Miller Health Law Group Newsletter on Key Provisions for Health Care Providers

National Health Care Reform — Key Provisions for Providers

The Patient Protection and Affordable Care Act (PPACA) and the Health Care and Education Reconciliation Act of 2010 (collectively, the “Health Care Reform Law”) are now the law of the land. The controversial legislation, the most important for the health care industry since the passage of the Medicare program in 1965, will affect virtually every industry participant including patients, physicians, hospitals, suppliers, insurance and drug companies and employers.

We believe that the Health Care Reform Law is merely the opening act in a multi-year process that is likely to dramatically reshape the health care delivery and payment system. In many cases, the Health Care Reform Law provides only the barest outline of what the law requires. In literally more than a thousand instances, it is left to the Secretary of the Department of Health and Human Services (HHS) to issue implementing regulations to flesh out Congress’ “intent.” Truly, the “devil will be in the details.”

Our goal is to help our clients and friends identify as soon as possible the opportunities, risks, and compliance challenges presented by health care reform and to take the necessary steps to adjust to the inevitable changes.

This edition of our Health Law Bulletin summarizes key provisions of the Health Care Reform Law affecting providers. Where possible we have indicated in brackets the section of the Health Care Reform Law from which our summary is derived. Unless indicated otherwise, section references are to PPACA.


The Health Care Reform Law focuses on four broad areas: (1) expanded insurance coverage and funding mechanisms to pay for the expansion; (2) insurance practice reforms (e.g., bans or restrictions on exclusions for pre-existing conditions, lifetime caps, and rescissions); (3) quality of care initiatives; and (4) cost control and fraud prevention.

Implementation Timeline

Some of the new law’s provisions take effect immediately (such as no pre-existing condition exclusions for children); others will not do so for years (such as the excise tax starting in 2018 on so-called “Cadillac” employer-sponsored plans). A summary of the implementation timeline can be found at

Payments to Providers

Not surprisingly, the Health Care Reform Law targets payments to most providers. The market basket and productivity adjustments (a number of which are discussed below), are projected to produce $156.6 billion in savings over 10 years, by far the biggest savings under the new law. It is clear that the thrust of the Health Care Reform Law is to move from a volume-based payment system, to one that rewards quality; patient-centered, coordinated care; evidence-based medicine; prevention and wellness; and value. Reorienting the payment and delivery system to achieve these goals and “bend the cost curve,” will be an enormous challenge.

Independent Payment Advisory Board (IPAB)

[Sec. 3403] The purpose of the IPAB is to present proposals to MedPAC, Congress and the President (but not earlier than January 1, 2014) to reduce the per capita rate of growth of Medicare spending if it increases above targeted levels based upon the CPI increase over the relevant period. The IPAB will consist of 15 members appointed by the President subject to approval of the Senate. Proposals cannot include any rationing of care, reductions in benefits, increased cost-sharing or tax increases. Perhaps most significantly, the IPAB’s proposals to reduce spending under Medicare Advantage plans and Medicare Part D are to be implemented by the Secretary of HHS if Congress does not pass alternative measures that achieve the same cost savings.

Center for Medicare and Medicaid Innovation (CMI)

[Sec. 3021] The CMI is to be established by January 1, 2011. Its mandate is to develop innovative payment and service delivery models to reduce Medicare and Medicaid costs while preserving or enhancing quality of care. The CMI is then required to test these models to determine their effect on program expenditures and quality of care.

Physician Payments

[Sec. 5501] Medicaid payments to primary care physicians will actually be increased for 2013 and 2014 to at least 100% of Medicare rates. The increase will be entirely paid for by the federal government. The purported reason for ending the increased payments after two years was to reduce the total cost of the Health Care Reform Law as scored by the Congressional Budget Office. This is intended to incentivize more physicians to see the millions of anticipated new Medicaid patients. Beginning in 2011, there will also be a five-year 5% (up to 10% in Health Professional Shortage Areas) increase in Medicare rates to PCPs for selected evaluation and management codes related to office visits, home visits, etc.

The Health Care Reform Law does not address the Sustainable Growth Rate (SGR) dilemma for physicians. Yet another temporary freeze (through May 31, 2010) on implementing the 21.3% SGR-mandated cuts was finally enacted on April 15, 2010. But it is not yet known whether there eventually will be a permanent “doc fix.” The Health Care Reform Law also does not mandate malpractice liability reform. Rather, it merely appropriates $50 Million for state demonstration projects to test models to evaluate alternatives to current tort liability lawsuits. These are two of the stated reasons why the Medical Group Management Association did not support the Health Care Reform Law.

Hospital Reimbursement

[Secs. 3401 and 3008] Hospitals, among other providers, will see reductions in market basket updates and productivity adjustments. For Fiscal Years 2010 and 2011, the market basket update will be reduced .25% per year, .1% for 2012 and 2013, .3% for 2014, .2% for 2015 and 2016, and .75% for 2017, 2018 and 2019. In addition, beginning in 2012, the market basket update is subject to further reduction for the productivity adjustment (which also applies to many other providers) based upon a 10 year rolling average of productivity gains in the non-farm economy as whole. This could result in payments in the then current year being less than those in the prior year. Beginning in FY 2015, hospitals in the top quartile of hospital acquired conditions, will be subject to a 1% decrease in the payment they would otherwise receive with respect to the discharged patient. The Health Care Reform Law also makes significant cuts to Medicaid Disproportionate Share Hospital (DSH) payments beginning in 2014. The assumption is that the new law will greatly reduce the number of uninsured patients, thereby eliminating the need for DSH payments [Sec. 2551, 1203]

Finally, a hospital value-based purchasing program is to begin October 1, 2012. Under the program to be developed by the Secretary of HHS, hospitals are to be paid incentive payments for meeting performance standards to be specified. The conditions to be measured must include acute myocardial infarction, heart failure, pneumonia, certain surgeries, and healthcare- associated infections. [Sec. 3001]

Surgery Center Rates

Starting in 2011, the annual market-based updates to ambulatory surgical center (ASC) rates will be reduced by a productivity adjustment which could result in payment rates for a given year being lower than the payment rates for the prior year. [Sec. 3401] Further, by January 1, 2011, the Secretary of HHS is to develop and submit to Congress a plan to implement a value-based purchasing program for Medicare payments to ASCs. The plan is to consider all dimensions of quality and efficiency in ASCs, and the structure of value-based payment adjustments including bonus payments. [Sec. 10301]

Imaging Rates

[Secs. 3135 and 1107] In what passes for good news for CT and MRI technical services, the utilization rate assumption for 2011 for imaging using equipment costing $1 Million or more will be 75% rather than the eventual 90% provided in the 2010 Medicare Physician Fee Schedule. However, as of July 1, 2010, payment for the technical component for certain imaging services will be reduced by 50% (up from the current 25%) for single session imaging studies on contiguous body parts.

Changes to the Stark Law

The Health Care Reform Law makes several important changes to the so-called “Stark” law (42 U.S.C. Sec. 1395nn).

In-Office Ancillary Services Exception (IOAS)

[Sec. 6003] Physicians and medical groups which have relied upon the IOAS exception in order to lawfully provide MR, CT and PET to their Medicare patients must now meet two additional requirements to qualify for the IOAS exception with respect to these services: (1) the referring physician must inform the patient, in writing, at the time of the referral that the patient may obtain these services from someone else, and (2) provide the patient with a written list of suppliers who furnish the service in the area in which the patient resides.

There is some question as to whether the notice requirement is effective immediately. Until there is further clarification of the issue, we recommend that physicians and medical groups give the notice because failure to do so (if the requirement is in effect) will mean that any claims submitted to Medicare for these imaging services will be in violation of the Stark law.

Physician-Owned Hospitals

[Sec. 6001] Physicians will not be able to refer their Medicare patients to hospitals in which they have an ownership or investment interest unless the hospital has both physician ownership and a Medicare provider agreement in place by December 31, 2010. Further, with limited exceptions for hospitals treating a high Medicaid population, hospitals which already meet these requirements will not be able to increase the number of operating rooms, procedure rooms or beds beyond what they are licensed for as of the latter of March 23, 2010 or the date of their provider agreement. In addition, currently qualifying hospitals will not be able to increase the percentage of the total value of the ownership or investment interests held by physicians beyond the percentage held by the physicians as of March 23, 2010.

Self-Disclosure Protocol

[Sec. 6409] In a welcome change, by September 23, 2010, the Secretary of HHS is required to establish a protocol to enable providers and suppliers to disclose an actual or potential violation of the Stark law. Further, the Secretary is authorized to reduce the amount due for Stark law violations which are disclosed based upon factors such as the nature and extent of the violation, the timeliness of the self-disclosure, and the cooperation in providing additional information related to the disclosure. Previously, the Centers for Medicare and Medicaid Services had stated that it did not have authority to reduce the penalties for self-disclosed Stark law violations, giving providers little incentive to make such disclosures voluntarily.

Tax-Exempt Hospitals

[Sec. 4959] The Health Care Reform Law places 501(c)(3) tax-exempt hospitals under increased scrutiny and obligations to justify the basis for their exempt status. These obligations are in addition to the Schedule H to IRS Form 990 pursuant to which tax-exempt hospitals since the 2009 tax year are required to give detailed reporting of their charity care and community benefit. A new section 501(r) has been added to the Internal Revenue Code setting forth requirements that hospitals must satisfy to qualify for 501(c) (3) status. The requirements are that the hospital (1) conduct a community health needs assessment at least every three years, and adopt a strategy to implement the needs identified; (2) have written policies regarding financial assistance and emergency care. The emergency care policy must require the hospital to provide emergency care regardless of the patient’s eligibility under the hospital’s financial assistance policy; (3) not charge persons eligible under its financial assistance policy more than the lowest amount that it charges its insured patients for emergency and other medically necessary services; and (4) must make reasonable efforts to determine if a person is eligible for its financial assistance policy before it engages in “extraordinary collection efforts,” such as lawsuits. An interesting question is how much demand will there be for charity care after 2014 when the number of uninsured should dramatically decrease?

Accountable Care Organizations

[Sec. 3022] One of the most intriguing provisions in the Health Care Reform Law requires the Secretary of HHS, not later than January 1, 2012, to establish a cost-savings program that promotes accountability for a patient population of at least 5,000 Medicare fee-for-service (FFS) beneficiaries, and coordinates Part A and Part B services and items and encourages investment in infrastructure and processes for high quality and efficient service delivery. Eligible providers and suppliers may work together to manage and coordinate care through an “accountable care organization” (ACO). ACOs that meet quality performance standards established by the Secretary of HHS are eligible to receive payments for shared savings.

Among the requirements to be eligible to participate as an ACO are that the providers and suppliers have established a mechanism for shared governance; the ACO is willing to become accountable for the quality, cost and overall care of the Medicare FFS beneficiaries assigned to it; the ACO agrees to enter into a participation agreement for at least a three year period; the ACO has a formal legal structure enabling it to receive and distribute payments for shared savings to participating providers and suppliers; the ACO has a sufficient number of primary care physicians and other professionals; the ACO must define processes to promote evidence-based medicine and patient engagement, report on quality and cost measures, and coordinate care, such as through the use of telehealth and remote patient monitoring; and be able to demonstrate that it meets patient–centeredness criteria specified by the Secretary of HHS, including the use of patient and caregiver assessments or the use of individualized care plans.

In addition to receiving regular Medicare fee-for-service payments, participating ACOs will be eligible to receive payment for shared savings if the ACO meets quality performance standards to be established, and if the estimated average per capita Medicare expenditures under the ACO for Part A and B services for the assigned Medicare fee-for-service beneficiaries (adjusted for beneficiary characteristics) is at least the percent specified by the Secretary below the applicable benchmark. It is again left up to the Secretary of HHS to determine the amount of the savings that will be paid to the ACO.

Please note that ACOs raise a host of potential compliance issues under the anti-trust laws, Stark, the Anti-Kickback Statute and, in states such as California, the corporate practice of medicine.

“Program Integrity” and Fraud and Abuse

A major focus of the Health Care Reform Law is an increased emphasis on the prevention, detection and prosecution of Medicare and Medicaid fraud and abuse. Simply put, the federal government believes that vast sums of money can be saved if fraud and abuse can be rooted out. As many providers and suppliers are well aware, the government has been quite successful over the past 10+ years in achieving huge settlements for alleged fraud and abuse. The government’s enforcement efforts will now be intensified, and it will have more enforcement tools- and money- at its disposal. This means that providers need to be fully aware of the changes to the law (most of which are effective immediately), and to intensify their own compliance efforts.

Amendment of the Anti-Kickback Statute (AKS)

[Sec. 6402] The AKS statute makes it a crime to offer, pay, solicit or receive any form of remuneration to induce referrals for items and services covered by Medicare, Medicaid and other federal health care programs. (42 U.S.C. Sec. 1320-7b). The Health Care Reform Law modifies the AKS by adding that “with respect to violations of this section, a person need not have actual knowledge of this section or specific intent to commit a violation of this section.” This change will likely eliminate the defense that providers in the Ninth Circuit (which includes California) were able to make under the Hanlester case which required that the government prove that the person specifically believed that its conduct was illegal under the AKS. Further, the AKS has been amended to provide that claims for items or services resulting from a violation of the AKS constitute false claims for purposes of the False Claims Act.

Return of Overpayments

[Sec. 6402] Medicare and Medicaid overpayments must now be reported and refunded within 60 days of being “identified.” The retention of identified overpayments after the 60-day period constitutes an “obligation” under the False Claims Act (FCA) thus exposing violators to penalties under the FCA. Exactly when an overpayment has been identified is not clear. What is clear, however, is that 60 days to make a report and repayment is a very short time frame.

Durable Medical Equipment and Home Health

DME and home health have been identified (rightly or wrongly) as high risk areas for fraud and abuse. Beginning July, 2010, DME and home health services for Medicare patients can only be ordered by a physician or other appropriate professional who is a Medicare provider. [Sec. 6405] Further, the physician cannot order DME or certify the need for home health services unless the physician has first had a face-to-face meeting (which can also be by telehealth) with the patient. The face-to-face encounter before certifying home health services can also be performed by certain other designated health care professionals including a physician assistant or nurse practitioner. [Sec. 6407]

Recovery Audit Contractors (RACs)

[Sec. 6411] The Health Care Reform Law provides that by the end of this year, the RAC audit program will be expanded to include Medicare Parts C and D, and Medicaid. RACs are paid, in part, based upon a percentage of the amounts they recover. There have been many complaints that past RAC audits of hospitals and physicians have intentionally overstated the amount of improper claims in order to increase the RACs percentage-based bounty.

Transparency of Physician Payments

[Sec. 6002] Beginning March 31, 2013, and annually thereafter, manufacturers of a covered drug, device, biological or medical supply must report to the Secretary of HHS payments or other transfers of value to a physician or teaching hospital. The reports will be publically available. There are substantial penalties for failing to make the required reports. Transfers of value basically include anything with a value over $10 or $100 in the aggregate for the calendar year, subject to an inflation adjustment.

Mandatory Compliance Programs

[Sec. 6402] The Secretary of HHS is given the authority to require that providers and suppliers, as a condition to being allowed to enroll in the Medicare program establish a compliance program that contains “core elements” (to be designated by the Secretary) applicable to that particular industry sector or category.

We hope that you find this summary of important provisions of the Health Care Reform Law to be helpful. Our goal is to keep our clients and friends updated as developments occur, as they surely will.

If you have any questions regarding the Health Care Reform Law, please contact your regular Miller Health Law Group attorney.

Related: , , , , ,