As widely reported in the media, the Patient Protection and Affordable Care Act, and the amendments to that Act through the Health Care and Education Affordability Reconciliation Act of 2010 have been signed into law by President Obama (the Act as amended is referenced below as the “Act”).  The focus of the media has been upon many of the health insurance and tax provisions of the Act.  Numerous changes to Medicare, Medicaid and fraud and abuse laws contained in the Act have received much less attention, but will have far-reaching impacts on health care providers.  A brief summary of some of those provisions is set forth below.

Stark Law
Self-Disclosure Protocol.  The Secretary of Health and Human Services is instructed to develop and implement within six months a self-referral disclosure protocol enabling providers to disclose actual and potential violations of the physician self-referral law.  The Secretary is authorized to compromise payment and penalty amounts for Stark Law violations, with consideration given to the nature and extent of the improper practice, the timeliness of self-disclosure, the provider’s cooperation in providing additional information, and such other factors as the Secretary determines.  This will be an important new vehicle for compliance, especially given the new provisions on overpayments further discussed below.

Advanced Imaging in Physician Offices.  The in-office ancillary services exception under the Stark Law is amended, with a stated effective date of January 1, 2010, to require physicians that provide MRI, CT or PET  services to inform their patients that the services may be obtained from others and to provide a written list of suppliers in the area.  Obviously, compliance prior to enactment was not possible, and it is hoped that there will be a regulatory delay in enforcement.  However, physicians with advanced imaging should begin taking steps to comply.

Physician-Owned Hospitals.  Physician ownership of hospitals is severely restricted by changes to the Stark Law exceptions that permit such physician ownership (namely, the whole hospital exception and the rural provider exception).  These exceptions will be available only to those hospitals with both physician ownership and a provider agreement in place by December 31, 2010.  In addition, increase in the percentage of physician ownership is prohibited after the date of enactment, as is conversion of any ambulatory surgery center to a hospital.  Further, with limited exceptions, physician-owned hospitals will not be permitted to increase the number of operating rooms, procedure rooms or beds.  A physician-owned hospital that does not have a physician on site at all times must disclose that fact to patients and receive a signed acknowledgement of the disclosure, and all physician-owned hospitals are subject to a variety of other disclosure and notice requirements.

Overpayments
Any person who has received an overpayment is required to report and return the overpayment, together with written notice of the reason for the overpayment.  The report and return are to be made to the Secretary, the state, an intermediary, a carrier or a contractor, as appropriate, by the later of 60 days after the overpayment is identified or the date any corresponding cost report is due.  Any overpayment retained after that deadline is declared to be an “obligation” for purposes of the False Claims Act, which is violated if an entity “knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.”  Overpayment is defined as “any funds that a person receives or retains under [Medicare or Medicaid] to which the person, after applicable reconciliation, is not entitled….”  A civil monetary penalty also is imposed for failure to report and return overpayment under the new provisions described above.

Relationships of Manufacturers and Physicians
Detailed reporting and disclosures are required beginning in 2013 with respect to physician ownership in manufacturers or group purchasing organizations, and payments by manufacturers to physicians.  These provisions apply to manufacturers of drugs, devices, biologicals or medical supplies that are covered under Medicare, Medicaid or SCHIP, and to group purchasing organizations that deal with such items.

Requirements Upon Ordering Physicians
Commencing July 1, 2010, physicians must be enrolled in Medicare to order DME or home health services.  Further, ordering physicians must maintain documentation relating to written orders or requests for DME or certifications for home health services and provide the documentation on request to the Secretary.  The Secretary is provided authority to extend these requirements to other services.  Documentation of a face-to-face encounter with the patient also is required for DME and home health services.  The Secretary is provided authority to extend the requirement for a face-to-face encounter to other items and services upon finding that doing so would reduce the risk of waste, fraud or abuse.

Provider Screening and Enhanced Oversight
The Secretary is directed to establish a screening program for providers within 180 days of enactment.  The screening, which may include for example, licensure checks, background checks and fingerprinting, will apply to all new providers and on revalidation of existing providers.  The Secretary is also directed to establish procedures for enhanced oversight of new providers and suppliers, such as prepayment review and payment caps, for an initial period of 30 days to one year. 

Compliance Plans
The Secretary is directed to establish core elements of compliance plans and authorized to require compliance plans as a condition of enrollment for particular industry sectors or categories.

Nursing Homes
The Act contains numerous disclosure and compliance provisions relating to nursing homes.  Information on the ownership, governing body and organizational structure of the facility must be made available on request to the Secretary and various other federal and state authorities, and such information eventually will be made public after regulations are promulgated.  Compliance and ethics programs with required components designated in the Act and such other elements as will be specified by regulation must be implemented within 36 months.  National background checks are to be established for all direct patient access employees.  The Secretary is provided with authority to reduce civil money penalties by up to 50% for facilities that self-report and promptly correct deficiencies.

Charitable Hospitals
Amendments to Section 501(c) of the Internal Revenue Code effective for the first tax year after enactment require charitable hospitals to perform community needs assessment and develop an implementation strategy at least once each three years, and impose an excise tax of $50,000 for failure to comply.  The IRS is required to review the community benefit activities of charitable hospitals at least once each three years.  Charitable hospitals are also required to develop financial assistance policies and policies for provision of emergency care, to limit charges under the financial assistance policy to the amounts generally billed to insurers, and to delay extraordinary collection efforts until determining whether the patient is eligible for financial assistance.

Medicaid
Expansion of RAC Program.  The Secretary is directed to establish a program by December 31, 2010 for states to contract with recovery audit contractors.

Physician Reimbursement.  Medicaid payment rates for primary care physicians are required to be set at no less than 100% of Medicare rates for 2013 and 2014, with federal funding of the incremental cost to the states of meeting this requirement.

New Benefits.  The Act provides for Medicaid coverage of services in freestanding birthing centers, allows children to receive hospice services concurrently with curative treatment, and adds a state eligibility option for family planning services.

Reimbursement Cuts.  The Act increases drug rebates and reduces disproportionate share hospital payments once the rate of uninsured in the state declines by 45%.

Hospital-Acquired Conditions.  The Secretary is directed to establish regulations effective by July 1, 2011 prohibiting payment for health care-acquired conditions.

Demonstration Programs.  A number of demonstration programs are established, including programs for bundled payments for hospital and physician services and for pediatric accountable care organizations.

Medicare
Reimbursement Cuts.  The market basket updates for almost all providers other than physicians are reduced.  Medicare disproportionate share payments are reduced commencing in fiscal year 2014.

Diagnostic Imaging.  For fee schedules established for 2011 and thereafter, the Secretary is required to use a 75% utilization rate assumption in determining practice expense relative value units for expensive diagnostic equipment.

Hospital Value-Based Purchasing Program.  The Secretary is directed to establish a hospital value-based purchasing program starting in fiscal year 2013 under which a percentage of hospital payment is tied to performance on quality measures.

Physician Quality Reporting Initiative.   The Act makes changes to the initiative, and provides that beginning in 2014, physicians who do not submit measures will receive reduced Medicare payments.

Fee on Brand Name Pharmaceuticals.  A fee is imposed on sales of brand name pharmaceuticals for use in government programs commencing in 2011.

Excise Tax on Medical Device Manufacturers.  An excise tax on sale of medical devices is imposed commencing in 2013.

Development of New Models.  The Act establishes a Center for Medicare and Medicaid Innovation within CMS and establishes a number of new demonstration projects and pilot programs, including a national pilot program for payment bundling, a demonstration program for home-based care to chronically ill patients, and extension of the gainsharing demonstration.  The Secretary is directed to establish a shared savings program for accountable care organizations by January 1, 2012.  A program for reducing payments based on hospital readmissions is also to be established for fiscal years commencing on and after October 1, 2012.

Independent Payment Advisory Board.  An independent board is established to present Congress and the industry with proposals to reduce growth in spending and improve quality. 

Given the massive scope of the reform legislation, the foregoing is only a brief overview of selected provisions. Look for additional bulletins as to this legislation and its impact on the industry and our clients. Questions regarding health care reform may be directed to any of Taft’s health and life sciences attorneys.