Health Care Reform Implementation Update - June 2014

by Cozen O'Connor

Secretary Burwell continues to settle in to her new position as the Department of Health and Human Services (HHS), this week making a number of management changes at the department; CMS released the long awaited proposed rule on Annual Eligibility Redeterminations for Exchange Participation and Insurance Affordability Program; and CMS also announced that it would create a five-star ratings program for hospitals, home health agencies and end-stage renal disease providers.


On June 19, Senators Orrin Hatch (R-Utah) and Chuck Grassley (R-Iowa) released a report that details their investigation into HHS’ oversight of The report finds that HHS wasted millions of dollars by failing to responsibly oversee the IT development of, and that political pressure from the White House to go live on October 1, 2013 trumped operational realities. According to the report, White House and CMS officials were warned that was not ready for its November 2013 release.

On June 19, a bipartisan group of senators introduced a bill that would require CMS to account for the socioeconomic status of a hospital’s patients when calculating penalties for readmission rates. The bill, the “Hospital Readmission Accuracy and Accountability Act,” is intended to maintain accountability in Medicare while mandating that CMS does not “let differences in income serve as an obstacle to improving health conditions,” according to one of the bill’s sponsors, Senator Joe Manchin (D-W.Va.). The American Hospital Association and the American Medical Association support the bill.

Secretary of Health and Human Services Sylvia Burwell sent the House Energy and Commerce (E&C) Committee a justification document outlining HHS’s legal authority to make payments in connection with CMS’s risk corridor program. Both the Government Accountability Office (GAO) and leadership from the House E&C committee had requested that HHS provide legal justification for these payments. In the justification documents to both GAO and E&C, Secretary Burwell claims that these payments are being treated as a user fee and therefore are allowable by law. The chairman of the House E&C committee Fred Upton (R-Mich.) pushed back stating that “risk corridors were not listed as a user fee in President Obama’s own FY2015 budget.”

The GAO released a report on June 18 that reveals CMS paid out $14.4 billion in improper Medicaid payments to managed care providers. According to the report, there are two main issues with CMS oversight of Medicaid payments that directly led to the improper payments. First, CMS has not updated its program integrity guidance to the states since 2000. Second, CMS does not require states to audit managed care payments, and states have requested additional guidance from CMS on how to obtain integrity monitor oversight.

In a letter to HHS, Congresswoman Tammy Baldwin (D-Wis.) and Ron Kind (D-Wis.) are requesting that the agency consider delaying the ACA employer mandate for Medicaid-dependent provider groups. The letter argues that these provider groups would see an increase in costs between 15 and 50 percent if they were subject to the mandate. The letter does not request repeal but asks HHS to work with stakeholders, such as Medicaid providers and facility directors, to discuss a solution to this problem, thus implying a request for a delay of the mandate.


On June 26, CMS released a proposed rule and guidance documents regarding re-enrollment in ACA exchanges in the upcoming enrollment period. Under the proposed rule, most current enrollees would be automatically re-enrolled unless they choose to select new coverage in the new enrollment period that begins in November. Only those enrollees who have had changed life circumstances, such as marriage or employment status, would have to update their information on The guidance documents that were released with the proposed rule give insurers suggestions for informing their customers about the upcoming enrollment period.

A statement posed on the Health Resources and Services Administration’s (HRSA’s) website says that it does not view a recent court decision regarding the ACA’s orphan drug exclusion as an invalidation of its interpretation of the statute, and that the agency would continue to stand by its interpretation. In May, the U.S. District Court for the District of Columbia ruled that HRSA did not have the authority to allow certain types of safety net providers to purchase orphan drugs at a discounted rate when they are not used as treatment for rare diseases. Last year, HRSA issued a rule that said that the ACA’s exemption did not apply to situations where the drugs were used to treat common diseases.

In an agency blog post by Patrick Conway, CMS’s deputy administrator for innovation and quality and its chief medical officer, CMS announced that it would create a “five star” ratings program for hospitals, home health agencies and end-stage renal disease providers. The program will be implemented later in 2014 and early in 2015 and be based on “established scientific standards of rigor and accuracy.” Currently, CMS has star ratings programs in place to compare nursing homes, Medicare Advantage plans, and certain physician group practices.

Last week, newly confirmed HHS Secretary Sylvia Matthews Burwell made several announcements concerning CMS staffing. She announced that a new position within CMS would be created for a “marketplace CEO” who would be responsible for both running the Center for Consumer Information and Insurance Oversight (CCIIO) and heading up management of the federally facilitated exchange. There will also be a new position for a chief technology officer.Burwell also announced that Andy Slavitt would serve as the agency’s principal deputy administrator. Slavitt was formerly with Optum/Quality Software Services Inc. (QSSI), the principal contractor for the federally facilitated exchange.

According to the Bureau of Economic Analysis (BEA), an office in the Department of Commerce, health spending slowed by an annual rate of 1.4 percent in the first quarter of 2014. This is in stark contrast to the BEA’s April estimate that it would actually increase by 9.9 percent. In the April report that predicted this increase, BEA did note that it would not be able to provide final numbers for the first quarter of 2014 until June. These new June numbers, reported by BEA on June 25, that illustrated this decline in health spending was a “surprise” to BEA and the Department of Commerce.

During an Open Door Forum on June 17, CMS officials told stakeholders that it would implement two new demonstrations to test whether a prior authorization process can be used for Medicare part B beneficiaries receiving non-emergency ambulance services and hyperbaric oxygen therapy. The non-emergency ambulance demonstration is scheduled to begin in the fall of 2014 in three states and run for three years. The oxygen therapy demonstration is scheduled to begin in early 2015 in three states. In both demonstrations, Medicare Administrative Contractors (MACs) will be required to respond to prior authorization requests within 10 days, the same timeframe that was required for the power wheelchair prior authorization demonstration. During the forum, CMS officials said that claims that have gone through prior authorization will typically not be subject to additional audits from MACs or from recovery audit contractors.


On June 20, Massachusetts state officials reached a deal with their former state exchange website contractor, CGI, to recover funds after the website experienced numerous problems. The deal includes up to $12 million in recovered funds from CGI as long as the state pledges not to pursue further legal action against the contractor.

In Virginia on June 20, Governor Terry McAuliffe vetoed portions of the budget that was passed by the state’s general assembly on June 12. The governor did sign off on most of the budget to avoid a government shut-down, but used his line-item veto power to strike language that would have prevented Medicaid expansion in the state. On June 23, using a procedural move that did not require a vote, the Virginia General Assembly was able to finalize and pass a budget without Governor McAuliffe’s line-item vetoes.


On June 19, the Kaiser Family Foundation released a new survey of ACA insurance enrollees. The survey asked 742 ACA enrollee respondents whether they had insurance before they enrolled in an ACA plan. More than half of the respondents, 57 percent, said that they did not have insurance before they enrolled. This contradicts the HHS estimate from May 1 that claimed that 87 percent of new ACA enrollees had lacked coverage before they signed up.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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