CMS’s Proposed Inpatient Rule and Parts of Oklahoma’s Law on Pharmacy Benefit Managers Gets Struck

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CMS Releases Proposed Inpatient Prospective Payment System Rule for 2023

On April 18, 2022, Centers for Medicare and Medicaid Services (“CMS”) released its proposed Medicare Hospital Inpatient Prospective Payment System (“IPPS”) and Long‑Term Care Hospital (“LTCH”) Prospective Payment System (“PPS”) rule for fiscal year (“FY”) 2023, RIN 0938-AU84. The proposed rule includes multiple health equity‑focused measures, in accordance with the multipronged strategy to advance health equity recently outlined by CMS. CMS has encouraged health leaders to take health equity seriously and incorporate it into their own system’s strategies.

Below are some of the rule’s proposed changes.

Payment Rates: Under the proposed rule, acute care hospitals that report quality data and are meaningful users of electronic health records (“EHRs”) will see a net 3.2 percent increase, or approximately $1.6 billion, in payments in 2023, as compared to 2022.

ICD-10 Diagnosis and Procedure Codes: CMS proposed 1,495 changes to the ICD‑10‑CM diagnostic code set, largely focusing on dementia‑related brain illness and injuries and endometriosis. CMS also proposed some new ICD‑10‑PCS procedure codes, including codes for reporting knee joint replacements.

Payment Adjustment for Domestically Sourced Supplies: CMS proposed adding a payment adjustment for hospitals that source their N95 respirators from domestic manufacturers.

Uncompensated Care Payments: CMS proposed to distribute approximately $6.5 billion in uncompensated care payments for 2023 to Medicare disproportionate share hospitals (“DSH”), which is a decrease of roughly $654 million from 2022.

Hospital Inpatient Quality‑Reporting (“IQR”) Program: Among other things, CMS has proposed adopting ten new measures for the Hospital IQR Program, which is a pay‑for‑reporting quality program that reduces payment to hospitals that fail to meet the Program’s requirements. The proposed new measures include measures to assess a hospital’s commitment to equity, opioid-related adverse events, and screening of social determinants of health.

Maternal Health: As part of an ongoing effort to reduce maternal mortality and morbidity, CMS has proposed a “birthing‑friendly” designation for hospitals on the quality and safety of maternal care, which would be established in Fall 2023. 

Comments are due June 17, 2022.

Oklahoma Federal Judge Invalidates State Law Regulating Pharmacy Benefits Managers

The United States District Court for the Western District of Oklahoma ruled that certain sections of Oklahoma’s Patient’s Right to Pharmacy Choice Act (the “Act”), including those regulating pharmacy benefits managers (“PBMs”) are preempted by the federal prescription drug program under Medicare Part D.

By way of background, the vast majority of health insurance plans use PBMs to act as intermediaries in ensuring that beneficiaries can use their drug benefits to obtain prescriptions. That is, PBMs contract with pharmacies to provide prescriptions to beneficiaries. When the pharmacy dispenses the prescription, it files a claim with the PBM, who then processes the claim and notifies the pharmacy how much the health insurance plan will pay and how much the beneficiary must pay. The PBM reimburses the pharmacy according to a rate determined by the contract between the PBM and the pharmacy, not the health insurance plan. Then, the PBM bills the insurance plan according to its contract with the insurance plan, and the insurance plan pays the prescription benefit to the PBM.

Oklahoma is one of several states that has sought to regulate PBMs. The district court held that the Service Fee Prohibition, Affiliated Pharmacy Price Match, and Post‑Sale Price Reduction Prohibition under the Oklahoma state law were preempted by Medicare Part D’s “non‑interference” law, which prohibits interference with negotiations between Part D sponsors and pharmacies, as well as any requirement of a particular formulary or price structure for the reimbursement of covered Part D drugs. The district court also found the Oklahoma’s Retail‑Only Pharmacy Access Standards and Cost Sharing Discount Provision to be preempted by CMS’s established standards regarding convenient access to network pharmacies.

The district court did not find that the state's any willing provider restrictions, affiliated pharmacy and network provider restrictions, and probation‑based pharmacy limitations were preempted by Medicare Part D, or that the state law was at all preempted by the Employee Retirement Income Security Act of 1974.

The case is Pharmaceutical Care Management Association v. Mulready, et al., Case No. 5:19‑cv‑977.