Health Care Law Reform

President Begins Final Push Toward Passing Health Reform

Karen Y. Lam — Fri, 05 Mar 2010 10:41:27 -0600

The Facts

After months of heated debate and an unprecedented all-day White House health reform summit on February 25, 2010, President Obama has begun the final push toward passage of comprehensive health reform. Current negotiations involving Senate Democratic leader Harry Reid and House Speaker Nancy Pelosi are focused on the president’s proposal, which is largely based on the bill approved by the Senate on December 24, 2009, but which also reflects compromises reached between Senate and House Democrats.

On March 2, 2010, the president submitted a letter to congressional leaders indicating that he is open to further examining the following four issues raised by Republicans during the summit:

Engaging medical professionals to conduct undercover investigations of health care providers to combat fraud, waste and abuse within federal reimbursement programs
Establishing “health courts” to resolve medical malpractice claims
Encouraging the use by individuals of high-deductible health plans
Increasing physician reimbursement—in response to expanding Medicaid to cover more people—in a fiscally responsible manner.

Click here for the letter.

And, on March 3, 2010, just a little under a year after his initial speech announcing his intent to overhaul the health care system, President Obama made it clear during his 20-minute speech that he intends to utilize the reconciliation process, resulting in an up-or-down vote on a merged measure. Click here for the speech transcript. The president also made it clear that he expects Democrats to support this strategy, regardless of their re-election prospects and concerns.

What’s at Stake

Succeeding with this strategy, however, will not be easy. Not only will Speaker Pelosi have difficulty rounding up the necessary votes in the House, but Senate Republicans may attempt to forestall the process by offering a myriad of amendments. However, if the president and bipartisan negotiations are successful, a health reform plan may be enacted by early April 2010.

Steps to Consider

All in the health sector, including health care consumers, should analyze any revisions to the president’s proposal and should continue to closely monitor the progress of the health reform debate.

President's Summit Returns Health Reform to Center Stage

Karen Y. Lam — Wed, 03 Mar 2010 11:12:13 -0600

The Facts

After seven hours of extraordinary political theater at the White House health care summit on February 25, 2010, President Obama is no closer to winning Republican support for his reform plan. Click here for summit transcripts. Indeed, Republicans claim a majority of the public opposes the Democrats’ health overhaul plan and have called for “starting from scratch.” Although the summit was unsuccessful in resolving the bipartisan split, it effectively restored health reform to center stage, and Democrats are forging ahead with new vigor.

Because the January election of Senator Scott Brown (R-MA) deprived Democrats of a filibuster-proof super-majority in the Senate, Democrats are expected to use an expedited budget reconciliation process to move reform legislation. While the precise details will be determined by both parliamentary requirements and political considerations, it is expected that the House—once assured that specific changes are forthcoming—will approve the Senate-passed health reform bill (HR 3590). The Senate will then pass a “side-car” health reform bill through the reconciliation process, which requires only a simple 51-vote majority. This “side-car” will make changes to HR 3590 designed to be responsive to the concerns of House Democrats. These changes will likely include increased subsidies to assist lower income Americans to purchase health insurance and changes to minimize the impact of the “Cadillac tax” on high-cost insurance plans. The House would also approve the reconciliation bill. The president would then need to sign into law both the Senate-passed health reform bill and the reconciliation bill that amends it.

What’s at Stake

The president and congressional leaders do not currently have the Democratic votes needed to pass health reform legislation without any Republican support, but the campaign to find those votes is in full swing. If the votes are secured, massive health overhaul could be enacted in the near-term.

Steps to Consider

The president will likely issue revisions to his reform plan, which may reflect incorporation of some Republican ideas. Despite this, no Republican support is expected. All in the health sector, including health care consumers, should analyze any revisions to the president’s proposal and continue to monitor the progress of the health reform debate.

President Unveils Health Reform Proposal

Karen Y. Lam — Wed, 24 Feb 2010 14:26:21 -0600

The Facts

In preparation for the bipartisan White House health care summit on February 25, 2010, President Obama unveiled on February 22 his own health care reform proposal. The president's plan largely tracks the health reform bill passed by the Senate in December 2009. The proposal, estimated to cost $950 billion over 10 years, would cover an additional 31 million people and is intended to serve as a springboard for bipartisan discussion at the summit. It is unlikely, however, that the proposal will draw bipartisan support given that the proposal appears to have been crafted to attract additional support from liberal Democratic members of the House of Representatives. Already, the early read from the Congressional Progressive Caucus is positive. The president and Democratic leaders are hopeful that this new proposal, along with the high-profile White House summit and recently announced double-digit premium increases by some insurers, will help produce health reform legislation soon.

Like the December Senate bill, the president’s proposal does not include a public option or the more restrictive abortion language passed by the House. Some key differences made to provisions in the Senate bill include the following:

Delaying enactment of the "Cadillac" tax on high-cost insurance plans to 2018
Including strengthened measures to address Medicare fraud, abuse and waste
Eliminating the “cornhusker kickback” that would have directed extra Medicaid monies solely to Nebraska, and instead increasing the federal share of Medicaid costs for newly eligible beneficiaries in all states
Providing additional tax credits to certain U.S. residents to purchase insurance
Eliminating the Medicare prescription drug benefit “doughnut hole” by 2020
Extending the 2.9 percent Medicare payroll income tax to unearned income for couples earning more than $250,000
Including a provision that would give the HHS Secretary—in conjunction with a Health Insurance Rate Authority board—the power to review and determine whether proposed insurance rate increases are “reasonable and justifiable”

What’s at Stake

If the current gridlock over health care reform cannot be resolved in a bipartisan manner, Democrats will likely attempt to use the budget reconciliation process, which requires only a simple majority vote in the Senate, to pass health reform legislation.

Steps to Consider

All in the health sector, including health care consumers, should evaluate the president’s proposal and continue to monitor the progress of the health reform debate.

Health Insurance Exchanges - National Versus State-Level Marketplace

Adam J. Rogers — Thu, 18 Feb 2010 09:00:34 -0600

The Facts

Both the House health reform bill, H.R. 3962 (Affordable Health Care for America Act), and the Senate health reform bill, H.R. 3590 (Patient Protection and Affordable Care Act), include provisions establishing one or more health insurance marketplaces (exchanges). The exchanges would serve as an organized and transparent marketplace designed to facilitate access to, evaluation of and purchase of qualified health insurance plans by individuals and small businesses. Premium subsidies would be available through the exchange, and benefit packages would be structured in standardized tiers. An exchange would seek to create a large enough risk pool so that competition among insurers would increase not only with respect to pricing but on quality and service aspects as well. Insurance market reforms in both bills would disallow preexisting condition exclusions and impose medical loss ratio requirements.

There are key differences between the House and Senate proposals. The House bill would create one national exchange overseen by a new federal agency, the Health Choices Administration (HCA), with an opt-out provision for states under certain circumstances. The HCA would oversee the health plans and premiums charged for policies available through the exchange. Under the House bill, the exchange would be the exclusive marketplace for all individual (non-group) policies, other than grandfathered policies. Insurers would be required to bid to participate in the exchange, with the HCA able to negotiate terms before allowing a plan to participate in the exchange. By contrast, the Senate bill provides for each state to establish and administer its own exchange, subject to compliance with minimum federal standards, with federal intervention if a state does not provide an exchange.

What’s at Stake

The exchanges will be at the crux of revamping the individual and small business markets. Whether there is a single national exchange or separate state exchanges will have significant implications for providers, payors and consumers. The House proposal could offer greater economies of scale and potential efficiencies for products offered across state lines, but would represent a significant shift from how insurance is currently regulated at the state level. The Senate proposal would retain the benefit of the local market knowledge of the states and would preclude an additional layer of federal regulation.

Steps to Consider

Understand the impact of the exchanges on structure and oversight of the insurance market, evaluate current plans and prepare for refinements needed to transition to new exchanges.

President and Congressional Leaders Reaffirm Commitment to Health Reform

Karen Y. Lam — Wed, 17 Feb 2010 14:30:02 -0600

The Facts

Although Senate Democrats recently lost their filibuster-proof supermajority, President Obama reiterated in his January 27, 2010, State of the Union address that he is intent on achieving health reform this year. The president exhorted Congress not to “run for the hills,” and invited Congress to instead “come together and finish the job for the American people.” In an effort to encourage Republicans and Democrats to work together, the president invited congressional leaders to a bipartisan, half-day summit on health reform on February 25, 2010. Click here for the president’s invitation letter and invitation list.

House Speaker Nancy Pelosi proclaimed: “You go through the gate. If the gate’s closed, you go over the fence. If the fence is too high, we’ll pole-vault in. If that doesn’t work, we’ll parachute in. But we’re going to get health care reform passed for the American people.” Senate Majority Leader Harry Reid’s spokesman underscored these sentiments, stating: "We remain confident we will pass health reform this year.”

Whether comprehensive legislation, piecemeal legislation or no health reform legislation is passed this year will affect not only the health sector and health care consumers, but also the mid-term elections this November.

What’s at Stake

Given the comprehensive nature of health reform legislation, every aspect of health care is at stake.

Steps to Consider

Providers, plans, pharmaceutical manufacturers, device makers, and all in the health sector or affected by the health sector, including health care consumers, should continue to carefully monitor the progress of the health reform debate and evaluate the impact of the various proposals.

HHS Proposes Definition of Meaningful Use of Certified Electronic Health Record Technology

Jean Marie R. Pechette — Tue, 16 Feb 2010 10:44:03 -0600

The Facts

On January 13, 2010, the U.S. Department of Health and Human Services (HHS) proposed requirements for hospitals, physicians and other eligible providers to earn incentives for the adoption and “meaningful use” of “certified electronic health record (EHR) technology.” Incentives in the form of enhanced Medicare and Medicaid reimbursement are received by demonstrating meaningful use of certified EHR technology. The incentives start in 2011, but become penalties by 2015 through reduced reimbursements for those who do not achieve meaningful use. This initial set of standards is intended to begin to define “a common language to ensure accurate and secure health information exchange across different EHR systems.” Certified EHR technology can be either a “complete EHR or a combination of EHR modules" to enable providers to adapt to innovations in a rapidly evolving industry while ensuring access to a wide array of technology options, from vendor-based products, to homegrown technology, to hosted services on a subscription basis, to open source products. For more information, see McDermott Will & Emery’s White Paper “HHS Establishes the Initial Pathway for Qualifying for HITECH Act Incentives Dollars for Meaningful Use of Certified Electronic Health Record Technology.”

What’s at Stake

Eligible hospitals and professionals may receive incentive payments for achieving and may avoid penalties for failing to achieve meaningful use of certified EHR technology. Some hospitals and doctors have already expressed concern about the all or nothing structure of the proposed rule, which requires providers to meet 23 criteria at once, or fail to qualify at all. Vendors of EHR systems or EHR modules must ensure their products have the features and functionality to be certified and to enable meaningful use although the certifying bodies have yet to be certified.

Steps to Consider

Providers, vendors of health information technology and other interested parties should consider submitting comments to HHS prior to the March 15, 2010, deadline.

In selecting an EHR, ensure that the EHR product by itself or combined with other EHR modules will achieve, or be modified by the vendor to achieve, certification. Assess interoperability of modules. Consider contractual commitments covering interoperability, certification and meaningful use.

Vendors should develop a road map or work-around to ensure that products will be certified and that they will enable meaningful use. Vendors should be ready to address customer demand for assurances.

Continuing Capitol Hill Debate on Medicare Advantage Proposals

Anne Hance — Fri, 12 Feb 2010 14:13:45 -0600

The Facts

Medicare Advantage (MA) Program changes, among other Medicare-related provisions, have appeared in drafts of jobs legislation under development on Capitol Hill. Select proposals include the following:

The formula for calculating the CY 2011 national per capita MA growth rate, for purposes of updating CY 2011 benchmarks, would be amended to provide a 0 percent update to the physician fee schedule conversion factor.
The Centers for Medicare and Medicaid Services (CMS) would be authorized to extend to Direct Contract MA Organizations CMS’s waiver of service area requirements available to local coordinated care plans offering 800-Series MA Plans with Members residing outside of the service area
Special Needs Plans serving dual eligible individuals where the sponsoring MA Organization does not have a contract with the applicable state Medicaid agency, as required under § 1859(f)(3)(D) of the Social Security Act, would be permitted to operate through CY 2011, although the service areas of such plans would not be eligible for expansion.

Senate Majority Leader Harry Reid (D-NV), however, elected to move forward with draft legislation that excludes all health-related provisions. These proposed MA Program changes, among other health-related proposals, may be included in this bill, or another piece of legislation, later this month.

What’s at Stake

The proposal to modify the national per capita MA growth rate would neutralize the cut in the Medicare physician fee schedule that is statutorily required to be incorporated into MA Plan benchmarks.

Steps to Consider

MA Organizations should continue to monitor and analyze proposed changes to CY 2011 benchmarks as CY 2011 MA Plan bid submissions are developed in advance of the Monday, June 7, 2010 bid submission deadline.

Medicare Payment Authority Would Shift to New Board Under Senate Bill

Emily J. Cook — Wed, 10 Feb 2010 09:17:40 -0600

The Facts

The Senate health reform bill would establish a 15-member Independent Payment Advisory Board (IPAB) with significant authority with respect to Medicare payment rates. Beginning in 2014, in any year in which the Medicare per capita growth rate exceeded a target growth rate, the IPAB would be required to recommend Medicare spending reductions. The recommendations would become law unless Congress passed an alternative proposal that achieved the same level of budgetary savings. Subject to some limitations—hospitals, for example, would be exempt until 2020—the IPAB could recommend spending reductions affecting Medicare providers and suppliers, as well as Medicare Advantage and Prescription Drug Plans. In years in which the IPAB would not be required to make recommendations, it would be required to submit an advisory report. Every two years, the IPAB would make recommendations on slowing the growth of private health expenditures.

The proposed IPAB has drawn significant criticism from advocacy groups, and a similar provision is not included in the House bill. However, the Senate’s IPAB proposal has strong support from President Obama and is expected to emerge in some form in any final comprehensive health reform package.

What’s at Stake

Medicare providers and suppliers could be subject to significant payment cuts if the proposed IPAB is enacted and overall Medicare spending continues to increase at its current rate. A group of providers and advocacy groups, including the American Hospital Association, joined in a January 11, 2010, letter opposing the IPAB, noting that it would not be accountable to anyone but the president (who appoints its members). Shifting payment authority from Congress to an independent commission would be a significant change, and is viewed as one of the most meaningful measures in health reform legislation with respect to bending the cost curve in health spending.

Steps to Consider

Understand the broad and significant powers granted to the IPAB. For example, achieving coverage of new procedures and technologies could be impeded significantly if the role of Congress is minimized.
Keep informed about the Medicare per capita growth rate and the IPAB’s authority to make recommendations for payment reductions.
Should the IPAB be enacted, work to identify individuals for nomination. ‪

Political Leaders Reach Agreement with Unions on Excise Tax for Cadillac Plans

Martha Pugh — Thu, 21 Jan 2010 09:14:03 -0600

The Facts

On January 14, 2010, congressional leaders and the White House announced that they had reached a compromise with labor unions to proceed with the excise tax on so-called Cadillac, or high-cost, health plans. The excise tax was included in the Patient Protection and Affordable Care Act (H.R. 3590) passed by the Senate. The provisions of that bill called for a 40 percent excise tax on insurance companies and plan administrators for any employer-sponsored health coverage whose value exceeded $8,500 per year for individuals and $23,000 for families. The tax was to take effect in 2013.

The compromise reached last week with the labor unions dictates that the thresholds for the tax will be slightly higher than in the Senate bill—$8,900 for individuals and $24,000 for families. These threshold levels would be increased based upon age, gender and geography to prevent the tax from disproportionately affecting people in high-cost groups. Additionally, starting in 2015, dental and vision coverage will not contribute to the thresholds. Most importantly for the labor unions and their employers, the new compromise exempts collectively bargained health plans and state and local government employees from the tax until 2018. This exception was made to accommodate for the fact that many unions negotiated better health benefits for their members at the expense of wage increases.

The tax is expected to raise $90 billion in revenue over the next 10 years. By contrast, the original Senate bill would have raised $149 billion over 10 years.

What’s at Stake

Businesses with high-cost health care plans hiring non-union employees would feel the effects as early as 2013 under this compromise proposal. Businesses with collectively bargained health care plans are likely to benefit from the exemption from the excise tax until 2018, which gives unions time to renegotiate their agreements with employers.

Steps to Consider

Businesses should evaluate their health care plans to determine to what extent they will be affected by this tax. Insurers should assess the impact of the tax on the coverage they offer.

Health Care Reform May Discourage Employers from Providing Retiree Medical Benefits

Joanna C. Kerpen — Tue, 12 Jan 2010 09:48:00 -0600

The Facts

Both the recently passed Senate and House health care reform bills contain provisions that affect retiree health benefits. Both bills remove the tax exemption for Medicare Part D subsidies received by employers who provide retiree prescription drug coverage. In addition, the House bill prohibits employers from changing a retiree’s available benefits once the individual has retired, and the Senate bill contains a 40 percent excise tax on retiree health benefits that exceed certain thresholds ($9,850 for single coverage and $26,000 for family coverage). Both bills decrease the Medicare prescription drug coverage gap by $500 (with the House bill completely eliminating the gap by 2019) and provide a 50 percent discount on brand-name drugs to retirees affected by the coverage gap.

What’s at Stake

These provisions have the potential to decrease employer-provided retiree health and prescription drug benefits. Employers will find it much more expensive to provide these benefits without the tax exemption for the prescription drug coverage subsidy and with the threat of a 40 percent excise tax on health coverage beyond the stated threshold. This extra cost may serve as a deterrent to providing such benefits. In addition, the inability to alter the benefits offered to retirees provides an incentive to decrease or eliminate retiree benefits so employers are not obligated to provide such coverage indefinitely. Further, the reduction in the Medicare coverage gap and discount on drugs will influence employers to eliminate prescription drug coverage because these increases bring the Medicare drug benefit to a level closer to that of employer-provided coverage.

Steps to Consider

Review the progress of the proposals to determine next steps, such as plan redesign.
Consider weighing in with your congressional delegation explaining the impact of the various provisions and indicating your views on them.
Evaluate the impact of the final law on retiree health and prescription drug benefits, and consider adjusting benefits accordingly.

House and Senate Bills Call for Medical Loss Ratios for Insurers

Joel Michaels — Fri, 18 Dec 2009 15:56:33 -0600

The Facts

Both the Senate and House health reform bills would impose Medical Loss Ratio (MLR) requirements on insurers. MLR measures the percentage of an insurer’s premium revenue spent on health care services. In the House bill, the Secretary of HHS would have to establish the MLR at or above 85 percent. Any issuer with a lower MLR would have to provide “rebates to enrollees of the amount by which the issuer’s medical loss ratio is less than the level so specified.” The House bill also would impose MLR requirements on Managed Care Organizations (MCOs) and Medicare Advantage Plans (MA Plans). The Senate bill is less onerous for insurers because the MLR is currently set at 80 percent and state taxes would be excluded from the MLR determination. Note, however, that potential revisions to the Senate bill reportedly include a 90 percent MLR. In the House bill, the MLR provision would expire January 1, 2013 (excepting the MA Plan and MCO requirements), while the Senate’s would remain in effect until December 31, 2013.

What’s at Stake

Health insurance issuers could potentially be forced to provide significant rebates. The cost of these rebates will greatly depend on which costs are excluded from the MLR determination. Also, the MLR provisions in the House bill applicable to MA Plans and MCOs have no sunset provisions, thus increasing their potential long-term impact.

Steps to Consider

Follow the legislation closely because it is a very fluid process, and assess its impact.
Understand the impact of the proposed MLR requirements and be prepared to adapt quickly to their requirements.
Closely analyze which details are left to the Secretary of HHS to define by regulation. The rulemaking process will provide an opportunity for advocacy, should MLR provisions be enacted.

Senate Bill Proposes Patient-Centered Outcomes Research Institute

Eric Hargan — Thu, 17 Dec 2009 09:47:36 -0600

The Facts

The Senate health care bill, the Patient Protection and Affordable Care Act, includes provisions (detailed in Sections 6301 and 6302) establishing a nonprofit corporation, the Patient-Centered Outcomes Research Institute (PCORI). The PCORI will conduct research and disseminate findings with respect to “the relative health outcomes, clinical effectiveness, and appropriateness” of medical treatments, services and items. The PCORI will not be permitted “to mandate coverage, reimbursement, or other policies for any public or private payer.” However, the government may use comparative clinical effectiveness research in coverage decisions “if such use [of the research] is through an iterative and transparent process which includes public comment and considers the effect on subpopulations” and under other constraints.

What’s at Stake

Regardless of whether this particular bill is passed, comparative effectiveness research is likely to become an ever greater part of how government determines whether and what it will choose to reimburse. Companies with a stake in governmental reimbursement will need to be aware of the direction of comparative effectiveness research and be prepared to justify services and products on that basis.

Steps to Consider

Evaluate whether the products and services you offer have a comparative advantage over other products or services promising the same outcome.
Evaluate what the clinical basis is for your comparative advantage, including any effect on subpopulations.
Keep informed about the direction of the PCORI’s research agenda and initiatives to decide whether your area is under review.
Be prepared to establish comparative clinical effectiveness if the PCORI’s research does not agree with the results of your own research on your products or services.
Be prepared to participate in the public comment and review process if the government chooses to use comparative effectiveness in its coverage decisions, as allowed.

Proposed COBRA Changes

Amy M. Gordon — Wed, 16 Dec 2009 09:31:07 -0600

The Facts

Health reform legislation approved by the House would extend COBRA coverage until the earlier date on which a COBRA-eligible individual becomes eligible for coverage under an employer plan, or is eligible for coverage under a plan offered in an insurance exchange. Under current COBRA rules, COBRA-eligible individuals may elect COBRA for up to 18 months based on the employee’s termination of employment or loss of coverage due to a reduction in the employee’s work hours, or up to 36 months for divorce, death or loss of dependent eligibility. The reform bill would not extend the 65 percent COBRA subsidy program that is scheduled to sunset December 31, 2009, although other legislation pending in the House (H.R. 3930) and Senate (S. 2730) would extend and expand this subsidy. President Obama supports extending the COBRA subsidy.

H.R. 3930 would extend the eligibility period to June 30, 2010, and would increase the maximum period of the subsidy from nine to 15 months. H.R. 3930 would not increase the amount of the government subsidy beyond 65 percent or expand the eligibility criteria, but it would extend the current 18-month period of COBRA coverage to 24 months for eligible individuals terminated from employment between April 1, 2009, and December 31, 2009. S. 2730 also would extend the subsidy period but would additionally increase the subsidy amount from 65 percent to 75 percent of the COBRA premium. S. 27390 would expand eligibility for the subsidy to include workers who experience a loss of health coverage as a result of an involuntary reduction in hours.

What’s at Stake

Because COBRA is typically elected by less healthy participants, extending COBRA beyond the typical 18-month period and increasing the government subsidy may drive up the cost to group health plans for this extended coverage.

Steps to Consider

Although it is unclear whether these COBRA extensions and expansions will be added to the health reform legislation, group health plans should carefully monitor developments and plan for the possibility of these changes.

Reid Bill Adds Revenue Raisers Not Seen in Earlier Health Reform Proposals

Martha Pugh — Fri, 04 Dec 2009 11:50:20 -0600

The Facts

While the reform plan unveiled on November 18, 2009, by Senate Majority Leader Harry Reid (D-NV) contains revenue-raising provisions that closely track those of the Senate Finance Committee bill put forth by Chairman Max Baucus (D-MT), the Reid bill also includes new revenue raisers not seen in earlier versions of either Senate or House reform proposals. Like the Senate Finance bill, Reid’s bill relies most heavily on a 40 percent excise tax on “Cadillac” policies. By contrast, the House bill would impose no such excise tax, instead relying primarily on a 5.4 percent income tax hike on high-earning individuals. Reid’s bill incorporates all three sector excise taxes from the Senate Finance bill, with annual levies of $2 billion on medical device manufacturers, $6.7 billion on health insurers, and $2.3 billion on branded pharmaceutical manufacturers. By contrast, the House bill imposes only a 2.5 percent excise tax on medical devices. The Reid Bill has several provisions in common with both the House and Senate Finance bills:

Placing new restrictions on Health Savings Accounts, including capping them at $2,500 per year
Eliminating the deduction for expenses allocable to Medicare Part D prescription drug plans for retirees
Requiring information reporting on most payments over $600 to corporations

Reid’s bill adds several new revenue raisers present in neither the Senate Finance nor the House bills:

A 0.5 percent increase in the Medicare tax rate on taxpayers earning over $200,000 (or $250,000 for joint-filers)
A 5 percent excise tax on elective cosmetic surgery
Denying a deduction for compensation exceeding $500,000 for executives at insurers

Unlike the House Bill, the Reid bill lacks provisions codifying the economic substance doctrine, repealing the reform of interest allocation for multinationals, limiting tax treaty benefits or excluding “black liquor” from the cellulosic biofuel tax credit.

What’s at Stake

The tax impact of the Senate bill will fall mostly on health-care-related sectors, while the House bill would have more effect on businesses far removed from health care.

Steps to Consider

All businesses should carefully monitor the progress of the health reform debate and consider the possible impact of competing revenue raising proposals.

Accountable Care Organizations: These Are Not PHOs Version 2.0

Gary Scott Davis — Wed, 25 Nov 2009 10:31:14 -0600

The Facts

Both the House health reform bill, H.R. 3962 (Affordable Health Care for America Act), and the Senate version (Patient Protection and Affordable Care Act), include provisions (House Section 1301 and Senate Section 3022) establishing Accountable Care Organizations (ACOs). ACOs are provider-centric organizations focused on the costs and quality of care received by a designated population of patients over time. ACOs can consist of vertically and horizontally positioned providers, including physician groups and hospitals. In its most basic concept, although paid on a fee-for-service basis, ACOs that meet quality-of-care targets and reduce the aggregate costs of care rendered to their patient population relative to a spending benchmark are rewarded with a share of the savings they achieve for the Medicare program.

What’s at Stake

Regardless of whether health reform legislation is passed, providers will be increasingly challenged to adopt operating models through which they are responsible and accountable for the quality, cost and overall care of a defined population of patients. Emphasis will be placed on clinical processes and outcomes, the patient care experience and utilization.

Steps to Consider

Evaluate why and assess those actions necessary to migrate from a financially driven model to a clinically integrated driven model if you previously operated a Physician Hospital Organization (PHO) that did not succeed.
Evaluate investments in infrastructure and redesigned care processes for high quality and efficient service delivery.
Establish appropriate committees to explore and evaluate adoption of clinical best practices.
Bolster capabilities to capture and report on quality measures.
Coordinate with other providers to facilitate the sharing of effective strategies on quality improvement, care coordination and efficiency.
Assess hospital-physician relationships and your ability to promote and sustain quality based initiatives.

Penalties for HIPAA Violations Increase Significantly

Edward Zacharias — Mon, 23 Nov 2009 10:10:14 -0600

The Facts

On October 30, 2009, the U.S. Department of Health and Human Services issued an Interim Final Rule (the Rule) to amend the existing administrative simplification enforcement regulations adopted pursuant to the Health Insurance Portability and Accountability Act of 1996 (HIPAA). The Rule implements amendments to HIPAA made by the Health Information Technology for Economic and Clinical Health Act (HITECH Act) enacted as part of the American Recovery and Reinvestment Act of 2009. Prior to enactment of the HITECH Act, covered entities under HIPAA (health care providers that conduct certain transactions in electronic form, health plans and health care clearinghouses) were subject to HIPAA civil money penalties of up to $100 per violation, with an annual cap of $25,000 for identical violations within a calendar year. The Rule preserves this structure for violations occurring prior to February 18, 2009. Violations occurring on or after February 18, 2009 are subject to a new penalties scheme, which ranges from a minimum per-offense penalty of $100 to $50,000, depending on the level of culpability. The Rule also increases the annual cap for identical violations from $25,000 to $1.5 million, and alters the available affirmative defenses to a HIPAA enforcement action. Business associates are directly subject to the new enforcement scheme beginning February 17, 2010. HIPAA’s criminal penalties remain unchanged.

What’s at Stake

The new HIPAA civil money penalties scheme that will be enforced under the Rule substantially increases the potential penalties for HIPAA violations by covered entities occurring on or after February 18, 2009. Business associates will be directly subject to HIPAA, including the new enforcement scheme, for the first time beginning February 17, 2010. Prior to February 17, 2010, business associates are only subject to HIPAA requirements through contracts with covered entities.

Steps to Consider

Covered entities and business associates should review their current HIPAA compliance policies and procedures to ensure they are meeting amended requirements. Business associates that previously lacked HIPAA privacy and security policies and procedures should implement policies and train their work force. McDermott has prepared HIPAA privacy policies and forms for covered entities and business associates. A preview of the manual's table of contents for covered entities can be viewed here, and the business associates table of contents can be viewed here.

Senate Majority Leader Reid Unveils Democrats' Health Reform Plan

Karen Sealander — Fri, 20 Nov 2009 12:06:46 -0600

The Facts

On November 18, 2009, Senate Majority Leader Harry Reid of Nevada put forth the Democrats’ health reform plan, the Patient Protection and Affordable Care Act. The more than 2,000 page bill was crafted by merging, tweaking and augmenting health reform legislation approved by the Senate Finance Committee in October and the Senate Committee on Health, Education, Labor and Pensions in July. Set forth below are some of the bill’s principal provisions.

Requires most legal residents to obtain health insurance or pay a penalty of $95 in 2014, $350 in 2015 and $750 in 2016
Imposes a $750 per employee penalty on firms with more than 50 workers that do not offer coverage if any of the firm’s employees obtain subsidized coverage through the new health insurance exchange
Requires coverage of prevention and wellness benefits and exempts these benefits from deductibles and other cost-sharing requirements
Implements insurance market reforms including disallowing lifetime and annual limits and prohibiting preexisting condition exclusions
Substantially reduces the growth of Medicare payment rates for many services (as compared to growth rates under current law)
Creates a new independent Medicare advisory board, which could recommend payment reductions
Seeks to promote the quality and efficiency of health care by linking payment to better quality outcomes
Imposes a 40 percent excise tax on employer-sponsored health insurance with annual premiums above $8,500 for single coverage and $23,000 for family coverage
Imposes annual flat fees of $2.3 billion on the pharmaceutical manufacturing sector, $2 billion on the medical device manufacturing sector and $6.7 billion on the health insurance sector
Imposes a 5 percent excise tax on voluntary cosmetic surgical and medical procedures
Increases the Medicare payroll tax rate from 1.45 percent to 1.95 percent on individuals earning over $200,000 and couples earning more than $250,000
Sets up health insurance exchanges through which approximately 25 million people are estimated to purchase health insurance coverage
Creates a new public plan – the Community Health Insurance Option (states could opt out, and the government would negotiate payment rates with providers)

What’s at Stake

Given the sweeping nature of the bill, every aspect of health care in the United States would be affected.

Steps to Consider

Carefully evaluate the impact of the provisions.
Assess the cost of compliance with the new provisions.
Examine ongoing business decisions in light of the direction health reform is taking.
Consider working to impact the shape of health reform legislation.

Medicare Advantage Plan Payments Remain a Target for Cuts

Anne Hance — Thu, 19 Nov 2009 13:46:21 -0600

The Facts

The Senate’s Patient Protection and Affordable Care Act mirrors the Senate Finance Committee’s proposal to modify local Medicare Advantage (MA) Plan payments by moving to an enrollment-weighted average competitive bidding system.

Currently, local benchmarks reflect Adjusted Community Rate for each county, as updated annually over the past several years. To calculate Plan payments, MA Organizations annually submit bids for their plan benefit packages that are compared to the benchmark for the county/counties in the Plan’s service area.

Under the Senate bill, by CY 2015, benchmarks would equal enrollment-weighted averages of local MA Plan bids for the service area. A ceiling would be established in each area so that local benchmarks could not exceed the levels that would have existed under current law.

What’s at Stake

The Senate proposal is markedly different from H.R. 3962, which would phase in benchmarks equal to the adjusted average per capita cost estimate payable under traditional Fee-For-Service Medicare. Importantly, the House bill would initiate the transition beginning with the 2011 benefit year, as compared to the Senate proposal, which would initiate the transition with the 2012 benefit year.

Steps to Consider

The Senate bill is estimated to reduce MA Plan payments by $118 billion between 2010 and 2019, the traditional 10-year cost estimate period. The Congressional Budget Office estimates that H.R. 3962 would reduce MA Plan payments by $170 billion in the same period.

In anticipation of these reforms, MA Organizations should begin to analyze their plan benefit packages, provider payment arrangements and member populations, and to discern the extent to which they can modify operations and/or develop and implement new initiatives.

House Health Care Bill Raises Revenue from Non-Health-Care Sources

Martha Pugh — Thu, 12 Nov 2009 09:24:29 -0600

The Facts

On November 7, 2009, the House of Representatives passed H.R. 3962, the Affordable Health Care For America Act. Unlike the Senate Finance bill, which would fund reform largely with excise taxes on “Cadillac” insurance plans and on various health care sectors, the House bill would raise much of its new revenue—$739 billion over 10 years—through tax law changes largely unrelated to health care. Notable provisions include the following:

Imposing a 5.4 percent surtax on adjusted gross income of individuals earning over $500,000 ($1 million for joint filers), raising $460.5 billion over the next decade
Excluding “black liquor” from the biofuel producer tax credit, saving $23.9 billion over the next seven years
Requiring reporting to the Internal Revenue Service of most business-to-business payments over $600, a provision that is also included in the Senate Finance bill and is expected to increase revenues by $17.1 billion over 10 years
Limiting treaty benefits for some foreign multinationals, raising $7.5 billion over the next decade
Repealing the planned reform of interest allocation by multinationals, raising $6.0 billion over the next decade
Codifying and tightening the common-law economic substance doctrine, with corresponding increase in penalties, raising $5.7 billion over 10 years

The House bill would also raise revenue through several health-care-related tax provisions that would affect businesses across sectors:

A new payroll tax on employers that do not offer coverage, raising $135 billion over 10 years
Imposing limits and higher penalties on health flexible spending accounts, raising nearly $20 billion over the next decade

What’s at Stake

Businesses in sectors far removed from health care may experience adverse tax changes and new reporting burdens. As the focus now moves to the Senate, additional changes, possibly including new revenue raising proposals, are likely.

Steps to Consider

Entities outside the health care sector should monitor the progress of the health reform debate for tax changes having an impact beyond their employees’ health care.

Health Care Fraud Provisions in the Affordable Health Care for America Act

Joan Polacheck — Wed, 04 Nov 2009 14:13:44 -0600

The Facts

The health care fraud provisions in the Affordable Health Care for America Act (H.R. 3162), the House health reform bill released last week, are largely the same as those in earlier proposals (click here and here for more information), and similar to those included in the Senate Finance Committee Bill, signaling clear potential for these provisions to become part of any final health reform package. The latest House bill now includes a provision requiring the Secretary of HHS to establish a self-disclosure protocol to enable health care providers and suppliers to disclose actual or potential violations of the physician self-referral law (Stark Law). Additional provisions from the Senate Finance Committee bill that overlap with the latest House bill include the following:

“Physician Payment Sunshine” provisions require drug and device manufacturers to report certain payments to physicians and other health providers.
Physicians are required to document referrals to programs at high risk of waste and abuse, such as durable medical equipment or home health services, as well as face-to-face encounters with patients prior to certifying eligibility for home health services or ordering durable medical equipment. The Secretary may apply this requirement to any other service upon a finding that it would reduce the risk of fraud waste and abuse.
Medicare and Medicaid overpayments must be returned within 60 days of identification of overpayments. Failure to return overpayments constitutes a false claim for purposes of the False Claims Act.

What’s at Stake

The fraud and abuse provisions in both the House and Senate health reform bills are quietly moving through the health reform process. It is likely that any health reform package passed by Congress will include significant fraud and abuse provisions. In addition to increased scrutiny, these provisions will require additional commitment and resources for compliance efforts.

Steps to Consider

Providers should closely monitor these proposals and consider how current compliance programs, policies and procedures will need to be updated to address requirements common to the health reform proposals.