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from Medicare and Medicaid Guide

CMS creates new PPS for all ESRD facilities

A new, case-mix adjusted, bundled prospective payment system (PPS) for all Medicare outpatient end-stage renal disease (ESRD) dialysis facilities, including hospital-based providers and independent facilities that furnish onsite and home dialysis and self-care home dialysis support services, will begin on January 1, 2011, according to an Advance Release of a Final rule to be published on August 12, 2010. The new PPS was mandated by Section 153(b) of the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) (P.L. 110-275), which amended Soc. Sec. Act §1881(b). In 2007, there were about 600 ESRD hospital-based providers and 4,330 freestanding ESRD facilities serving nearly 330,000 Medicare patients, and total Medicare payments for these services were $9.2 billion. The MIPPA provisions were enacted to control ESDR spending, promote equity among providers, and increase efficiency.

CMS received nearly 1500 public comments in response to the ESRD PPS Proposed rule (reported at ¶220,737) and addressed many of them in the preamble to the Final rule. Concurrently with the issuance of the Final rule, CMS will issue a Proposed rule, also mandated by MIPPA, that would establish a new quality incentive program (QIP) to promote high quality services in dialysis facilities by linking a facility’ s payments to performance standards.

The Final rule defines renal dialysis services to include ESRD-related oral-only drugs, but it postpones payment for such drugs under the ESRD PPS until January 1, 2014. Also, payment for erythropoietin (EPO), the costly drug that treats anemia in dialysis patients, will be made only to ESRD facilities, not to suppliers of home dialysis equipment and supplies.

The new ESRD PPS will replace the current case-mix adjusted “composite” payment system, which has paid facilities a composite rate for a defined set of items and services that represent about 60 percent of total Medicare ESRD payments, while paying separately for drugs, laboratory tests, or other services that are not included in the composite rate. In particular, the composite rate does not pay for injectable drugs, such as EPO, iron sucrose, vitamin D, and non-routine laboratory tests.

The beneficiary coinsurance amount will be 20 percent of the ESRD PPS bundled payment amount, including applicable case-mix and facility-level adjustments and outlier payments. During the transition period, beneficiary coinsurance will be 20 percent of the blended payment amount. Although clinical laboratory services are not currently subject to coinsurance, laboratory services that are bundled would be subject to the 20 percent coinsurance. Similarly, certain drugs that are currently payable under Medicare’s prescription drug program and subject to a separate coinsurance structure would be subject to the 20 percent coinsurance as part of the set of bundled renal dialysis services under the ESRD PPS.

The new PPS must trim 2.0 percent from the estimated payments that would have been made in 2011 under the previous payment scheme. The 2.0 percent reduction will apply to payments for drugs, as well as to all other dialysis costs. The estimated payments will be based on per patient utilization data from 2007, 2008, or 2009, whichever year has the lowest per patient utilization.

Base rate and annual updates

The Final rule sets a base payment rate of $229.63 for each dialysis treatment and describes how the market basket was constructed. This base rate, which is then adjusted for case-mix and the wage index, includes payment for the services in the current composite rate, as well as most items and services that are currently paid separately. The base rate was derived from 2007 claims data for both composite rate and separately billable services and updated to reflect projected 2011 prices. As required by MIPPA and by the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148), beginning in calendar year 2012, the base rate will be updated annually by an ESRD market basket index reduced by a productivity adjustment.

There will be no administrative or judicial review of: payment amounts, the selection of dialysis services covered in the bundled payments, the phased-in transition period, or market-basket percentage increase factors.

Outlier adjustments

MIPPA requires CMS to pay additional amounts, outlier payments, to ESRD facilities that treat high-cost patients, estimated at five percent of adult and two percent of pediatric patients. The Final rule sets the outlier percentage at 1.0 percent. To fund the outlier in a budget-neutral fashion, CMS reduced the standardized base rate payment amount for all dialysis treatments by 1.0 percent. The outlier’s fixed dollar loss amount at $155.44 for adult and $195.02 for pediatric dialysis patients. Once the fixed dollar loss amount is met, CMS will pay 80 percent of an ESRD facility’s outlier service costs.

Patient-level adjustments, including training

There will be a “new patient adjustment” because ESRD patients have higher costs in their first four months of maintenance dialysis. There also will be a payment adjustment for home dialysis training when clinically appropriate, to ensure that ESRD patients are learning the skills and techniques they need to properly receive their dialysis treatment at home. There will be adjustments for case-mix factors so that facilities with the most costly dialysis patients are paid more. The case-mix factors include: a patient’s age, body size, certain comorbidities, and time on dialysis. Separate case-mix adjustments will apply to pediatric patients based on patient age and dialysis modality, but not based on co-morbidities.

CMS decided not to adjust payment due to a patient’s sex, race or ethnicity. The agency has been reviewing its processes for collecting and validating patient-level race and ethnicity data from dialysis facilities, and it will assess at a later date whether sex, race or ethnicity adjustments should be made. Its press release on the Final rule stated that the agency plans to implement an active monitoring program to respond to concerns about disparities in access to care.

A payment adjustment of $33.38 per treatment for dialysis training for home or self dialysis, for both hemodialysis and peritoneal dialysis, will be made only to ESRD facilities that actually conduct training treatments. The training adjustment will be adjusted by the geographical wage index based on the location of the ESRD facility. The home or self-dialysis training adjustment is not available, however, during the four-month new patient adjustment for the onset of dialysis.

Facility-level adjustments

Facility level adjustments will include an adjustment of at least 10 percent until January 1, 2014, for low-volume facilities that furnish fewer than 4,000 dialysis treatments and have not opened, closed, nor received a new provider number due to a change in ownership during the three years preceding the payment year. The low-volume facility adjustment will not be applied to pediatric claims.

MIPPA also authorizes the Secretary to apply other payment adjustments that the Secretary determines appropriate, including a geographic index. CMS is finalizing a wage index, not included in the Final rule, using the core-based statistical area definitions developed by the Office of Management and Budget.

Transition period and one-time election

There will be a four-year transition period for the new PPS, during which there will be blended payments from the previous “composite” payment system and from the new PPS. From January 1, 2011, through December 31, 2011, payments will be a blend of 75 percent “composite” and 25 percent PPS. From January 1, 2012, through December 31, 2012, payments will be a blend of 50 percent “composite” and 50 percent PPS. From January 1, 2013, through December 31, 2013, payments will be a blend of 75 percent PPS and 25 percent “composite.” Beginning in 2014, payments will be 100 percent PPS. Thus, all facilities will have transitioned into the ESRD PPS on January 1, 2014.

ESRD facilities may make a one-time election by November 1, 2010, to be paid under the ESRD PPS starting on January 1, 2011, rather than having a transition period.

Other provisions

Bad debts arising from covered ESRD services, which were paid prior to January 1, 2011 under a reasonable charge-based methodology or a fee schedule, including drugs and laboratory tests, are not reimbursable under the ESRD PPS program.

For ESRD facilities that are paid a blended rate for renal dialysis services provided during the transition period, any existing exceptions for isolated essential facilities, self dialysis training costs, patient mix and pediatric facilities will be used as the payment amount in place of the composite rate, and will be terminated for ESRD services furnished on or after January 1, 2014. If a facility, however, elects to start the PPS program on January 1, 2011, then no exception payments will be made after that date.

Quality incentive program proposal

The quality incentive program (QIP) outlined in the Proposed rule that will be published along with the ESRD PPS Final rule would be the first pay-for-performance program in a Medicare fee-for-service payment system. The Proposed rule would establish performance standards and a scoring methodology. In the ESRD PPS Final rule, CMS will adopt the three quality measures that will be used in the initial implementation of the QIP. Two of these measures reflect whether patients are receiving appropriate treatment for anemia, i.e. whether the amount of iron in the blood is neither too low, nor too high. The third measure captures patients’ urea reduction ratio, which indicates how well dialysis treatments are removing wastes from patients’ bodies. MIPPA requires CMS to reduce payment rates to a dialysis facility by up to 2.0 percent, starting on January 1, 2012, if that facility fails to meet the established performance standard scores for each quality measure.

CMS will accept comments on the QIP Proposed rule until Sept. 24, 2010. It is expected that both the ESRD Final rule and the QIP proposed rule will be published in the Federal Register on August 12, 2010.

A copy of the Advance Release of the Final rule is available at ¶181,043 for CCH Intelliconnect and Internet Research Network subscribers.

CMS Advance Release of Final Rule; CMS Press Release, August 3, 2010.

New rules require free preventive care, prohibit cost-sharing

HHS and the Departments of Labor and Treasury have issued Interim final rules (IFRs) requiring group health plans and health insurance coverage providers in both the group and individual markets to provide evidence-based preventive services and eliminate cost-sharing requirements for such services.

The Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148) and the Health Care and Education Reconciliation Act (HCERA) (P.L. 111-152) reorganized, amended, and added to the provisions of part A of title XXVII of the Public Health Service Act (PHS Act) relating to group health plans and health insurance issuers in both the group and individual markets. PPACA also added section 715(a)(1) to the Employee Retirement Income Security Act (ERISA) and section 9815(a)(1) to the Internal Revenue Code (the Code) to incorporate these new provisions into ERISA and the Code, and make them applicable to group health plans, and health insurance issuers providing health insurance coverage in connection with group health plans.

Regulatory overview

Section 2713 of the PHS Act, as added by PPACA, and these IFRs require that a group health plan and a health insurance issuer offering group or individual health insurance coverage provide benefits for and prohibit the imposition of cost-sharing requirements with respect to:

evidence-based items or services that have in effect a rating of A or B in the current recommendations of the United States Preventive Services Task Force with respect to the individual involved;

immunizations for routine use in children, adolescents, and adults that have in effect a recommendation from the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention with respect to the individual involved;

with respect to infants, children, and adolescents, evidence-informed preventive care and screenings provided for in the comprehensive guidelines supported by the Health Resources and Services Administration (HRSA); and

with respect to women, evidence-informed preventive care and screening provided for in comprehensive guidelines supported by HRSA. HHS plans to issue these guidelines no later than August 1, 2011.

Cost-sharing prohibition

The IFRs also clarify the cost-sharing requirements when a recommended preventive service is provided during an office visit.

If the service is billed separately from an office visit, then a plan or issuer may impose cost-sharing requirements with respect to the office visit.

If the service is not billed separately from an office visit and the primary purpose of the office visit is the delivery of such an item or service, then a plan or issuer may not impose cost-sharing requirements with respect to the office visit.

If the service is not billed separately from an office visit and the primary purpose of the office visit is not the delivery of such an item or service, then a plan or issuer may impose cost-sharing requirements with respect to the office visit.

Implementation dates

The PHS Act requires HHS, Labor, and Treasury to establish an interval of not less than one year between when recommendations or guidelines are issued, and the plan or policy year for which coverage of the services must be in effect. The IFRs provide that such coverage must be provided for plan or policy years beginning on or after the later of September 23, 2010, or one year after the date the recommendation or guideline is issued. Thus, recommendations and guidelines issued prior to September 23, 2009, must be provided for plan or policy years beginning on or after September 23, 2010.

For recommendations and guidelines adopted after September 23, 2009, information regarding the date a recommendation or guideline was accepted or adopted will be listed at http://www.HealthCare.gov/center/regulations/prevention.html. A plan or issuer is not required to provide coverage or waive cost-sharing requirements for any item or service that has ceased to be a recommended preventive service.

Comments on the IFRs are due on or before September 17, 2010.

Interim Final Rules with Request for Comments, 75 FR 41726, July 19, 2010, ¶181,082.

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OPPS and ASC payment changes proposal

Proposed changes to the hospital outpatient prospective payment system (OPPS) and changes to the ambulatory surgical center (ASC) payment system, effective for calendar year (CY) 2011, have been issued by CMS to implement a number of provisions in the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148).

PPACA changes

Reimbursement for services provided under the OPPS would increase by 2.15 percent beginning January 1, 2011. Reimbursement for services provided under the ASC payment system, however, would receive no increase. The annual increases would include a reduction to the market basket increase, as directed by PPACA. The market basket increase for OPPS would be 2.4 percent, reduced by 0.25 percent as required by PPACA. The market basket increase for ASC services would be 1.6 percent and the PPACA reduction would be 1.6 percent, resulting in no increase for ASC services provided in 2011. For services beginning in CY 2011, the wage adjustment factor applicable to an OPPS provider that is located in a state in which at least 50 percent of the counties have a population per square mile of less than six (excluding Alaska and Hawaii) would not be less than one. For CY 2011, the wage index for all OPPS hospitals located in frontier states would be adjusted in a non-budget-neutral manner, as specified by PPACA.

All deductibles and copayments for preventive services that are paid under the OPPS and the ASC payment system, not only the 20 percent coinsurance for physician services, but also any cost-sharing related to payments for facilities, would be waived. As a result, most Medicare beneficiaries would see a decline in their out-of-pocket costs for services they receive in hospital outpatient departments.

Other changes

The Proposed rule would make several significant changes to the OPPS in addition to those required by PPACA. CMS would require direct physician supervision for the initiation of a service followed by general supervision after the initiation period for a limited set of “non-surgical extended duration services,” including observation services. CMS would establish separate payment codes (ambulatory payment classifications or APCs) for partial hospitalization programs in community mental health centers and for hospital-based programs, while continuing the policy of paying a separate APC per diem payment rate for partial hospitalization services depending on the number of services provided; that is, one APC for three services and a separate APC for four or more services.

CMS would pay for the acquisition and pharmacy overhead costs of separately payable drugs and biologicals without pass-through status furnished in hospital outpatient departments at 106 percent of the manufacturers’ average sales prices. CMS would expand the set of measures that must be reported by hospital outpatient departments to qualify for the full payment update in the succeeding year. CMS listed the additions to the set of measures for reporting in CYs 2011, 2012, and 2013 to make it easier for hospitals and the agency to prepare for the changing reporting requirements.

The Proposed rule would add five surgical procedures to the list of procedures for which Medicare would pay when performed in an ASC. The proposal also would designate six new procedures as office-based procedures (subject to payment at the lesser of the national office practice expense payment to the physician or the national standard ASC rate) and it would update the list of covered ancillary services.

GME and physician referral changes

The Proposed rule addresses physician referrals and graduate medical education; two areas outside of OPPS/ASC payment that CMS was not able to include in a previous proposal for the fiscal year 2011 inpatient hospital PPS and the long term care hospital PPS (75 FR 23852, May 4, 2010, ¶220,759). The proposal would implement new limitations established by PPACA on certain physician referrals to hospitals in which the physicians have an ownership or investment interest. PPACA also made changes in Medicare payments for graduate medical education. The law amended by PPACA requires CMS to identify unused residency slots and redistribute them to certain hospitals with qualified residency programs, with a special emphasis on increasing the number of primary care physicians.

CMS must also redistribute residency slots from hospitals that close down to other teaching hospitals, giving preference to hospitals in the same or a contiguous area as the closed hospital. In addition, the law specifies how CMS is to count hours spent by a resident in certain training and research activities, as well as how to count hours spent by a resident in patient care activities in a non-hospital setting, such as a physician’s office.

Comments are being accepted on the Proposed rule until August 31, 2010. CMS will respond to them in a Final rule expected to be issued by November 1, 2010.

Proposed rule, 75 FR 46170, August. 3, 2010, ¶220,762.

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Health reform changes to CY 2010 OPPS and ASC system

Changes to the calendar year (CY) 2010 Outpatient Prospective Payment System (OPPS) and the Ambulatory Surgical Center (ASC) payment system that were required by the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148) and the Health Care Education and Reconciliation Act of 2010 (HCERA)(P.L. 111-152), collectively known as the Affordable Care Act, have been issued by CMS. The issuance contains updated and final wage indices, hospital reclassifications, payment rates, impacts and addenda for the OPPS for CY 2010 in addition to the payment rates and addenda reprinting for the ASC payment system for CY 2010. There is also an announcement of the permanent extension of payment for certain Medicare Part B services to hospitals and ambulatory care clinics operated by the Indian Health Service, Indian Tribes, or Tribal Organizations. These changes are effective for services provided on or after January 1, 2010.

OPPS changes

Section 3401(i) of PPACA and as amended by section 10319(g) of PPACA and section 1105(e) of the HCERA, required the Secretary, several months after issuing the the OPPS fee schedule increase factor for CY 2010, to reduce that factor by an adjustment of 0.25 percentage point, effective for services furnished on or after January 1, 2010 and before January 1, 2011. The market basket increase for services provide during CY 2010 was calculated at 2.1 percent prior to PPACA, therefore, the reduction of 0.25 percentage point results in a revised hospital operating market basket increase factor of 1.85 percent for CY 2010. A hospital that failed to meet the quality reporting requirements in CY 2009 will receive a negative 0.15 percent hospital operating market basket increase factor for CY 2010.

The change in the market basket increase also requires a change in the conversion factor. Therefore, the final revised full conversion factor for CY 2010 is $67.241 for services furnished on and after January 1, 2010, and before January 1, 2011, and the a final reduced conversion factor for CY 2010 is $65.921 for those hospitals that fail to meet the quality reporting requirement effective for covered outpatient services furnished on or after January 1, 2010, through December 31, 2010. The revised conversion factor changes the amounts in Addenda A and Addenda B for services with status indicators “P,” “Q1,” “Q2,” “Q3,” “R,” “S,” “T,” “V,” “X,” and “U.” As a result, Addenda A and Addenda B are being reprinted.

Provisions of section 3137(a) of the Affordable Care Act required wage indices for certain areas to be recalculated to exclude the wage data of section 508 and special exception hospitals in certain circumstances. This recalculation resulted in revised wage indices beginning on April 1, or midway through the fiscal year. To implement the same policy on a calendar year basis, the OPPS will adopt these revised wage indices midway through the calendar year beginning July 1, 2010.

Section 3137(a), as amended by section 10317 of the Affordable Care Act extended the wage index reclassifications originally designated under section 508 of the Mediare Moderinzation Act of 2003 (MMA)(P.L. 108-173) and certain special exception wage indices effective for services furnished on and after October 1, 2009 through September 30, 2010. These wage index reclassifications originally expired on September 30, 2009, but were extended to December 31, 2009 for OPPS providers so they could have the same benefit for the same period of time as inpatient providers. The section 508 wage reclassification will be recognized from January 1, 2010 to December 31, 2010 in order to give these hospitals the special wage exception wage index values under the OPPS for the same time period as for inpatient services.

Section 3121 of the Affordable Care Act extends the hold harmless provision for small rural hospitals with 100 or fewer beds and that are not sole community hospitals for an additional year through December 31, 2010, at 85 percent of the hold harmless amount. Further, section 3121(b) of the Affordable Care Act provides that in the case of covered outpatient services furnished on or after January 1, 2010 and before January 1, 2011, the 100-bed limitation will not be applied for sole community hospitals (including essential access community hospitals).

ASC and Indian health changes

The zero update to Medicare physician fee schedule (MPFS) was extended from January 1, 2010 to May 31, 2010 by the Department of Defense Appropriation Act , 2010 (P.L. 111-118), the Temporary Extension Act of 2010 (P.L. 111-144), and the Continuing Extension Act of 2010 (P.L. 111-175) and then to November 30, 2010 by the Medicare Beneficiaries and Pension Relief Act of 2010 (P.L. 111-192). As a result, the ASC payment rates for office-based procedures and covered ancillary radiology services needed to be recalculated. In addition, device intensive services, brachytherapy services, and bone density scans are also being changed as a result of Affordable Care Act changes to OPPS and MPFS. Using the revised scaled ASC payment weights and the conversion factor, the revised OPPS payment amounts, and the revised MPFS non-facility practice expense payment amounts, and the zero update factor CY 2010 ASC payment rates for all services, including device-intensive services, brachytherapy sources, and office-based and ancillary radiology services, appearing in Addenda AA and BB were revised. These payment rates are effective for services furnished on and after January 1, 2010 through December 31, 2010.

Section 2902 of the Affordable Care Act indefinitely extends coverage for the following Medicare Part B services: (1) ambulance services; (2) clinical laboratory services; (3) Part B drugs processed by the jurisdiction 4 A/ B Medicare Administrative Contractor and the Durable Medical Equipment Medicare Administrative Contractors; (4) influenza and pneumonia vaccinations; (5) durable medical equipment; (6) therapeutic shoes; (6) prosthetics and orthotics; (7) surgical dressings, splints, and casts; and (8) screening and preventive services not covered prior to the implementation of section 630 of the Medicare Modernization Act that were previously not covered under the Social Security Act. Hospitals operated by the Indian Health Service, Indian Tribes, or Tribal Organizations, however, will continue to be paid for Part B services under an all inclusive rate for hospital outpatient services rather than under the OPPS.

The Notice is printed as a pamphlet in part 2 and 6 of this report.

Notice, 75 FR 45769, August 3, 2010, ¶262,561.

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Medicare trustees report shows improved financial status

The 2010 Annual Report of the Medicare Board of Trustees shows substantial improvement in the financial status of the Hospital Insurance (HI) and Supplemental Medical Insurance (SMI) Trust Funds as a result of the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148), as amended by the Health Care Education and Reconciliation Act of 2010 (HCERA) (P.L. 111-152). The Trustees report that Medicare’s HI Trust Fund (Part A) is now projected to remain solvent until 2029, 12 years longer than reported last year. The HI long-range actuarial deficit has been reduced to 0.66 percent of taxable payroll, which is one-sixth of its projected amount prior to PPACA. HI Trust Fund surpluses are expected to begin during 2014-2022.

Projected costs for the Medicare Part B account in the SMI Trust Fund are also much lower as a result of PPACA. Last year’s Trustees report projected that Part B spending would increase to 4.5 percent of gross domestic product (GDP) by the end of the 75 year projection period. It is now projected to reach only 2.5 percent of GDP by the end of the 75-year period.

As a result of annual updating of enrollee premiums and federal payment rates, Medicare Part D, the prescription drug program, is also in financial balance, according to the Trustees. Projected costs are slightly lower than last year, reflecting lower-than-expected costs in 2008-2009, which were partially offset by higher benefits from phasing out the coverage gap.

The largest amount of projected savings under PPACA comes from lower annual payment increases to hospitals, skilled nursing facilities, home health agencies, and other providers. Payment increases will be reduced by the increase in “multifactor” productivity for the economy overall, which is about 1.1 percent per year. Other PPACA provisions also reduce costs through lower payments to private Medicare Advantage health plans.

The 0.9 percent payroll tax increase on earnings above $200,000 for single taxpayers or $250,000 for married couples filing joint returns also directly benefits the HI Trust Fund. And because the earnings thresholds are not indexed, more workers will be affected by the additional HI payroll tax over time.

2010 Annual Report of the Medicare Boards of Trustees, August 5, 2010.

Obama signs bill to reduce improper payments by $50 billion

President Obama has signed the Improper Payments Elimination and Recovery Act (IPERA) (P.L. 111-204), which is designed to help reduce wasteful, improper payments by all federal agencies by $50 billion between now and 2012.

Since taking office, the Administration has taken steps to reduce payments, For example, in November 2009, the President issued an executive order laying out a strategy to reduce improper payments through boosting transparency, holding agencies accountable, and creating strong incentives for compliance. In March 2010 he also directed all federal departments to intensify and expand payment recapture audits, and in June ordered the establishment of a federal Do Not Pay List, creating one source for agencies to check for the eligibility status of an individual or contractor.

IPERA will help improve agency efforts to reduce and recover improper payments in several ways:

Requires agencies to conduct annual risk assessments, and if a program is found to be susceptible to significant improper payments, then agencies must measure improper payments in that program.

Expands the types of programs that are required to conduct payment recovery audits, and lowers the threshold for programs and activities that must conduct these reviews if cost-effective.

Authorizes the use of recovered funds for additional uses, including financial management, to support the Office of Inspector General, and for the original intent of the funding.

By providing a list of actions that an agency must take to be in compliance with the law, with the agency Inspector General responsible for determining whether the agency is in compliance with the law.

S. 1508, White House Fact Sheet, July 22, 2010, ¶60,143.

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Challenge to PPACA minimum coverage provision survives

A motion to dismiss filed by the Secretary of HHS in response to a challenge to the Minimum Essential Coverage Provision of §1501 of the Patient Protection and Affordable Care Act (PPACA) (P.L.111-148) was denied by the United States District Court for the Eastern District of Virginia because the complaint adequately stated a cause of action. The minimum coverage provision states that all individuals must be covered by at least a minimum level of health insurance or pay a penalty.

The Commonwealth of Virginia challenged the provision claiming that it is beyond the scope of the Commerce Clause of the United States Constitution and that Congress cannot use its taxation powers to regulate such an economic inactivity.

While the Secretary claims that the conflict between the provision and the Commonwealth has been manufactured to create standing, the Commonwealth argues that it actually has standing because it is defending lawfully enacted laws. Because there is a direct conflict, the Commonwealth was found to have standing, via its Attorney General. Further, there was imminent injury to the Commonwealth’s sovereign interest because the provision requires steps to be taken now to have the provision in effect in 2014. Individual taxpayers alone would be unable to bring suit, but the Attorney General, having a duty to defend state laws, has standing. The hardship imposed upon the state is identifiable; not only will individuals be required to obtain insurance coverage, but insurance carriers must plan for a large number of new enrollees and employers must evaluate their insurance to ensure compliance with the provision.

The Secretary attacked the sufficiency of the compliant and the Commonwealth’s statement that the “decision not to purchase a product, such as health insurance, is not an economic activity” that falls under the authority of the Commerce Clause. However, the Secretary countered this argument by saying that one cannot elect to avoid participation in the health care market, and that inevitably, everyone will need health care, and because all must participate, the Commerce Clause applies. The question of whether Congress can regulate a person’s non-participation in the health care market has not been addressed in federal court, and since there is some authority supporting both sides’ argument, it cannot be said that the complaint fails to state a cause of action. The motion to dismiss is denied.

Commonwealth of Virginia v. Sebelius, E.D. Va., August 2, 2010, ¶303,512.

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Medicare rate doesn’t cover most FQHCs’ costs

The Medicare all-inclusive rate for payments to more than 70 percent of federally qualified health centers (FQHCs) did not cover the costs the centers incurred serving the Medicare patients, according to a report by the Government Accountability Office (GAO). As CMS prepares to adopt a prospective payment system for FQHCs as required by the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148), GAO recommends that the agency consider the extent to which costs have not been paid under the current system.

The all-inclusive rate

FQHCs serve patients, usually in medically underserved areas, providing primary care and preventive services to individuals regardless of their ability to pay. Payments for FQHC services furnished to Medicare patients are made at an “all-inclusive” rate established in 1992 and adjusted annually according to changes in the Medicare economic index (MEI), which measures inflation in medical costs. The rate is based, in part, on productivity guidelines under which physicians, physician assistants and nurse practitioners are expected to perform a minimum number of patient visits each year. The all-inclusive rate is determined by dividing the total allowable charges by the number of visits for the reporting period and comparing the result to the upper limit; the payment is the lesser of the two amounts.

When the rate was established in 1992, Medicare did not cover most preventive or screening services. Any payment that the FQHC received for the services was in addition to the all-inclusive rate. However, since 1992, Medicare has added 11 covered services that FQHCs commonly provide and that are now included in the all-inclusive rate. However, the all-inclusive rate was not modified to account for the additional services included.

Costs per visit are subject to an upper payment limit (UPL). When FQHCs file their cost reports, they compare their costs to the UPL. If an FQHC does not see the minimum number of Medicare patients during the reporting period, it still must use the minimum number to calculate the cost per visit, so its payments will be based on a lower cost per visit than the actual costs.

GAO’s work

GAO found that application of the productivity guidelines reduced payments to about seven percent of FQHCs, which did not serve enough patients to meet the guidelines and had costs per visit not exceeding the limits. About 72 percent of the FQHCs studied were unaffected by the productivity guidelines, but had average costs per visit that exceeded the UPLs. In 2007, the two policies reduced the reported costs of Medicare services by about $72.8 million, from about $504 million to about $431 million, about 14 percent. Because Medicare pays 80 percent of the rate for these Part B services, the amount that Medicare actually paid was reduced by $58.2 million.

GAO Report, No. GAO-10-576R, July 30, 2010, ¶68,001.

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Physician testimony improperly excluded in EMTALA case

The expert testimony of an obstetrician/gynecologist (OB/GYN) should not have been excluded in a suit brought by two parents against a hospital that allegedly violated the Emergency Medical Treatment and Active Labor Act (EMTALA), 42 U.S.C. §1395dd, when it failed to follow its own established medical screening protocols in treating the pregnant woman, thereby causing the premature birth and subsequent death of her infant.

When the parents attempted to introduce the OB/GYN’s testimony at trial, the district court found the OB/GYN to be unqualified as an expert and did not permit him to testify on the ground that he was biased in favor of all medical malpractice plaintiffs and was unlikely to be fair and impartial.

Admissibility of expert testimony

The United States Court of Appeals for the First Circuit held that, contrary to the district court’s ruling, the main inquiry should have been the scientific validity of the principles that underly the expert’s testimony. The issue of whether the expert testimony was biased was typically established through cross-examination at trial to discredit the testimony.

The assessment of the potential bias of an expert witness, moreover, was a task for the jury. Considerations such as an expert witness’s pecuniary interest in the outcome of a case, his status as an expert witness only for one side of an issue, or the extent to which a doctor currently sees patients, go to the probative weight of testimony rather than its admissibility. Exclusion of the OB/GYN’s testimony was therefore improper.

Cruz-Vasquez v. Mennonite General Hospital, 1st Cir., July 26, 2010, ¶303,501.

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Hospital’s knowledge of patient’s risk a jury question

A medical center was not entitled to a verdict without a trial on a patient’s claim that the medical center violated the Emergency Medical Treatment and Active Labor Act (EMTALA) by discharging her from the medical center when she was 16 weeks pregnant and experiencing contractions after the medical center determined the fetus was nonviable, the United States District Court for the District of Maine concluded. The patient produced sufficient evidence that, if a jury believed she was pregnant and experiencing contractions when she arrived at the medical center emergency room (ER), would trigger the protections of EMTALA. The extent of the medical center’s knowledge of risk to the patient’s health, however, was a question of fact for a jury to resolve.

Upon arrival at the ER, the patient told the registration clerk, the triage nurse, and the ER doctor that her pregnancy was high risk because of her previous medical history including cervical cancer, caesarian section, and a miscarriage. After the ER doctor examined her and conducted an ultrasound that revealed a nonviable fetus, the ER doctor referred the patient to an obstetrician who examined the patient, conducted a second ultrasound, and recommended she go home. Although she protested, she was discharged to her home where, later that evening, she delivered the dead fetus. Subsequently, the patient filed a complaint alleging that the medical center failed to stabilize her before her discharge.

The medical center argued that EMTALA requires that a hospital stabilize a patient only if the hospital determines that an emergency condition exists. In this case, the patient suffered a missed abortion and was not diagnosed as being in labor, she did not have an emergency medical condition and, therefore, there was no obligation to stabilize. The medical center also argued that it was not aware that the discharge posed a threat to the patient. The patient argued that (1) the medical center was aware of her condition, (2) the law applies to all pregnant women having contractions regardless of whether the fetus is viable, and (3) she was at significant risk for complications because of her previous medical history.

With respect to a pregnant woman having contractions, EMTALA defines emergency medical condition as one that "discharge" may pose a threat to the health or safety of the woman or the unborn child and defines “stabilize” to mean “to deliver” (including the placenta). EMTALA turns on a determination not a diagnosis; whether a patient is a pregnant woman having contractions is a fact, not a diagnosis, the court adding that the medical center’s medical judgment does not trump the statute’s definition of emergency medical condition concerning pregnant women having contractions. Further, there is nothing in EMTALA requirements that depends upon the viability of the fetus, the court said.

Based on the evidence, the patient presented a genuine issue of material fact as to whether discharging her without resolving her pregnancy may have posed a threat to her health. Whether the medical center determined that the patient was suffering from an emergency condition that required stabilization was a question for the jury to decide. Therefore, the medical center’s request for summary judgment was denied.

Morin v. Eastern Maine Medical Center, D. Maine, July 28, 2010, ¶303,507.

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Court defines “usual charges” as the amount billed by provider

A health insurer breached its obligation to a policy holder by paying benefits based on the “lower negotiated cost accepted by the provider” (the Medicare accepted amount) rather than “the [gross] amount billed by the provider.” In dispute is a supplemental cancer policy provision promising to pay radiation and chemotherapy benefits in the amount of the “usual and customary charges made.”

The supplemental policy in question defines the “usual and customary” charge as: “The usual charge made by a person or entity furnishing the services, treatment or material. Such charge shall not exceed the general level of charges made by others within the geographic area in which the services are rendered for an illness comparable in severity and nature.”

The policy holder, representing a class of similarly situated policy holders in a certified class action, and his expert witness, alleged that the policy term “usual and customary” is the amount initially charged by the health care provider; the gross charge prior adjustments by third-party payers, such as insurance companies. The policy holder’s expert also testified that the “customary fee is the same thing as the usual fee to the extent that the customary fee… in that geographical area [is] in the same ball park or equal to that usual fee.” The court also noted that certain health care dictionaries define “usual charge” as “customary charge,” which is in turn defined as “the amount which a physician or other professional or program normally or usually charges the majority of patients for a given service or procedure.”

The court decided that the term “charge” is a patently ambiguous term of art and susceptible to more than one interpretation. When more than one interpretation of a policy term is possible, the court must construe the term favorable to the insured. As such, the term “charge” must mean the gross charge submitted from the provider. Since the insurer paid benefits according to the “lower negotiated cost accepted by the provider,” rather than the amount initially billed by the provider, it breached its obligation to the insured, and the class. Partial summary judgment on the issue of liability was granted to the insured and the class. A further hearing on the extent to which the charges were usual and in line with other providers in the geographic area must still be scheduled.

A motion for reconsideration was also denied.

Comer v. Life Insurance Company of Alabama, D. S.C., June 2 and July 29, 2010, ¶303,502

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and ¶303,503, respectively.

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Use of medical device deemed reasonable and necessary

A medical device company successfully argued that four claims for a medical device that were denied by the Medicare Appeals Council (MAC) should be paid. The court rejected the argument of the Secretary of HHS that the device was not reasonable nor medically necessary.

Substantial evidence indicated that the device was medically necessary and reasonable and no evidence was presented by the Secretary to counter that claim, the court said. The court noted that the Secretary had not issued a national coverage decision (NCD) establishing the device as not medically necessary or reasonable, and in the absence of the NCD, many claims for the device were paid by Medicare. The court noted that most of those payments were upheld on redeterminations, reconsideration, review by ALJ and other entities. For this reason, the durable medical device company could not have reasonably determined that the device would not be reimbursed.

The device was also approved by the Food and Drug Administration, and was used by numerous physicians and paid for by many private insurance companies. Furthermore, the Secretary presented no evidence that anything was presented to the MAC demonstrating that new evidence was discovered which was not available to the numerous ALJs who determined that the device was eligible for reimbursement.

The issuance of advance beneficiary notices that the device may not be paid by Medicare does not establish that the manufacturer reasonably determined that the device may not be reimbursed. Some of these ABNs were sufficient to shift liability to the beneficiary, but since the decision of the court is that these claims should be paid, the liability and sufficiency of notice argument is irrelevant and does not need to be resolved.

International Rehabilitative Sciences v. Sebelius, W.D. Wash., July 28, 2010, ¶303,505.

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Allocation of lump sum sales price to intangible assets allowed

A district court found that the Secretary’s denial of the hospital’s allocation of a portion of its net sales proceeds to the appraised value of the hospital’s medical records and assembled workforce was inconsistent with 42 C.F.R. §413.134(f)(2)(iv).

The Provider Reimbursement Review Board (PRRB) had found that medical records and an assembled workforce were intangible assets that only existed when the sales proceeds exceeded the value of the tangible assets, and therefore could not be considered among the assets. In this case, the sales proceeds were six million dollars less than the net book value of depreciable assets, so the PRRB reasoned that the medical records and assembled workforce did not exist in the sales transaction for purposes of reimbursement for asset depreciation.

The court found, however, that the regulation does not differentiate between tangible and intangible or depreciable and nondepreciable assets, and does not permit an intermediary to accept and reject different parts of an appraisal. In addition, the plain language of the regulation permits parties to allocate a lump sum sales price among all assets, without regard to their characterization, pursuant to a sales agreement, which existed in this instance. The sales agreement provided for purchase of all hospital assets, including “medical staff and personal records assets” and for specific allocation of the purchase price to these assets. The court pointed out that the cases used in support of the Secretary’s position did not involve sales agreements where the allocation of the sales price to intangible assets was specifically included.

Although the seller argued that the PRRB erred by relying on the appraiser’s cost valuation approach to determine fair market value, the cost approach was reasonable because it was the only appraisal method that resulted in valuations of the individual underlying assets. The court stated that it was an unquestionable fact that the hospital’s assets were sold for much less than they were worth, and therefore, PRRB was reasonable to rely on the cost approach, which was strongly supported by the record.

Osteopathic Founders Foundation v. Sebelius, N.D. Okla., July 26, 2010, ¶303,500.

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RAC’s decision to reopen claim not subject to appeal

The court held that the decision of a Recovery Audit Contractor (RAC) to reopen a claim, in which it found an overpayment, under 42 C.F.R. §405.980(b), was procedurally valid, final, and not subject to appeal since it was not an “initial determination.”

A medical center’s claim for services to a particular beneficiary was reviewed by a RAC, which determined that the medical center was overpaid for the claim. The services rendered were found medically unnecessary at three levels of appeal by a fiscal intermediary, a Qualified Independent Contractor, and an Administrative Law Judge (ALJ). Although the ALJ found the services to be medically unnecessary, it also found the RAC’s review of the claim procedurally invalid, and ruled that the medical center was entitled to the overpayment as a result. The Medicare Appeals Council concluded that the ALJ did not have the authority to review the reopening of the claim.

The Secretary’s interpretation of the regulations (see 42 C.F.R. §§405.926(l) and 405.980(a)(5)) was given deference by the court, and although the ALJ had reviewed the issue and found that the provider was entitled to the amount in question, the court found that the ALJ should not have reviewed the RAC’s decision because it was not subject to appeal under the plain language of the regulations. The regulations allow a contractor to reopen a claim within a year for any reason, and within four years for “good cause.” The regulations also provide that decisions that are not initial determinations may not be appealed, including a contractor’s decision to reopen initial determinations, redeterminations, hearing decisions, review decisions, or reconsiderations. The court pointed out that the medical center could still challenge the determination of the overpayment that resulted from the reopening of the claim, but not whether there was good cause for the reopening itself.

Palomar Medical Center v. Sebelius, S.D. Cal., July 28, 2010, ¶303,510.

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Family continues suit for 24/7 home nursing care

For the second time, an Arizona federal court denied a preliminary injunction which would have ordered the state Medicaid agency to fund skilled nursing care 24 hours per day, seven days per week in the home (24/7 home care) of a beneficiary with extensive disabilities. The court found that the beneficiary had not established any violation of federal Medicaid law and suspended further federal litigation while the state agency completes the administrative review process.

The parents also had obtained assistance through the state Department of Economic Security because the beneficiary was eligible for certain Medicaid benefits due to his developmental disabilities. In April, 2010, Medicaid determined that the beneficiary qualified for “level two,” eight hours of nursing care and 12 hours of attendant care per day. The parents appealed. Eventually, the agency found the beneficiary eligible for “level three,” the highest level of home care offered in its program, and the parents continued to insist that the beneficiary must have 24/7 nursing care at home.

The agency denied the request on the grounds that it was not cost effective and was not federally reimbursable, and the parents appealed. Administrative review proceedings were still pending when the beneficiary’s parents sued the agency in federal court. The administrative hearing will address: (1) whether 24/7 home nursing care is medically necessary; (2) where those services are available; (3) whether they are cost-effective; and (4) whether they are federally reimbursable.

The court ruled that the claims under the Medicaid Act should be stayed until the administrative review process was completed in order to avoid piecemeal litigation and forum shopping. The court noted that the services the parents seek are home and community-based services (HCBS), which are an optional, not a mandatory, benefit, and do not appear to fit the definitions of any mandatory services, such as nursing home care. Under 42 C.F.R. §440.180(b), HCBS approved by CMS must be cost-effective and necessary to avoid institutionalization. All of these issues are addressed in the administrative hearing process.

The parents also contend that the state’s refusal to fund 24/7 home nursing care violated their son’s rights under the Fourteenth Amendment to the United States Constitution, not to be deprived of life, liberty or property without due process of law. The court rejected this argument, however, on the ground that the state has no duty to help an individual preserve an interest even though it could not itself deprive the individual of it. Only when an individual is in the custody of the state or the state has acted to place the individual in danger does the state have a duty to provide assistance. Therefore, the civil rights claims under were dismissed.

Lundergan v. Arizona, D. Ariz., July 26, 2010, ¶303,499.

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Nursing Home Reform Act suit against nursing facility fails

The allegations of an administrator of a deceased patient’s estate were insufficient to sustain his claims that a health care facility violated, among other things, the Federal Nursing Home Reform Act of 2000 (FNHRA), Soc. Sec. Act §§1819(g) and 1901, the Developmental Disabilities and Bill of Rights Act of 2000 (DDABRA), 42 U.S.C. §15001 et seq., and ancillary regulations. The alleged violations included failing to have an effective system in place to ensure that the patient received necessary care and services after he suffered several injuries at the facility, and failing to provide the appropriate treatment for individuals with developmental disabilities.

The patient, who was mentally retarded, had been admitted to the facility and was prescribed an anticoagulant. The anticoagulant placed the patient at risk for severe bleeding if he fell. The facility allegedly failed to monitor the anticoagulant’s effect on the patient over several months. Despite its awareness that the patient was at a significant risk for falling and that he did fall at least eight times, the facility failed to update the patient’s plan of care and failed to take appropriate preventative measures. After one severe fall, the patient suffered several complications and died.

To prevail on his FNHRA claim, the administrator was required to demonstrate a violation of a federal right rather than a violation of federal law. Congress, however, never intended to create new individual rights of action in the FNHRA. The law focused on requirements for nursing homes, not on individual nursing home residents’ rights. Similarly, the DDABRA did not confer privately enforceable rights. The administrator’s claims were, therefore, dismissed.

Duncan v. Johnson-Mathers Health Care, Inc., E.D. Ky., July 28, 2010, ¶303,504.

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Decisions and Developments

CMS Manuals

Manual update includes definition of Ambulance Services, Basic Life Support (BLS) - Emergency; Advanced Life Support Level 1 (ALS1) - Emergency and Advanced Life Support Level 2

Medicare Benefit Policy Manual, Pub. 100-02, Transmittal No. 130, July 29, 2010, ¶159,182.

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Implementation of interrupted stay policy under Inpatient Psychiatric Facility Prospective Payment System (IPF PPS)

Medicare Claims Processing Manual, Pub. 100-04, Transmittal No. 2009, July 29, 2010, ¶159,183.

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Allowing Common Working File (CWF) to accept both Medicare Secondary Payer (MSP) and Non-MSP lines on MSP claims and MSP adjustment claims

One-Time Notification Manual, Pub. 100-20, Transmittal No. 730, July 29, 2010, ¶159,184.

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Common Working File (CWF) override edit for kidney transplant donor claims when kidney recipient is deceased

Medicare Claims Processing Manual, Pub. 100-04, Transmittal No. 2008, July 30, 2010, ¶159,185.

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Additional state code for Missouri and new CMS certification numbers for Medicaid-only hospitals

Medicare State Operations Manual, Pub. 100-07, Transmittal No. 62, July 30, 2010, ¶159,186.

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Timely claims filing: additional instructions to ensure standards are established for determining date of service for institutional claims, for physician, practitioner, and supplier claims, and for professional services claims billed with line item span dates

One-Time Notification Manual, Pub. 100-20, Transmittal No. 734, July 30, 2010, ¶159,187.

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Work group established, composed of Medicare contractors to assist in documentation of EDI processes and contractor responsibilities implemented through 5010 change requests

One-Time Notification Manual, Pub. 100-20, Transmittal No. 736, July 30, 2010, ¶159,188.

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Analysis change request: Inclusion of Veterans Administration (VA) skilled nursing facility (SNF) claims to VA Medicare Remittance Advice (eMRA) process

One-Time Notification Manual, Pub. 100-20, Transmittal No. 743, July 30, 2010, ¶159,189.

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DAB Decisions

DMEPOS supplier number revoked

The billing privileges and supplier number of a supplier of durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) were properly revoked because the supplier failed to be accessible during reasonable business hours to beneficiaries and CMS pursuant to 42 C.F.R. §424.57(c)(8). A CMS contractor attempted several on-site inspections of the supplier’s premises and discovered each time that the facility was closed. The supplier’s argument that the inspector failed to sign and date his survey was meritless because the supplier did not dispute any of the material facts asserted by the inspector.

The supplier’s next argument that it was a simple mistake that no one was available at the facility for a few hours on two attempted inspections was also meritless. The facility’s sign contained no indication that it would be closed during those hours. It was impermissible for a supplier to deviate from its posted hours on a regular basis. Given the supplier’s failure to comply with §424.57(c)(8), CMS was authorized under 42 C.F.R. §424.57(d) to revoke the supplier’s billing privileges.

Udeobong, HHS Departmental Appeals Board, Appellate Division, Doc. No. A-10-58, Dec. No. 2324, July 9, 2010, ¶122,246.

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Effective date

An administrative law judge (ALJ) determination that no basis existed to dismiss the hearing request of a physician challenging the denial of an earlier enrollment application was upheld. CMS argued on appeal that: (1) the physician's employer as the supplier was the real party of interest and that an employer has no right to a hearing; and (2) the physician had no right to challenge the effective date of his enrollment. The physician was seeking a review of an enrollment application that was denied. The physician submitted another enrollment application later which was approved. Seeking to have the denial of the earlier application would in effect change the effective date of the physician’s enrollment.

Physicians are included in the definition of supplier at 42 C.F.R. §498.3(b)(15) and as such can appeal a determination such as a denial of an enrollment application. Additionally, the term “approval” is used in the regulations to mean the opposite of “denial” of billing privileges with respect to prospective suppliers that submit an enrollment application. The appeal rights related to denial of enrollment reasonably encompassed a right to appeal an effective date determination. Accordingly, a determination of a supplier’s effective date of enrollment in Medicare is an initial determination subject to appeal. For these reasons, the ALJ’s decision was affirmed.

Alvarez, HHS Departmental Appeals Board, Appellate Division, Doc. No. A-10-53, Dec. No. 2325, July 23, 2010, ¶122,247.

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Hearing on reenrollment

An administrative law judge (ALJ) should have conducted a hearing on the denial of a durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) supplier’s 855S forms for reenrollment. The decision whether to deny or revoke a DMEPOS supplier’s Medicare enrollment in accordance with 42 C.F.R. §424.530 or §424.535 is an initial determination, which qualifies for ALJ, Department Appeals Board, and judicial review under 42 C.F.R. §498, and CMS conceded that the supplier’s applications were, in fact, reenrollment applications entitled to ALJ review. The ALJ improperly concluded that the provider was seeking a reinstatement of billing privileges. The ALJ properly concluded that she did not possess the authority to review the original revocation of the supplier’s supply number, which occurred in 2003/2004, before the enactment of Soc. Sec. Act §1866(j)(2), which established the right of suppliers that are denied reenrollment to avail themselves of the ALJ hearing process and judicial review. Additionally, the ALJ was correct that she did not have the authority to hear the supplier’s constitutional claims, enforce the Freedom of Information Act, or hear an appeal for denials of individual claims for items or services. The decision was remanded to the ALJ for consideration of the denial of the DMEPOS enrollment application.

Experts Are Us, Inc., HHS Departmental Appeals Board, Appellate Division, Doc. No. A-10-38, Dec. No. 2322, July 2, 2010, ¶122,244.

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Adequate nutrition

The administrative law judge (ALJ) properly determined that there was evidence to support a finding that a skilled nursing facility (SNF) was not in substantial compliance with the Medicare conditions of participation when it failed to take proper steps to address a resident’s unexplained weight loss. The SNF failed to ensure a resident received adequate nutrition so that he could have maintained his body weight and protein levels, unless there is a clinical condition that demonstrates this is not possible, 42 C.F.R. §483.25(i)(1). On September 20, 2006, the date of the resident’s admission, he weighed 150 pounds, however, on October 4, 2008, during an assessment it was found the resident had dropped 5 percent of his weight and he continued to lose weight until January 7, 2007, when he was taken to a hospital emergency room because he was unresponsive.

The emergency room records characterized his condition as thin and cachetic (a physical wasting with loss of weight and muscle mass due to disease), and he eventually died. In this case, it is not that the SNF failed to recognize and treat the resident’s weight loss, but that it failed to take steps that adequately ensured the resident had proper nutrition and care to prevent the weight loss. Further, the SNF did not show there was causal connection between the resident’s clinical condition and weight loss that could have made it eligible for the clinical condition exception. However, the ALJ did not adequately explain the basis for his conclusion that the SNF did not show it returned to substantial compliance before July 16, 2007, and the ALJ and did not reach issues potentially material to this decision. Accordingly, this particular matter was remanded for further proceedings.

Texan Nursing and Rehabilitation of Amarillo, LLC v. CMS, HHS Departmental Appeals Board, Appellate Division, Doc. No. A-10-35, Dec. No. 2323, July 2, 2010, ¶122,245.

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Medicaid

Countable resources

The district court erred when it treated promissory notes that Medicaid applicants or their spouses purchased from their adult children as trusts without first considering whether the notes would be countable resources under the Supplemental Security Income (SSI) regulations. Soc. Sec. Act §1902(a)(10)(C) requires that the Medicaid agency use income and resource requirements that are no more restrictive than those of SSI when determining the financial eligibility of aged, blind or disabled individuals. Soc. Sec. Act §1902(r)(2) specifies that a methodology is no more restrictive if additional individuals may be eligible and no individuals eligible under the original standard are excluded under the new methodology. Under the SSI methodology, the resources are examined first under the SSI regulations at 20 C.F.R. §416.1201 and the Social Security Administration’s Program Operations Manual System.

The regulations and manual require the agency to determine whether the applicant has the legal authority to use the resource for his or her own support, whether or how quickly it can be converted to cash, and other matters. If a note or other device is a countable resource under this analysis, the agency does not consider whether it also could be treated as countable under the rules governing trusts and “trust-like devices.” The trust rules are to be applied only if a resource is not countable under the regular rules.

Sable v. Velez, 3d Cir., July 28, 2010, ¶303,506.

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Emergency drills

Emergency evacuation drills must be conducted no less than 6 times per year in Intermediate Care Facilities for the Mental Retarded (ICF/MR), and at least 2 of these drills must take place during sleeping hours. The drills must be announced in advance. The drills should provide residents with experience in an egress through all means of escape. Actually exiting through the window is not required. Opening the window and signaling for help is an acceptable alternative. Residents who cannot meaningfully assist themselves are exempt from actively participating in the drill; as are facilities designated as having an “impractical” evacuation capability, however this determination will be reviewed by a surveyor. The drills should be a full evacuation of all clients. In addition to the six evacuation drills, ICF/MRs must conduct fire drills on a quarterly basis. Fire drills do not require full evacuation as these drill are focused on staff training and not providing practice to the residents.

CMS Memorandum to State Survey and Certification Agencies, S&C-10-26, July 28, 2010, ¶53,577.

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False statements of compliance

The district court ruled correctly that the relators were an “original source” of the information in the allegations of their qui tam complaint against the fiscal agent for the state Medicaid agency and state Medicaid officials. Although the failure of the agent and officials to pursue potentially liable third parties in medical malpractice cases was public knowledge, the claims for federal financial participation (FFP) in the expenditures that should have been recovered were not.

The district court’s dismissal of the complaint was proper because the relators cannot establish the falsity and the knowledge of falsity of the claims. The application of a state statute to the Medicaid agency’s right to reimbursement from liable third parties was not settled, and the interpretation that the statute barred the agency’s recovery was reasonable. The agency officials and fiscal agent could rely on a reasonable interpretation of a law whose meaning is in dispute. Only if the agency knew that there was no reasonable interpretation of the statute that would support their failure to pursue the third party liability could the False Claims Act apply.

United States ex rel. Hixson v. Health Management Systems, Inc., 8th Cir., July 30, 2010, ¶303,508.

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CHIP comment request

Pursuant to Soc. Sec. Act §1139A(6), which requires the Secretary to make reports to Congress on the quality of care provided to children under Medicaid and the Children’s Health Insurance Program (CHIP), comments are requested on the following relevant factors: (1) the duration and stability of coverage for children under Medicaid and CHIP; (2) the quality of services furnished to children for prevention, acute illness and chronic conditions; (3) the quality of services provided to school-age children with special healthcare needs to ameliorate conditions that may cause disabilities; (4) the domains of quality, specifically, clinical quality, safety, family experience, elimination of racial and ethnic disparities and provision of services in the most integrated setting possible; and (5) the extent of voluntary reporting by states using the core set of measurements.

Commenters are asked to address the content and process of reporting by states, including the subjects and dimensions of quality described. The Secretary will consider the comments in the report and recommendations for legislative changes to be submitted by January 1, 2011. Comments may be made electronically or delivered by mail or courier and must be received by 5:00 p.m. on August 30, 2010.

Notice, 75 FR 44971, July 30, 2010, ¶262,886.

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State-level exchanges

Pursuant to §1321(a)(2) of the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148), which requires the Secretary to consult with stakeholders to ensure equal representation for parties interested in health insurance exchanges, the Secretary is requesting public comments assist in developing standards for the establishment and operation of health insurance exchanges, to address other exchange-related provisions of PPACA, and to announce the awarding of grants.

Specifically, the Secretary is looking for information regarding topics such as: (1) state exchange planning and establishment grants; (2) implementation timeframes and considerations; (3) state exchange operations; (4) qualified health plans (QHPs); (5) quality; (6) exchanges for non-electing states; (7) enrollment and eligibility; (8) outreach; (9) rating areas; (10) consumer experience; (11) employer participation; (12) risk adjustment, reinsurance, and risk corridors; (13) economic analysis, Paperwork Reduction Act, and Regulatory Flexibility Act; and (14) exchange operations. Specific questions are posed for each topic. Comments must be received by October 4, 2010.

Proposed rule, 75 FR 45584, August 3, 2010, ¶220,804.

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Update to federal poverty guidelines

The federal poverty levels (FPL) effective for the remainder of 2010 have been announced. Publication of the guidelines usually occurs in January, but extension legislation, most recently, section 6 of the Continuing Extension Act of 2010 (P.L. 111-157), required HHS to delay publication until after May 31, 2010. Section 673(2) of the Omnibus Budget Reconciliation Act (OBRA) of 1981 requires the Secretary to calculate the FPL using the most recent poverty levels published by the Census Bureau multiplied by the change in the Consumer Price Index for All Urban Consumers (CPI-U) since the last update.

The FPL is used to determine eligibility for means-tested programs, including the Supplemental Nutritional Assistance Program (SNAP), cash assistance, Medicaid and the Children’s Health Insurance Program (CHIP). If the FPL had been published in January, the decline in the CPI-U from December, 2008 through December, 2009 would have resulted in some beneficiaries losing eligibility. The CPI-U has risen 0.042 percent between January 2009 and May 31, 2010. Because the increase is so small, the FPLs will remain unchanged through the end of 2010. It is expected that the 2011 FPL will be published in January, 2011 as usual.

Notice, 75 FR 45628, August 3, 2010, ¶262,888.

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Medicare

CY 2010 ASC payment rate

Addenda AA and Addenda BB to the CY 2010 outpatient prospective payment system (OPPS) Final rule corrected by a Final rule on December 31, 2009 reported at 74 FR 69502 (see ¶181,026) are being reprinted to account for additional changes to the practice expense relative value units and the conversion factor for the Medicare Physician Fee Schedule (MPFS) made by a Final rule published on May 11, 2010 at 75 FR 26350 (see ¶181,002). Part 5 of this report is a pamphlet that contains the revised Addenda AA and BB. The payment rates presented in this correction document will not be used for payment as they still reflect the negative update to the CY 2010 MPFS.

The extension of the zero percent update to MPFS to November 30, 2010 will affect the calculation of the payment rate for office-based procedures and covered ancillary radiology services and will be included in a Federal Register Notice printed on August 3, 2010 at 75 FR 45769 at ¶262,561. The ambulatory surgical center (ASC) payment amounts for office-based procedures and covered ancillary radiology services are determined using the MPFS conversion factor and practice expense relative value units.

Correction of Final Rule with Comment Period , 75 FR 45700, August 3, 2010, ¶181,045.

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Clinical laboratories

Laboratories that had their pathology speciality accredited by the Commission on Office Laboratory Accreditation (COLA) will have to notify their Clinical Laboratory Improvement Amendment (CLIA) state agency (SA) of their decision to be accredited by another organization or if they will seek a certificate of registration and certificate of compliance (CoC) for each of their specialities and subspecialities. Laboratories that fail to notify the CLIA SA of their choice prior to the expiration date of their current certificate will have their certificate terminated in the CLIA database. The certificate may not be renewed and the laboratory will no longer be affiliated with any CMS-approved accrediting organization.

A laboratory that performs testing in both pathology and non-pathology specialties may continue to be accredited with COLA for non-pathology specialties as long as it seeks accreditation from another organization for its pathology testing, or seeks a certificate of registration and request a CoC for all specialties and subspecialities as a lab is not permitted to hold both a Certificate of Accreditation and a CoC. COLA notified CMS of its withdrawal of full speciality pathology accreditation effective June 30, 2010.

CMS Memorandum to State Survey and Certification Agencies, No. S&C-10-24-CLIA, July 23, 2010, ¶53,575.

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Moratorium on new LTCHs extended

The moratorium on new long term care hospitals (LTCHs) that was established by the Medicare, Medicaid, and SCHIP Extension Act (MMSEA) (P.L. 110-173), was extended until December 28, 2010. Section 114(d) of the Act established a three-year moratorium on the designation of new LTCHs or LTCH satellites, and on an increase of beds in an LTCH. The moratorium began on December 29, 2007, and was scheduled to end on December 28, 2010. However, the Patient Protection and Affordable Care Act (P.L. 111-148), Section 3106(a), extended the ending date of the moratorium by two years.

The LTCH moratorium regulation at 42 C.F.R. §412.23(e)(6) will be updated to reflect the extension, however, the rules and polices for administering the moratorium, including the exceptions, the criteria for exceptions, and the methods to evaluate requests for exceptions, was not changed. Regional offices must continue to rely on guidance found in CMS Memorandum to State Survey and Certification Agencies at S&C-08-26, issued on June 13, 2008, and S&C-09-32 (see ¶52,823), issued on April 17, 2009, for detailed guidance on the LTCH moratorium.

CMS Memorandum to State Survey and Certification Agencies, No. S&C-10-25, July 23, 2010, ¶53,576.

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Provider-based status

HHS properly upheld CMS’ denial of provider-based status to a hospital’s off-campus emergency department because it was not a part of the hospital. The hospital had built its emergency care department nine miles from the main hospital to meet the needs of an increasing population in the surrounding area and to address traffic congestion concerns. The state health services cost review commission determined that the emergency department was neither physically located at the hospital nor on the hospital’s campus and, therefore, would not regulate the rates paid to the emergency department.

Pursuant to 42 C.F.R. §413.65(d)(1), CMS determined that the emergency department did not have provider-based status because the state cost review commission, which had the authority to regulate rates for hospitals, found that the emergency department was not part of the hospital. The hospital argued, among other things, that the Secretary’s decision was arbitrary and capricious because it was contrary to Congress’ expressed intent and the objectives of the Medicare program. The hospital, however, failed to offer any sufficient law or argument to override the Secretary’s decision. The hospital also argued that the Secretary’s decision violated the Equal Protection Clause of the Fourteenth Amendment, which prohibits the government from intentionally discriminating against similarly situated persons. This argument was also rejected because the hospital failed to carry its burden of showing that it had been treated differently from others who were similarly situated.

Adventist HealthCare, Inc. v. Sebelius, D. Md., July 30, 2010, ¶303,511.

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Survey process for LTC facilities

A temporary revision was made to the survey process for long-term care (LTC) facilities in Appendix P of the State Operations Manual (SOM) due to CMS’ release of the new minimum data set (MDS) 3.0 version scheduled for October 1, 2010. Because of the new MDS 3.0, survey teams will be unable to run the QM/QI reports that are used to assist surveyors in selecting their Phase 1 resident sample. The survey tasks are being revised to enable nursing home survey teams to select the Phase 1 survey sample without the benefit of the QM/QI reports. This temporary revision to Traditional Survey Process, affecting tasks 1-5C, will be implemented on October 1, 2010, only for those nursing home surveys in which the traditional survey process is being implemented. CMS also changed the title of the Online Survey Certification and Reporting (OSCAR) reports, which are no longer being produced, to Certification and Survey Provider Enhanced Reporting (CASPER) reports; and CMS will be removing any reference to the resident assessment protocols (RAPs) because of the implementation of the MDS 3.0; RAPs have been replaced with the care area assessment (CAA) process. All other portions of Appendix P not specifically mentioned remain unchanged. Finally, because of the implementation of MDS 3.0, CMS forms CMS-672 & CMS-802, as well as SOM Appendix PP, will be affected and those changes will be discussed in another memorandum, scheduled for August 13, 2010. These changes will become effective October 1, 2010.

CMS Memorandum to State Survey and Certification Agencies, No. S&C-10-27-NH, July 30, 2010, ¶53,578.

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HEADLINES What's New in Medicare and Medicaid Answers Now Monday, August 9, 2010

Decisions and Developments

Reimbursement Integrated Library

Dennis Barry’s Reimbursement Advisor

Receivables Report

Hospital Accounts Receivable Analysis

CMS creates new PPS for all ESRD facilities

New rules require free preventive care, prohibit cost-sharing

OPPS and ASC payment changes proposal

Health reform changes to CY 2010 OPPS and ASC system

Medicare trustees report shows improved financial status

Obama signs bill to reduce improper payments by $50 billion

Challenge to PPACA minimum coverage provision survives

Medicare rate doesn’t cover most FQHCs’ costs

Physician testimony improperly excluded in EMTALA case

Hospital’s knowledge of patient’s risk a jury question

Court defines “usual charges” as the amount billed by provider

Use of medical device deemed reasonable and necessary

Allocation of lump sum sales price to intangible assets allowed

RAC’s decision to reopen claim not subject to appeal

Family continues suit for 24/7 home nursing care

Nursing Home Reform Act suit against nursing facility fails

Manual update includes definition of Ambulance Services, Basic Life Support (BLS) - Emergency; Advanced Life Support Level 1 (ALS1) - Emergency and Advanced Life Support Level 2

Implementation of interrupted stay policy under Inpatient Psychiatric Facility Prospective Payment System (IPF PPS)

Allowing Common Working File (CWF) to accept both Medicare Secondary Payer (MSP) and Non-MSP lines on MSP claims and MSP adjustment claims

Common Working File (CWF) override edit for kidney transplant donor claims when kidney recipient is deceased

Additional state code for Missouri and new CMS certification numbers for Medicaid-only hospitals

Timely claims filing: additional instructions to ensure standards are established for determining date of service for institutional claims, for physician, practitioner, and supplier claims, and for professional services claims billed with line item span dates

Work group established, composed of Medicare contractors to assist in documentation of EDI processes and contractor responsibilities implemented through 5010 change requests

Analysis change request: Inclusion of Veterans Administration (VA) skilled nursing facility (SNF) claims to VA Medicare Remittance Advice (eMRA) process

DMEPOS supplier number revoked

Effective date

Hearing on reenrollment

Adequate nutrition

Countable resources

Emergency drills

False statements of compliance

CHIP comment request

State-level exchanges

Update to federal poverty guidelines

CY 2010 ASC payment rate

Clinical laboratories

Moratorium on new LTCHs extended

Provider-based status

Survey process for LTC facilities

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What's New in Medicare and Medicaid Answers Now
Monday, August 9, 2010