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Recent Federal Payment Rules

Month: July 2023

Recent Federal Payment Rules

Posted on by Christie Bowness

CMS Proposes Rulemaking to Remedy 340B-Acquired Drug Payment Policy

The United States Centers for Medicare and Medicaid Services (“CMS”) recently announced proposed rulemaking to remedy the payment rate dispute for the 340B Drug Pricing Program (the “340B Program”) in the wake of the Supreme Court’s decision in American Hospital Association v. Becerra, 142 S. Ct. 1896 (2022).

The 340B Program arises under section 340B of the Public Health Service Act, allowing participating hospitals and providers to purchase certain covered outpatient drugs or biologicals (collectively “drugs”) from manufacturers at discounted prices. Prior to 2018, CMS generally calculated reimbursement for Part B outpatient drugs provided under the 340B Program as the average sales price ("ASP") plus 6%. In a 2017 final rule, CMS cut the 340B Program payment rate to ASP minus 22.5% for the period of CY 2018 through CY 2022. To meet statutory budget neutrality requirements, CMS increased payments to all hospitals, regardless of participation in the 340B Program, for non-drug items and services for the same period On June 15, 2022, the Supreme Court unanimously ruled that the differential payment rates for 340B-acquired drugs were unlawful, finding that the U.S. Department of Health and Human Services’ (“HHS”) had failed to conduct a survey of hospitals’ acquisition costs under the relevant statute prior to implementing the rate changes. The matter was remanded back to CMS for further rulemaking.

In the recently announced proposed rulemaking, 88 FR 44078, CMS proposes making a one-time lump-sum payment to each 340B-covered entity that was paid less due to the 340B Program rate dispute for CY 2018-2022. This one-time, lump-sum payment would reimburse both the lower reimbursement rates and any beneficiary cost-sharing lost during the 340B Program rate dispute. However, to offset such reimbursement and maintain budget neutrality, CMS further proposed reducing future non-drug item and service payments by adjusting the OPPS conversion factor by minus 0.5% starting in CY 2025. New providers, who did not enroll in Medicare until after January 1, 2018, and thus did not fully benefit from the increased payment for non-drug items and services from CY 2018 through CY 2022, would be excluded from the prospective rate reduction.

A fact sheet for the proposed 340B Program rulemaking can be found here. The comment period on this proposed rule closes on August 28, 2023.

CMS Announces Proposed Updated Rates for Hospital Outpatient and ASC Payment Systems, Expanded Behavioral Healthcare Access, and Increased Hospital Price Transparency for CY 2024

CMS recently announced proposed rulemaking, updating payment rates for hospital outpatient services and ambulatory surgery centers ("ASCs") as well as expanding behavioral health service coverage and increasing hospital price transparency. Such rulemaking is part of CMS’ annual updates to the Hospital Outpatient Prospective Payment System ("OPPS") and ASC Payment System for CY 2024.

CMS is proposing to update OPPS payment rates for CY 2024 for hospitals that meet applicable quality reporting requirements by 2.8%. This rate was calculated by estimating a hospital market basket percentage increase of 3% which was then reduced by a 0.2 percentage point productivity adjustment. ASCs that meet relevant quality reporting requirements would similarly be eligible for a 2.8% increase in payment rates.

Regarding behavioral health services, CMS proposes implementation of certain provisions of the 2023 Consolidated Appropriations Act that created a new benefit category for Intensive Outpatient Program (“IOP”) services. Under this proposal, CMS would establish payment and program requirements for IOP services across various settings, including hospital outpatient departments, Community Mental Health Centers, Federally Qualified Health Centers, and Rural Health Clinics, and Opioid Treatment Programs ("OTPs"), effective January 1, 2024. Regarding IOP services offered by OTPs, the proposed rule clarifies that these intensive behavioral health services are available for individuals with mental health conditions and for individuals with substance use disorders.

In addition, CMS proposes several methods to strengthen the current hospital price transparency regulations, which require each hospital operating in the United States to make its standard charges public. Such proposals include new requirements for standardizing a hospital’s publication of its standard charge information by requiring standard charge information be maintained in a machine-readable file format that is publicly available on their websites. CMS also proposed new policies to improve enforcement of hospital price transparency, including: (1) certification by hospital officials as to the accuracy and completeness of data; (2) requiring hospital acknowledgment of warning notices; (3) reserving the right for CMS to communicate directly with health system leadership about all of its hospitals, not just one hospital at a time; and (4) publishing other enforcement activities, in addition to civil monetary penalties, on a CMS website.

The proposed rule (CMS-1786-P) will be published on July 31, 2023. An unpublished version of the proposed rule can be accessed here. A fact sheet for the proposed rule can be accessed here.

Proposed 2024 Physician Fee Schedule Advances New Initiatives but Retreats on Physician Payment Rate

CMS recently announced its proposed annual updates to the Medicare Physician Fee Schedule ("PFS") for CY 2024. Significantly, although the proposed rulemaking includes initiatives to expand health equity and increase access to critical medical services, including behavioral health care and certain oral health services, the update also reduces the overall PFS payment rate (the “conversion factor”).

Under the proposed rule, the proposed CY 2024 PFS conversion factor would be reduced to $32.75, a decrease of $1.14 (or 3.34%) from the current CY 2023 conversion factor of $33.89. Such reduction decreases the PFS conversion factor to its lowest rate since 1992. Despite this reduction, CMS claims that overall payment rates under the PFS would only be reduced by 1.25% as compared to CY 2023, as CMS is further proposing significant increases in payment for primary care and other kinds of direct patient care which would offset the conversion factor decrease.

Moreover, under this proposed rulemaking, CMS has announced coding and payment updates for several new services. Such coding and payment updates include: (1) allowing marriage and family therapists, mental health counselors, and addiction counselors to enroll in Medicare and bill for their services; (2) increased payment for crisis care, substance use disorder treatment, and psychotherapy; (3) coding and payment for social determinants of health risk assessments as add-ons to an annual wellness or evaluation and management visits; (4) separate coding and payment for community health integration services, including person-centered planning, health system coordination, promoting patient self-advocacy, and facilitating access to community-based resources; (5) payment for Principal Illness Navigation services to help patients navigate cancer treatment and treatment for other serious illnesses; and, (6) payment for certain dental services prior to and during several different cancer treatments, including, but not limited to, chemotherapy.

In addition, under this rule, CMS proposes updates to its Innovation Center programs, including the Medicare Shared Savings Program, the Medicare Diabetes Prevention Program ("MDPP"), and Merit-Based Incentive Payment System ("MIPS") for CY 2024. Such changes involve annual updates to benchmarking/performance thresholds, treatment modalities, and reporting standards which participating providers should review and familiarize themselves with prior to the start of CY 2024.

The proposed rule (CMS-1785-P) will be published on August 7, 2023. An unpublished version of the proposed rule can be accessed here. The proposed A fact sheet for the proposed rule can be found here.

The Latest Chapter in the Saga of the 'Waters of the United States'

Posted on by Christie Bowness

Reprinted with permission from the June 30, 2023 issue of the New Jersey Law Journal. © 2023 ALM Media Properties, LLC. Further duplication without permission is prohibited.  All rights reserved.

The U.S. Supreme Court’s recent decision in Sackett v. Environmental Protection Agency interprets the term “waters of the United States” (WOTUS) and federal jurisdiction under the Clean Water Act (CWA) in a way that runs counter to a half-century of administrative guidance and regulatory enforcement.

The test the court sets forth to determine whether wetlands are WOTUS harkens back to historical notions of federal jurisdiction of navigable waters as channels of commerce. The decision will have the present practical effect of deregulating millions of acres of previously protected wetlands throughout the country, though the scope of jurisdiction remains unclear and untested.

In New Jersey, where the Freshwater Wetlands Protection Act (FWPA) regulates WOTUS and waters of the state, including wetlands, the decision will have minimal immediate impact, but there could be a responsive push for legislative or administrative action.

A Brief History of ‘Sackett v. EPA’

In 2004, Michael and Chantell Sackett purchased a plot of land near Priest Lake in Idaho on which to build what the Supreme Court describes as a “modest home.” They prepared to begin construction by “backfilling their property with dirt and rocks.” Then the Environmental Protection Agency (EPA) arrived. It claimed that the Sacketts illegally filled federally protected wetlands, and it issued an administrative order, including penalties of “over $40,000 per day” and a demand that the Sacketts immediately restore those wetlands. In response, the Sacketts sued the EPA under the Administrative Procedure Act (APA), claiming that the alleged wetlands on their property were not WOTUS and did not fall under jurisdiction of the CWA.

The EPA’s long-held interpretation of WOTUS, as reflected at 40 CFR Section 230.3(s)(3), (7) (2008), includes all waters that could affect interstate commerce, including “adjacent” wetlands. Per the EPA, WOTUS includes wetlands adjacent to a non-navigable tributary with a significant nexus to a traditional navigable water. A significant nexus is present where a wetland significantly affects the chemical, physical and biological integrity of the navigable water. The Sacketts argued that any wetlands on their property are not WOTUS because there is no aquatic surface connection to Priest Lake.

After the lower courts found the EPA’s compliance order was not a final agency action subject to appeal, the Supreme Court ultimately held in Sackett v. Environmental Protection Agency, 566 U.S. 120 (2012), that the order did amount to a final agency action for which judicial review was available under the APA.

On remand, the U.S. Court of Appeals for the Ninth Circuit, affirming the District Court’s decision, determined in Sackett v. Environmental Protection Agency, 8 F.4th 1075, 1091-1093 (9th Cir. 2021), that CWA jurisdiction extends to wetlands situated “adjacent” to traditional navigable waters if those wetlands have a “significant nexus” with the navigable water. The Supreme Court again granted certiorari to answer the “nagging question about the outer reaches of the [CWA],” and to “decide the proper test for determining whether wetlands are ‘[WOTUS].’”

In Sackett v. EPA, 598 U.S. ___, (Sackett II) (2023), the court again reversed the Ninth Circuit, this time setting forth a test that significantly reduces the area of wetlands under federal jurisdiction. Per the court, the “CWA extends to only those wetlands that are as a practical matter indistinguishable from [WOTUS].” The court-created, two-part test includes, first, a determination of the presence of WOTUS, and second, a determination “that the wetland has a continuous surface connection with that water, making it difficult to determine where the ‘water’ ends and the ‘wetland’ begins.” But, this test raises questions. For example, in a concurring opinion Justice Brett Kavanaugh asked, “How difficult does it have to be to discern the boundary between a water and a wetland?”

A Brief History of WOTUS

As the court noted, “Regulation of land and water use lies at the core of traditional state authority.” Historically, water pollution was regulated by the states. Federal regulation “was largely limited to ensuring that ‘traditional navigable waters’—that is, interstate waters that were either navigable in fact and used in commerce or readily susceptible of being used in this way—remained free of impediments.”

Historically, federal jurisdiction of navigable interstate waterways existed under the Rivers and Harbors Act of 1889, and later the 1948 Federal Water Pollution Control Act. These frameworks applied federal jurisdiction to waters that formed “a continued highway for commerce,” as noted in “The Daniel Ball,” 10 Wall. 557, 564 (1871). In United States v. Appalachian Electric Power, 311 U.S. 377 (1940), the court expanded the waters subject to federal jurisdiction to waters that could be made navigable with reasonable improvement.

In 1972, Congress enacted the CWA. It represented an ambitious effort to “restore and maintain the chemical, physical, and biological integrity of the nation’s waters,” which had become severely polluted under the ineffective earlier statutes. It was a “total restructuring and complex rewriting” of water pollution law. See, City of Milwaukee v. Illinois, 451 U.S. 304 (1981).

The EPA and the U.S. Army Corps of Engineers, partner agencies in enforcing the CWA, have wrestled with the scope of WOTUS. The Army Corps initially offered an interpretation that limited jurisdiction to traditional navigable waters. The EPA applied a broader definition that included adjacent wetlands. Upon judicial direction, the Army Corps revised its interpretation of the CWA’s jurisdiction to include wetlands “adjacent to other navigable waters,” (40 Fed. Reg. 31324). In 1977, congress amended the CWA to clarify that “only the federal government, and not the states, may issue Clean Water Act permits for dumping dredged or fill materials into certain ‘[WOTUS],’ ‘including wetlands adjacent’ to those waters,” as noted in Sackett II.

SCOTUS weighed in on the scope of WOTUS three times prior to Sackett II. In United States v. Riverside Bayview Homes, 474 U.S. 121 (1985), the court unanimously held it reasonable to include adjacent wetlands, which “function as integral parts of the aquatic environment,” as WOTUS. Later, in Solid Waste Agency of Northern Cook County v. United States Army Corps of Engineers (SWANCC), 531 U.S. 159 (2001), the court rejected the “Migratory Bird Rule,” which proposed to extend jurisdiction to several intrastate isolated ponds. In SWANCC, the court disagreed with the contention that ecological concerns supported the extension of the CWA to “ponds that are not adjacent to open water.”

In Rapanos v. United States, 547 U.S. 715 (2006), no position commanded a majority of the court. Four justices interpreted WOTUS to include wetlands only insofar as they are relatively permanent and connected to traditional interstate navigable waters, and with a practically “indistinguishable” physical connection to such waters. Justice Kennedy’s solo concurrence offered that the CWA requires a “significant nexus” by which a wetland “either alone or in combination with similarly situated lands in the region, significantly affect[s] the chemical, physical, and biological integrity of” a navigable water. The remaining four justices would have deferred to the agency’s interpretation that CWA jurisdiction included wetlands near ditches and drains that emptied into navigable waters.

After Rapanos, regulatory limbo ensued as, first, the Obama administration and, then the Trump administration attempted to define the scope of WOTUS, in 80 Fed. Reg. 37054; 80 Fed. Reg. 56626; 85 Fed. Reg. 22250. The Biden administration recently offered the “Revised Definition of ‘[WOTUS],’” in 88 Fed. Reg. 3004, which purports to be consistent with prior interpretations and uses both Rapanos tests to “create separate, additive limitations that work together to ensure that … wetlands are covered … when they have the necessary relationship to covered waters.”

A Brief Outlook From ‘Sackett II’

The court’s decision in Sackett II offers immediate relief to the Sacketts, who may now proceed to build their lake-adjacent home unfettered by the EPA. For the rest of the country, the impacts of the decision are less certain. It is unclear what factors might distinguish a wetland from an adjacent navigable water, and it is likely that the EPA and the Army Corps will push the limits of this test to cover as many acres of wetlands as possible. It is also possible, though less likely, that the decision spurs congressional action one way or the other on the decades-old CWA.

In New Jersey, the FWPA regulates waters of the state, which include wetlands, and, upon delegated authority, regulates WOTUS as defined pre-Sackett II. Non-delegable waters subject to federal permitting requirements include the length of the Delaware River, areas of the Meadowlands and Greenwood Lake. Going forward from Sackett II, wetlands in these areas may be assessed to determine whether they fall somewhere between WOTUS and waters of the state of New Jersey. Aside from these geographic boundaries, the regulatory impacts of Sackett II in New Jersey will be muted absent state legislative action.

If you have any questions about this post, please contact the author Jordan M. Asch or any member of the Environmental Group.

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