Medicare Agency is Reorganized for More Efficient Operations

The Centers for Medicare and Medicaid Services (CMS), the agency that operates the Medicare and Medicaid programs, is being structurally reorganized. The reorganization will align the agency with federal health reform efforts, and position it to more efficiently implement the changes required by the reform legislation. In addition, the reorganization allows CMS to establish a Center for Program Integrity and to strengthen its focus on beneficiary services and strategic planning. The realignment elevates program integrity, as well as innovation, research and demonstration activities, to an agency operational level. The structure includes the following, which all report to the CMS Administrator:

  • Center for Medicare (combines Medicare fee-for-service, managed care, and the prescription drug benefit);
  • Center for Medicaid, CHIP and Survey & Certification (new name for the Center for Medicaid and State Operations);
  • Center for Strategic Planning (realigns the Office of Research, Development, and Information and the Office of Policy);
  • Center for Program Integrity (absorbs some Medicare and all of the Medicaid program integrity operations); and
  • Office of External Affairs and Beneficiary Services (focal point for beneficiary communications and services, intergovernmental affairs and media relations).

In addition, the current role of the Chief Operating Officer (COO) has been formalized and remains responsible for operations, information systems, contracts, finance, E-health standards and services, and the Consortia. The following organizations remain substantively unchanged and continue to report to the CMS Administrator: Office of Equal Opportunity and Civil Rights, Office of Legislation, Office of the Actuary, Office of Clinical Standards and Quality, and the Office of Strategic Operations and Regulatory Affairs (will be renamed the Office of Executive Operations and Regulatory Affairs to more accurately reflect the work of the organization). For more information, please click here.

In-Office Ancillary Services Exception

The Patient Protection and Affordable Care Act (Act) has created a new obligation for physicians that provide designated health services (DHS) within their group practice under the In-Office Ancillary Services Exception of the Stark Law. Many physician group practices rely on this exception as it allows physicians to provide laboratory services and radiology services, such as magnetic resonance imaging, computed tomography, and positron emission tomography, to their patients and allows physicians to bill Medicare and Medicaid for those services without running afoul of the Stark Law's prohibition against self-referral.

Section 6003 of the Act amends the exception to require a physician that refers a patient internally to give that patient a written disclosure at the time of the referral. These written disclosures must inform the patient that they may obtain the service from another provider outside of the referring physician's group, and provide a list of suppliers of the service in the area where the patient resides. Because the list of alternate suppliers must be individualized to the patient, the disclosures could become significantly burdensome for physicians with patients who reside outside of the locality where physician group is located.

The Act's effective date for the amendment is January 1, 2010. The effective date is a peculiarity, as the amendment requires written disclosures be presented at the time of referral and so there is no way for physicians to fully comply retroactively for patients they referred after January 1, 2010, but before the March 23, 2010, passage of the Act. Physicians should begin distributing these written disclosures to their patient base immediately.

To read the full text of the bill click here.

The Joint Commission Finalizes Medical Staff Standard after Years of Debate

The Joint Commission (TJC) recently announced the release of Standard MS.01.01.01, which addresses the relationship between a hospital's medical staff and its governing body and the requirements for medical staff bylaws that govern the relationship. This standard (previously numbered MS.1.20) was first proposed in 2004, was revised in 2007, and, most recently, was reviewed by a task force created by TJC that included representatives from several professional organizations, including the American Medical Association and the American Hospital Association, as well as hospital trustees, hospital CEOs, and healthcare attorneys. The finalized standard and its corresponding Elements of Performance cover the adoption and amendment of medical staff bylaws, rules and regulations, and policies as well as the required elements of the medical staff bylaws. Hospitals and medical staffs should review their medical staff bylaws and ancillary documents and revise them as needed to comply with the new standard.

The text of Standard MS.01.01.01, accompanying Frequently Asked Questions, and a podcast explaining the new standard are available at TJC's website: www.thejointcommission.org.

New DOJ Enforcement Initiative: Medicare Billing For Implantable Defibrillators

A number of hospitals and health systems have recently been served with subpoenas by the United States Department of Justice regarding Medicare billing for implantation of ICDs (implantable cardioverter defibrillators). The DOJ is investigating whether hospitals billed Medicare for ICDs for patients whose conditions did not satisfy coverage criteria set forth in a CMS National Coverage Determination. See National Coverage Determination Manual Section 20.4. For example, the National Coverage Determination provides that Medicare does not cover implantation of ICDs in patients who lack a history of arrhythmia, even if their heart function indicates that they are at elevated risk of sudden death due to arrhythmia, if the implantation occurred within 40 days of an acute myocardial infarction or within three months of a bypass surgery or angioplasty. In addition, according to published reports and SEC filings, the DOJ has served subpoenas on the three largest ICD manufacturers regarding, among other things, the manufacturers' communications with hospitals and physicians concerning Medicare reimbursement for ICD implantation. Although information about this current investigation is still emerging, it resembles in some ways the government's investigation of Kyphon, Inc., a manufacturer of bone cement used to treat partially collapsed vertebrae. The government intervened in a qui tam action under the False Claims Act against the device manufacturer, alleging that the manufacturer caused hospitals to submit false claims to Medicare by providing incorrect Medicare reimbursement advice. In 2008, the manufacturer settled the False Claims Act matter for $75 million. Subsequently, the DOJ has pursued hospitals for alleged Medicare fraud for following the reimbursement advice. On May 17, the DOJ announced that nine hospitals just settled for an aggregate $9.4 million. Previously, in September 2009, six hospitals settled for an aggregate $8.1 million. It is possible that the DOJ will pursue a similar strategy in the recently launched ICD investigation, pursuing medical device manufacturers for allegedly providing inappropriate Medicare reimbursement advice and pursuing their customers for following that advice.

St. Mary's Hospital (N.J.) Emerges From Bankruptcy

St. Mary's Hospital is the first hospital in New Jersey to emerge from Chapter 11 bankruptcy and did so in less than one year. Since 2007, six hospitals have filed for bankruptcy, five of which have either closed or sold their assets in bankruptcy.

A team of lawyers from Drinker Biddle, led by Corporate Restructuring partner Robert Malone, and including partners Michael Pompeo and Frank Velocci, helped St. Mary's navigate the Chapter 11 process. The team included lawyers from five different offices and seven practice groups, including tax, health care, labor and employment, environmental, public finance and real estate practitioners from the Florham Park, Princeton, Philadelphia, Washington, D.C., and Chicago offices.

U.S. Bankruptcy Judge Morris Stern for the District of New Jersey approved the plan on Feb. 2 and it went into effect on March 1. The terms:

  • About $45 million owed to the New Jersey Health Care Facilities Financing Agency will be repaid,but over 30 years at a rate, with interest, of $2.2 million a year. 
  •  The federal government will get $6.2 million in 72 monthly installments to pay debts to Medicare and Medicaid.
  • Unionized nurses and technicians, about one third of the 1,500 employees, have agreed to a new contract.
  • A fund of $1.25 million will be set aside for the holders of unsecured debt, but that is likely to be enough for just 4.7 cents on the dollar of what they are owed.
  • The hospital will receive a line of credit for operating expenses and that, plus revenues of $170 million a year, should keep the hospital in sound shape, according to its officials.

Before the filing last year, the major union at the hospital, JNESO District Council 1, which represents 450 nurses and technicians, agreed to a 5 percent pay cut and Judge Stern extended the cuts, albeit at a lower percentage, during the Chapter 11. The cuts have been restored under a new collective bargaining agreement.

St. Mary's Hospital is a nonprofit, acute care hospital sponsored by the Sisters of Charity of Saint Elizabeth, Convent Station, N.J. The primary provider of health care to the Passaic and Bergen communities, as well as to areas of Essex and Hudson Counties, the hospital is a Center of Excellence for Cardiology, Oncology, Outpatient Behavioral Health and Maternal-Child Health Services, and offers a broad range of health care services and community outreach programs. St. Mary's has 292 licensed beds, over 550 physicians and is one of the largest employers in Passaic, New Jersey.

Source: Health Law Regulatory Update