backCMS Revises FY 2025 IPPS Rates to Remove the Low Wage Index Hospital Policy
On September 30, 2024, CMS issued an interim final rule (Interim Rule) revising the inpatient prospective payment system (IPPS) final rule for fiscal year (FY) 2025, published in early August, to remove the low wage index hospital policy from the FY 2025 payment rates. This reversal comes after the United States Court of Appeals for the District of Columbia Circuit struck down the low wage index policy in Bridgeport Hospital v. Becerra, decided July 23, 2024. 108 F.4th 882, 885 (D.C. Cir. 2024). The Interim Rule removes the low wage index hospital policy from the FY 2025 wage index calculations. It also removes the adjustment that CMS made to the standardized amount to offset the financial impact of the policy in FY 2025. Although the Interim Rule is effective immediately, CMS is soliciting comments. The comment deadline is November 29, 2024.
CMS first adopted the low wage index hospital policy in the IPPS final rule for FY 2020. Under this policy, hospitals received an upward adjustment to their wage index if it was below the 25th percentile nationally. The adjustment was equal to half of the difference between the hospital’s otherwise applicable wage index and the 25th percentile wage index for all hospitals. For example, if a hospital’s actual wage index is 0.64, and the 25th percentile wage index is 0.84, the hospitals’ wage index would increase by 0.10 ([0.84 – 0.64] ÷ 2).
CMS explained that the purpose of the low wage index hospital policy was to address the “downward spiral phenomenon,” i.e., the growing disparity between the wage index values of the lowest and highest wage hospitals. The agency believed that the disparity is exacerbated by the fact that the wage index is calculated on a four-year delay. When hospitals raise their salaries, they must wait four years before those raises translate to a higher wage index adjustment and additional Medicare dollars. So, the intent was to enable hospitals to increase their wages today by fronting some of those costs.
Not all hospitals were pleased with this policy, particularly those with wage index values above the 25th percentile. To offset the projected cost of the low wage index hospital policy, the agency invoked its exceptions and adjustments authority to apply a budget neutrality adjustment to the standardized amount. This meant that hospitals nationwide were subsidizing the low wage index hospital policy, while only hospitals with wage index values at or below the 25th percentile benefited from it.
A large contingent of non-benefiting hospitals filed suit in Bridgeport Hospital v. Becerra, challenging CMS’s authority to adopt the low wage index hospital policy. The hospitals principally argued that the policy violates the statutory command that the wage index factors must “reflect[] the relative hospital wage level in the geographic area of the hospital compared to the national average.” CMS argued that the statute is ambiguous and gives the agency a wide berth to implement the wage index. In the alternative, CMS argued that its statutory “exceptions and adjustments” authority empowers the agency to override specific statutory commands.
The D.C. Circuit ruled in favor of the hospitals, holding that “the wage-index factor must be anchored to the survey of wages and not other policy factors that would abandon or supplant the data-driven metric prescribed by Congress.” The court also ruled that the “exceptions and adjustments” authority could only be used to fill gaps left by Congress—not supplant Congress’s specific commands.
CMS published the IPPS final rule for FY 2025 just over one week after the D.C. Circuit issued its decision in Bridgeport. In the final rule, CMS acknowledged the Bridgeport decision but said it was not yet ready to throw in the towel. “The government is evaluating the decision and considering options for next steps.” Accordingly, the agency initially opted to continue the low wage index policy into FY 2025.
But that decision was short-lived. In the Interim Rule issued last week, CMS removed the low wage index hospital policy from the FY 2025 wage index values and backed out the budget neutrality adjustment from the FY 2025 standardized amount. This reversal suggests that the agency has abandoned its defense of its low wage index hospital policy and will likely not be applying it in future years, although CMS did not expressly say as much in the Interim Rule.
CMS implemented a one-time policy in the Interim Rule to ween affected hospitals off the low wage index hospital policy. Under this transitional policy, if a hospital benefited from the low wage index hospital policy in FY 2024, it will receive a wage adjustment in FY 2025 that is at least 95 percent of its wage index adjustment from FY 2024. CMS is not applying this transitional policy on a budget-neutral basis, which means other hospitals will not be subsidizing this transitional adjustment.
A copy of the Interim Rule is available here. A copy of the D.C. Circuit’s Bridgeport decision is available here.
Reporter, Alek Pivec, Washington D.C., +1 202 626 2914, apivec@kslaw.com.
United States District Court in Florida Holds False Claims Act Qui Tam Provision Unconstitutional
On September 30, 2024, a federal district court in Florida held the qui tam enforcement provision of the False Claims Act (FCA), which permits private citizens to pursue actions in the name of and on behalf of the government, is unconstitutional under Article II’s Appointments Clause.
Granting a motion for judgment on the pleadings, Judge Kathryn Kimball Mizelle of the Middle District of Florida dismissed the case, concluding that the relator was not a proper party to the lawsuit, because she was not properly appointed to bring claims on behalf of the United States. The holding closely follows Justice Clarence Thomas’s dissent in United States ex rel. Polansky v. Executive Health Resources, decided by the United States Supreme Court on June 16, 2023, which discussed why there might be “good reason to suspect that Article II does not permit private relators to represent the United States’ interests in FCA suits.” 599 U.S. 419, 451 (2023) (Thomas, J., dissenting). Justice Brett Kavanaugh and Justice Amy Coney Barrett also expressed agreement with Justice Thomas’s view in a concurrence.
Clarissa Zafirov brought an FCA qui tam action on behalf of the United States against her former employer, Florida Medical Associates, LLC. United States ex rel. Zafirov v. Florida Medical Associates, LLC et al., No. 8:19-cv-01236 (M.D. Fla.). Zafirov alleged the defendants violated the FCA by misrepresenting patients’ medical conditions when submitting claims for payment to Medicare. The government declined to intervene, and Zafirov continued to pursue the lawsuit in her capacity as a relator under the qui tam provision of the FCA, which allows relators to obtain up to 30% of the recovery, even though the injury asserted is to the government alone. After more than five years of litigation, the defendants filed a motion for judgment on the pleadings under Federal Rule of Civil Procedure 12(c), arguing in part that the FCA’s qui tam provision violates: (1) the Take Care Clause and Vesting Clause of Article II because the FCA, “den[ies] the President necessary removal authority and sufficient supervisory control over” a relator, and (2) the Appointments Clause of Article II “because a relator is an improperly appointed officer of the United States.” The court addressed the defendants’ Appointments Clause argument and did not reach the other arguments.
The Appointments Clause requires “Officers of the United States” to be appointed by “the President alone, in the Courts of Law, or in the Heads of Departments.” A person is acting as an officer under the Appointments Clause if: (1) they exercise significant authority pursuant to the laws of the United States; and (2) they occupy a continuing position established by law. Applying the test, Judge Mizelle found that Zafirov was acting as an officer in her role as a relator and therefore must be appointed, consistent with the Appointments Clause of the Constitution, because Zafirov “possesses civil authority on behalf of the United States,” and because “the FCA prescribes a relator’s statutory duties, power, and emoluments, and the position mirrors the role of a bank receiver or special prosecutor in its duration and non-personal nature, a relator occupies a continuing position.”
The court also noted that there is no FCA qui tam exception in the Appointments Clause and rejected Zafirov’s historical arguments that the FCA’s qui tam structure is constitutional. The court held that Zafirov initiated the FCA action when unconstitutionally appointed and dismissed the case.
The Zafirov decision is the first to dismiss a case on the grounds that the FCA’s qui tam provision is unconstitutional. The decision will almost certainly be appealed to the Eleventh Circuit, as a Southern District of Florida court declined to find that the FCA’s qui tam provision violated Article II only a few weeks earlier. United States ex rel. Butler v. Shikara et al., No. 9:20-cv-80483, slip op. at 25-26 (S.D. Fla. Sept. 6, 2024).
A full Client Alert is forthcoming.
A copy of the court’s order is available here.
Reporters, Sara Brinkmann, Houston, +1 713 751 3279, sbrinkmann@kslaw.com; Priya Sinha, Atlanta, +1 404 572 3548, psinha@kslaw.com; and Alana Broe, Atlanta, +1 404 572 2720, abroe@kslaw.com.
GAO Publishes Report Outlining Users’ Experiences With Hospital Pricing Data
On October 2, 2024, the Government Accountability Office (GAO) published a report titled “Health Care Transparency: CMS Needs More Information on Hospital Pricing Data Completeness and Accuracy” (the Report). By way of background, in 2021, CMS began requiring hospitals to publish their pricing to the public under the hospital price transparency rules. This was intended to make “information available that could be used to help increase competition and thereby lower prices” for health care services.” The Report provides some initial feedback regarding the competency of such efforts.
The Report examines (1) information on cost and quality available to consumers from selected transparency tools, (2) characteristics of effective transparency tools, (3) limitations, if any, in the effectiveness of CMS transparency tools, and (4) CMS’s efforts to expand cost and quality information available through transparency tools. When preparing the Report, GAO “analyzed information from two private tools . . . and CMS’s five transparency tools, reviewed research to identify best practices for conveying information to consumers, interviewed CMS and HHS officials and subject matter expects, and reviewed CMS and HHS planning documents and relevant criteria for effective planning in the federal government.”
The Results
In the Report, GAO stakeholders reported challenges using the published data. Specifically, GAO stated that “the use of the hospital transparency data has been limited so far.” Further, GAO reported that “patients rarely use hospital shoppable service pricing information or hospital online price estimators that can provide an estimate of an individual’s out-of-pocket costs. . .” GAO also noted that there were significant “perceived” issues with the completeness and accuracy of the data published by hospitals.
To address these issues, GAO provided the following suggestions to CMS:
- While confirming the completeness and accuracy of all the hospital pricing data may not be practical, an assessment could help CMS determine if additional enforcement actions are needed to ensure the data’s usability.
- If CMS were to determine such additional actions are needed, CMS would also have cost-effective options, including the use of risk-based or random sampling.
- CMS expects its 2024 updates to the reporting requirements will simplify and reduce the level of resources needed for the agency’s enforcement activities. Such gains in efficiency could help allow the agency to perform any needed additional enforcement activities to address these risks related to completeness and accuracy of the hospital pricing data.
- CMS’s assessment and additional enforcement actions, if needed, would help ensure hospital pricing data are usable and contribute to CMS’s goal to make information available that could promote competition and lower prices through price transparency.
GAO’s Conclusion
As a proposed recommendation to address the issues identified within the Report, GAO stated that CMS should assess whether hospital price transparency machine-readable files are sufficiently complete and accurate to be usable for supporting CMS’s program goal and implement any additional cost-effective enforcement activities as needed, which should include soliciting stakeholder feedback or conducting a study of hospital file completeness and accuracy.
Reporter, Michelle Huntsman, Houston, +1 713 751 3211, mhuntsman@kslaw.com.
California Governor Vetoes Bill to Require Prior Approval of Private Equity Health Care Transactions
On September 28, 2024, California Governor Gavin Newsom vetoed Assembly Bill 3129, which would have required private equity groups and hedge funds to receive the consent of the California Attorney General before entering into a transaction between the private equity group or hedge fund and a health care facility, provider, or provider group.
The bill represented an attempt by Assembly Member Jim Wood to further regulate private equity investments in the health care sector in California. In support of his veto, the Governor cited that California Office of Healthcare Affordability (OHCA) already has the authority to: (a) evaluate health care consolidation transactions; and (b) refer such transactions to the Attorney General if OHCA believes that additional review is required. OHCA was established in June 2022 pursuant to the Health Care Quality and Affordability Act (SB 184). Our prior article summarizes the current requirements applicable to transactions subject to OHCA’s review.
This action by Governor Newsom is a relief to private equity firms that invest in California because it avoids expanding the number of transactions presented to the Attorney General for review. For now, the Attorney General will continue to rely on OHCA’s discretion to flag health care transactions that require the Attorney General’s attention.
The veto letter is available here.
Reporter, Kimberly Rai, New York, +1 212 556 2198, krai@kslaw.com.