King plaintiffs point to the ACA’s language authorizing subsidies only to individuals who buy insurance on an “Exchange established by the State.”

If the Supreme Court agrees with the challengers’ argument that the ACA limits subsidies to State-run health insurance exchanges, the ACA will remain intact. Nothing about the law itself would directly be impacted. The implications for such a ruling, however, would be significant. If the Supreme Court were to side with the plaintiffs, the Obama administration would not have any ability to extend subsidies to the affected individuals. According to the federal government, more than 8.5 million of the 11.4 million people who have acquired health insurance through the exchanges would no longer be eligible for subsidies.

One solution would be for the affected States to set up their own exchanges.  In some States, however, this solution would be politically or logistically challenging.  Another potential solution would be for President Obama and Congress to “fix” the law to extend subsidies to individuals in States that use the federal exchange. This statutory change could be made by simply amending the language of the ACA.

Given that both the U.S. House of Representatives and the U.S. Senate are now controlled by Republican majorities, it is unlikely that Congress would change the law without demanding more significant and fundamental reforms to the ACA. This would set up a showdown between President Obama and Congressional Republicans to see who blinks first. If the Congress and the President could not reach a compromise, it could create what some of have called a “death spiral,” wreaking havoc on the insurance markets and potentially the ACA. Even though the Supreme Court would not have struck down the ACA, the federal health law could collapse under its own weight. Today’s oral arguments contained some drama, and all signs point to it being a close case.  If the Supreme Court sides with the plaintiffs, the high drama may be yet to come.

Matt Wolfe

Matt Wolfe

Matt Wolfe concentrates his practice in the areas of administrative litigation, government relations, and other regulatory matters. Matt formulates comprehensive political and public relations strategies on a broad range of federal and state policies. He drafts and monitors legislation, intervenes directly with legislative, executive, and local officials, and appears before state and federal executive agencies. Within his administrative litigation practice, Matt advises and counsels health care providers subject to federal and state regulatory actions.

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IRS Issues Private Letter Ruling on Treatment of Managed Professional Corporations

The Internal Revenue Service (“IRS”) recently published a private letter ruling (“PLR”) that permits a practice management corporation to include two managed professional corporations as members of the management corporation’s affiliated group for purposes of filing a consolidated federal income tax return. This PLR could prove important for business corporations that provide healthcare management and administrative services to professional corporations and that effectively (but not technically) own such professional corporations.

Many states provide by law that a business corporation engaged in the provision of a professional service must be owned by one or more licensed professionals. As a result, a professional corporation cannot be the subsidiary of a parent entity that is not a professional corporation.

In the PLR request, a licensed professional was the sole shareholder of two professional corporations. A non-professional company performed all administrative and support services, including financial reporting, information systems support, and billing, on behalf of the professional corporations for a fee. The non-professional company also provided management services to the extent allowed under the applicable state law.

The shareholder of the two professional corporations entered into an agreement with the management company pursuant to which the shareholder served as the professional director of the professional corporations. The shareholder, the management company, and each professional corporation also entered into stock transfer restriction agreements. Under these agreements, the shareholder’s rights were substantially limited, and the management company effectively had the right to designate who would own the shares of the professional corporations in the event the shareholder no longer served as the professional director for the professional corporations.

Specifically, under the director agreement, the management company had the right to terminate the shareholder’s position as the professional director of the professional corporations. This, in turn, would trigger a transfer event under the stock transfer restriction agreement, requiring the shareholder to transfer all of the shareholder’s shares in the professional corporations to a designee of the management company. The IRS ruled that the two professional corporations were members of the affiliated group with the management company.

While a PLR may only be relied upon by the specific party requesting the ruling, other corporations with similar circumstances may find PLR 201451009 instructive. With proper planning and consideration of other relevant tax and state law issues, certain healthcare companies and service providers may be well-served to further consider this ruling.

John Price

John Price

John advises clients in the taxation of mergers and acquisitions (M&A) transactions and is regularly asked to assist in structuring these transactions in a tax-efficient manner. He also regularly prepares and negotiates joint venture agreements, which usually take the form of limited liability company (LLC) operating agreements. John also has experience representing client in tax controversies with the Internal Revenue Service (IRS) and state departments of revenue.

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