Health Care Reform Implementation Update - May 2014

by Cozen O'Connor

Congress held several hearings last week ranging from Sylvia Burwell’s nomination for Secretary of the Department of Health and Human Services (HHS), to Medicare payment oversight, to post-acute care in Medicare. The Centers for Medicare & Medicaid Services (CMS) released final and proposed rules on the use of electronic health records, Medicare payments for medical devices, and new requirements for health plans wishing to participate in Affordable Care Act (ACA) exchanges. Also this past week, Nevada announced that it will abandon its state-run health exchange website, and Oregon is now facing a formal investigation regarding its management of its ACA exchange website.


On May 21, the Senate Finance Committee voted 21-3 to move Sylvia Burwell’s nomination for Secretary of HHS out of committee and to the Senate floor. The three Republican senators to vote against her nomination were Senator Pat Roberts (R-Kan.), Senator John Cornyn (R-Texas) and Senator John Thune (R-S.D.). The full Senate is expected to vote on her nomination during the first week of June.

The House Oversight and Government Reform Subcommittee on Energy Policy, Health Care and Entitlements and the House Ways and Means Subcommittee on Health each held hearings on May 19 regarding Medicare payment oversight. The hearings focused on Recovery Audit Contractors (RAC) and the apparent flaws in the Medicare claim auditing process. There was bipartisan consensus in both committees that the Medicare audit system is overwhelmed and inefficient. Citing a backlog of more than 1 million audit appeals and the large number of overturned audit decisions by administrative law judges, there was a strong push from many congressional members to reform the system. Lawmakers representing small provider groups and rural hospitals in both committees expressed particular concern that the Medicare audit process is cumbersome and undermines the financial stability of these types of health care providers.

On May 21, the House Energy and Commerce Committee held a hearing titled “Keeping the Promise: Site of Service Medicare Payment Reforms.” The hearing focused on post-acute care Medicare payments systems, and congressional members highlighted current and proposed legislation that would help to “streamline” these payment models. Among the legislation discussed, a bill that would bundle Medicare payments for post-acute care services received the most attention and bipartisan support.

Also on May 21, Republicans on the House Ways and Means Committee sent a letter to Treasury Secretary Jack Lew asking that subsidies to insurers under the ACA be suspended. Subsidies to insurers are based on income information provided to the federal government directly from individuals receiving health insurance through the ACA exchanges. In the letter, the legislators cite a report from The Washington Post that claims there may be 1.5 million cases of inaccurate income reporting from individuals, leading to fraudulent subsidy payments to insurance companies.


CMS provided prospective qualified health plans (QHPs) with new instructions on network information requirements. According to these instructions, health plans applying to CMS to provide coverage in the federal exchange in 2015 will be required to provide the agency with a list of providers that will be in their networks. Additionally, all QHPs will be required to maintain what is referred to as “adequate” provider networks, both in terms of numbers and types of providers and must attest they meet this network adequacy standard as part of the certification and recertification process for QHPs. Along with the list of providers, QHPs will also have to provide information on the providers’ specialty type, address and national provider identifier number. CMS initially proposed the network adequacy reporting requirement in its draft 2015 letter to QHPs, but had not specifically included the requirement in the final letter.

HHS sent a letter to the American Hospital Association (AHA) on May 21 confirming that nonprofit foundations can, under certain circumstances, pay for ACA premiums of individuals enrolled in qualified health plans. The letter, which was in response to the AHA’s April 28 letter to HHS asking for additional guidance, said that the payments are not prohibited, so long as they comply with guidance issued in a frequently-asked-questions document by HHS on February 7 of this year. The letter also stated that HHS would not issue additional guidance on the matter.

HHS decided to stop releasing monthly updates of exchange enrollment, as it had done during the exchange open enrollment period from last October through March of this year. Because only individuals who meet certain special requirements can now enroll in exchanges, an HHS spokesperson said that the agency will look for other opportunities to share information about exchange enrollment.

On May 22, the Department of Health and Human Services announced it had selected 12 recipients to receive up to $110 million in grants under the ACA for projects designed to test innovative delivery system models. The grants were awarded under the Center for Medicare and Medicaid Innovation’s Health Innovation Awards program and range in size from $2 to 18 million over a three-year period. The projects are intended to deliver better health, improve patient care and lower costs for individuals enrolled in Medicare, Medicaid and the Children’s Health Insurance Program. Two additional rounds of awardees under the program will be announced by HHS in the coming months.

On May 22, CMS issued a proposed rule that will require prior authorizations for Medicare coverage of certain types of medical equipment, such as power wheelchairs, and will require prepayment reviews for certain types of medical equipment such as prosthetics. Under the proposed rule, prior authorizations will be required for power wheelchairs in 19 states and prepayment reviews will be required for a proposed master list of more than 130 items that are said to be frequently unnecessarily utilized. The proposed rule is expected to save the government between $100 and $740 million over the next 10 years.

On May 20, CMS unveiled a proposed rule regarding the electronic health record (EHR) incentive program. The proposed rule, if enacted, would ease restrictions on providers and hospitals on the certification year for using EHRs under the program. Many provider groups have informed CMS that the current EHR incentive program requirements are technically burdensome and discourage providers from participating. Under the proposal, CMS would allow providers and hospitals to use EHRs certified in 2011 as opposed to requiring them to use EHRs certified in 2014, a requirement that was supposed to begin this year. CMS would also delay Stage 3 of the EHR incentive program until 2017.

In a Q&A publication released mid-May on its website, the Internal Revenue Service (IRS) provided further guidance to employers seeking clarification regarding employer-sponsored health care plans. Under this guidance, the IRS informed larger employers that they may face tax penalties if they choose not to provide health insurance and simply direct their employees to sign up for health insurance using ACA exchanges, even if the employers provide funds to pay for the premiums. According to the guidance, this type of action would not satisfy the ACA, which requires large employers to offer coverage to full-time employees or pay tax penalties.


President Obama’s nominee for Surgeon General Dr. Vivek Murthy will likely not be appointed before the November elections. Although the Senate Health, Education, Labor & Pensions Committee voted in February to proceed with a full Senate vote on Dr. Murthy’s nomination, opposition from pro-gun advocate groups have stalled progress on the vote. In the past, Dr. Murthy has expressed strong support for gun control efforts and has been known to cite gun violence as a health issue. Groups including the National Rifle Association (NRA) have expressed their opposition to his nomination, energizing many Senate Republicans to express their opposition to Dr. Murthy’s nomination as well.


Nevada decided to abandon its state ACA exchange website and transition to the federal exchange website, On May 20, the Nevada exchange board decided that it could not fix the numerous technical glitches of the state’s exchange website in time for the next open-enrollment period. The vendor that ran the state’s exchange, Xerox, received $75 million under its contract. Nevada plans to use for at least a year but will revisit the issue after the next open enrollment period concludes.

Louisiana state legislators passed a measure to advance Republican Governor Bobby Jindal’s national health care plan. After voting down three separate attempts to expand Medicaid in the state, support for Governor Jindal’s“America Next” plan was strong with a vote of 35-1 in its favor. Gov. Jindal’s America Next is a national health plan, which would provide $100 billion to states that devise their own health care systems as long as plans cover people with pre-existing conditions. The vote in the Louisiana legislature directs the state health agency to develop its health plan in accordance with America Next.


The U.S. Attorney’s Office in Portland, Ore., issued grand jury subpoenas on May 13 to Cover Oregon and the Oregon Health Authority, demanding all records related to the application or receipt of federal funds that may have been used in developing, building or administering the state’s troubled exchange website. The state received more than $300 million in federal grants for the website; however, the exchange was so flawed that residents were unable to use it to enroll in coverage causing the state to abandon the state-run exchange altogether. On May 20, the governor of Oregon publicly released the subpoenas.

The American Hospital Association (AHA) filed a complaint against HHS on May 22, seeking to compel HHS to meet statutory deadlines for administrative review of Medicare claims that are denied reimbursement. Providers have a right to contest denials through a multilevel appeals process and decisions are required to be made within certain time frames for each level of review. At the third level of appeal, an HHS administrative law judge (ALJ) reviews contested claims, and the statutory deadline for holding a hearing and issuing a decision is 90 days. AHA’s complaint alleges that there is currently a 20- to 24-week delay in simply docketing cases and that the average wait time for a hearing is approximately 16 months. AHA’s complaint also noted that the delays are expected to increase, particularly since HHS’s December 2013 announcement of a moratorium on provider appeals assignments to ALJs for at least two years.

An HHS rule that was intended to help rural and cancer hospitals gain greater access to specialized drugs for “off label” treatments was struck down by a federal judge on May 23. The ACA expanded the 340B (of the Public Health Service Act) drug discount program for certain types of hospitals, specialized clinics and facilities that provide care to underserved populations by requiring pharmaceutical companies to provide prescription drugs to these facilities at a lower cost than they would have otherwise been required to pay. So-called “orphan drugs,” which are used only for rare diseases and do not enjoy the same federal support as pharmaceuticals that are used for a wide-range of uses, are extremely costly. HHS had published a rule in 2013 that expanded the 340B program to include these orphan drugs and allow the facilities to purchase them at discounted rates when used for off-label purposes. Last week, the federal court held that Congress did not grant HHS the authority to modify the 340B program in this way.


The National Bureau of Economic Research, a nonpartisan research organization, released last week a study authored by MIT economist Jonathan Gruber and others finding that limited competition in ACA exchanges resulted in higher premium prices. For example, United Healthcare, the largest health plan in the country, did not offer any health plans in the federal exchange and only offered a few in state based exchanges, and Cigna only offered plans in less than six states. The study said that if competition was higher, the federal government would have saved approximately $1.7 billion in subsidies.

Former Republican Senator Trent Lott and former Democratic Senators John Breaux and Tom Daschle, have teamed up to promote the use of telemedicine. The three former senators are now registered lobbyists and are representing the Alliance for Connected Care, a nonprofit formed by numerous stakeholders in the health care industry to promote the use of remote health care. The former Senators are pushing for legislative and regulatory changes that would ease restrictions on the use of digital technology to assist with greater access to telemedicine to communities and patients nationwide.


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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