Health Lawyers Weekly:
December 09, 2011 Vol. IX Issue 47
Administration Rejects FDA Recommendation To Make Plan B Available OTC Without Age Restrictions
In a December 7 statement, Department of Health and Human Services Secretary Kathleen Sebelius said she has directed the Food and Drug Administration (FDA) to deny the supplemental new drug application (SNDA) by Teva Women’s Health, Inc. that sought to make Plan B One-Step available over the counter for all women of reproductive age.
Although FDA had recommended approval of the application, Sebelius said “the data, submitted by Teva, do not conclusively establish that Plan B One-Step should be made available over the counter for all girls of reproductive age.”
Plan B One-Step currently is available over the counter to women ages 17 years and older and by prescription only to women 16 years and younger.
According to Sebelius, the status quo should be maintained.
“[T]he switch from prescription to over the counter for this product requires that we have enough evidence to show that those who use this medicine can understand the label and use the product appropriately. I do not believe that Teva’s application met that standard. The label comprehension and actual use studies did not contain data for all ages for which this product would be available for use,” Sebelius said.
CBO Finds Higher Spending For Prescription Drugs For Low-Income Part D Beneficiaries
Average prescription drug expenditures for low-income Medicare Part D enrollees was higher than for regular enrollees, the Congressional Budget Office (CBO) found in a December 1 issue brief.
Under Medicare Part D, an additional low-income subsidy (LIS) is available to enrollees with sufficiently low income and assets, CBO explained in the issue brief, Spending Patterns for Prescription Drugs Under Medicare Part D.
In 2008, the most recent year for which data were available, average spending for LIS enrollees was $3,600, double the spending for non-LIS enrollees ($1,800).
The federal government covered roughly 40% of non-LIS spending through premium subsidies, and beneficiaries covered most of the remainder through premium payments and out-of-pocket spending, whereas the federal government covered 95% of LIS spending in 2008.
Higher spending among LIS enrollees was driven by beneficiaries who filled more prescriptions and who filled more expensive prescriptions, CBO said.
“The higher spending among LIS beneficiaries most likely reflected that group's generally poorer health status and the more generous coverage available through the low-income subsidy,” according to the report.
CBO further found only 24% of non-LIS beneficiaries exceeded $2,500 in total spending, but 44% of LIS beneficiaries reached that spending level.
Similarly, only 6% of non-LIS beneficiaries exceeded $5,000 in total spending, whereas 23% of LIS beneficiaries reached that spending level, the report said.
CMS Did Not Fully Comply With Federal Requirements In Conducting Audits Of Part D Sponsors' Financial Records, OIG Finds
The Centers for Medicare and Medicaid Services (CMS) did not fully comply with the requirement that it audit the financial records of at least one-third of Part D sponsors that offer drug plans annually, the Department of Health and Human Services Office of Inspector General (OIG) found in a new report.
Under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, CMS contracts with private organizations called “sponsors” that act as payors and insurers, according to the report, Review of the Centers for Medicare & Medicaid Services' Audits of Part D Sponsors' Financial Records (A-03-10-00007).
According to OIG, CMS did not perform audits for a full one-third of the sponsors in any of the audited contract years.
In 2006, CMS did not meet the one-third audit requirement by 17 audits, and in 2007, CMS missed the requirement by 15 audits, the report said. In addition, the report noted CMS would not meet the one-third audit requirement by 25 audits for 2008.
Instead, CMS waived the one-third audit requirement for Program of All-Inclusive Care for the Elderly (PACE) organizations because it concluded the one-third audit provisions duplicated the audit requirements for PACE.
OIG found, however, that “Part D audits of sponsors’ financial records do not duplicate or conflict with CMS’s audits of PACE organizations.”
The report further found CMS had not updated its standard operating procedure (SOP) for audit resolution to reflect actual practices and to help ensure sponsors’ corrective actions were reported to CMS in a timely manner.
“This diminished CMS’s ability to ensure that corrective action was taken as rapidly as possible,” OIG said.
OIG recommended CMS: audit one-third of all Part D sponsors and update its SOP to ensure policies and procedures are consistent with actual practices and help ensure sponsors’ corrective actions are reported to CMS in a timely manner.
CMS Issues Final Rule Giving Access To Medicare Claims Data For Provider Performance Reports
The Centers for Medicare and Medicaid Services (CMS) issued December 7 a final rule (76 Fed. Reg. 76542) that gives “qualified entities” access to Medicare claims data for purposes of aggregating the information with private sector data and publicly disseminating healthcare provider and supplier performance reports.
The final rule, which implements provisions of the Affordable Care Act, is intended to improve transparency and help consumers make informed choices about their healthcare, CMS said in a press release.
“This is a giant step forward in making our health care system more transparent and promoting increased competition, accountability, quality and lower costs," said Marilyn Tavenner, Acting CMS Administrator. "This provision of the health care law will ensure consumers have the access they deserve to information that will help them receive the highest quality care at the best value for their dollar.”
According to a CMS fact sheet, the final rule “makes a number of important changes” from the proposed rule issued in June in response to comments raising concerns about the cost and timeliness of data, flexibility and innovation in measure calculation, and timeframes for providers' review and appeal of draft reports.
Under the rule, “qualified entities” that met certain requirements will have access to the Medicare claims data, which they must combine with private sector claims for purposes of measuring provider and supplier performance, CMS said.
CMS emphasized that “strong penalties will be in place for any misuse of data.”
The final rule is effective January 6, 2012.
Qualified entities must have experience in a variety of tasks related to the calculation and reporting of performance data, CMS said.
In response to public comments, the final rule clarifies that qualified entities do not need to be a single organization. Applicants may contract with others to achieve the ability to meet the eligibility criteria, the fact sheet said.
CMS also revised the selection criteria to allow a conditional acceptance as a qualified entity for applicants that do not have other claims data at the time of their application, but meet all the other selection requirements.
Also in response to comments on the proposal, the final rule allows qualified entities to use standard and alternative measures calculated in full or part from claims data, meaning they can calculate measures that include clinical data, CMS explained.
Standard measures include those endorsed by the National Quality Forum, those adopted pursuant to Section 931 of the Public Health Service Act, claims-based measures that were adopted through rulemaking for use in a current CMS program, and those endorsed by a CMS-approved consensus-based entity to the list of standard measures.
As proposed, individuals or organizations also can submit alternative measures to the Department of Health and Human Services Secretary for approval, who will use notice and comment rulemaking to help make this determination.
The final rule also allows a qualified entity to receive approval to use an alternative measure by submitting documentation to CMS outlining consultation and agreement with stakeholders in the geographic region the qualified entity serves and scientific evidence that the measure is “more valid, reliable, responsive to consumer preferences, cost-effective, or relevant to dimensions of quality and resource use not addressed by such standard measures,” CMS said.
CMS in the final rule said it identified efficiencies to help reduce the cost of Medicare claims data, which is now estimated at $40,000 for a qualified entity in the first year, down from the $200,000 projected in the proposed rule.
CMS also indicated it had taken steps to give access to more timely Medicare claims data.
Before publishing performance reports, qualified entities must confidentially share the measures, methodologies, and results with providers and suppliers so they have the opportunity to identify and seek correction of any errors.
The final rule lengthens the pre-publication review period from 30 days to 60 calendar days following comments that the initial timeframe was too short.
CMS Report Examines State Healthcare Spending Trends
Despite slower overall spending growth during the recent recession, healthcare consumed an incrementally larger share of the nation’s resources, the Centers for Medicare and Medicaid Services (CMS) found in a recent report.
According to the report, from 2007 through 2009, the personal healthcare share of Gross Domestic Product (GDP) increased by 1.2 percentage points (reaching 14.8%), and included the largest single year increase in share ever experienced in 2009 when nominal GDP actually declined.
Looking at spending by region, the report found n 2009, the New England and Mideast regions exhibited the highest per capita personal healthcare spending, averaging 29% and 17%, respectively, higher than the national average of $6,815.
Within the 10 states that had the highest levels of total personal healthcare spending per capita, spending ranged from $7,730 for Pennsylvania to $9,278 for Massachusetts.
According to the report, eight of the top 10 states are ranked in the top third in the nation for annual personal income per capita.
“Income appears to have an important and positive relationship with health spending,” the report said.
States in the Southwest and Rocky Mountain regions had the lowest per capita spending, with average spending about 15% lower than the national average, according to the report.
Six of the bottom 10 states in spending per capita were in the bottom third in the nation in personal income per capita, the report noted.
However, the majority of the 10 states with the lowest spending also tended to have younger and healthier residents, with seven states in the bottom third in the share of elderly residents by state. Reported smoking and obesity rates also were lower among several of these states, the report observed.
CMS also reported consistency among the lowest and highest spending regions.
Eight of the 10 highest spending states in 2009 were among the highest for every year between 1998 and 2008, the report found. Similarly, the majority of the 10 lowest spending states in 2009 were in the Southwest and Rocky Mountain regions, with Idaho, Arizona, Utah, and Nevada among the lowest every year between 1998 and 2009.
The states with the highest Medicare spending per enrollee were New Jersey and Florida, with each state’s spending levels at nearly $12,000 per enrollee in 2009, or 15% above the national average, the report found.
For Medicaid, the report found 36 states exhibited per enrollee Medicaid spending that exceeded the national average.
“However, these states represented just 41 percent of total Medicaid enrollment, suggesting that spending per enrollee and enrollment are not always positively correlated,” the report said.
Instead the report concluded that “the factors contributing to variation in per enrollee Medicaid spending, as well as to the characteristics of the states with the highest and lowest per enrollee Medicaid spending, reflect a complex mix of policy, economic, and demographic factors.”
DOL Issues Proposed Rules Tightening Oversight Of MEWAs
The Department of Labor (DOL) Employee Benefits Security Administration unveiled December 5 two proposed rules under the Affordable Care Act (ACA) related to multiple employer welfare arrangements (MEWAs).
One rule (76 Fed. Reg. 76222) would amend existing reporting rules under the Employee Retirement Income Security Act (ERISA) to incorporate changes under the ACA, while the other rule (76 Fed. Reg. 76235) would amend ERISA to facilitate implementation of new enforcement authority provided under the ACA.
MEWAs are typically used by unrelated employers, usually small businesses, that seek to provide healthcare and other benefits to their workers at a lower cost.
But, the promoters, marketers, and operators of MEWAs “often have taken advantage of gaps in the law to avoid state insurance regulations, such as a requirement to maintain sufficient funding and adequate reserves to pay the health care claims of workers and their families,” DOL said in a press release.
The proposed rules would require MEWAs to adhere to enhanced reporting requirements so that employers, workers, and their families will not be cut off unexpectedly from needed healthcare services, according to the agency.
Specifically, under the rules, MEWAs would be required to register with DOL prior to operating in a state or be subject to substantial penalties.
“This step will allow the department to track MEWAs as they move from state to state and to identify their principals, which will provide the department with important information regarding potentially fraudulent MEWAs,” the release explained.
In addition, the rules would increase DOL’s enforcement authority to protect participants in such plans and allow the agency to shut down MEWAs engaged in fraud or other activities that present an immediate danger to the public safety or welfare.
The rules also would allow the Secretary of Labor to seize assets from a MEWA when there is probable cause that the plan is in a financially hazardous condition.
Eleventh Circuit Affirms Pharmacist's Conviction On 69 Counts Of Healthcare Fraud
Evidence produced at trial was sufficient to support the conviction of a pharmacist of 69 counts of healthcare fraud, the Eleventh Circuit held November 30 in an unpublished opinion.
Although the appeals court agreed with the defendant that the trial court erred in allowing certain evidence, the appeals court found such error was harmless.
J. Harris Morgan, Jr., a pharmacist, owned Thrift Center Pharmacy and Option Care.
Morgan was charged with 69 counts of healthcare fraud, 58 of which alleged that Morgan submitted: claims for larger doses of the drug Synagis than were actually dispensed, false diagnoses to get approval to administer Synagis, and claims for Synagis more often than it was actually being administered to the patients.
The other 11 counts alleged Morgan submitted false claims for the drug Nutropin and other drugs.
A jury found Morgan guilty of all 69 counts and he then appealed, arguing there was insufficient evidence that he knowingly and willfully executed a scheme to defraud Medicaid.
But the appeals court found ample evidence to support the conviction, noting testimony at trial showed Morgan actively managed Thrift and Option Care, he was involved in the billing process, and he submitted at least some Synagis claims.
In addition, the appeals court found, the evidence showed Morgan directed other employees to submit false diagnoses to Medicaid to obtain approval to administer Synagis.
The appeals court found the trial court did err in admitting evidence of other uncharged offenses under Fed. R. Evid. 404(b), which prohibits the admission of evidence of other crimes or acts “to prove the character of a person in order to show action in conformity therewith.”
However, such error was harmless, the appeals court said, because it did not prejudice Morgan or substantially influence the verdicts.
Finally, the appeals court found the district court did not abuse its discretion in refusing to instruct the jury on good faith.
Here, there was insufficient evidence of good faith to warrant the instruction, the appeals court held.
United States v. Morgan, No. 11-10026 (11th Cir. Nov. 30, 2011).
HHS Issues Final Standards For CO-OPs
The Department of Health and Human Services (HHS) has issued a final rule for establishing Consumer Operated and Oriented Plans (CO-OPs).
Section 1322 of the Affordable Care Act (ACA) created CO-OPs to foster the creation of new consumer-governed, private, nonprofit health insurance issuers in the individual and small group market.
The final rule will be published in the December 13 Federal Register and is effective 60 days after that date.
According to the final rule, “[t]he goal of this program is to create a new CO-OP in every State in order to expand the number of health plans available in the Exchanges with a focus on integrated care and greater plan accountability.”
The final rule sets forth eligibility standards for the CO-OP program; establishes terms for loans; and provides basic standards organizations must meet to participate in this program and become a CO-OP.
Eligible organizations seeking to establish a CO-OP will be able to apply for a portion of the $3.8 billion in repayable loans made available under the ACA to fund start-up and capitalization costs.
The proposed rule was published in the July 20 Federal Register (76 Fed. Reg. 43237).
Hospital Groups Urge Congress Not To Offset Physician Payment Fix With Reimbursement Cuts To Hospitals
Although the American Hospital Association (AHA) and other hospital groups support heading off large cuts in Medicare payments to physicians under the ailing sustainable growth rate (SGR) formula, they urged Congress in a recent letter not to use reductions in Medicare payments to hospitals or Medicaid funding to offset the costs of a fix.
According to the letter, “[h]ospitals across the nation already are facing billions in Medicare cuts under current law” while simultaneously “preparing for a host of new policy initiatives in areas such as value-based purchasing, readmissions, health information technology and patient safety.”
“If Congress imposes further cuts on hospitals or forces states to take further action with their own Medicaid programs, it will have a direct and immediate adverse effect on the communities and Medicare beneficiaries we serve,” the letter said.
The letter was signed by AHA and eight other hospital groups.
Idaho High Court Says No Bad Faith Exception To Peer Review Privilege
The Idaho Supreme Court rejected November 18 a physician’s argument that certain peer review documents should be discoverable in his lawsuit alleging a hospital wrongfully denied him privileges.
The high court found the documents at issue were shielded from discovery under the state’s peer review statute, which included no “bad faith” exception.
Plaintiff Dr. Paul J. Montalbano, a neurosurgeon specializing in spine surgery, had medical staff membership and clinical privileges at Boise-based Saint Alphonsus Regional Medical Center (SARMC).
According to plaintiff, SARMC created the Spine Medicine Institute in 2006, which operated in direct competition with him.
SARMC suspended plaintiff’s privileges, allegedly for disruptive behavior. Following a series of administrative hearings and reviews, SARMC suspended plaintiff for 90 days.
Plaintiff subsequently sued the hospital and several other physicians for civil conspiracy, defamation, violation of civil due process rights, and a variety of other causes of action.
Plaintiff sought to discover an extensive list of documents “related to the processes, activities, and decisions that ultimately led to the suspension of his privileges.”
SARMC asserted a peer review privilege pursuant to Idaho Code § 39-1392b. Plaintiff moved to compel. The trial court concluded the materials related to the peer review process were protected, but agreed to allow plaintiff to file a permissive appeal of its interlocutory protective order.
The Idaho Supreme Court affirmed, agreeing the peer review material was protected from discovery.
Neither party disputed the materials at issue were peer review records as defined by the statute, which clearly stated that “all peer review records shall be confidential and privileged,” the high court noted.
Plaintiff argued SARMC’s investigation was motivated by its desire to eliminate him as a competitor, and not for quality of care purposes.
But the high court found the statute did not create any bad faith exception, noting other state peer review laws where the legislature had explicitly done so.
Plaintiff also argued he waived the peer review privilege by bringing the lawsuit against the hospital pursuant to Idaho Code § 39-1392e(f).
The high court said the privilege was not his to waive. Section 39-1392e(f) applies “in defense of a claim brought by a physician”; thus, permitting “such health care organization and the members of their staffs and committees” to use the otherwise privileged information “for the purpose of presenting proof of the facts surrounding such matter.”
“When it is a physician who is making the claim, it is the physician who waives his or her right to assert the privilege. The physician cannot waive the right of the hospital or anyone else who is entitled to assert it,” the high court said.
The decision reaffirmed the position taken by the high court in a November 9 case, which addressed a similar set of facts and reached the same conclusions. See Verska v. Saint Alphonsus Reg’l Med. Ctr., No. 37574-2010 (Idaho Nov. 9, 2011), HLW v. 9, no. 45.
Montalbano v. Saint Alphonsus Reg'l Med. Ctr., No. 37573 (Idaho Nov. 18, 2011).
Iowa Supreme Court Holds Credentialing Filing Inadmissible Even Where Hospital Previously Disclosed Documents In Earlier Trial
A hospital that previously produced a physician’s credentialing file and relied on that file at trial may still object to its use following a reversal and remand for retrial, the Iowa Supreme Court said December 2.
The previous decision did not decide the admissibility of the credentialing file and therefore the law of the case bar did not apply, the high court said.
The high court also found waiver principles did not foreclose the hospital from now arguing against the admission of the credentialing documents because the state’s peer review statute, Iowa Code § 147.135(2), not only sets forth a privilege, but also a separate rule of inadmissibility.
A surgeon with privileges at Catholic Health Initiatives Iowa Corp. d/b/a Mercy Hospital Medical Center (hospital) was sued for medical malpractice.
Plaintiff in the case also sued the hospital for negligent credentialing. Plaintiff sought production of the surgeon’s credentialing file from the hospital.
The hospital noted its objections to producing the file, but produced most of the documents following an order compelling discovery in another case involving the same physician.
The case went to trial, during which the hospital did not object to the introduction of the credentialing file into evidence and, in fact, offered into evidence numerous documents from the file.
A jury returned a verdict in plaintiff’s favor. On appeal, the Iowa Supreme Court reversed and remanded, finding other evidence not related to the credentialing file should have been excluded.
In the interim, an Iowa appeals court ruled the contents of a hospital’s credentialing file fell within the scope of the state’s peer review privilege to the extent they were in the custody of the peer review committee. See Day v. Finley Hosp., 769 N.W.2d 898 (2009).
The hospital on remand moved for summary judgment, relying on Day to argue the contents of the credentialing file were inadmissible and that without the documents plaintiff lacked sufficient evidence to support his negligent credentialing claim.
Plaintiff argued the doctrine of law of the case precluded the hospital from arguing the documents were inadmissible and, alternatively, the hospital waived its right to object by voluntarily producing them and offering them as evidence in the first trial.
The Iowa Supreme Court held the law of the case bar did not apply because the issue of the credentialing file’s admissibility was not reached in the first appeal. Thus, “the parties were free to litigate that issue on remand.”
Next, the high court held waiver principles were inapplicable because the relevant statute not only provides peer review documents are “privileged and confidential,” but also includes a separate prohibition on their admissibility in evidence.
“Even if the privilege could have been waived here, the rule against admissibility would remain in effect,” the high court said.
Cawthorn v. Catholic Health Initiatives Iowa Corp., No. 10-1013 (Iowa Dec. 2, 2011).
Maryland High Court Upholds Violation Of Licensing Requirement Based On Failure To Disclose Medical Malpractice Case On Renewal Application
Maryland’s highest court upheld November 29 a medical board’s conclusion that the submission of a license renewal application by a physician occurred “in the practice of medicine” for purposes of disciplining an obstetrician/gynecologist who failed to disclose a pending medical malpractice action against him.
In so holding, the Maryland Court of Appeals found a physician’s completion and filing of an application to renew his license unquestionably is “a task integral to his . . . practice.”
“Without a license,” the high court noted, the physician “would have no authority to practice.”
Nor did the Maryland State Board of Physicians (Board) err in finding “a license renewal application is sufficiently intertwined with patient care.”
The Board needs to be able to rely on the accuracy of the information in a license renewal application to determine wither a particular physician is fit to practice medicine, the high court observed.
This is especially the case, the high court continued, when the information relates to medical malpractice lawsuits, which could call into question the physician’s fitness to practice medicine.
In this case, Charles Y. Kim, a board-certified obstetrician/gynecologist, filed an application to renew his medical license with the Board in August 2006. At the time, there was a medical malpractice action pending against him.
In November 2006, Kim’s counsel revealed to Board counsel in connection with scheduling a Case Resolution Conference (CRC) in an unrelated matter that Kim was supposed to be in court on one of the dates proposed for the unrelated CRC.
The disclosure led to further investigation in which the Board learned Kim was involved in a medical malpractice action at the time he submitted the renewal application.
Kim, who is Korean and was first licensed in Maryland in 1977, said he has trouble understanding some aspects of the English language and misunderstood the questions on the application
Following additional administrative proceedings, the Board eventually found Kim violated three licensing provisions prohibiting unprofessional conduct in the practice of medicine, the willful making of a false report or record in the practice of medicine, and the willful making of a false representation in connection with a licensing application.
The Board sanctioned Kim with six months’ probation, a $5,000 fine, and required him to complete an ethics course.
Kim appealed in court. Both the trial and appeals court affirmed.
The high court first made clear that it was employing a deferential standard in reviewing the Board’s decision.
Kim argued the Board violated certain administrative rules by using information gleaned during the CRC scheduling meeting to further investigate him. The rules require the Board to keep such information confidential.
The high court rejected this argument for two reasons: the confidentiality protection did not extend to the mere logistics attendant to a CRC—here a scheduling meeting—and in any event the regulation includes an exception to the confidentiality protection for information that is available from other public sources, which was the case here.
The high court also upheld the Board’s interpretation of “willful” as not requiring the intent to deceive, but rather only that the act be “purposeful conduct, which requires neither a bad motive nor knowing unlawfulness.”
Thus, the high court concluded, “willful,” for purposes of the licensing statute, “requires proof that the conduct at issue was done intentionally, not that it was committed with the intent to deceive or with malice.”
Applying that definition, the high court found substantial evidence Kim acted willfully in making a false statement on his application for renewal of his medical license.
Kim v. Maryland State Bd. of Physicians, No. 1 (Md. Nov. 29, 2011).
Ninth Circuit Finds Compensation For Stem Cell Donors Not Prohibited By National Organ Transplant Act
The Ninth Circuit held December 1 that compensating bone marrow donors of cells extracted by “peripheral blood stem cell apheresis” was not barred by the National Organ Transplant Act because blood, as opposed to actual bone marrow, is collected under the method.
Because blood is not covered under the Act, compensation to donors is not prohibited, the appeals court held, reversing the district court’s dismissal of the complaint for failure to state a claim upon which relief could be granted.
One of the plaintiffs in the case is a California nonprofit corporation that seeks to operate a program incentivizing bone marrow donations. Some plaintiffs are parents of sick children and one plaintiff is an African-American man suffering from leukemia. Another plaintiff is a physician and medical school professor, and an expert in bone marrow transplantation.
Plaintiffs argued the National Organ Transplant Act, as applied to MoreMarrowDonor.org’s planned pilot program, violates the Equal Protection Clause.
Plaintiffs sought declaratory and injunctive relief so that MoreMarrowDonors.org could proceed with its initiative.
After describing in detail the bone marrow donation process and the problems that come with finding a suitable match, the appeals court agreed with plaintiffs that compensation for bone marrow donations accomplished through apheresis would not be prohibited under the Act.
The appeals court also agreed with the U.S. Attorney General that the statute plainly classifies “bone marrow” as an organ for which compensation is prohibited; thus, to the extent plaintiffs challenged the constitutionality of the compensation ban on bone marrow donation by the old aspiration method — where a long needle is inserted into the cavity of the hip bone to extract the soft, fatty marrow—the challenge must fail.
“Here, Congress made a distinction between body material that is compensable and body material that is not. The distinction has a rational basis, so the prohibition on compensation for bone marrow donations by the aspiration method does not violate the Equal Protection Clause,” the appeals court said.
The appeals court turned next to plaintiffs’ main argument that compensation for “bone marrow donations” by the peripheral blood stem cell apheresis method should not be banned.
“For this, we need not answer any constitutional question, because the statute contains no prohibition,” the appeals court said.
“Such donations of cells drawn from blood flowing through the veins may sometimes anachronistically be called ‘bone marrow donations,’ but none of the soft, fatty marrow is donated, just cells found outside the marrow, outside the bones, flowing through the veins,” the appeals court reasoned.
“Since payment for blood donations has long been common, the silence in the National Organ Transplant Act on compensating blood donors is loud,” the appeals court added.
The appeals court rejected the government’s argument that hematopoietic stem cells in the veins should be treated as “bone marrow” because “bone marrow” is a statutory organ, and the statute prohibits compensation not only for donation of an organ, but also “any subpart thereof.”
According to the appeals court, this argument “proves too much,” and “construes words to mean something different from ordinary usage.”
Flynn v. Holder, No. 10-55643 (9th Cir. Dec. 1, 2011).
Ninth Circuit Vacates Injunction Enjoining Medicaid Rates, Says Providers Could Not Sue Under Section 1983
The Ninth Circuit vacated November 30 a preliminary injunction blocking certain provider reimbursement rates under California’s Medi-Cal program in an action brought by groups representing intermediate care facilities for the mentally retarded and for the developmentally disabled and free standing pediatric subacute facilities.
The Developmental Services Network, the United Cerebral Palsy/Spastic Children’s Foundation of Los Angeles and Ventura County, and the California Association of Health Facilities brought an action under 42 U.S.C. § 1983 challenging amendments to the state’s Medicaid plan that froze reimbursement rates for certain providers at 2008-2009 levels.
The groups contended the legislative changes were unlawful because the state did not first obtain federal approval of its State Plan Amendment (SPA).
Specifically, the groups argued the amendments violated federal Medicaid law, which requires a state Medicaid plan to provide payments that “are sufficient to enlist enough providers so that care and services are available under the plan at least to the extent that such care and services are available to the general population in the geographic area.” 42 U.S.C. § 1396a(a)(30)(A).
In granting the groups a preliminary injunction, the district court found they were likely to succeed on the merits of their Section 1983 claim that the state had unlawfully failed to obtain federal approval of the SPA before implementing it.
The Ninth Circuit agreed that the state had to obtain approval of the Medicaid plan amendment before implementing the changes, but concluded providers did not have a private right of action under Section 1983 to enforce this requirement, which was the issue ruled on by the district court.
With the repeal of the Boren Amendment, Congress essentially made clear that providers had no cause of action under Section 1983 to challenge the adequacy of their rates, the appeals court said.
“[T]he Providers have not shown that they have an unambiguously conferred right to bring a § 1983 action,” the appeals court observed.
Thus, the preliminary injunction could not stand, and the appeals court remanded to the district court for further proceedings.
In a footnote, the appeals court declined to consider the Supremacy Clause as an avenue for the providers to pursue their claims, noting the district court “expressly refused to proceed on that basis, and it should decide the issue in the first instance.”
The appeals court also noted this issue was pending before the Supreme Court. “[P]rudence suggests that consideration of the issue should be put off for another day.”
A number of provider lawsuits have challenged various Medi-Cal rate cut proposals. The Supreme Court in January 18 granted certiorari of three petitions: Maxwell-Jolly v. Independent Living Ctr. of Southern Cal. (No. 09-958); Maxwell-Jolly v. California Pharmacists Ass'n (No. 09-1158); and Maxwell-Jolly v. Santa Rosa Mem’l Hosp. (No. 10-283).
In the lawsuits, which have been consolidated before the Court, the providers alleged the cuts violated Section 1396a(a)(30)(A) and therefore are invalid under the Supremacy Clause of the U.S. Constitution.
DHCS argued Section 30(A) does not confer a private right of action that plaintiffs could sue to enforce. The Court held oral arguments on October 3. Developmental Servs. Network v. Douglas, No. 11-55851 (9th Cir. Nov. 30, 2011).
OIG Says Online Service To Exchange Information Between Healthcare Practitioners, Providers, and Suppliers Would Not Violate Anti-Kickback Statute
A proposal for an online service that would facilitate the exchange of information between healthcare practitioners, providers, and suppliers would not subject the requestor to administrative sanctions under the Anti-Kickback Statute, the Department of Health and Human Services Office of Inspector General (OIG) said in an advisory opinion posted December 7.
The opinion requestor is a publicly traded company that provides web-based business services to physician practices.
The requestor currently offers three principal services: (1) the Billing Service, which automates and manages billing-related functions for physician practices and assists clients with non-billing related back-office operations such as appointment scheduling, insurance eligibility verification, and account reconciliation and reporting; (2) the EHR Service, which automates and manages medical record-related functions for physician practices; and (3) the Messaging Service, which automates practice communications with patients and includes patient messaging services, live operator services, and a patient web portal.
Under the Proposed Arrangement, the requestor would offer a new service (Coordination Service) intended both to facilitate the exchange of information between healthcare practitioners, providers, and suppliers and to help them keep track of patients receiving services from other health professionals.
According to the requestor, because much of the functional benefit of the Coordination Service is derived from the data maintained within the EHR Service, only Health Professionals who purchase the EHR Service could use the Coordination Service to transmit patient information to other Health Professionals in connection with a referral.
Under the Arrangement, Health Professionals that wish to make a referral (Ordering Health Professionals) would use the Coordination Service to access an electronic database to identify Health Professionals to which they would like to make a referral.
The requestor also would offer Health Professionals that are interested in receiving referrals through the Coordination Service the opportunity to enter into “Trading Partner Agreements” with the requestor.
The requestor would receive payment from either the Ordering Health Professionals or the Trading Partners for transmitting information, and from the Trading Partners for any value-added services it provides.
OIG first found the Arrangement did not qualify for the safe harbor for referral services under the Anti-Kickback Statute.
However, OIG concluded “the facts and circumstances of the Proposed Arrangement, in combination, adequately reduce the risk that the remuneration provided under the Proposed Arrangement could be an improper payment for referrals or for arranging for referrals of Federal health care program business.”
The first fact OIG highlighted was that the requestor would offer a comprehensive network, within which all Health Professionals in a marketplace could participate, from which an Ordering Health Professional could select a receiving Health Professional, with no fee required.
OIG also noted the fees the requestor charged would reflect the fair market value of the actual services the requestor would provide to the Health Professionals.
OIG next found that, although the requestor would charge one fee on a “per-click” basis, “the use of a transaction-based pricing model is reasonable under these circumstances.”
In addition, according to the opinion, the Proposed Arrangement’s fee structure would be unlikely to influence an Ordering Health Professional’s referral decisions in a material way.
The opinion acknowledged charging an Ordering Health Professional a fee for transmitting information in connection with a referral to a Non-Trading Partner—but not for transmitting information to a Trading Partner—could influence the Ordering Health Professional’s referral decisions.
However, OIG said the following two factors, in combination, would minimize this risk: (1) the amount of the fee is very low; and (2) the aggregate amount of the fees would be capped.
OIG further pointed out that the requestor’s goal is to have the network be as complete as possible; “[t]hus, neither patient freedom of choice nor provider freedom of choice would be compromised under the Proposed Arrangement,” OIG concluded.
Lastly, the opinion said that a Trading Partner’s payment of fees to the requestor would not provide the Trading Partner with enhanced access to a referral stream versus a non-Trading Partner.
“Although the added convenience and ease of information exchange offered by Trading Partners might provide them with an advantage over Non-Trading Partners, the Non-Trading Partners would not be disadvantaged with respect to, nor precluded from, the opportunity to receive and respond to referrals made through the Coordination Service in the first instance,” OIG said.
Advisory Opinion No. 11-18 (Dep't of Health and Human Servs. Office of Inspector Gen. Nov. 30, 2011).
Schumer Bill Would Criminalize Price Gouging Of Prescription Drugs During Shortages
Senator Charles E. Schumer (D-NY) unveiled December 6 a bill that would make it a federal crime to engage in price gouging of prescription drugs when they are in short supply or during federal emergencies.
The Protect Patients and Hospitals From Price Gouging Act would give the Department of Justice (DOJ) authority to prosecute “price gougers and unscrupulous drug distributors that buy life saving medications and sell them to hospitals at outrageous markups,” according to Schumer’s press release.
The legislation sets penalties of up to $500 million per violation.
“Let this be a loud and clear message to any unscrupulous middlemen that are holding, or would attempt to hold, patients and hospitals hostage for outrageous ransoms: if you try to play games with vital medicines in short supply, you will be held accountable,” Schumer said.
The problem of drug shortages has taken center stage of late, with President Barack Obama issuing October 31 an Executive Order directing the Food and Drug Administration (FDA) and DOJ to take action to address the issue.
According to a White House fact sheet, the number of reported prescription drug shortages in the United States nearly tripled between 2005 and 2010, from 61 to 178.
The Executive Order directs FDA to work with DOJ to determine whether any secondary drug wholesalers or other market participants have responded to potential drug shortages by illegally hoarding medications or raising prices to gouge consumers.
Senator Amy Klobuchar (D-MN) and Representative Diana DeGette (D-CO) also have introduced legislation that would require all prescription drug shortages to be disclosed and would give FDA new authority to enforce these requirements.
Senate Finance Hearing
Later in the week, the Senate Finance Committee held a hearing to probe the causes of drug shortages.
Ranking Member Orin Hatch (R-IA) said while drug shortages are not new, the volume of shortages, the importance of the therapies that are experiencing shortages, and the challenges these shortages present are becoming more significant.
"Every year since 2005, drug shortages have become more prevalent and widespread. In 2009, there were 157 products on the FDA’s shortage list, and in 2010 that number increased to 178," Hatch observed in his opening statement.
Hatch also pointed to research showing U.S. hospitals spend at least $415 million annually because of drug shortages, which often require substituting a more expensive alternative.
Many of the drugs in shortage are those used in cancer treatments, with 70% of drug shortages involving sterile injectables in 2010.
Hatch said recent evidence suggests federal government pricing and rebate programs are a significant contributing factor to the current drug shortage crisis.
"I am working on a solution that will continue to improve coordination between manufacturers and the government, but that also addresses some of the federal price control and rebate structures that prevent the true costs of bringing these important medicines to patients from being adequately addressed," Hatch said.
Kasey Thompson, Vice President of Policy, Planning and Communications for the American Society of Health-System Pharmacists, told the panel the issue of whether Medicare reimbursement policies may be partially to blame for drug shortages needs further study, but added his group was "hesitant to focus on any one potential cause given the limited data and the numerous factors that contribute to shortages."
According to Patrick Cobb, MD, an oncologist with Frontier Cancer Center and Blood Institute in Billings, MT, the "root cause" of today's drug shortages "can be tracked back to Medicare Part B" reimbursement changes under the Medicare Modernization Act of 2003.
Cobb said Congress should move quickly to modify the Medicare reimbursement system, and not cut reimbursement further, "so as to create appropriate incentives for manufacturers."
- Dora Binimelis, the owner of a Detroit-area medical clinic purporting to specialize in diagnostic testing services, pleaded guilty December 6 to one count of conspiracy to commit healthcare fraud, the Department of Justice (DOJ) announced. According to the release, Binimelis admitted the clinic defrauded Medicare by billing for expensive and medically unnecessary tests. As part of the scheme, owners and operators of the clinic paid patient recruiters to obtain Medicare provider numbers and other information used to fraudulently bill Medicare. According to court documents, the clinic billed Medicare $2.4 million for medically unnecessary diagnostic tests.
- A federal judge sentenced December 6 the two owners of a Houston durable medical equipment (DME) company, Kemmie Houston and Sharon Beal, to 63 months and 51 months in prison, respectively, DOJ announced. The pair also was ordered to pay $403,704 in restitution, jointly and severally. In June, Houston and Beal pleaded guilty to conspiracy to commit healthcare fraud. According to court documents, Houston and Beal caused the company to submit $851,212 in fraudulent claims to Medicare for DME that was medically unnecessary and/or not provided, including orthotic devices that were components of “arthritis kits” for both sides of the body and related accessories such as heat pads.
- KV Pharmaceutical Company agreed to pay $17 million to resolve a multi-defendant False Claims Act whistleblower action alleging its now-defunct generic pharmaceutical subsidiary Ethex Corporation received reimbursement for unapproved drugs, DOJ announced December 6. The two drugs at issue were Nitroglycerin Extended Release Capsules (Nitroglycerin ER) and Hyoscyamine Sulfate Extended Release Capsules (Hyoscyamine ER). According to the release, the Food and Drug Administration made determinations in the late 1990s that resulted in the drugs being ineligible for reimbursement by government healthcare programs. DOJ alleged Ethex misrepresented the regulatory status of both drugs and failed to advise the Centers for Medicare and Medicaid Services that the drugs did not qualify for coverage under federal healthcare programs. Neither drug currently is on the market. KV admitted no liability in agreeing to the settlement. “We are also pleased that the government deemed our current operations and compliance function sufficiently robust as to not require a corporate integrity agreement,” the company said in a statement.
- A federal judge sentenced December 2 Joaquin Tasis to 78 months in prison for his role in a $9.1 million Detroit-area Medicare fraud scheme, DOJ announced. Tasis also was ordered to pay $6 million in restitution, jointly and severally with his co-defendants, Martin Tasis and Leoncio Alayon who were convicted by a jury in May 2011 after a five-day trial. Evidence presented at trial showed the Tasis brothers and their co-conspirators helped relocate a lucrative infusion therapy fraud scheme to Michigan from South Florida after increased law enforcement scrutiny there, and that Alayon helped the conspirators launder proceeds from the scheme. According to the release, the Tasis’ clinic billed approximately $9.1 million in claims to Medicare for injection therapy services that were never provided and/or were not medically necessary, of which Medicare paid $6 million.
- U.S. Attorney for the Eastern District of Virginia Neil H. MacBride announced December 2 that Yanick Pierre, the office manager and office administrator of a home healthcare business, was sentenced to 51 months in prison for fraudulently billing Medicaid nearly $1 million. According to the release, beginning in 2008, Pierre submitted false claims for home health services to Medicaid recipients she knew had not been provided and then enlisted the help of others to fabricate nursing time sheets to corroborate the fraudulent billing. In total, the attempted loss attributed to the fraudulent billing by Pierre was approximately $979,000, of which the business received $698,434.47. The court also entered a restitution order and a forfeiture order against Pierre in that amount, the release said.
- A federal judge sentenced December 2 Ernest M. McGee to a year in prison, and ordered him to pay restitution to Medicaid in the amount of $292,635, and to Medicare in the amount of $60,037, announced the U.S. Attorney’s Office for the District of Massachusetts. McGee was an assistant pharmacist at a pharmacy owned by Amadiegwu Onujiogu, also a registered pharmacist. According to the release, Onujiogu and McGee paid customers to bring prescriptions to the pharmacy, but did not dispense the medications to them and then submitted claims for payment to Medicaid and Medicare for the prescriptions and their refills. Onujiogu was convicted separately of the same crime, the release said.
- The U.S. Attorney's Office for the Middle District of Pennsylvania announced December 1 that Diakon Lutheran Social Ministries d/b/a Diakon Hospice Saint John (Diakon) agreed to pay $10.56 million to resolve its liability for violations of the False Claims Act. According to a press release, from October 1, 2004 through October 1, 2010, Diakon erroneously submitted claims to Medicare for hospice care provided to beneficiaries when they were not eligible for hospice benefits under the Medicare regulations. The release noted Diakon voluntarily disclosed to federal authorities earlier this year that it had received improper Medicare and Medicaid payments. The settlement does not release claims under any federal healthcare program other than Medicare, the release said. Diakon also will repay directly to Medicaid the relatively small Medicaid overpayment that it disclosed.
U.S. Court In Florida Finds State Statute Conflicts With HIPAA And Is Preempted
The U.S. District Court for the Northern District of Florida held December 2 that the Health Insurance Portability and Accountability Act of 1996 (HIPAA) preempts a state statute requiring nursing homes to furnish certain information to a resident’s representative.
According to the court, the statute at issue is both contrary to, and less stringent, than HIPAA.
Plaintiffs operate and manage nursing facilities that Florida’s Agency for Health Care Administration (AHCA) has cited for violating a state law requiring nursing homes to “furnish to the spouse, guardian, surrogate, proxy, or attorney in fact . . . of a former resident . . . a copy of that resident’s records which are in the possession of the facility.”
Plaintiffs claimed their non-compliance was excusable because HIPAA preempted the state law and sought a declaratory judgment that the law was invalid and injunctive relief prohibiting its enforcement.
AHCA asserted HIPAA did not preempt the law because the statute was not contrary to HIPAA, and was more stringent than HIPAA.
Under HIPAA, “covered entities” may not disclose protected health information (PHI) except to the individual, or to his or her personal representative, the court explained.
The court first noted the term “personal representative” under Florida law is a term of art distinct from the same term under HIPAA.
Looking to Florida probate law, the court observed the statute in question did not require a fiduciary relationship to become a personal representative and thus could lead to absurd results.
“As an extreme example,” the court said, “a convicted felon would be disqualified as a personal representative [under Florida probate law] but qualified under” the statute at issue.
Accordingly, the court found the statute both contrary to HIPAA and less stringent than HIPAA.
Opis Management Resources, LLC v. Dudek, No. 4:11-cv-400/RS-WCS (N.D. Fla. Dec. 2, 2011).
U.S. Court In Florida Will Abstain From Considering Challenge To Florida’s Patients Right To Know Amendment
A federal district court in Florida agreed November 18 to abstain from exercising its jurisdiction over a challenge to a constitutional amendment (Amendment 7) passed by Florida voters that gives patients the right to access information from healthcare providers about adverse medical incidents.
The U.S. District Court for the Middle District of Florida held abstention was appropriate under the framework articulated by the Supreme Court in Younger v. Harris, 401 U.S. 37 (1971), and its progeny, “which espouse a strong federal policy against federal court interference with pending state judicial proceedings absent extraordinary circumstances.”
Susan and Jeffrey Garvin sued Lee Memorial Health System, which was created by the Florida legislature and operates several hospitals in the southwestern portion of the state, for medical malpractice. They then sought certain documents pursuant to Amendment 7.
Lee Memorial filed an action in federal district court, seeking declaratory relief that Amendment 7 is preempted by the Patient Safety and Quality Improvement Act of 2005, the Health Insurance Portability and Accountability Act, and the Health Care Quality Improvement Act. Lee Memorial also argued its retroactive application violated the Contract Clause of the U.S. Constitution.
In response, the Garvins filed a motion for abstention, asking the court to abstain from considering Lee Memorial’s complaint.
First, the court held the principles of abstention and comity are not obviated by Lee Memorial’s submission to federal jurisdiction.
Here, the Garvins did not consent to have their claims heard in federal court. Moreover, Lee Memorial failed to show that, as a political subdivision, it was “necessarily entitled to all the privileges and immunities of the State itself,” the court said.
Next, the court held abstention was appropriate in this case under Younger, which provides that a federal court may abstain from granting injunctive relief where: there is a pending state proceeding and the requested federal remedy would create an “undue interference with that state proceeding”; the state proceeding implicates important state interests; and the state proceeding provides plaintiff with an adequate opportunity to raise its federal constitutional questions.
Thus, the court granted the Garvins’ motion.
Lee Mem’l Health Sys. v. Guillermo, No. 2:10-CV-007000-FtM-36DNF (M.D. Fla. Nov. 18, 2011).
By contrast, in a March 2010 decision, the court there refused to abstain from exercising its jurisdiction over Amendment 7, finding no evidence of “undue interference” in that case. Lee Mem’l Health Sys. v. Jeffery, No. 2:08-cv-843-FtM-29DNF (M.D. Fla. Mar. 30, 2010).
After examining the Younger factors, the court determined “the pre-suit request does not justify abstention because there was no pending case from which to abstain at the time.”
According to the court, “[w]hile there is now a pending medical malpractice case, defendant has not identified any specific order which a decision in this federal case would interfere with, much less establish an undue interference with state proceedings.”
U.S. Court In New Jersey Allows ERISA Plaintiff To Assert Simultaneous Claims Under Sections 502(a)(1)(B) and 502(a)(3)
The U.S. District Court for the District of New Jersey denied November 22 an insurer’s motion to dismiss a beneficiary’s claim for breach of fiduciary duty under Section 502(a)(3) of the Employee Retirement Income Security Act of 1974 (ERISA).
According to the court, there is a circuit split as to whether an ERISA plaintiff may simultaneously pursue claims for benefits under Section 502(a)(1)(B) and for breach of fiduciary duty under Section 502(a)(3).
But the court sided with the courts that have found the claims permissible at the motion to dismiss stage, and thus, denied the motion as premature.
Plaintiff Mark Lipstein is a participant in a healthcare plan administered by defendant United Healthcare Insurance Company.
Plaintiff's wife is a beneficiary under the plan and has received various services from a provider who does not accept Medicare.
Under the terms of the plan, defendants serve as a secondary payor to Medicare. Plaintiff alleged defendants improperly reduce plan payments in situations where a plan participant receives services from a provider who does not participate in Medicare, by estimating the amount that Medicare would have paid if the participant had visited a provider who participated in Medicare.
Accordingly, plaintiff contended defendants were obligated to pay full benefits when a subscriber visits a provider who does not accept Medicare.
Plaintiff further alleged even if defendants were entitled to estimate the amount Medicare would have paid when a subscriber visits a provider who does not accept Medicare, they do so improperly by estimating what Medicare would have paid by using billed charges instead of the Medicare fee schedule and by overstating the percentage of the allowed amount under the Medicare fee schedule that Medicare would pay.
Plaintiff thus alleged three counts. In Counts I and II, plaintiff asserted claims for plan benefits under Section 502(a)(1)(B), and in Count III, plaintiff sought equitable relief for an alleged breach of fiduciary duty by defendant under Section 502(a)(3).
Defendant moved to dismiss Count III on the theory it impermissibly duplicated the benefits claims in Counts I and II.
The court noted that in Varity Corp. v. Howe, 516 U.S. 489, 512 (1996), the Supreme Court held Section 502(a)(3) allows a plaintiff to seek "appropriate equitable relief for injuries caused by [ERISA] violations that § 502 does not elsewhere adequately remedy."
The court further noted a split among circuits regarding the effect of Varity on a plaintiff's ability to simultaneously pursue claims for benefits under Section 502(a)(1)(B) and for breach of fiduciary duty under Section 502(a)(3).
The court was “persuaded by the reasoning of those courts that have found that Varity does not establish a bright line rule precluding the assertion of alternative claims under §§ 502(a)(1)(B) and 502(a)(3) at the motion to dismiss stage.”
Lipstein v. United Healthcare Ins. Co., No. 11-1185 (D.N.J. Nov. 22, 2011).
U.S. Supreme Court Declines Review Of First Circuit Decision On FCA Liability
The U.S. Supreme Court declined to review December 5 a First Circuit decision viewed as expanding the scope of liability under the False Claims Act (FCA).
In United States ex rel. Hutcheson v. Blackstone Med., Inc., No. 10-1505 (1st Cir. Jun. 1, 2011), the First Circuit reversed the dismissal of an FCA action against a medical device maker that allegedly paid kickbacks to physicians for use of its products.
The district court in the case construed the statute such that a claim is "false or fraudulent" if it is either "factually false" or "legally false." A claim can be legally false under either an express certification theory or an implied certification theory, the district court explained.
Applying this framework, the district court held the complaint failed to identify a claim that was materially false or fraudulent for purposes of the FCA.
On appeal, the First Circuit refused to employ the categories used by the lower court. The “text of the FCA does not refer to ‘factually false’ or ‘legally false’ claims, nor does it refer to ‘express certification’ or ‘implied certification,’” the appeals court said.
The appeals court then turned to the district court’s holding that a claim can only be false or fraudulent for impliedly misrepresenting compliance with a legal condition of payment if that condition is found expressly stated in "the relevant statute or regulations."
The relator argued claims submitted by hospitals were false because the Hospital Cost Report forms establish that claims for Medicare reimbursement may only be paid if they comply with the Anti-Kickback Statute.
The appeals court noted a split in the circuits on this issue.
But the appeals court ultimately rejected the defendant’s argument that only express statements in statutes and regulations can establish preconditions of payment, noting such language “is not set forth in the text of the FCA.”
The appeals court also rejected the lower court’s holding that a submitting entity's representations about its own legal compliance cannot incorporate an implied representation concerning the behavior of non-submitting entities.
Explaining, the appeals court said that when the defendant in an FCA action is a non-submitting entity, the question is whether that entity knowingly caused the submission of either a false or fraudulent claim or false records or statements to get such a claim paid.
The Supreme Court has long held that a non-submitting entity may be liable under the FCA for knowingly causing a submitting entity to submit a false or fraudulent claim, and it has not conditioned this liability on whether the submitting entity knew or should have known about a non-submitting entity's unlawful conduct, the appeals court said.
The appeals court rejected defendant’s argument that such a reading of the FCA is too broad.
“Only persons who knowingly submit or cause the submission of a false or fraudulent claim can be held liable for violating the FCA. The term ‘causes’ is hardly boundless; it has been richly developed as a constraint in various areas of the law,” the appeals court said.
Was That Really Necessary? The Impact Of ICD-10 On Medical Necessity
By Rachel V. Rose, JD, MBA, Assistant General Counsel, BCE Healthcare Advisors and Michael R. Linkins, MBA, CPC, CMPE, Ambulatory Healthcare Management & Revenue Cycle Management Consultant
A significant issue providers cannot ignore is medical necessity. This is because it forms the basis of payment for services that are not erroneous, but rather required to diagnose and/or treat a condition. Section 1862(a)(1)(A) of the Social Security Act states “no Medicare payment shall be made for items or services that are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.” This standard, which is ambiguous, may be complicated by ICD-10.
The Centers for Medicare and Medicaid Services (CMS) has set October 1, 2013 as the date when the United States will transition from the International Classification of Diseases Ninth Revision (ICD-9-CM) to the Tenth Revision (ICD-10). Unlike ICD-9-CM, which has three volumes, ICD-10 has two distinct parts: ICD-10-CM (clinical modification to report diagnosis data across all sites of service) and ICD-10-PCS (reports inpatient procedure data). ICD-9 (Vols. 1&2) is replaced by ICD-10-CM. And, ICD-9 (Vol. 3) is replaced by ICD-10-PCS. By converting to ICD-10, the number of codes expands exponentially from 17,000 ICD-9 codes to nearly 155,000 ICD-10 codes.
The problem in bridging the greater ICD-10 specificity requirements and the definition of medical necessity arises in trying to define what “reasonable and necessary” means. To assist with clarifying this ambiguity, CMS set forth National Coverage Determinations (NCDs). For physicians, who provide services based on their clinical judgment, even though a course of treatment falls within professional standards, it does not necessarily equate to coverage. Furthermore, the heightened specificity of ICD-10 will require physicians and hospitals to substantiate a claim by providing an accurate and comprehensive medical record.
The best way to illustrate the distinction between ICD-9-CM and ICD-10-CM and, in turn, the impact on medical necessity is through case study illustrations. ICD-10-PCS only applies to inpatient procedures and will not be addressed in this piece.
Scenario: Fifty-two year old female Caucasian patient presents to an Endocrinologist, to whom she has been referred from her primary care physician for initial and ongoing care. The endocrinologist performs a comprehensive history, a comprehensive exam, and moderate decision making of moderate complexity.
The endocrinologist diagnoses the patient with Type II uncontrolled diabetes. He also notes mild non-proliferative diabetic retinopathy and macular edema, benign hypertension, and a 30-year history of oral contraceptive utilization.
For physician coding purposes, the CPT code assigned is 99204 (Office or Other Outpatient Visit). When ICD-9-CM (Vols.1&2) is compared to ICD-10-CM for these conditions, several key differences exist.
1. Type 2, uncontrolled diabetes with nonproliferative diabetic retinopathy and macular edema
2. Benign hypertension
3. History of oral contraceptive use
This scenario highlights several salient differences between ICD-9 and ICD-10. Under the ICD-9 system, most codes for diabetes mellitus require a fifth digit, which identifies  whether the diabetes is type 1 or type II; and  whether the diabetes is stated as uncontrolled or controlled. But, ICD-10-CM categories E08-E13 are generally much more precisely defined than in ICD-9. Thus, in this instance, a single six-digit code in ICD-10-CM provides the same information as three, five-digit ICD-9 codes.
The ICD-9 convention of differentiating among malignant, benign, and unspecified hypertension is eliminated in ICD-10-CM, where the all-encompassing category I10 is utilized. The V section in ICD-9 has metamorphosed into the Z section in ICD-10-CM: both indicate Factors Influencing Health Status and Contract with Health Services.
What do these ICD-10-CM changes mean for medical necessity? According to CMS, “ICD-10 should not impact documentation as physicians are required to support medical necessity using appropriate diagnosis codes.” Since ICD-10 requires more specificity that correlates to a more precise code, documentation should reflect and support the code ultimately assigned.
The Meaning of Excludes
Building on the example above, one important term that experiences a significant change is “excludes.” Under ICD-9, there is a single excludes note, but it can have two different meanings. Because of the ambiguity, the determination of what definition applies is up to the coder. ICD-10-CM brings a new dimension to this basic term. “Excludes” is parsed into “Excludes 1” and “Excludes 2.” In essence, “Excludes 1” means not coded here. An “Excludes 1” note indicates mutually exclusive codes—two conditions that cannot be reported together. “Excludes 2” means not included here. This note indicates that although the excluded condition is not part of the condition, it is excluded from, a patient may have both conditions at the same time. In delineating the two scenarios, coders will expressly know what path take.
A common example of when Excludes 1 applies is Type 1 and Type 2 diabetes. A patient can have one condition or the other, but never both. Conversely, pharyngitis and tonsillitis are two conditions where it is appropriate to code for both an acute and chronic episode.
J02.0: Steptococcal pharyngitis
J02.8: Acute pharyngitis due to other specified organisms. (Use additional code B95-B97 to identify infectious agent).
J02.9: Acute pharnygitis, unspecified.
J03.00:Acute streptococcal tonsillitis, unspecified
J03.01:Acute recurrent streptococcal tonsillitis
J03.08:Acute tonsillitis due to other specified organisms. (Use additional code B95-B97 to identify infectious agent)
(See also: J03.80, J03.90, J03.91)
Because of the greater variety of condition codes and express nature of the “excludes” definitions, physicians should include all appropriate information. As the B-codes suggest above, physicians will be required to provide more information under ICD-10. In turn, coders can save time and select the most accurate code.
ICD-10 will challenge coders and physicians to work collaboratively to assign the appropriate code. Because there are a significant number of choices for ICD-10 codes, it is vital that the specificity be reflected in the medical record, as illustrated by the options available for pharyngitis and tonsillitis. While the CMS definition of medical necessity remains the same, the implications for lack of information in the medical record are greater.
Rachel V. Rose, JD, MBA is an attorney with over a decade of experience in various facets of the healthcare system. She is currently Assistant General Counsel for BCE Healthcare Advisors. Ms. Rose is licensed in Texas. Currently, she is Vice-chair of Strategic Initiatives for the Enterprise Risk Management Task Force of the American Health Lawyers Association. (firstname.lastname@example.org).
Michael Linkins, MBA, CMPE, CPC has over twenty-five years of experience in physician revenue cycle management, physician operations management, and consulting. Mr. Linkins served as President of the Fort Worth, TX chapter of AAPC [American Association of Professional Coders] in 2004 and 2005 and is currently a board member of the Gulf Coast Chapter of the MGMA. (email@example.com).
 Department of Health and Human Services, 45 C.F.R. pt. 162 (Jan. 16, 2009); HIPAA Administrative Simplification: Modifications to Medical Data Code Set Standards to Adopt ICD-10-CM and ICD-10-PCS, 74 Fed. Reg. 3328.
 HCPro, Start Preparing for ICD-10-CM: Note differences between ICD-9-CM and ICD-10-CM (Nov. 30, 2010).