Health Law Update

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H.R. 1314, the Bipartisan Budget Act of 2015, was signed into law by President Obama on November 2, 2015. The two-year budget framework, which raises the federal debt limit through March 2017, partially rolls back the Budget Control Act’s discretionary caps by $80 billion above the sequester level for two consecutive years (FY 2016 and 2017). The government is currently operating under a continuing resolution that expires December 11, 2015, which leaves congressional appropriators little more than a month to pull together an omnibus spending package for FY 2016. Provisions in the Act of interest to the healthcare industry include a policy change that promises to significantly influence the future of provider-based reimbursement.

Hospital Off-Campus Departments

Section 603 of the Act removes a reimbursement incentive for hospitals to acquire certain physician practices, ambulatory surgery centers, and other providers for purposes of creating outpatient alternatives. Services provided by hospitals in off-campus departments created on or after November 2, 2015, will be limited to non-hospital reimbursement (e.g., physician fee schedule) beginning January 1, 2017, except for services furnished in a dedicated off-campus emergency department. Off-campus departments are generally facilities that are not located within the physical area immediately adjacent to the provider’s main buildings, including areas and structures that are not strictly contiguous to the main buildings but are located within 250 yards of the main buildings.

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This effort to neutralize site-of-service disparities may also impact the eligibility of off-campus patients to receive drugs pursuant to the 340B program. Under the 340B program, discounts are extended only to a hospital’s outpatient locations that are reported as Medicare-reimbursable outpatient locations on the hospital’s cost report. If the reimbursement change removes new off-campus departments from the hospital’s cost report, or if the Health Resources and Services Administration determines that the locations are no longer part of the hospital as a result of the reimbursement change, outpatient drugs prescribed or dispensed at such locations could be ineligible for 340B discounts.

Elections Coming Up - Have I Got an Actuarially Fair Part B Deal for You

Section 601 of the Act is somewhat complicated to explain, as you have to follow the money under the congressional shells moving around quickly.

Twenty-five percent of Medicare Part B premiums must be covered by beneficiaries. However, when an increase in costs occurs, the percentage increase to approximately 70 percent of the Part B beneficiaries is limited to the percentage increase in their Social Security checks (Hold Harmless Beneficiaries). Unfortunately, for 2016 there will be no Social Security increase. So, the remaining 30 percent of the Medicare beneficiaries (Contributors) will have to pay the projected increased Part B costs for the Hold Harmless Beneficiaries.

Naturally, a 52 percent premium increase ($54 per month), the monthly Part B premium increase projected for the Contributors in 2016, would be a bad idea in an election year. So to cover the cost of the increase for the Hold Harmless Beneficiaries (Shortfall), the Contributors will pay an additional $15, or 15 percent more, per month (which is the amount that would have been payable if the cost increase were paid by all part B enrollees), and the U.S. Treasury will loan the Supplemental Medical Insurance Trust Fund funds to cover the Shortfall. Section 601 then provides that the Contributors will pay an additional $3 in their monthly Part B premium beginning in 2016 until the loan is repaid. However, those paying income-related premium adjustments will pay more than $3 per month. Assuming no interest, it will take only approximately 13 years to repay the loan. Current beneficiaries will likely no longer remember the loan when the last payment is made, so everyone wins.

The same provision to protect Contributors will apply for 2017, as no one wants a surprise just before a presidential election.

Large Employer Health Insurance Auto-Enrollment Repealed (But Not Replaced)

Section 604 of the Act repealed the Affordable Care Act’s (ACA) requirement for employers with more than 200 employees that offer health insurance to automatically enroll new employees in a health plan. This provision was designed to enroll employees in health plans when inertia and ambivalence might otherwise have led them to ignore opportunities to enroll in an employer’s health insurance program. It is estimated that the repeal of ACA Section 1511 will reduce employer-covered insureds by approximately 750,000 beginning in 2017 and that 90 percent of these individuals will not obtain other coverage.

There was little enthusiasm within the administration for the auto-enrollment provision. The U.S. Departments of Labor and Justice were to have drafted regulations to implement Section 1511 but failed to do so. Consensus within Washington was that it was only a matter of time before the section was repealed and not replaced.

Civil Monetary Penalty Inflation Adjustments

Despite that civil monetary penalties (CMPs) are already considered excessive by many, Congress has quietly imposed substantial increases. Section 701 of the Act requires the Centers for Medicare and Medicaid Services (CMS) and other federal agencies to increase CMPs, including False Claims Act (FCA) penalties, for inflation. The initial “catch up adjustment” increases the CMPs by a cost-of-living adjustment determined based on the percentage change in the Consumer Price Index (CPI) between October 2015 and the CPI level in October of the year in which the penalty amount was established or last adjusted. Thereafter, the amount will increase by the annual CPI change.

The FCA penalties were last set in 1999 to their present level of between $5,500 and $11,000. In October 1999, the CPI level was 168.3. The last reported CPI for September 2015 was 237.945. This results in a 41.4 percent increase. Thus, after adjustments for inflation, FCA penalties will be $7,775.98 and $15,551.96. The initial increase will be imposed not later than August 1, 2016, and annual adjustments will be made by January 15 of every year thereafter. The “improved” CMPs will be applicable to all violations, including violations that predated the increase in the amount of the penalty.

The Act, however, provides that an agency may adjust the amount of a CMP by less than the otherwise required amount if it determines that (1) increasing the CMP will have a negative economic impact, or (2) the social costs of increasing the CMP by the otherwise required amount outweigh the benefits, and the director of the Office of Management and Budget concurs with the determination of the agency. Given the process, it is unlikely that agencies will seek to limit the increased penalties.

Medicaid Drug Inflationary Rebate

Section 602 of the Act applies an additional inflationary Medicare rebate requirement to generic drugs. Specifically, non-innovator multiple source drugs (Generic Drugs) require a base rebate per unit amount of 13 percent of the Average Manufacturer Price (AMP). Single source drugs and innovator multiple source drugs (Brand Name Drugs) require a base rebate per unit amount of 23.1 percent of the AMP or the difference between the AMP and the Best Price of the drug. Section 602 of the Act applies the inflation-based rebate currently paid on Brand Name Drugs to Generic Drugs. Thus, Generic Drug manufacturers will likely have to pay higher Medicaid rebates on their products if they increase prices faster than the calculated rate of inflation.

New and More Pungent Penalties

Section 813 of the Act provides that a person who receives a fee or other income for services performed in connection with any Social Security benefit determination (including a claimant representative, translator, or current or former employee of the Social Security Administration) or who is a physician or other healthcare provider who submits, or causes the submission of, false medical or other evidence in connection with any such determination, will be subject to increased penalties.

Advertising Penalties

If a provider uses the Internet or e-mail in a manner that they know or should know would convey, or reasonably could be interpreted or construed as conveying, the false impression that their item or service is approved, endorsed, or authorized by the Social Security Administration, CMS, or the U.S. Department of Health and Human Services (HHS) or that such person has some connection with, or authorization from, the Social Security Administration, CMS, or HHS, the penalty has been increased by Section 814 of the Act by making each dissemination, viewing, or accessing of such a communication a separate violation.

In the Year 2025

Finally, Section 101 extended the annual 2 percent reduction of Medicare provider reimbursement for an additional year, into 2025. The provider reimbursement reduction was originally set to expire in 2021; however, Congress has used extensions of the reimbursement limitation as a free pay-for on other measures.

Hello Budget Agreement; Goodbye Provider-Based Status?