U.S. Supreme Court Rules Against Medicaid Providers Seeking Higher Reimbursement Rates

 Written By Joanne Ceballos

In a 5-4 decision issued on March 31, 2015, the U.S. Supreme Court ruled that Medicaid providers cannot sue state Medicaid agencies pursuant to Section 30(A) of the Medicaid Act for failure to raise reimbursement rates.  A January 20, 2015 post on this blog describes the background of the case, Armstrong v. Exceptional Child Center, Inc.   Justice Scalia, writing for the majority, opined that the Supremacy Clause of the U.S. Constitution does not provide a basis to imply a private right of action to enjoin a state law or regulation that is inconsistent with federal law.  The majority further reasoned that because the Medicaid Act expressly authorizes the Secretary of the U.S. Department of Health and Human Services to withhold Medicaid funds if a state does not comply with the Act’s funding requirements, by providing this remedy Congress had signaled its intent to foreclose other remedies.  The full text of the Court’s opinion is available here.

Negative OIG Advisory Opinion Regarding Exclusive Arrangements Between Labs and Physician Practices

Written By Nate Trexler

On March 25, the Department of Health and Human Services Office of Inspector General (“OIG”) released Advisory Opinion 15-04 in which it concluded that an exclusive arrangement between a laboratory (“Requestor Lab”) and physician practices could generate prohibited remuneration under the anti-kickback statute.  Furthermore, the OIG concluded that the proposed arrangement could violate the prohibition on charging Federal health care programs substantially in excess of usual charges, for which a provider may be excluded from participation in Federal health care programs.
 

The Requestor Lab proposed to enter into agreements with physician practices to provide all laboratory services for the practices’ patients and waive all the fees where Requestor Lab is out-of-network.  According to the Requestor Lab, some physician practices desire to work with a single laboratory “for ease of communication and consistency in the reporting of test results.”  For example, different laboratories utilize different methods of reporting test results and require different interfaces for reporting tests to the lab.  However, some patients’ insurers require the use of a specific lab and will not reimburse any other lab under out-of-network benefits (“Exclusive Plans”).

Under the proposed arrangement, where a test is ordered for an Exclusive Plan patient, the Requestor Lab would not charge the patient, physician practice, or secondary insurer for the test.  The laboratory would bill all other patients not under an Exclusive Plan, including Federal health care program beneficiaries.  The Requestor Lab stated that neither the physician nor the practice would receive any financial benefit from the laboratory’s provision of services at no charge to the patients with Exclusive Plans.  The physicians would not draw the samples, and thus could not bill for the blood draw or the testing.  The Requestor Lab would provide a free limited-use EMR interface for submitting orders and receiving results, which the OIG had previously determined is not remuneration under the anti-kickback statute.

The OIG concluded that the proposed arrangement could potentially generate prohibited remuneration under the anti-kickback statute.  Even though the Requestor Lab certified that physicians and physician practices would receive no financial benefit, the OIG concluded that a combination of factors would amount to remuneration to the physicians in exchange for their referrals for services to the Requestor Lab.  The OIG found that the Requestor Lab would reduce administrative and possibly financial burdens (e.g., electronic record interface fees) associated with using multiple laboratories, and, as such, the OIG could not conclude that there was no possibility that the laboratory was not offering remuneration to induce the referral of Federal health care program business.

In addition to the anti-kickback statute analysis, the OIG noted that it has the authority to exclude providers from participation in Federal health care programs that it concludes have submitted or caused to be submitted bills or requests for payment to Medicare or Medicaid containing charges for items or services furnished “substantially in excess” of usual charges, unless good cause is shown.  The OIG concluded that the proposed arrangement could result in a two-tiered pricing structure, where a substantial number of patients (those insured by Exclusive Plans) would receive services for free, regardless of financial need, and where other patients, including Federal health care program beneficiaries, would be charged.  The OIG noted that the only reason for the proposed arrangement was to remove the obstacle that prevented the physician practices from referring all laboratory business to the laboratory.  While the OIG could not conclude whether the laboratory would violate the substantially in excess provision, it opined that the risk was too high to grant the arrangement prospective immunity under the advisory opinion.

Advisory Opinion 15-04 continues the OIG’s long-standing skepticism of physician-laboratory arrangements.

Delaware Drug-related Regulatory Updates

Written By Joanne Ceballos

Drug-related revisions to the regulations governing nurses and pharmacists practicing in Delaware took effect on March 11, 2015.  For nurses, “unprofessional conduct” that may lead to disciplinary action now expressly includes diverting, possessing, obtaining, supplying or administering illegal drugs.  For pharmacists, a new regulation expressly requires that dispensed medications returned to a pharmacy “by the public” must be disposed of in accordance with Delaware and federal controlled substances laws, and “proposed disposal methods must be authorized by the Delaware Office of Controlled Substances and federal authority.”

There are also changes to both the nursing and pharmacy regulations with respect to educational/training requirements.  For nurses, one Continuing Medical Education hour (60 minutes) now equals one contact hour (as opposed to 1.2 contact hours).  For pharmacists who administer immunizations and other injectable medications, the required CPR certification must be obtained through hands-on education as opposed to an online course.

U.S. Supreme Court Affirms: State Licensing Boards Without Active State Supervision Susceptible to Antitrust Suits for Anticompetitive Behavior

Written By Nate Trexler

On February 25, the US Supreme Court released its decision in North Carolina State Board of Dental Examiners v. Federal Trade Commission, reaffirming the rule that state professional licensing boards controlled by active market participants that are not “actively supervised” by the State do not enjoy state-action immunity from antitrust enforcement.  As a result, both regulators and regulated health care professionals may find a need to reevaluate state licensing board activity.

 

Like most states, including Delaware, the North Carolina legislature created a board—the State Board of Dental Examiners—to regulate the “practice of dentistry.”  By state law, a majority of the Board was comprised of practicing dentists.  In 2003, North Carolina dentists started to complain to the Board about nondentists offering teeth whitening services at lower costs.  The Board appointed a dentist member to lead an investigation into nondentists offering these services.  The investigation led the Board to issue cease-and-desist letters to these nondentists, warning that the unlicensed practice of dentistry was a crime and either strongly implying or expressly stating that teeth whitening constituted “the practice of dentistry.”  The Board also convinced the North Carolina Board of Cosmetic Art Examiners to warn cosmetologists against providing such services and even wrote letters to shopping mall operators to advise them to remove teeth whitening kiosks because that activity violated the North Carolina Dental Practice Act.  The Act did not specify that teeth whitening constituted the practice of dentistry.  As intended, nondentists ceased offering teeth whitening services in North Carolina.

In 2010, the Federal Trade Commission “FTC”) filed an administrative complaint charging the Board with violating Federal antitrust law.  Essentially, the FTC alleged that the Board’s resolute action to exclude nondentists from the market for teeth whitening services was anticompetitive and an unfair method of competition.  An Administrative Law Judge (“ALJ”) rejected the Board’s argument that the Board was immune from antitrust enforcement under the state action immunity doctrine.  Ultimately, the case was decided on the merits in favor of the FTC, and the FTC ordered the Board to stop sending cease and desist letters and to issue notices to all earlier recipients explaining the Board’s proper scope of authority.  The Board filed a petition for review to the Fourth Circuit, which subsequently affirmed the FTC’s decision.  The Supreme Court granted certiorari on the issue of whether the Board enjoyed state action immunity.

The Supreme Court restated the standard for state action immunity set forth in Parker v. Brown, which provides that antitrust laws confer immunity on the anticompetitive conduct of States that are acting in their sovereign capacity.  The Board argued that its members were conferred with the power of the State by virtue of the State creating the Board to regulate the practice of dentistry.  The Court disagreed that creation of the Board was enough.  Where a nonsovereign actor is controlled by active market participants, such as the Board, the actor will only enjoy Parker immunity if: (1) the action is clearly articulated and affirmatively expressed as state policy; and (2) the policy is “actively supervised” by the State.  The second requirement was at the heart of the parties’ arguments.

In its holding, the Court made clear that where a State empowers a licensing board run by a majority of members that practice the profession they regulate, “the need for supervision is manifest.”  Where a board is essentially controlled by active market participants, there is a risk that private interests may lead to anticompetitive regulation.  The Board did not claim that the State of North Carolina exercised any supervision over its conduct regarding teeth whitening.  The Court held that because there was no active supervision of the Board’s actions, the Board was not immune to antitrust laws.

In its decision, the Court established the parameters for what a State must do in order for its agencies controlled by active market participants to enjoy immunity from antitrust laws.  At the very least, the inquiry is whether the State provides “realistic assurance” that an agency’s anticompetitive conduct promotes state policy, rather than the actor’s self-interest.  The Court stated that to satisfy the requirement, a “supervisor,” who may not be an active market participant, must look at a board’s decision and review its substance, and act on the power, if necessary, to veto or modify decisions to ensure such decisions achieve state policy.

The Court’s decision in North Carolina State Board of Dental Examiners v. Federal Trade Commission should prompt states to review the composition and conduct of their licensing boards.  Where a board is controlled by a majority of individuals who practice the profession they seek to regulate, states should seek to actively supervise the board decisions if immunity is desired.

OIG Issues New Advisory Opinion that Sheds Additional Light on How the Government Views Beneficiary Inducements

Written By Joanne Ceballos 

The federal Civil Monetary Penalties statute, 42 U.S.C. 1320a–7a, allows the government to impose Civil Money Penalties “(“CMPs”) when it determines that a health care provider has offered remuneration to a federal health care program beneficiary to influence the beneficiary to select the provider for services paid for by Medicare or Medicaid.  Similarly, the federal Anti-Kickback Statute, 42 U.S.C. 1320a–7b(b), prohibits offering remuneration in exchange for referrals of federal health care program business.  These statutes generally prevent a health care provider from advertising or offering free goods or services to federal health care program beneficiaries to induce them to obtain services from the provider that are payable by federal health care programs.  However, exceptions to this general prohibition do exist, and earlier this month the OIG issued  Advisory Opinion No. 15-01, which sheds light on how the OIG evaluates arrangements where non-cash inducements are provided to federal health care program beneficiaries. 

The Opinion was issued in response to a request by a provider of care coordination and intervention services (“Provider”) under a state’s Medicaid-funded Maternal Infant Health Program (the “Program”). To advance the Program’s goal of promoting healthy pregnancies, positive birth outcomes, and infant health and development, the Provider’s services include psychosocial and nutritional assessments, coordination with other medical care providers and Medicaid Health Plans, and family planning education.  The state sponsoring the Program directed Program providers to market their services to the target population and to medical care providers who would be potential referral sources, including advertising and offering incentives, such as free diapers, to Medicaid beneficiaries participating in the Program. Accordingly, the Provider advertised and offered one free pack of diapers (with a value of less than $5.00) to Program-eligible Medicaid beneficiaries who attended an initial consultation with the Provider, and beneficiaries who enrolled in the Program continued to receive a pack of free diapers at each visit with the Provider up to the Program maximum of ten visits.  The Provider also advertised and offered a free play yard, valued at approximately $50.00, to each beneficiary who completed all ten visits.

The OIG concluded that while the arrangement could potentially generate prohibited remuneration under the AKS if the requisite intent to induce or reward referrals of federal health care program business was present, it would not impose administrative sanctions under the CMP statute for two reasons.  First, the OIG noted that the free diapers, with a value of less than $5.00 per item and $50.00 in the aggregate (assuming a beneficiary attended and received a package of diapers at all ten Program visits) are “nominal value” incentives that are permissible under the OIG’s long-standing interpretation of the CMP statute permitting non-cash incentives to a federal health care program beneficiary of no more than $10 per item, or $50 in the aggregate on an annual basis. Second, the OIG noted that both the diapers and the play yards satisfy the requirements of the Preventive Care Exception in the CMP statute, 42 U.S.C. 1320a–7a(i)(6)(D). 

The regulatory criteria for preventive care incentives to be excluded from the definition of remuneration for purposes of the CMP statute are: (1) the incentive must be given to promote preventive care services, defined as  “prenatal service or a post-natal well-baby visits or a specific clinical service described in the current U.S. Preventive Services Task Force's Guide to Clinical Preventive Services;” (2) the incentive cannot be cash or an instrument convertible to cash; (3) the value of the incentive cannot be disproportionately large in relationship to the value of the preventive care service; and (4) the delivery of the preventive care service is not tied (directly or indirectly) to the provision of other services reimbursed in whole or in part by Medicare or Medicaid.  42 C.F.R. 1003.101.  The OIG concluded that the free play yards, whether offered alone or in combination with the free diapers, satisfied all the regulatory criteria of the Preventive Care Exception.  While it is easily understood how the Provider’s incentives comported with the first three regulatory requirements, it is less apparent how the Provider’s delivery of prenatal and post-natal counseling could be considered “not tied (directly or indirectly) to the provision of other services (namely, prenatal and post-natal well baby visits) reimbursed” by Medicaid, since a primary purpose of the Provider’s services is to encourage pregnant Medicaid beneficiaries to obtain proper prenatal and post-natal medical care.  The OIG reasoned, however, that even though the Provider’s preventive services are “intended to supplement the medical care that Program beneficiaries receive, Program services are not tied, directly or indirectly, to the provision of that care.”  In other words, Medicaid beneficiaries could avail themselves of the Provider’s services whether or not they obtained the recommended medical services.

 

While the AKS and CMP statutes generally prohibit health care providers from offering Medicare and Medicaid beneficiaries incentives to seek their services, the Preventive Care Exception is one of a number of statutory exceptions to the definition of remuneration in the CMP statute.  Providers seeking to market and promote their services to federal health care program beneficiaries are well-advised to take into consideration the parameters set by these statutes and their related regulations for such activities. 

U.S. Supreme Court Considers Whether Providers May Sue State Medicaid Officials for Failing to Raise Reimbursement Rates

Written By Joanne Ceballos  

On Tuesday, January 20, 2015, the United States Supreme Court heard oral argument in a case brought by providers of residential rehabilitation services to Medicaid eligible individuals against the Director and Deputy Director of Idaho's Department of Health and Welfare (IDHW) challenging IDHW's failure to raise Medicaid reimbursement rates that had been in effect since July 1, 2006.  The question the Supreme Court is considering is whether Medicaid providers may sue state officials under Section 30(A) of the Medicaid Act, 42 U.S.C. §1396a(a)(30)(A), which requires states accepting federal Medicaid funding to establish a “state plan,” which, among other things, provides “methods and procedures relating to the utilization of, and the payment for, care and services available under the plan … as may be necessary to assure that payments are consistent with efficiency, economy, and quality of care.”  

The case, Armstrong v. Exceptional Child Center, Inc., was instituted by the residential rehabilitation service providers in 2009 after the IDHW failed to raise reimbursement rates consistent with studies commissioned by IDHW because Idaho's Legislature did not appropriate $4 million in funding necessary to cover the increased rates.  The providers sued the IDHW for maintaining the July 2006 reimbursement rates on the ground they did not take into account providers’ actual costs, and, accordingly, violated Section 30(A)’s requirement that “payments [to providers] are consistent with efficiency, economy, and quality of care.”  The United States District Court for the District of Idaho granted summary judgment to the providers, citing precedent from the Ninth Circuit Court of Appeals, which had previously held that Section 30(A) requires a state Medicaid agency to consider actual provider costs when setting rates. 

The Ninth Circuit upheld the district court’s judgment, and the IDHW petitioned the U.S. Supreme Court, which granted the petition solely on the question of whether the providers could even bring an action against the state Medicaid agency to enforce Section 30(A) when Congress had not expressly authorized such an action in the federal Medicaid statute.  The providers take the position that the Supremacy Clause of the United States Constitution affords them a private right of action to enjoin a state law or regulation that is inconsistent with federal law, in this case Section 30(A) of the Medicaid Act.  The Attorneys General of 27 states, including Delaware, filed an amicus brief with the Supreme Court urging it to reject the providers’ position, arguing principally that private rights of action to enforce federal law must be created by Congress.

 

The Supreme Court’s decision is expected to have an impact, one way or the other, on providers’ ability to bring legal challenges against state Medicaid agencies regarding reimbursement rates.  DE Health Law Blog will report on the Supreme Court’s opinion when it is issued.