Welcome to this week's edition of the Health Law Update. In this Issue:

  • Year of the Bundle: CMS Proposes New Mandatory Cardiac Bundles and Expansion of CCJR
  • The Deeper Dive: Senate Finance Committee Examining Modernization of the Stark Law
  • $2.75 Million OCR Settlement Underscores the Importance of Risk Management and Analysis
  • Coming Soon? Part D Covered Drug Moves to Part B
  • In Case You Missed It: The Trending Posts of Summer
  • Events Calendar

Year of the Bundle: CMS Proposes New Mandatory Cardiac Bundles and Expansion of CCJR

CMS is building momentum with its bundled payment programs and upping the stakes for hospitals.

The Centers for Medicare & Medicaid Services (CMS) recently published a proposed rule that furthers the U.S. Department of Health and Human Services’ goal to promote cooperative, value-based care and tie at least 50 percent of Medicare payments to quality or value through alternative payment models by the end of 2018. The proposed rule builds on prior experiments with episode-based payment models (EPM) and confirms predictions that bundled payments will become a broader reality and a mandatory reimbursement framework for hospitals – whether they are ready or not.

The proposed rule would impact hospitals in the mandatory Comprehensive Care for Joint Replacement (CCJR) program that began April 1, 2016, by adding a bundle for certain surgical hip/femur fracture treatments. It would also mandate that 98 randomly selected metropolitan statistical areas (MSAs) participate in new bundled payment models for cardiac care, including acute myocardial infarction (AMI) and coronary artery bypass graft (CABG). CMS has identified 294 MSAs eligible to be drafted into the cardiac bundles, which means hospitals in one-third of the eligible MSAs would be subject to the rule’s retrospective payment adjustments for AMI and CABG for performance years beginning July 1, 2017 through December 31, 2021.

Without doubt, some hospitals will have a negative view of the EPMs and hope to escape participation. But there are a couple of bright spots in the proposed rule:

  • It addresses the interplay between the EPMs and CMS’s proposed criteria for an Advanced Alternative Payment Model (APM) under the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). Under some circumstances, clinicians who are EPM “collaborators” (including hospital employees) may be able to improve or avoid Part B reimbursement under the new Merit-Based Incentive Payment System (MIPS).
  • The proposed rule also introduces a new incentive payment model for cardiac rehabilitation that will apply to 45 of the MSAs in the new cardiac EPMs and 45 MSAs that were not selected.

Bundled Payments Gain Momentum

CMS began experimenting with bundled payments years ago. Notable programs include the five-year CABG demonstration program that began in 1991, the three-year Acute Care Episode demonstration for cardiac and orthopedic surgery that began in 2009 and, more recently, the four models of the Bundled Payment for Care Improvement Initiative (BPCI) developed by the Center for Medicare & Medicaid Innovation and funded by the Affordable Care Act. Each program was voluntary and included only providers that were willing applicants. Building on these bundled payment initiatives, CMS is now upping the stakes.

Just last month, the voluntary Oncology Care Model commenced for physician practices administrating chemotherapy and participating payers, including commercial payers. And now CMS is proposing to introduce cardiac EPMs and expand CCJR to a more complex treatment episode, presumably before participants have had an opportunity to assess and learn from their experiences since they are just four months into the CCJR program.

The focus on bundles is not surprising. EPMs do not force providers to accept risk for an entire population or require large numbers of primary care clinicians, like other alternative payment models such as accountable care organizations. And the bundles allow CMS to target conditions that are common and expensive to treat, with great variation in cost. CMS projects $170 million in cost savings over five years in connection with the proposed EPMs.

Key Aspects of the Proposed Episode Payment Models

  • The EPMs begin with an inpatient stay and generally include all payments during the 90 days post-discharge.
  • Participating hospitals would be accountable for the cost and quality of care for the entire defined episode. Under this proposal, CMS sets a target price annually for each EPM that is adjusted by a discount factor based on the treating hospital’s quality performance. During the performance year, providers and suppliers bill and are paid as usual under applicable payment systems. At the end of the performance year, CMS compares the hospital’s average EPM costs to the target. If the target price less the discount exceeds the hospital’s average EPM cost, the hospital receives a “reconciliation” payment from CMS. If the target price less the discount is less than the hospital’s average EPM cost, the hospital would make a “repayment” to CMS.
  • Like CCJR, the proposed rule includes upside and downside risk for participants, phased in over time with symmetrical stop-loss and stop-gain. The downside risk would not apply in the first performance year. The proposed rule provides additional protections for certain participants that may have a lower risk tolerance and less infrastructure and support to achieve efficiencies for high-payment EPMs.
  • Only EPM hospital participants are directly subject to these payment requirements. The proposed rule contemplates that participants would align with other providers and suppliers as EPM “collaborators” and could engage in gainsharing with the collaborators.
  • As authorized by Section 1115A of the Social Security Act, waivers are proposed for certain Medicare program requirements including telehealth; post-discharge nursing visits; model-specific decisions related to waiving the three-day stay requirement for skilled nursing facility payment; and performance of cardiac rehabilitation and intensive cardiac rehabilitation by non-physicians, including nurse practitioners, clinical nurse specialists or physician assistants.
  • While CMS does not provide for fraud and abuse waivers in the proposed rule, the agency recognizes that certain arrangements between EPM and third-party participants could implicate the fraud and abuse laws. As a result, CMS is soliciting comments on whether such waivers may be necessary.

Interplay with MACRA

As part of the May 2016 proposed rules implementing MACRA, CMS created two pathways for linking quality to payment: the MIPS and APMs. Under the proposed EPMs, eligible participants would be able to improve their MIPS score or qualify for advanced APM incentive payments. Notably, under the proposed MACRA rule, participants in the CCJR and BPCI programs are not eligible for the APM pathway. CMS received comments urging reconsideration and it appears the agency is trying to create a workable mechanism to treat certain EPMs as advanced APMs.

Cardiac Rehabilitation Incentive

The proposed rule cites to evidence that cardiac rehabilitation programs improve health outcomes but are underutilized. CMS also expressed concern that the proposed cardiac bundles may negatively affect the use of cardiac rehabilitation services. For these reasons, CMS is proposing financial incentives for facilities to encourage greater utilization of cardiac rehabilitation services. Hospitals will receive $25 per cardiac rehabilitation service for the first 11 services paid by Medicare during a heart attack or bypass surgery care period. After 11 services, a participating hospital will receive $175 per service. For a proper case-control evaluation, CMS will select participants from 45 geographic areas for AMI and CABG EPM participation and 45 MSAs that were not included in the EPMs.

Preparing for Implementation

While CMS is rolling out its payment reforms with surprising speed, hospitals will need time to evaluate and revise their operations to succeed under the new payment frameworks. As recognized by the American Hospital Association in a recent bulletin to members, hospitals should consider developing strategies to:

  • Identify patients eligible for bundles early and assess their risk for complications;
  • Establish data analytic and information sharing capabilities;
  • Track patients across the continuum of care;
  • Redesign care;
  • Engage physicians; and
  • Coordinate care transitions and manage post-acute services.

Given the complexity of these actions and scope of relationships with third parties that must be evaluated, hospitals should begin preparing for the possibility of the proposed payment reforms.

Now is also the time to voice concerns to CMS. Comments to the proposed rule are due by October 3, 2016.

The Deeper Dive: Senate Finance Committee Examining Modernization of the Stark Law

The Committee’s interest in the Stark Law and receptiveness to feedback from industry leaders may indicate that significant changes to the law are in the pipeline.

As the healthcare industry moves from a fee-for-service (FFS) reimbursement system for physicians to a value-based payment system, industry insiders are questioning whether the federal physician self-referral law and its implementing regulations (Stark Law) has outlived its usefulness, and their concerns may be picking up steam in the United States Senate. Opposition to the Stark Law is nothing new as stakeholders have argued for many years that the complexities of the law unduly interfere with the practice of medicine. CMS has acknowledged provider struggles with technical violations and revised its regulations in 2015 in an effort to ease this burden. The agency has also acknowledged that innovations in Medicare payment models and private payor arrangements that are designed to integrate physicians and hospitals can be difficult to achieve under the Stark Law. The Senate Finance Committee (Committee) has turned its attention to the Stark Law by engaging stakeholders in a discussion about these issues. The Committee’s recently released white paper describing the concerns of the industry may foreshadow significant changes to the law.

Payment Reform and the Stark Law

Congress enacted the Stark Law to limit the influence of financial relationships on physician referrals in the FFS reimbursement landscape, where the volume or value of services drive profit margins. New payment models resulting from the Affordable Care Act, the forthcoming physician payment system created under the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), and clinical and financial integration in the commercial setting are designed to align physicians and other providers across the care spectrum. The Committee acknowledges in the white paper that these alternative payment models do not present the same risks for overutilization as traditional FFS because physicians’ “economic self-interest aligns with the interest to eliminate unnecessary services.”

The Committee’s white paper is a collection of comments from healthcare thought leaders detailing the challenges that healthcare providers face and suggests changes to the law that would help the industry move toward implementing these alternative payment models. Solutions proposed by commenters ranged from repealing the Stark Law entirely to modifying the existing compensation exceptions and fraud and abuse waivers to accommodate innovative payment arrangements. While the white paper does not make any specific recommendations, it shows that the Committee is considering diverse opinions about how to modernize the Stark Law to deal with clinical and financial integration.

Comments about Technical Revisions

Despite efforts by CMS to clarify the application of the Stark Law, its technical nature and regulations have presented interpretive challenges over the years. Moreover, the staggering financial penalties that can result when the Stark Law forms the basis for a False Claims Act case have raised the stakes for providers in recent years. The white paper demonstrates that stakeholders are frustrated by the complexities of the law and have a wide variety of opinions about how to revise the law to permit conduct that does not harm the Medicare program.

Some commenters advocated for amending the penalty scheme for technical violations, such as failure to maintain documentation of arrangements, suggesting that penalties should apply to the arrangement as a whole rather than on a per-claim basis. Others suggested eliminating penalties for technical violations altogether. However, the comments reveal that what constitutes a “technical violation” is a subjective determination. Thus, some stakeholders proposed, as an alternative, the elimination of the Stark Law’s applicability to compensation arrangements.

The white paper describes other comments about the fair market value standard, the volume or value standard in the group practice exception, and the interplay between the Stark Law and the Anti-Kickback Statute. One comment focused on the fair market value standard noted that tax-exempt entities are already subject to compensation restrictions and suggested creating a separate exception for compensation arrangements involving a tax-exempt entity. A sentiment echoed by many commenters is that Congress should ease the compliance burden by aligning the Stark Law with the Anti-Kickback Statute and replacing some Stark exceptions with their safe harbor counterparts.

Committee Hearing

The Committee held a follow-up hearing on July 12, 2016 to discuss ways to improve the Stark Law. A former CMS official in charge of Stark Law policy at the agency was among the witnesses at the hearing and described the law as “a tortured web of confusing standards.” During the hearing, Committee members acknowledged that the Stark Law is too complex and creates hurdles to implementing alternate payment arrangements.


CMS has recognized that the Stark Law can be a barrier to clinical and financial integration and that compliance with the law is a burden to providers. While it has made progress in amending the regulations, CMS cannot change the statute. The Committee’s interest in the Stark Law and receptiveness to feedback from industry leaders may indicate that significant changes to the law are in the pipeline.

$2.75 Million OCR Settlement Underscores the Importance of Risk Management and Analysis

How the theft of a single password-protected laptop turned into an enterprise-wide review of an organization’s data protection practices.

Following the announcement of a recent settlement between the U.S. Department of Health and Human Services, Office for Civil Rights (OCR) and Catholic Health Care Services, OCR has announced another significant settlement agreement and corrective action plan (CAP), this time with the University of Mississippi Medical Center (UMMC). The agreement imposes a $2,750,000 penalty and three-year CAP on the Jackson-based medical center, one of the few public academic medical centers in the state.

OCR began investigating UMMC following a March 2013 incident involving the disappearance of a laptop containing the ePHI of approximately 10,000 patients from UMMC’s Medical Intensive Care Unit. The resulting OCR inquiry into the medical center’s compliance with HIPAA regulations uncovered a number of violations, including the failure to:

  • Implement policies and procedures to adequately anticipate and protect against security vulnerabilities;
  • Secure ePHI-accessible workstations with physical safeguards that would limit access to authorized users;
  • Institute unique user IDs that could track individual employee access to ePHI; and
  • Directly notify individuals whose unsecured ePHI may have been accessed, despite providing substitute notice on its website and in local media.

In addition to the substantial monetary penalty assessed against UMMC, the medical center consented to a three-year CAP mandating a host of internal modifications to UMMC’s data security practices. These requirements include installing a monitor to observe and report on the medical center’s compliance with the CAP, performing a risk analysis and developing a new risk management plan to address the security vulnerabilities identified by OCR, rolling out a unique user identification system to adequately track individuals with ePHI privileges, conducting security awareness training for employees with access to ePHI, and providing annual compliance reports to OCR.

The UMMC settlement highlights how tugging at the thread can unravel the sweater. Here OCR’s investigation, triggered following the theft of a single password-protected laptop, turned into an enterprise-wide review of UMMC’s data protection practices. The resulting settlement reinforces the need for covered entities to address potential security vulnerabilities, and to ensure that a simple problem does not balloon into substantial liability for the organization.

It is crucial that organizations routinely conduct risk analyses and implement any necessary remediation measures through corresponding risk management plans.

Coming Soon? Part D Covered Drug Moves to Part B

We may soon see a provision in the 2015 final rule addressing the utilization of end-stage renal disease related drugs and biologics come into action in the next few months. Specifically, the oral-only drug Sensipar may transition to bundled payment and become reclassified as a Medicare Part B covered drug should a non-oral form be approved by the FDA. Prescribers and dispensers should be aware that a transition is possible and will likely impact reimbursement for this product.

The drug Sensipar is currently considered an oral-only drug product. However, in 2015, a biopharmaceutical company submitted a new drug application for a calcimimetic agent that can be administered intravenously. Under the final rule, approval of this product would likely reclassify the oral-only form as a non-oral-only product and subject it to inclusion in a bundled payment. In other words, if an IV form is approved by the FDA, it will be in a transition period for two years while CMS evaluates the utilization of both the oral and IV forms. If the oral form remains with no FDA-approved IV form, the oral will continue to be paid separately under Medicare Part D.

FDA approval of the IV form is anticipated prior to the end of 2016.