backD.C. Circuit Vacates CMS’s Wage-Index Redistribution Policy — On July 23, 2024, a three-judge panel for the D.C. Circuit issued a memorandum opinion rejecting the CMS rule that attempted to address wage disparities among hospitals by increasing the wage index for low-wage hospitals by applying a commensurate decrease in the wage index for high-wage hospitals. The Court held that the agency lacked the statutory authority to alter wage index values in this way.
Under section 1395ww of the Social Security Act, hospitals in regions with higher-than-average wages are reimbursed at higher rates and hospitals in regions with lower-than-average wages are reimbursed at lower rates. The adjustment to Medicare payments reflecting these wage variations from region to region is called the “wage index.” See 42 U.S.C. § 1395ww(d)(3)(E)(i).
CMS expressed concern that lower wage index values for low-wage hospitals has a cumulative effect to keep overall Medicare reimbursement lower. According to the agency, low-wage hospitals lack the means to pay higher wages and escape the low end of the wage index, while providing high-wage hospitals with higher reimbursements enables those hospitals to maintain high wages. To address its wage disparity concerns, CMS’s wage-index adjustment for fiscal years 2020 to at least 2023 (adopted by a final rule in 2019) increased reimbursements to the lowest quartile of hospitals and decreased reimbursements to all other hospitals.
The rule was administratively challenged by a group of hospitals and later brought to federal court. Holding that CMS lacks authority to create such a redistribution policy, the District Court granted summary judgment for the hospitals and remanded the rule back to the agency with instructions to recalculate hospitals’ wage indexes. Bridgeport Hospital v. Becerra, 589 F. Supp. 3d 1, 10-15 (D.D.C. 2022).
On appeal, the D.C. Circuit agreed with the District Court’s determination that CMS exceeded its authority but reversed the District Court’s decision to remand the rule, explaining that the rule must be vacated entirely due to the agency’s lack of power under the statute to enact it.
The D.C. Circuit reasoned that “[p]arts of the United States Code are notoriously short on details, . . . but sometimes Congress speaks precisely. And it did so in the section of the Medicare Act at issue” (i.e., section 1395ww). Bridgeport Hospital, et al v. Xavier Becerra, No. 22-5249 at *2 (D.C. Cir. July 23, 2024). “With remarkable specificity, this statutory section prescribes intricate formulas to reimburse hospitals for inpatient care.” Id. Congress was not silent, but instead “created a detailed reimbursement scheme that reflects actual wages in different regions.” Id. at 14. CMS departed from Congress’s express parameters by creating an entirely different policy that was “not in any sense a reimbursement ‘adjustment.’” Id.
King & Spalding will monitor how CMS implements this decision in light of the prior rule being vacated.
Reporter, Jenna M. Anderson, Los Angeles, +1 213 443 4328, janderson@kslaw.com.
OIG Issues Mixed Advisory Opinions Regarding Remuneration for Fertility Services and Travel Support for Patients Receiving Gene Therapy — Last week, OIG posted Advisory Opinions Nos. 24-05 and 24-06 relating to similar proposed arrangements of a drug manufacturer providing financial support to patients to undergo fertility treatment when those patients are receiving gene therapy with the manufacturers’ drugs. OIG concluded that the proposed arrangement of providing financial support for fertility services would generate prohibited remuneration under the Federal anti-kickback statute and the civil monetary penalty provision prohibiting inducements to beneficiaries (the Beneficiary Inducements CMP). Advisory Opinion No. 24-05, however, issued a favorable opinion on financial support offered to patients to travel to certain treatment centers to receive the manufacturer’s drugs.
Background
The Federal anti-kickback statute makes it a criminal offense to knowingly and willfully offer,
pay, solicit, or receive any remuneration to induce, or in return for, the referral of an individual to a person for the furnishing of, or arranging for the furnishing of, any item or service reimbursable under a Federal health care program. The statute’s prohibition also extends to remuneration to induce, or in return for, the purchasing, leasing, or ordering of, or arranging for or recommending the purchasing, leasing, or ordering of, any good, facility, service, or item reimbursable by a Federal health care program.
The Beneficiary Inducements CMP provides for the imposition of civil monetary penalties against any person who offers or transfers remuneration to a Medicare or State health care program beneficiary that the person knows or should know is likely to influence the beneficiary’s selection of a particular provider, practitioner, or supplier for the order or receipt of any item or service for which payment may be made, in whole or in part, by Medicare or a State health care program. 42 U.S.C. 1320a–7a. Under the Beneficiary Inducements CMP, the term “remuneration” does not include “remuneration which promotes access to care and poses a low risk of harm to patients and Federal health care programs.”
Proposed Arrangements
In both Advisory Opinions, the pharmaceutical manufacturer (Requester) offers gene editing therapies for severe genetic diseases using a product approved by the FDA that lists in excess of $2 million.
Under the Proposed Arrangement in Advisory Opinion 24-05, Requestor would provide financial support, up to a maximum of $70,000, for fertility services, including patient counseling, fertility drugs, collection and storage of oocytes or sperm, genetic testing, intrauterine insemination, and in-vitro fertilization procedures, as applicable to the individual patient, to eligible male and female patients, including Federal health care program enrollees. According to Requestor, the Proposed Arrangement would assist patients who may otherwise forgo treatment because of the risk of infertility associated with the therapy and their inability to afford fertility services.
Under the Proposed Arrangement in Advisory Opinion 24-06, Requestor would provide up to $22,500 in fertility support to each patient receiving treatment to cover some or all costs of specified fertility preservation procedures and storage. Requestor explained that the fertility support would assist patients who may otherwise forgo treatment to avoid the risk of infertility associated with the chemotherapy required for the gene therapy and their inability to afford fertility preservation services.
The Proposed Arrangement in Advisory Opinion 24-05 also includes travel support—i.e., transportation, lodging, per diem, etc.—for patients to travel to the select number of treatment centers that facilitate the gene therapy. Travel support eligibility would be for consultation or treatment of a patient with qualifying household incomes who meet certain distance requirements and have explored and exhausted any assistance for transportation, lodging, and associated expenses that may be covered by their insurer or be available through the treatment center.
OIG Conclusions
In both Advisory Opinions, OIG concluded that the fertility support would implicate the Federal anti-kickback statute and Beneficiary Inducements CMP by providing remuneration to patients that may induce them to purchase the manufacturers’ drugs.
According to OIG, if a reason a patient would not receive treatment is the patient’s inability to pay the costs associated with fertility preservation services, then the fertility support would likely influence the patient’s purchasing decision in connection with the drug therapy. The fertility support would also constitute remuneration through potential inducement of treatment centers to recommend the use of the manufacturers’ drugs as opposed to a competitors’ or other clinically appropriate treatments.
Because OIG currently lacks data to evaluate the risk of fraud and abuse under the Federal anti-kickback statute or the improved ability to access the therapies under the Beneficiary Inducements CMP, OIG did not conclude at this time that the fertility support would pose a sufficiently low risk of fraud and abuse under the Federal anti-kickback statute to grant prospective immunity, or meet the recognized exception for promoting access to care under the Beneficiary Inducements CMP. Accordingly, OIG’s opinion was unfavorable relating to the fertility support arrangements.
Regarding travel support, OIG concluded that while such financial assistance for transportation, lodging, associated expenses, etc. would constitute remuneration under the Federal anti-kickback statute, the risk of fraud and abuse is sufficiently low because of, among other things, the limited number of qualified treatment centers and the one-time nature of the gene therapy. For similar reasons, OIG concluded that the travel support satisfies the recognized exception for promoting access to care under the Beneficiary Inducements CMP.
The OIG Advisory Opinions are available here and here.
Reporter, Michael L. LaBattaglia, Washington, D.C., +1 202 626 5579, mlabattaglia@kslaw.com.
Lawsuit Against Envision Alleging Corporate Practice of Medicine Violations Ends Following Envision’s Exit from California — Last week, the American Academy of Emergency Medicine Physician Group (AAEM-PG) announced in a press release that it has resolved its lawsuit against Envision Healthcare (Envision) alleging Envision’s “friendly PC” business model violates California’s corporate practice of medicine (CPOM) restrictions, with Envision withdrawing from operations in California.
AAEM-PG originally filed the suit against Envision in December 2021. As previously reported in Health Headlines, many in the healthcare industry have been closely monitoring the case because of its potentially significant implications for private equity investment in physician practice management (PPM) platforms. The settlement of the case will avoid a judgment establishing a potentially adverse precedent concerning the legality of Envision’s friendly PC model under California law, but legal scrutiny of the model is likely to continue in California and other states.
CPOM Laws
CPOM laws are generally intended to prevent unlicensed persons or entities from employing physicians or controlling the practice of medicine. At least 30 states have enacted some form of CPOM restriction. States with CPOM laws generally require that all of the owners of a physician practice entity must be licensed to practice medicine, subject to certain limited exceptions.
In order to facilitate investment in physician practices, private equity sponsors and other investors typically use what is known as a friendly PC structure. Under a standard friendly PC structure, the investors own equity in a management services organization (MSO) that purchases the nonclinical assets of the professional corporation (PC) that operates the practice. The PC retains all clinical assets and continues to employ the physicians. The MSO then enters into a long-term management agreement with the PC that provides for the MSO to perform nonclinical administrative services for the PC in exchange for a management fee. As skepticism of private equity investment in healthcare has increased in recent years, the friendly PC model has faced considerable scrutiny as some critics have charged that it enables lay investors to improperly influence the practice of medicine.
AAEM-PG Envision Lawsuit and Settlement
Though originally filed in the Superior Court of California, Envision successfully petitioned to remove the case to the U.S. District Court for the Northern District of California. AAEM-PG alleged that the physician owner of Envision’s medical group was not the real owner because the structure of the stock transfer agreements did not allow for realization of profits and did not allow for transfer of his ownership interest without consent of Envision. The case was previously stayed as a result of Envision’s bankruptcy proceedings. The terms of the settlement are confidential. However, AAEM-PG’s press release states that Envision agreed to partially reimburse AAEM-PG’s attorney’s fees and costs relating to the suit.
AAEM-PG also expressed confidence in the press release that its allegations would have proven true with testimony and documents obtained if the litigation had continued. David Millstein, lead counsel of AAEM-PG, stated “The Court made early dispositive rulings in the case agreeing with AAEM-PG’s theory and the California Medical Association’s Amicus brief that, if proven, AAEM-PG’s factual allegations ‘demonstrate classic CPOM violations.’”
The settlement means the case will not result in an adverse judicial precedent concerning the legality of the friendly PC model in California. However, the case nevertheless may impact private equity investment in PPM platforms and medical practices going forward, particularly in California. The settlement could spur similar challenges by industry groups against PPM platforms operating in California or other states. Legislators in California and other states have also expressed a desire to outlaw the friendly PC model or place other restrictions on for-profit investment in healthcare. As a result, private equity sponsors may be less likely to invest in medical groups operating in states with tighter CPOM restrictions.
Reporter, Catherine Behnke, Chicago, +1 312 706 8047, cbehnke@kslaw.com.