DSH Litigation and 340B Program Update: What Participating Hospitals - - PowerPoint PPT Presentation

DSH Litigation and 340B Program Update: What Participating Hospitals Need to Know and What They Should Be Doing

Presented by: Joe Metro, Partner Sal Rotella, Partner

Agenda

• Disproportionate Share Hospital (DSH) Payments
• DSH Basics
• Allina (Part C/Part A Issue)
• Catholic Health Initiatives (Medi-Medi Issue)
• Revised Notices of Program Reimbursement (SSI Issue)
• 340B Drug Pricing Program
• Key issues in 340B program rulemaking (if any)
• Evaluating contract pharmacy arrangements
• Managing internal and external 340B compliance audits

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DSH Litigation

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DSH Basics

• What is DSH?
• Supplemental Medicare payments to compensate hospitals for higher
• perating costs incurred treating large share of low-income patients
• DSH funds preserve access to care for Medicare and low-income

populations by financially assisting hospitals they use

• DSH Patient Percent (DPP) determines DSH eligibility and amount of

DSH payment

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DSH Basics: How is DSH calculated?

• DPP = Medicare/SSI Fraction + Medicaid Fraction
• DSH appeals challenge treatment of various types of patient

days in calculating DPP

• Methodology for calculating DSH payments changing pursuant

to 2014 IPPS Final Rule

Medicare/SSI Fraction Medicaid Fraction Numerator

Patient days for patients “entitled to benefits under Part A” and “entitled to SSI benefits” Patient days for patients “eligible for [Medicaid]” but not “entitled to benefits under Part A”

Denominator

Patient days for patients “entitled to benefits under Part A” “Total number of patient days”

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Allina Health Services v. Sebelius

• Part C/Part A Issue
• Pursuant to 2004 Final Rule, HHS treats inpatient days of Part C

beneficiaries as days for which those patients were “entitled to Part A benefits” for purposes of calculating DPP

• Rationale is that being entitled to Part A is prerequisite to being eligible to

enroll in Part C plan

• HHS approach generally lowers DPP

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Allina Health Services v. Sebelius (cont.)

• Allina (D.C. Court of Appeals decision April 1, 2014)
• Involved Part C/Part A Issue challenge to 2007 cost year DPP
• Affirmed district court’s pro-hospital ruling that 2004 Final Rule dictating

treatment of Part C days was invalid

• BUT, reversed trial court’s pro-hospital ruling that HHS must re-calculate

2007 cost year at issue and this time treat Part C patients as not entitled to Part A benefits

• Upshot
• HHS can reach same decision based on administrative adjudication rather than

regulation

• Unlike regulation, administrative decision generally does have retroactive effect

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Catholic Health Initiatives v. Sebelius

• Medi-Medi Issue
• Pursuant to 2004 Final Rule, HHS treats inpatient days for which dual

eligible beneficiaries have exhausted their Medicare Part A benefits as days for which those patients are nonetheless “entitled to Part A benefits” for purposes of calculating the DPP

• Rationale is that dual eligibles are still “entitled to Part A” after exhausting

benefits, even though Part A isn’t paying for stay

• HHS approach generally lowers DPP

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Catholic Health Initiatives v. Sebelius (cont.)

• Catholic Health (D.C. Court of Appeals decision June 11, 2013;

plaintiff chose not to seek further review by Supreme Court)

• Involved challenge to 1997 cost year DPP
• Reversed district court’s ruling in favor of hospital on Medi-Medi Issue
• Found that “entitled to Medicare Part A” is ambiguous and could encompass

dual eligible inpatients who have exhausted their Part A benefits

• Legal test was therefore only if government’s construction of statute was

permissible; D.C. Circuit found that it was

• Retroactivity
• Hospital had successfully argued to district court that government could not

retroactively apply Medi-Medi Issue approach from 2004 Final Rule to 1997 cost year

• D.C. Circuit found that government could apply Medi-Medi Issue approach to earlier

(1997) cost year, because approach was first reached in adjudication in 2000, not Final Rule in 2004

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Revised NPRs

• SSI Issue
• Hospitals argued that in calculating DPP, CMS was using improper data

matching process and undercounting patients receiving SSI benefits

• In 2008, federal district court found in hospitals’ favor in Baystate Medical

Center v. Leavitt

• Ruling 1498-R
• Instead of appealing Baystate, CMS issued Ruling 1498-R in April 2010
• Ruling provided that CMS would “remand” all properly appending SSI

Issue appeals (i.e., appeals challenging data matching process)

• “Remand” meant that appeal was concluded and CMS would issue

revised NPR using improved data match process

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Revised NPRs (cont.)

• Status of Revised NPRs and Payments
• CMS has issued recalculated SSI percentages using updated data

matching process for 2006-2009

• Unclear why MACs have not yet issued revised NPRs and payments for all of

these years

• CMS obligated to likewise recalculate SSI percentages, and issue

revised NPRs and payments for 2005 and prior

• CMS said as recently as early 2014 that it was only waiting on resolution of

Catholic Health case, which is now resolved

• Speculation that CMS was also waiting on decision in Allina, but that has now

issued as well

• Media expressing interest in continuing delay

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340B Program Update

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340B Program Proposed Rule

• Current status: Proposed rule submitted to OMB for Regulatory

Review on 4/9/2014

• 90-day review window plus 30-day extension authorized
• Summer vacation reading?
• PhRMA v. HHS (D.D.C. May 23, 2014) – The best laid plans…
• Holds HHS final rule implementing orphan drug rule invalid
• HRSA 340B rulemaking authority only extends to price calculation, dispute

resolution, and CMPs

• Potential for delay of “mega-rule,” continued informal guidance, and

resolution through adjudication

• Note also CMS Medicaid rebate rulemaking is pending
• AMP/BP methodologies can affect 340B discounted price calculation
• Medicaid managed care duplicate discount mechanisms?

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Proposed Rule/Future Guidance: Key Issues to Watch

• Entity qualification and registration
• GPO exclusion
• Imposition of duties as part of registration process
• Covered outpatient drugs
• ER settings
• Orphan drug exclusion
• Patient definition and identification
• Replenishment models
• Duplicate discounts and Medicaid managed care
• Corrective action
• Mechanisms
• Duty to report
• Audit and dispute procedures

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Contract Pharmacy Arrangements

• February 2014 OIG Report finds contract pharmacy arrangements

create complications in preventing diversion and duplicate discounts, and covered entities’ oversight and auditing of contract pharmacies was inconsistent

• Key Issues in contract pharmacy relationships
• Mechanism for 340B-eligible patient dispensing
• Billing
• Uninsured patients
• Third-party payors
• Medicaid – carve-in vs. carve-out
• Compensation
• Ordering and inventory maintenance
• Reporting and auditing

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HRSA FY 12 340B Program Audit Summary

• 51 CEs / 412 subgrantees / 860 contract pharmacy locations
• Common areas of noncompliance for hospital covered entities
• Violation of GPO prohibition (42 percent of hospitals)
• Diversion (36 percent)
• Billing contrary to exclusion file (24 percent)
• Database errors (21 percent)
• Best practices
• SOPs
• Routine self-auditing and corrective action
• Strong state relationships and coordination
• Verification of database

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Managing 340B Audits

• HRSA, manufacturer, and entity audit activity likely to continue in light of

policy oversight and rulemaking

• Policies and procedures
• Understand method and data by which you will “prove” compliance,

including under replenishment models

• GPO prohibition/orphan drug exclusion
• Initial purchases
• Ordering and dispensing data reconciliation
• Patient identification
• Prescriber
• Location
• Corrective Action
• True-up of inventory vs. refund
• Notice to manufacturer/HRSA
• Medicaid

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Questions?

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Contact Information

Joseph W. Metro

Partner, Washington, D.C. +1 202 414 9284 jmetro@reedsmith.com

Salvatore G. Rotella, Jr.

Partner, Philadelphia +1 215 851 8123 srotella@reedsmith.com

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