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BBA, False Claims Act, Individual Accountability Among Top 2016 Regulatory Targets

As we close the books on 2015, we look towards 2016 and expect to see significant regulatory activity, developments, and case law in the coming year. We highlight some of the anticipated developments and areas of focus here.

Section 603 of the Bipartisan Budget Amendment of 2015

There has already been a flurry of activity and discussion around Section 603 of the Bipartisan Budget Amendment of 2015 (BBA 2015), enacted on November 2, 2015. At a high level, Section 603 represents the most recent move towards payment reform and greater site neutrality in Medicare payments, following on the heels of physician payment reform and the implementation of the new Long Term Acute Care Hospital patient classification system. Section 603 established a new payment policy to reduce Medicare reimbursement at certain non-exempt off-campus hospital outpatient facilities. 

Specifically, off-campus hospital outpatient departments that do not fit within Medicare's definition of a dedicated emergency department and that have not billed for services under the Medicare outpatient prospective payment system (OPPS) as an outpatient department of a provider prior to November 2, 2015 will, as of January 1, 2017, no longer be eligible for reimbursement under OPPS. Off-campus hospital outpatient departments that are not exempt will be paid under an applicable Part B payment system if the applicable payment requirements are satisfied. Of note, the language of Section 603 does not address a number of key scenarios, including whether and to what extent the payment limit will be applied to off-campus hospital outpatient departments that billed Medicare under OPPS before November 2, 2015 but after that date, undergo changes in ownership, relocations or expansions. We anticipate rulemaking to help further clarify Section 603 in 2016.

False Claims Act Developments

On December 4, 2015, the United States Supreme Court granted certiorari to review an important aspect of the scope of the Federal False Claims Act (FCA) in United Health Services, Inc. v. Escobar, No.15-7. In that case, the Court will address the issue of whether FCA liability can be triggered under a theory of "implied certification." Under this theory, some courts have allowed FCA recovery even when a defendant has submitted no factually false claims, but instead has allegedly violated one or more provisions of a statute, regulation or contract in performing its services. Also involved in this same issue is whether compliance with the particular provisions is a condition of government payment. The Court is expected to issue a decision in this case by the end of its term, June 30, 2016. Most lawyers and commentators believe that the Court's decision in this case will have far reaching impact on the interpretation and application of the FCA. 

Another FCA issue that is now reaching federal appellate courts is whether statistical sampling and extrapolation methods may be used by the government and whistleblower lawyers to prove FCA liability as well as damages. While such procedures are routinely used by the government when assessing Medicare and Medicaid overpayments in administrative proceedings where issues of "wrongful intent" and "knowledge" are not relevant, the use of such statistical processes is not common in FCA cases, where knowledge of the falseness of claims is a critical element of FCA liability.

Some district courts have tentatively allowed the process to be used in FCA health care cases, including cases involving the medical necessity of services. One appellate court, however, has decided to address the issue even before the District Court in that case applies the process to the case before it. On September 29, 2015, the Fourth Circuit agreed to hear an interlocutory appeal in United States ex rel. Michaels v. Agape Sr. Comm Inc. No 15-238. The Fourth Circuit is expected to issue a ruling this year which could establish some principles for the application of sampling and extrapolation in FCA cases.

Enforcement Actions and Internal Investigations

On September 9, 2015, Deputy Attorney General (DAG) Sally Quillian Yates (Yates) - the number two in command at the Department of Justice (DOJ) - issued new guidance to DOJ personnel and the Director of the Federal Bureau of Investigation concerning individual accountability for corporate wrongdoing. The Yates memo sets forth the following six principles to guide DOJ prosecutions and enforcement actions:  

i.  To be eligible for any cooperation credit, corporations must provide to DOJ all relevant facts about the individuals involved in the corporate misconduct.

ii.  Both criminal and civil investigations should focus on individuals from the inception of the investigation. 

iii.  Criminal and civil attorneys handling corporate investigations should routinely communicate with one another. 

iv.  Absent extraordinary circumstances, no corporate resolution will provide protection from criminal or civil liability for any individuals. 

v.  Corporate cases should not be resolved without a clear plan to resolve related individual cases before the statute of limitations expires and declinations as to individuals in such cases must be memorialized.

vi.  Civil attorneys should continuously focus on individuals as well as the company and evaluate whether to bring suit against an individual based on considerations beyond that individual's ability to pay.

Based on the principles of the Yates memo, we expect to see the government focus on individual employees and senior management as part of broader investigations of corporate wrongdoing in 2016. The guidelines reinforce the expectations that corporate providers must carry out thorough investigations in the face of fraud and abuse allegations and disclose all relevant facts about potentially culpable individuals as a condition for corporate providers to obtain cooperation credit.

We expect that the DOJ will scrutinize the nature and scope of a corporate provider's internal investigation, as well as the persons who conduct and supervise it, in determining whether a provider has met the new "threshold requirement" for cooperation credit. Accordingly, it is more important than ever for providers to obtain the active involvement of defense counsel who are not only experienced in criminal and civil fraud matters generally, but also are experienced in the complex regulatory matrix of the health care system more specifically when initiating these internal investigations.

Potential Revisions to Medicare UC-DSH Provider Payment Calculations Under ACA Section 3133

About 2600 hospitals annually are eligible for Medicare disproportionate share (DSH) payments and consequently are eligible for the replacement that Congress created for such payments with Section 3133 of ACA. Beginning in FY 2014, Section 3133 redirected 75% of such payments into a new payment pool, reducing that pool by a factor to account for the increase in the national insured population, and requiring the payment of the remainder to DSH eligible hospitals based on their relative cost of uncompensated care. These new payments are referred to as UC (or uncompensated care) DSH payments. CMS initially premised that UC-DSH payment distribution would be based on a factor related to the original DSH payment calculation (Medicaid days plus Medicare with SSI days) because of concerns about the accuracy of data related to a hospitals' relative cost of uncompensated care.

As part of the FY 2017 IPPS proposed rule, CMS has indicated it will announce a timetable to transition the calculation of UC-DSH payments to hospitals based on the costs of uncompensated care contained in the Medicare cost report Worksheet S-10. Models using this data indicate a significant redistribution of UC-DSH payments to hospitals as compared to the use of Medicaid and Medicare with SSI days. Hospitals that currently receive significant revenues from UC-DSH payments should be cautious about budgeting for such payments in the future, and all hospitals that are DSH eligible should carefully review the FY 2017 IPPS proposed rule and comment to CMS with any concerns about CMS' proposals with regard to these payments.

HIPAA Auditing and Enforcement

In the Fall of 2015 the Office of Inspector General (OIG) issued two critical reports about the Office for Civil Rights (OCR) and its efforts in auditing and enforcing HIPAA compliance. Among other things, the OIG recommended that the OCR fully implement a permanent audit program, better track information about small data breaches, develop a system for tracking covered entities with prior breaches and generally expand its outreach and education efforts. The OCR agreed with the OIG's recommendations and has announced that it will launch Phase 2 of its audit program in early 2016. We expect to see an increase in HIPAA auditing and enforcement activities through 2016.

State Medicaid Programs and Other Regulatory Developments

During 2016, we anticipate significant changes for state Medicaid programs. On the fee-for-service side, CMS' newly adopted rules regarding provider payment rates and beneficiary access will go into effect. CMS may also propose additional standards to govern access. On the managed care side, CMS will finalize its proposed Medicaid managed care rules, which presented a significant overhaul of 42 C.F.R. Part 438 touching almost every area of managed care operations, including actuarially sound rates, medical loss ratios, beneficiary access, compliance and grievances. CMS continues to expect state Medicaid programs to move away from pure fee-for-service methodologies to methodologies that focus on quality, value and efficiency.

On the Medicare side, we expect to see final regulations on the 60 day rule in February for Part A and Part B. 340B continues to be an active area and we anticipate that HHS will finalize the 340B "mega rule" in 2016.

ACA and Exchange Activity

Over 11 million individuals have enrolled in Health Insurance Exchange coverage nationwide for 2016, and total sign ups on Exchange plans may exceed 14 million when open enrollment concludes at the end of January. After two years of experience with the Exchanges, the health plan offerings in 2016 and 2017 have contracted in many parts of the country. Approximately half of the health insurance cooperatives (known as CO-OPs) were out of business by the end of 2015, with these plans hit particularly hard by the underfunding of the risk corridors program. California, which had no CO-OPs, has not seen the exit of participating health plans to date and to the contrary, has seen its Exchange plan offerings expand in 2016 as Oscar and UnitedHealth Group began participating.

After initially opting out of participating in most Exchanges, United expanded its Exchange offerings in 2015, but, in November, it announced that it would scale back its marketing of individual marketplace products for 2016 as a result of sustaining financial losses and might exit the Exchanges altogether in 2017.

Network adequacy and transparency remain areas of regulatory focus for the Exchanges. HHS has proposed for the first time to adopt quantitative network adequacy standards that would be used on federally-facilitated marketplaces where state law does not establish sufficient, quantitative network adequacy requirements. Regulators are also increasingly focusing on network transparency to better assure that consumers have the necessary information in a marketplace with narrow network options.

Co-Located Hospital

In May 2015, the Center for Medicare and Medicaid Services presented a webinar for the American Health Lawyers Association on co-located hospitals. Among other things, CMS outlined that co-located Medicare certified hospitals must independently demonstrate compliance with the Medicare Conditions of Participation. In discussing how co-located hospitals can do this, CMS asserted that a hospital cannot depend on another hospital for compliance. By way of example, it stated that when a hospital leases space from another hospital and contracts with the host hospital for significant support services, or when a co-located hospital has hospital certified space that is co-mingled or shared with the host hospital, then the co-located hospitals may not be separately or independently satisfying the applicable Medicare requirements.   We understand that CMS is in the process of amending the State Operations Manual to further clarify this interpretation and that surveyors have been trained on these principles.

At the same time that CMS is reviewing and revising its provisions governing co-located hospitals, the Department of Public Health in California continues to evaluate how to apply hospital licensing laws and regulations that do not specifically address or contemplate co-located hospitals. We expect co-located hospital arrangements to continue to be scrutinized and re-evaluated in the coming year, especially as CDPH rolls out its general acute care hospital relicensing survey process.

For additional information, please contact Hope Levy Biehl at 310.551.8111.

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