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Ninth Circuit Vacates Low-Wage-Index Policy
On December 11, 2024, the Ninth Circuit struck down an HHS policy that boosted the wage index, and therefore the Medicare reimbursement rate, for hospitals in low-income communities in Kaweah Delta Health Care District v. Xavier Becerra, No. 23-55157 (9th Cir. Dec. 11, 2024).
In August 2019, HHS adopted its 2020 low-wage-index policy, which increased Medicare payment rates for the bottom quartile of hospitals by reducing payments to all other hospitals by a small percentage. The policy was intended to help hospitals in lower-income communities recruit and retain medical staff. In July 2020, fifty-three California hospitals sued the then-Secretary of HHS, Alexander Azar, in the Central District of California under the Administrative Procedure Act for an unlawful reduction in their Medicare inpatient hospital payments. The hospitals alleged that the low-wage-index policy: (i) violated relevant statutory provisions; (ii) is arbitrary and capricious; (iii) results from faulty administrative procedure; and (iv) is unsupported by evidence in the record." U.S. District Judge Consuelo B. Marshall granted the hospitals’ motion for summary judgement and ruled that HHS lacked authority to implement the policy through the “wage index” provision of the Medicare Act or “exceptions and adjustments” provision of the Medicare Act. Judge Marshall remanded the case back to the agency without vacating the policy. Judge Marshall acknowledged that the Secretary “exceeded his authority under the Medicare Act in violation of the APA,” but also stated that vacating the policy could create a serious disruption to the Medicare Prospective Payment System and the operation of hospitals.
On appeal, on December 11, 2024, Judge Kenneth K. Lee, on behalf of a 2-1 panel, agreed with Judge Marshall that the Secretary exceed his statutory authority, but also vacated the HHS policy. Judge Lee highlighted the requirement that the wage index “reflect” regional wage differences, so that a hospital in a higher wage area receives a higher reimbursement rate for its services. Judge Lee emphasized that the artificially boosted wage index does not “reflect” regional wage differences. Judge Lee further stated that Congress has the “power to bless” the wage index, not HHS. In regard to the “exceptions and adjustments” provision, Judge Lee said that the broad provision could not override the specific “wage index” provision. Judge Jacqueline H. Nguyen dissented and said that the majority "improperly constrains the agency's ability to address a serious structural problem, with dire consequences for the rural communities that will lose access to health care." In Judge Nguyen’s view the low-wage-index policy is consistent with the statutory text.
In Bridgeport Hospital v. Becerra, the D.C. Circuit reached the same conclusion as the Ninth Circuit and recognized that increasing the wage index for low-wage hospitals by applying a decrease in the wage index for high-wage hospitals violated statutory requirements. 108 F.4th 882 (D.C. Cir. 2024). Further, CMS has already capitulated to the Bridgeport Hospital decision and discontinued the low-wage-index policy for fiscal year 2025 in the interim final rule, “Medicare Program; Changes to the Fiscal Year 2024 Hospital Inpatient Prospective Payment System (IPPS) Rates Due to Court Decision.”
The Ninth Circuit’s opinion can be found here.
Reporter, Priya Sinha, Atlanta, +1 404 572 3548, psinha@kslaw.com.
OIG Issues Special Fraud Alert Regarding Marketing Payments Related to Medicare Advantage
On December 11, 2024, OIG issued a Special Fraud Alert to warn the industry about the fraud and abuse risks associated with abusive Medicare Advantage (MA) organization (MAO) and agent and broker relationships with healthcare professionals (HCPs). OIG’s Special Fraud Alert specifically focuses on two categories of remuneration that OIG states implicate the federal Anti-Kickback Statute (AKS) and have led to recent settlements under the False Claims Act: (1) “payments from MAOs to HCPs or their staff relating to MA plan marketing and enrollment” and (2) “payments from HCPs (including companies that employ healthcare professionals or contract with them like management services organizations) to agents, brokers, and others in exchange for referring Medicare enrollees to a particular HCP.”
With respect to the first category of remuneration, OIG highlights three types of arrangements that involve substantial risk. The first fact pattern involves MAOs directly or indirectly paying remuneration (which can include gift cards or in-kind payments) to HCPs or their staff in exchange for referring or recommending patients to the MAOs’ plans or a specific plan. This is the fact pattern that the government alleged in DOJ’s $4.2 million settlement with MCS Advantage that OIG cites to in the Special Fraud Alert. In the press release for that settlement, the government alleged that the MAO gave numerous gift cards to provider administrative assistants costing a total amount of $42,575. Based on the number of gift cards allegedly given, the average gift card value appears to have been $25. The government alleged the gift cards were given to induce the administrative assistants to refer, recommend, or arrange for beneficiaries to enroll in the MAO’s plans. The second fact pattern involves an MAO paying healthcare professionals or their staff, which payments can be monetary, gift cards, or in-kind, to selectively target profitable beneficiaries (i.e., healthy beneficiaries). The third fact pattern involves the reverse - an MAO paying healthcare professionals or their staff to avoid or discourage enrollment of more costly beneficiaries.
With respect to the second category of remuneration, OIG warns the industry of the fraud and abuse risk involving HCPs paying agents, brokers, or others to recommend that HCP to a particular MA enrollee or to refer the MA enrollee to the HCP. OIG cites to the DOJ’s settlement with Oak Street Health for $60 million as an example of such an alleged arrangement. OIG notes that payments are sometimes made by the HCP to the agents or brokers to designate the healthcare professional as the MA enrollee’s primary care provider under the plan.
OIG states that these various arrangements can cause inappropriate beneficiary steering, are anticompetitive, and can cause harm to MA enrollees. According to OIG, the abusive arrangements described in the Special Fraud Alert also may implicate the federal AKS as well as “criminal, civil, or administrative liability under other Federal laws including…OIG’s exclusion authority related to kickbacks, the Civil Monetary Penalties Law provisions for kickbacks, OIG’s authority to assess civil monetary penalties for contracting organization misconduct, the criminal healthcare fraud statute, and the False Claims Act.”
OIG identifies the following list of “suspect characteristics” in these types of marketing arrangements involving HCPs:
- “MAOs, agents, brokers, or any other individual or entity offering or paying HCPs or their staff remuneration (such as bonuses or gift cards) in exchange for referring or recommending patients to a particular MAO or MA plan.
- MAOs, agents, brokers, or any other individual or entity offering or paying HCPs remuneration that is disguised as payment for legitimate services but is actually intended to be payment for the HCPs’ referral of individuals to a particular MA plan.
- MAOs, agents, brokers, or any other individual or entity offering or paying HCPs or their staff remuneration in exchange for sharing patient information that may be used by the MAOs to market to potential enrollees.
- MAOs, agents, brokers, or any other individual or entity offering or paying remuneration to HCPs that is contingent upon or varies based on the demographics or health status of individuals enrolled or referred for enrollment in an MA plan.
- MAOs, agents, brokers, or any other individual or entity offering or paying remuneration to HCPs that varies based on the number of individuals referred for enrollment in an MA plan.
- HCPs offering or paying remuneration to an agent, broker, or other third party that is contingent upon or varies based on the demographics or health status of individuals enrolled or referred for enrollment in an MA plan.
- HCPs offering or paying remuneration to an agent, broker, or other third party to recommend that HCP to a Medicare enrollee or refer an enrollee to the HCP.
- HCPs offering or paying remuneration to an agent, broker, or other third party that varies with the number of individuals referred to the HCP.”
Notably, this Special Fraud Alert only focuses on remuneration that involves HCPs. However, OIG includes a footnote stating that the agency “recognizes that other categories of remuneration, such as payments from MAO MAOs to agents, brokers, and others, may also result in abusive arrangements that could implicate the Federal [AKS]” and “OIG has received significant and credible reports of potential violations in these areas and will consider future guidance regarding payments from MAOs to agents, brokers, and others.” This could be foreshadowing future enforcement actions and/or additional guidance to the industry.
OIG’s Special Fraud Alert can be found here.
Reporters, David Tassa, Los Angeles, +1 213 443 4335, dtassa@kslaw.com, and Kate Stern, Atlanta, +1 404 572 4661, kstern@kslaw.com.
Texas Sues Federal Government to Protect Medicaid Financing
On December 11, 2024, the Texas Health and Human Services Commission filed a complaint in the United States District Court for the Western District of Texas. The complaint seeks to block the enforcement of a May 9, 2014, State Medicaid Director Letter (SMDL) by CMS providing that certain types of public-private arrangements violate the Social Security Act’s provisions against “hold harmless” arrangements, including Low-Income and Needy Care Collaboration Agreements (LINCCAs), Collaborative Endeavor Agreements (CEAs), and Public-Private Partnerships.
Federal Matching of State Governments’ Medicaid Expenditures
Medicaid is a joint federal-state healthcare program that receives its funding from both state governments and federal matching. The money that each state government put towards Medicaid is known as the “state share,” while the money that the federal government puts towards each Medicaid program is known as the “federal share” or “federal financial participation.”
The Social Security Act has restrictions regarding how states can finance the “state share.” Even though intergovernmental transfers (IGTs) from local governments can be used to finance the state share, CMS disallows the federal share for IGTs that derive from impermissible provider related donations, such as those stemming from a “hold harmless arrangement” as defined in 42 C.F.R. § 433.54(c).
SMDL
On May 9, 2014, CMS issued SMDL #14-004 identifying certain public-private partnerships as constituting impermissible hold harmless arrangements. In SMDL #14-004, CMS alleged that some private hospitals and governmental hospitals had entered arrangements in which the private hospitals had agreed to provide services that governmental hospitals would have otherwise been obligated to provide themselves, and in exchange, the governmental hospitals would make IGTs to finance Medicaid programs benefiting those private hospitals. CMS further asserted that such arrangements constitute impermissible hold harmless arrangements, because “the contract to provide services is a provider-related donation and the receipt of [Medicaid] supplemental payments is the return of some, or all, of the donation.”
According to the Texas Health and Human Services Commission, CMS is enforcing SDML #14-004 without proper notice and comment rulemaking under the Administrative Procedures Act, and the public-private partnerships discussed in the letter are not prohibited or considered in the underlying regulation the letter purports to interpret. The Texas agency further alleges that as a result of CMS’s enforcement of SDML #14-004, CMS has disallowed almost $84 million in federal financial participation that CMS believes Texas received due to impermissible provider related donations between 2014 and 2017.
The Texas Health and Human Services Commission complaint can be found here. Additionally, SDML #14-004 can be found here.
Reporter, Gregory Fantin, Washington D.C., +1 202-626-9271, GFantin@kslaw.com.
KING & SPALDING CLIENT ALERT
The Trifecta: What to Expect from a Second Trump Administration and a Republican Congress
King & Spalding’s Government Advocacy and Public Policy team has compilated a detailed analysis from the firm’s top experts on various issues that are likely to be affected by the Republican-led White House and Congress. Among other issues, the Client Alert specifically discusses healthcare, antitrust, mergers and acquisitions, and congressional investigations. The Client Alert is available here.