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Bad Debt Under the False Claims Act and the FTC’s New Policy Statement

Month: November 2022

Bad Debt Under the False Claims Act and the FTC’s New Policy Statement

Posted on by Christie Bowness

Federal Case Highlights Medicare Bad Debt Regulatory Requirements

Recent federal case law highlights the regulatory requirements, and potential liabilities, imposed on Medicare providers seeking federal reimbursement for certain fees when Medicare beneficiaries fail to pay. Under 42 C.F.R. § 413.89, the United States Centers for Medicare & Medicaid Services (“CMS”) will reimburse Medicare providers if a Medicare beneficiary fails to make required deductible or coinsurance payments for covered services (“bad debts”). However, to be reimbursed for bad debt by CMS, Medicare providers must have first made reasonable efforts to collect those debts.

42 C.F.R. § 413.89 lists the criteria that Medicare providers must satisfy to establish the reasonableness of their collection efforts. For example, such collection efforts must be similar to those employed to collect bad debt from non-Medicare patients and must last at least 120 days after the issuance of the original bill before the bad debt is written off as uncollected. Significantly, the requirements vary based on whether or not the Medicare beneficiary is eligible for Medicaid or other financial assistance. If the provider takes the appropriate steps, it may seek reimbursement for bad debt from CMS.

A provider, however, may be subject to liability under the federal False Claims Act (“FCA”) if the provider failed to take reasonable steps to collect the bad debt before seeking reimbursement from CMS. In August 2022, for example, the Seventh Circuit partially reversed a district court’s dismissal of a qui tam complaint that had alleged that debt collection agencies and their hospital client were liable under the FCA for failing to comply with Medicare’s “bad debt” collection requirements. Significantly, the Seventh Circuit’s decision emphasizes both that reasonable collection efforts are material to the government’s decision to reimburse bad debt and that providers may be held liable under the FCA for the unreasonable collection efforts employed by contracted third-party collection agencies.

The takeaway from the Seventh Circuit’s recent decision is that Medicare providers seeking federal reimbursement of bad debt must ensure that their collection practices align with regulatory requirements. Development of comprehensive collection policies, internal auditing and monitoring of collections, and ensuing education can help mitigate potential FCA liability.

FTC Issues Policy Statement on Scope of Anti-Competitive Enforcement

The United States Federal Trade Commission (“FTC”) recently issued a Policy Statement regarding its interpretation of the scope of its ability to regulate unfair methods of competition under Section 5 of the FTC Act (15 U.S.C. § 45). Significantly, multiple elements of the Policy Statement highlight that the FTC will be liberally construing Section 5 of the FTC Act in reviewing and challenging anticompetitive practices.

Notably, the Policy Statement indicates the FTC’s shift towards more avid enforcement by (1) defending the FTC’s ability to define the term “unfair methods of competition” under Section 5 of the FTC Act and (2) arguing that the agency was designed by Congress to garner deference from the courts. Hence, the Policy Statement advances the current FTC’s understanding that it is both able to alter its definition of the concept on which it bases enforcement actions and is entitled to having its revised definition accepted by the courts in an enforcement proceeding. Further, the Policy Statement points out that the United States Supreme Court has affirmed the FTC’s broad interpretations of the scope of Section 5 of the FTC Act.

Importantly, the Policy Statement states that it supersedes “all prior FTC policy statements and advisory guidance on the scope and meaning of unfair methods of competition under Section 5 of the FTC Act.”

Sixth Circuit Reaffirms Mortgagor’s Right to Excess Proceeds in a Foreclosure Under Doctrine of Equitable Title

Posted on by Christie Bowness

The United States Court of Appeals for the Sixth Circuit recently issued an opinion reaffirming mortgagors’ post-foreclosure rights to the equity built in their mortgaged property after the creditor’s debt is paid in full.

In Hall v. Meisner, 51 F.4th 185 (6th Cir 2022), Plaintiff Tawanda Hall (“Plaintiff”), a resident of the state of Michigan, owed an approximately $22,000 tax debt to Oakland County (“Oakland County”), a Michigan county located north of Ann Arbor.  To satisfy this debt Oakland County seized Plaintiff’s home–which was valued at close to $300,000–evicted her from the premises, sold the property at a public foreclosure sale, satisfied the tax debt, and retained the funds received in excess of the $22,642 required to pay the debt.

Michigan’s General Property Tax Act (“the Act”) allowed each Michigan county to choose, by June 15th of a given year, whether it intended to foreclose upon a tax-delinquent property.  If it elected to do so, the owner of the soon-to-be-foreclosed property would be given written notice of the impending foreclosure and informed they could avoid the proceedings if they promptly paid all past-due taxes, interest, and penalties.  If no full repayment was made, the county was granted a foreclosure judgment vesting it with title to the delinquent property.  Upon taking title the county had the option to purchase the property for its “fair market value,” recouping its tax debt from the amount received and paying any remainder to the proper owner, or to decline to make a purchase.

If the county declined to exercise its purchase right the Act contained a loophole that would be triggered, as it then allowed for the city or town in which the delinquent property was located to purchase the property from the county for the value of the tax delinquency.  Post-purchase however, the city or town was then free to resell the property at public auction, following which the Act provided that no-matter the sale price, the former property owner had no right to any of the proceeds.

In February 2018, Oakland County foreclosed on Plaintiff’s home and obtained title due to $22,642 in back taxes.  Oakland County then opted not to purchase the property, instead conveying her home to the City of Southfield for the value of the past-due taxes.  The City then in turn conveyed the property to a for-profit entity “the Southfield Neighborhood Revitalization Initiative” for $1, with the entity then selling the property for $308,000 and keeping the entirety of the sum.

In August 2020, Plaintiff brought suit under 42 U.S.C. § 1983 alleging a violation of the Fifth Amendment’s Takings Clause barring the governmental taking of private property for public use without just compensation.  Plaintiff’s suit was initially dismissed by the district court, resulting in an appeal and hearing before the Sixth Circuit Court of Appeals (“the Court”).

The Court reversed the dismissal, reasoning that the Takings Clause would be a “dead letter” if a state were permitted to simply “exclude from its definition of property any interest the state wished to take” and thereby “disavow[] traditional property interests long recognized under state law,” noting that the Plaintiff retained “an entitlement to the equity in [her] home[] pursuant to principles long articulated by courts of equity, before their merger centuries later with courts of law.” In doing so, the Court traced the history of mortgages and their uses from 12th century English law through to the present day, noting that even in the year 1500 “irrevocable forfeiture of [a] debtor’s entire interest” in mortgaged property, “no matter what the reason for the borrower’s failure to pay,” was “regarded as an intolerably harsh sanction for the borrower’s default.”  By 1759, these principles had become even more strongly codified, with a mortgagor’s equity in their land becoming formally recognized as a “right of property” and eventually given the moniker of “equitable title.”  The courts of that time adhered to the principle of “once a mortgage always a mortgage,” meaning that a lender was never permitted to simply convert its security interest “as mortgagee into fee-simple title to the land” and extinguish a mortgagor’s equitable title for no value.     The Court then, citing Justice Antonin Scalia, found that while a creditor does have a right to the “full effect of [its] securities,” this right never entitles the creditor “to recover more than the amount owed” and any practice sanctioning such is “draconian.”  Thus, the land was “worth more than the debt” and any surplus must go to “the landowner for the loss of [their] equitable interest.”

Sparing no punches, the Court held that Michigan’s Act “flatly contravened these long-settled” centuries of legal principles, permitting “a practice that English courts had steadfastly prevented as far back as the 1600s and that American courts (not least Michigan ones) effectively eradicated as ‘unconscionable’ and ‘draconian’ some 200 years ago.”  The Court went so far as to say that Oakland County had knowingly and intentionally exploited these powers to generate revenue simply because “it could,” also noting that Michigan law recognized equitable title in every other possible context except “when the government itself decides to take it.”

The Court went on to further castigate Oakland County and its practices, commenting that equitable title is not a right which “arise[s] in manner akin to quantum mechanics, materializing suddenly without any apparent connection to anything that existed before,” but instead “follows directly from [] possession of equitable title before the sale,” with surplus value the “embodiment in money of the value of that equitable title.”  The Court thus ultimately held that the Takings Clause had been violated as Oakland County had taken Plaintiff’s property without providing just compensation when it “forcibly took property worth vastly more than the debts . . . owed, and failed to refund any of the difference.  ‘In some legal precincts[,] that sort of behavior is called theft.’”

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Kevin Hakansson at khakansson@riker.com, James Mazewski at jmazewski@riker.com or Kori Pruett at kpruett@riker.com.

Surprise Billing Final Rule Becomes Effective

Posted on by Christie Bowness

The federal government’s Final Rule (87 FR 52618) titled “Requirements Related to Surprise Billing” became effective on October 25, 2022. This Final Rule finalized requirements under the July and October 2021 interim final rules relating to information that insurers must share about the qualifying payment amount (“QPA”) as well as select provisions related to information that a certified independent dispute resolution (“IDR”) entity must consider when making a payment determination under the federal IDR process.

By way of background, on February 23 and July 26, 2022, the United States District Court for the Eastern District of Texas vacated portions of the October 2021 interim final rules related to payment determinations under the federal IDR process (See Texas Medical Association, et al. v. United States Department of Health and Human Services, et al., Case No. 6:21-cv-425 (E.D. Tex.), and LifeNet, Inc. v. United States Department of Health and Human Services, et al., Case No. 6:22-cv-162 (E.D. Tex.), respectively).

This Final Rule contains updated provisions to comply with the courts’ decisions and reflects the removal of the vacated provisions. Among other things, this Final rule sets forth the following requirements:

  • Certified IDR entities must consider the QPA and then must consider all additional permissible information submitted by each party to determine which offer best reflects the appropriate out-of-network rate;
  • Certified IDR entities must explain their payment determinations and underlying rationale in a written decision submitted to the parties and the federal government;
  • The written decision must include an explanation of the information that the certified IDR entity determined demonstrated that the selected offer is the out-of-network rate that best represents the value of the item or service; and
  • If the certified IDR entity relies on additional information or circumstances when selecting an offer, the written decision must include an explanation of why the certified IDR entity concluded the information was not already reflected in the QPA.

The federal government issued a Fact Sheet on the Final Rule, found here.

Will Other States Follow Pennsylvania’s New Laws on PBMs and Prior Authorizations?

Posted on by Christie Bowness

Pennsylvania Passes Law Allowing State to Audit Certain Pharmacy Benefit Managers

Pennsylvania recently enacted law House Bill 1630, enabling the PA Department of the Auditor General to conduct audits and reviews of certain pharmacy benefit managers ("PBMs") operating within the state. Pennsylvania pays approximately $3 billion to PBMs each year for Medicaid enrollees alone. Under House Bill 1630, the PA Auditor General may audit, at any time, any PBM that provides pharmacy benefits management to medical assistance managed care organizations under contract with the Pennsylvania Department of Human Services. Moreover, during such audits, the new law grants the Auditor General unqualified access to all documents it deems necessary to complete the review and audit. However, the new law exempts any information disclosed or produced by PBMs during such audits from disclosure under the Pennsylvania Right-to-Know Law.

It should be noted that the United State Federal Trade Commission, for example, recently announced that it would launch an inquiry into the six largest PBMs in the country to learn about their impact on the access and affordability of prescription drugs.

Pennsylvania Reforms Health Insurance Laws to Streamline Prior Authorizations and Extend Oversight

Pennsylvania recently enacted widespread updates to its insurance laws, clarifying the extent of certain long-standing statutes while also introducing certain new requirements for insurers. Such updates specifically target health insurance providers, particularly with regard to new provisions aimed at streamlining the prior authorization approval process.

Under Act No. 146 of 2022 (formerly Senate Bill 225), all commercial health insurance carriers and Medicaid plans operating within Pennsylvania will be required to provide timely approval for both non-urgent and emergency health care services to physicians before services and treatment plans are rendered. Additionally, the bill also introduced new oversight requirements and standards, providing for independent review of claim and prior authorization denials and granting the Pennsylvania Insurance Department ("PID") authority over external reviews of benefit determinations under the Affordable Care Act ("ACA"). The law further updated definitions and terms throughout the existing insurance law, clarifying that such provisions extend to all health insurance, medical assistance ("MA") or children’s health insurance program ("CHIP") plans within the state.

Most provisions of Pennsylvania’s Act No. 146 of 2022 take effect January 1, 2024. However, a notable exception is Section 2153, effective January 1, 2023, which requires that all health insurance, MA, and/or CHIP plan providers establish a provider portal, as defined within the statute, within eighteen (18) months.

 

Federal Court Affirms No General Duty for Title Insurers to Search For and Disclose Title Defects Unless Preparing Abstract of Title

Posted on by Christie Bowness

In Mansur Properties, LLC v. First American Title Insurance Company, 2022 US Dist. LEXIS 190201 (WD Wash Oct. 18, 2022), Plaintiff Mansur Properties, LLC (“Plaintiff”), purchased a parcel of land in Vancouver, Washington, with the intention of converting the land into a used car lot.  Plaintiff obtained a title insurance policy from Defendant First American Title Insurance Company (“First American”).  Post-closing, Plaintiff learned that a third-party neighbor (“the neighbor”) owned sections of the parcel that Plaintiff had intended to use for vehicle storage.

In January 2021, Plaintiff submitted a claim to First American under its title insurance policy, alleging First American had erred in its chain of title review by failing to discover a 1965 statutory warranty deed transferring a portion of the Property to the neighbor.  Plaintiff sought $105,000 dollars for alleged “loss of value” and “loss of functionality” in the property, calculating this amount based upon an opinion it had allegedly received from a real estate broker.

In March 2021, First American accepted coverage, denied Plaintiff’s “settlement offer,” and retained counsel to negotiate with the neighbor on Plaintiff’s behalf, in an attempt to resolve the deed issue.  In April 2021, the retained counsel personally met with Plaintiff’s member-manager and spent months thereafter attempting to negotiate a resolution with the neighbor.  After settlement attempts ultimately proved fruitless, in January 2022, First American retained an appraiser to examine the property and calculate its diminution in value, with the appraiser issuing an expert report valuing the loss at $23,700 dollars.  In March 2022, First American issued Plaintiff a check for this value.

Despite receiving this payment, in June 2021 Plaintiff filed suit, alleging First American had negligently reviewed the chain of title, breached its contractual duty to provide Plaintiff an accurate pre-purchase description of the property, and further breached its contract by “unreasonably delaying and failing to otherwise settle the matter.”  First American ultimately moved for summary judgment as to all claims.  The United States District Court for the Western District of Washington (“the Court”) granted First American’s requested relief and dismissed Plaintiff’s Complaint in its entirety.

Title Insurance is Contractual and a Negligence Claim is Generally Not Sustainable

The Court first disposed of Plaintiff’s negligence claim, holding the claim failed as an “insured cannot simply rely on duties created by its insurance contract to establish a duty for purposes of a tort claim.”  As Plaintiff could not establish that First American possessed a non-contractual duty to search for and disclose potential title defects, it could not assert this claim.

The Court also distinguished between a preliminary report or “commitment” furnished during an application for title insurance–which was done here, and which is not considered a representation as to title condition–and the preparation of an “abstract of title,” which is intended to be a representation of title condition and thus necessarily intended to be relied upon.  Consistent with these definitions, title insurers will only be considered to have a general extra-contractual duty to disclose potential or known title defects when they are preparing or have prepared an abstract of title, which First American was not doing in the instant matter.

Title Insurance is a Contract of Indemnity, not a Guarantee of Title

The Court next dispensed with Plaintiff’s breach of contract claims, beginning with the contention that First American’s alleged “failure to provide a reasonably accurate title assessment” constituted breach.  The Court noted that as a title insurer, First American’s obligation was to indemnify Plaintiff against defects, not guarantee clear title to the property.  As the terms of the parties’ contract failed to include any provision guaranteeing the existence of clear title, Plaintiff’s claim failed, as title insurance companies have “no general duty to disclose potential or known title defects when they are not preparing an abstract of title.”

As to Plaintiff’s contention that First American was in breach for having failed to settle, the Court identified that the terms of the contract imposed no requirement that First American settle the dispute with the neighbor, instead granting First American the option to either: (1) settle the matter; or (2) pay Plaintiff the fair value of his claim.  Thus, while Plaintiff “might have preferred to settle” with the neighbor, “First American was not obligated to do so,” nor was there “any evidence that the other property owner was willing to settle,” and there could accordingly be no breach.

As to the assertion that First American had “unreasonably delayed” resolving Plaintiff’s claim, the Court observed that the parties’ contract had no terms imposing time constraints on claim resolution.  The Court observed that where a title insurance contract imposes a time obligation but fails to define the terminology used, the provision will be interpreted as carrying a “reasonable time for performance of [the] obligation,” to be determined by reference to the nature of the contract, positions and intent of the parties, and circumstances of performance.  In this matter, even had the contract contained an ambiguous time provision, as First American had accepted the claim within two months of receiving it, promptly retained an attorney for Plaintiff, spent months negotiating in an attempt to obtain Plaintiff’s preferred resolution, and promptly paid out the claim, no unreasonable delay could have been found.

Finally, as to breach for having failed to pay Plaintiff’s proposed settlement figure, while it was agreed that the policy allowed for Plaintiff to recover the diminution in property value caused by the title defect, Plaintiff had failed to put forth any evidence contradicting First American’s expert appraisal report.  As the burden of establishing damages was Plaintiff’s to bear, Plaintiff’s failure to offer any admissible evidence establishing its damages or any opposing expert report doomed its claim, as Plaintiff could not “carry its burden to show that First American paid less than what was owed under the Policy.”

Takeaways

This opinion reiterates certain important principles of title insurance.  First, it confirms that title insurance is not a guaranty of title.  Second, prompt investigation and response to claims serves underwriters well.  Finally, as a best practice, diminution in property value should always be determined and confirmed via a timely expert appraisal, as insureds can freely attack these valuations after-the-fact, at which time firm documentary evidence will be invaluable.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Kevin Hakansson at khakansson@riker.com, James Mazewski at jmazewski@riker.com or Kori Pruett at kpruett@riker.com.

 

Four Final Payment Rules Issued by CMS

Posted on by Christie Bowness

The United States Centers for Medicare & Medicaid Services (“CMS”) recently published multiple fact sheets outlining upcoming payment rule changes for Calendar Year (“CY”) 2023. The payment rule updates include changes to payment rates, coverage of new procedures, and the designation of a new type of healthcare facility. Below is a summary of several major changes and announcements.

CMS Issued CY 2023 OPPS Fee Schedule

CMS issued the final rule for the 2023 Outpatient Prospective Payment System and Ambulatory Surgical Center Fee Schedule.  Under the final rule, CMS increased payment rates by 3.8% for CY 2023. CMS explained that this increase was based on the projected 2023 hospital market basket percentage increase of 4.1%, reduced by 0.3 percentage point for the productivity adjustment.

Four new procedures were added to the covered procedures list ("CPL") for ambulatory surgery centers ("ASCs"). The four new procedures are:

  • CPT 19307: Mastectomy, modified radical, including auxiliary lymph nodes, with or without pectoralis minor muscle, but excluding pectoralis major muscle;
  • CPT 37193: Retrieval (removal) of intravascular vena cava filter, endovascular approach including vascular access, vessel selection, and radiological supervision and interpretation, intraprocedural roadmapping, and imaging guidance (ultrasound and fluoroscopy), when performed [sic];
  • CPT 38531: Biopsy or excision of lymph node(s); open, inguinofemoral node(s); and
  • CPT 43774: Laparoscopy, surgical, gastric restrictive procedure; removal of adjustable gastric restrictive device and subcutaneous port components.

CMS finalized a general payment rate of the average sale price plus 6 percent for drugs and biologicals acquired through the 340B drug pricing program.

The final rule also published the conditions of participation and payment policies for Rural Emergency Hospitals ("REHs"), a new designation created to help certain Critical Access Hospitals ("CAHs") and rural hospitals avert potential closure. Qualifying CAHs and rural hospitals will be permitted to convert into REHs by filing a change of information (Form CMS-855A) with their Medicare Administrative Contractor ("MAC") rather than a new initial enrollment application. CMS further stated that it will issue sub-regulatory guidance regarding updates to the Medicare provider enrollment regulations (42 CFR Part 424, subpart P) which will address the enrollment requirements for REHs.

The current version of the final rule (CMS-1772-FC) has not yet been published in the Federal Register. CMS issued a fact sheet regarding the new Rural Emergency Hospital provider type. CMS also issued a fact sheet outlining the updates under the final rule.

CMS Announces Reduction to CY 2023 Physician Fee Schedule Conversion Factor

CMS announced multiple changes to the upcoming Physician Fee Schedule ("PFS") for CY 2023. Significantly, CMS announced reductions to the PFS conversion factor ("CF") for CY 2023. As the name suggests, the CF is the amount per total revenue value unit ("RVU") that Medicare will pay for a particular procedure (Total RVU x CF = Medicare Payment). Accordingly, a change to the CF constitutes a change to the amount of reimbursement by Medicare.

Due to budget neutrality adjustments (legal requirements to ensure payment rates for individual services do not result in changes to estimated Medicare spending), the final CY 2023 PFS conversion factor is $33.06, a decrease of 1.6% from last year. In other words, Medicare will be paying $1.55 less per RVU for procedures listed under the PFS in CY 2023. Moreover, this change marks the lowest Medicare PFS CF in nearly thirty years.

CMS further announced definition changes to multiple other E/M (e.g. hospital inpatient, nursing facility, home or residence services, etc.), such as revising descriptor times and indicia for code level determinations, though it will maintain the current E/M billing policies. Regarding split (or shared) E/M visits, CMS finalized its current policy of permitting the clinicians to determine which provider rendered the “substantial portion” of the split visit and will be billed.

Additionally, CMS announced that it would extend coverage for multiple telehealth services, which were included in the Medicare Teleservices List for the federal COVID-19 Public Health Emergency ("PHE"), for at least a period of 151 days following the end of the PHE. CMS further clarified that it would allow providers to continue billing telehealth services using the place of service ("POS") indicator that would have been reported had the service been furnished in-person through the end of CY 2023. However, such claims will require the modifier “95” to identify them as telehealth services. Finally, CMS announced that it increased its Telehealth Originating Site Facility Fee for CY 2023 to $28.63 (a 3.8% increase from CY 2022).

Other notable changes to the CY 2023 PFS include (i) permitting behavioral health services to be performed by auxiliary personnel under the general supervision of a physician or non-physician practitioner ("NPP") (in accordance with Medicare “incident to” billing requirements; 42 CFR 410.26); (ii) finalizing new HCPCS codes (G3002 and G3003) and valuation for chronic pain management and treatment services; (iii) revising the pricing methodology for the drug component of the methadone weekly bundle and the add-on code for take-home supplies of methadone prescribed for opioid treatment programs ("OTPs"); and, (iv) finalizing policies to allow beneficiaries direct access audiology services without an order from a physician or NPP for non-acute hearing conditions.

CMS has issued a fact sheet regarding upcoming CY 2023 PFS payment rate changes. Such changes were announced in the final rule (CMS-1770-F), which is on display and will be published in the Federal Register on November 18, 2022.

CMS Updates CY 2023 HHPPS Rate and Home Infusion Therapy Requirements

CMS published a final rule updating payment rates and methodologies for its Home Health Prospective Payment System ("HHPPS") and home infusion therapy services for CY 2023. These updates principally affect home health agencies ("HHAs") and other providers rendering in-home health services.

This rule finalizes routine, statutorily-required updates to the home health payment rates for CY 2023. CMS estimates that Medicare payments to HHAs in CY 2023 will increase in the aggregate by 0.7% compared to CY 2022 due, in part, to the implementation of the Patient-Driven Groupings Model ("PDGM") and the implementation of 30-day units of payment as required by the Bipartisan Budget Act of 2018. Notably, CMS stated that it will not implement further payment adjustments in CY 2023 as it continues to refine implementation of its new payment methodologies, such as PDGM.

Additionally, this rule updates the home infusion therapy services payment rates for CY 2023, as required by Section 1834(u)(3) of the Social Security Act. Under Section 1834(u)(3), such annual updates must be equal to the percent increase in the Consumer Price Index for all urban consumers ("CPI–U") for the 12-month period ending with June of the preceding year, reduced by the productivity adjustment for CY 2023. The final home infusion therapy payment rate update for CY 2023 is 8.7%, reflecting the CPI-U for June 2022 (9.1%) as reduced by the corresponding productivity adjustment (0.4%, based on IHS Global Inc.’s third-quarter 2022 forecast of the CY 2023).

CMS has issued a fact sheet regarding the HHPPS and home infusion therapy services payment updates. The final rule was published in the Federal Register on November 4, 2022 (87 FR 66790).

CMS Updates FY 2023 IPPS and LTCHPPS Payment Rates

CMS published a final rule updating payment rates and methodologies for the Medicare Hospital Inpatient Prospective Payment System ("IPPS") and Long-Term Care Hospital Prospective Payment System ("LTCH PPS") for fiscal year ("FY") 2023. Under the final rule, operating payment rates for hospitals paid under the IPPS and LTCHPPS, that successfully participate in the Hospital Inpatient Quality Reporting ("IQR") Program and meaningfully utilize electronic health records ("EHR"), will increase by 4.3%. However, hospitals participating in either program may be subject to further payment adjustments, due to excess readmissions, failure to meet program quality metrics, or due to rate modifications under the Hospital Value-Based Purchasing ("VBP") Program.

Additionally, under the final rule, CMS is revising its Hospital IQR Program criteria for FY 2023. Notably, CMS has announced that it is adopting ten measures, refining two current measures, making changes to the existing electronic clinical quality measure ("eCQM") reporting and submission requirements, updating eCQM validation requirements for medical record requests, and establishing reporting and submission requirements for patient-reported outcome-based performance measures. Hospitals participating in the IPPS and LTCHPPS programs will need to familiarize themselves with the updated IQR criteria in order to ensure compliance with program operating and reporting requirements.

CMS previously issued a fact sheet regarding the IPPS and LTCHPPS updates. The final rule was published in the Federal Register on November 4, 2022 (87 FR 66558).

Federal Regulatory Update from 340B to Drug Pricing

Posted on by Jessica Civetta

CMS Rolls Out New 340B Hospital Payment Plan Following SCOTUS Decision

As previously reported, the U.S. Department of Health and Human Services ("HHS") stated that it would restore its coverage of 340B drugs and biologics in CY 2023 following a District Court for the District of Columbia ruling which vacated planned 340B coverage reductions in the Calendar Year ("CY") 2022 Outpatient Prospective Payment System ("OPPS"). In accordance with the ruling, CMS recently announced that it is revising its OPPS payment criteria to apply the default rate (generally average sales price ("ASP") plus 6%) to 340B-acquired drugs for the rest of CY 2022. CMS also stated it will reprocess claims paid on or after September 28, 2022, using the default rate. CMS further announced that it will continue the general payment rate of ASP plus 6% for 340B drugs and biologicals through CY 2023, but warned that it would implement a 3.09% reduction to the payment rates for non-drug services to achieve budget neutrality.

CMS Opens Payment Reconsideration For Interoperability Program Participants

U.S. Centers for Medicare & Medicaid Services (“CMS”) recently announced that hospitals participating in the Medicare Promoting Interoperability Program (“MPIP”) may apply for payment reconsideration for Fiscal Year (“FY”) 2023. Hospitals participating in MPIP are annually assessed and given scores based on their compliance with the program’s objectives and measures, many of which pertain to the utilization of electronic health record (“EHR”) systems. Eligible hospitals which receive low scores could be subject to a downward payment adjustment. Hospitals seeking to avoid a downward payment adjustment may submit a request for reconsideration to CMS.

The submission deadline for the FY 2023 Medicare Promoting Interoperability Program payment adjustment reconsideration application is December 2, 2022. The application, with filing instructions, may be accessed here. 

CMS Proposes New Mandatory Medicaid Reporting and Compliance Requirements

CMS recently issued a proposed rule establishing new state reporting and compliance requirements for multiple Medicaid programs and the Children's Health Insurance Program ('CHIP"). The proposed rule will implement statutory updates passed in 2018 which established mandatory reporting on a core set of measures (the “Core Sets”) related to the quality of care provided to certain Medicaid and CHIP beneficiaries. Specifically, the Core Sets focus on the quality of care provided to child beneficiaries in Medicaid and CHIP as well as the quality of behavioral health care for Medicaid-eligible adults. CMS anticipates that this rule will provide states with clear and detailed guidance for reporting on measures in the Core Sets, enabling each state to establish corresponding intra-state reporting requirements for healthcare providers and entities.

A detailed summary of the proposed rule is available here.

Biden Administration Executive Order Seeks Lower Prices of Prescription Drugs

The Biden Administration recently issued an Executive Order  directing HHS to explore additional actions it can take to lower prescription drug costs. Under the Executive Order, HHS will have 90 days to submit a formal report outlining its plans, utilizing the authority of the HHS Innovation Center, to lower drug costs and promote access to innovative drug therapies for Medicare beneficiaries. This action is designed to build on the drug pricing reforms instituted under the Inflation Reduction Act, including enhancement of Medicare’s ability to negotiate prices with manufacturers and capping of yearly out-of-pocket prescription drug costs for Medicare beneficiaries.

Federal Court Decision Holds Transgender Status and Gender Dysphoria May Constitute Disability Under FHA, ADA, and Rehabilitation Acts but Plaintiff Failed to Plead Necessary Factual Links

Posted on by Christie Bowness

The United States District Court for the District of Oregon (“the Court”) recently issued an opinion with possible ramifications for any parties potentially the target of a Fair Housing Act (“FHA”), Americans with Disabilities Act (“ADA”), or Rehabilitation Act of 1973 (“Rehabilitation Act”) claim.

In Gibson v. Community Development Partners, No. 3:22-cv-454-SI, 2022 U.S. Dist. LEXIS 189828 (D. Or. Oct. 18, 2022), the Plaintiff, Katie A. Gibson (“Plaintiff”), was a transgender woman suffering from gender dysphoria, who on May 1, 2021, began a residential tenancy at the Milepost 5 Studios apartment complex in Portland, Oregon (“the Complex”).  The Complex is an affordable housing community for creatives and working artists owned and operated by Defendant Community Development Partners (“CDP”).  On March 23, 2022, less than a year into her tenancy, Plaintiff filed suit against CDP raising claims under the FHA, ADA, and Rehabilitation Act, as well as multiple state level claims under Oregon’s various analogs to these federal statutes.

Plaintiff’s allegations documenting her mere ten-month stay at the Complex were incendiary, alleging the existence of threatening and violent treatment by her co-tenants and dangerous and uninhabitable living conditions.  Specifically, Plaintiff claimed that, because of her gender identity, other tenants had assaulted, menaced, harassed, and “threatened to kill” her numerous times.  She further alleged that within the Complex there was “rampant drug use and sale, prostitution, methamphetamine production, squatters inhabiting the premises, a stolen car and bicycle ‘chop shop’ operation, tenants’ belongings and trash creating obstructions in common areas, filthy and dangerous conditions in shared bathrooms, discarded syringes left in common spaces, package theft, bed bugs, and open firearm displays.”  Plaintiff alleged that she had complained to CDP regarding these issues on numerous occasions, but that her complaints had fallen upon deaf ears and gone ignored.

FHA claims

In response, CDP moved to dismiss Plaintiff’s FHA discrimination allegations, which were based upon her transgender identity and gender dysphoria condition.  In ruling on CDP’s motion the Court first addressed the potential existence of any disparate treatment, finding none, as even were the Court to assume that Plaintiff was a protected class member she had failed to link the poor property conditions to her protected characteristic.  Instead, all Plaintiff had done was “demonstrate a pattern of [] neglect affecting all tenants who use the community spaces,” and thus her claim failed as she could not show “she was treated differently from other tenants at all, let alone because of a protected status.”

Beyond the property conditions Plaintiff also claimed that the allegedly violent and harassing actions by her co-tenants constituted disparate treatment, as CDP had ignored her complaints concerning these behaviors and “failed to intervene” to prevent them, with this failure to act serving to “implicitly ratify” the tenants’ conduct and thus constituting discriminatory action by CDP.  The Court found this claim unavailing, holding that a “failure to intervene” to prevent tenant–on–tenant harassment would only constitute disparate treatment where the landlord had intervened in similar matters in the past, and then subsequently refused to intervene in these same matters when they were related to a protected status.  Put more simply, it “cannot [be] assume[d] that a landlord’s blanket failure to respond to complaints constitutes discrimination.”

As to any potential disparate impact, the Court interestingly observed that CDP’s “failure to respond to complaints of harassment or unsafe living conditions might constitute a neutral policy that has a significantly adverse or disproportionate impact on persons who share Plaintiff's protected characteristics,” thus satisfying the necessary criteria.  However, as Plaintiff had failed to raise any such policy or practice allegation, and had failed to plead any facts which would permit the drawing of such an inference, no disparate impact could be found.

Finally, in addressing any lack of reasonable accommodations, the Court observed that Plaintiff’s gender dysphoria condition could constitute a “handicap” within the meaning of the FHA, as the condition would fall within the classification of a “mental impairment which substantially limits one or more of such person's major life activities.” 42 U.S.C. § 3602(h).  However, even were the Court to assume this criteria was met, Plaintiff’s claim still failed as she had not linked this condition to a specific necessary accommodation, as it remained “unclear what specific accommodation she sought, how such accommodation may have been necessary to address her disability or ‘handicap,’ and how it would make her housing situation equal to the opportunities afforded non-disabled persons.”

Plaintiff’s FHA claim was accordingly dismissed, with the Court careful to limit its holding by stating that it was disposing of Plaintiff’s claim by: “Assuming without deciding that Plaintiff's status as a transgender woman with a disability of gender dysphoria might constitute sex and disability discrimination under the FHA.”

ADA and Rehabilitation Act claims

CDP also moved to dismiss Plaintiff’s ADA and Rehabilitation Act claims, arguing that gender dysphoria did not fall within the purview of either Act as both exclude “‘gender identity disorders not resulting from physical impairments’ from their definitions of disability.  29 U.S.C. § 705(20)(F)(i); 42 U.S.C. § 12211(b).”  Interestingly, to avoid these prohibitions, Plaintiff  argued that gender dysphoria was not a “gender identity disorder,” but instead a medical diagnosis falling within the American Psychiatric Association’s classification of mental disorders.  The Court agreed with Plaintiff, observing that recently issued Fourth Circuit case law comported with Plaintiff’s allegations.  The Court found it was unnecessary to rule on this issue, however, as these claims failed “for the same reason” as Plaintiff’s FHA claim–a lack of factual contentions describing necessary accommodations or documenting any link between CDP’s actions and her gender dysphoria.

Plaintiff’s remaining state level claims were dismissed as the Court declined “to take on the task of crafting novel Oregon law, and therefore decline[d] supplemental jurisdiction.”

Looking forward

Despite Plaintiff’s claims resulting in dismissal, this matter was ultimately a close-call with several takeaways that can be gleaned.  First and most obviously, there will be little debate that transgender individuals fall within a protected class.  It also appears likely that, as more of these claims are litigated, courts intend to expansively and inclusively interpret the terms “disability” and “handicap,” as here the Court was willing to construe both Plaintiff’s transgender status and her gender dysphoria impairment as satisfying these criteria, and likely would have allowed this matter to proceed had Plaintiff provided more sufficient factual assertions.

As to landlords, property managers, or any on-site party responsible for handling tenant complaints, this case makes clear that transgender parties may indeed require “reasonable accommodations,” as although Plaintiff was unable to articulate specifically what these hypothetical accommodations would consist of, the Court endorsed that they could indeed exist.  These parties should also be mindful that a blanket failure to respond to complaints of tenant–on–tenant harassment can cause disparate impact violative of the FHA, as it appears that had Plaintiff adequately pled this contention the Court would have permitted it to proceed.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Desiree McDonald at dmcdonald@riker.com, Kevin Hakansson at khakansson@riker.com or James Mazewski at jmazewski@riker.com.

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