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 2

3 DSH Litigation

DSH Basics • What is DSH? • Supplemental Medicare payments to compensate hospitals for higher operating 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 4

DSH Basics: How is DSH calculated? • DPP = Medicare/SSI Fraction + Medicaid Fraction Medicare/SSI Fraction Medicaid Fraction Patient days for patients “entitled to Patient days for patients “eligible Numerator benefits under Part A” and “entitled for [Medicaid]” but not “entitled to to SSI benefits” benefits under Part A” Patient days for patients “entitled to “Total number of patient days” Denominator benefits under Part A” • 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 5

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 6

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 7

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 8

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 9

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 10

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 11

12 340B Program Update

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? 13

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 14

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 15

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 16

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 17

18 Questions?

Contact Information Joseph W. Metro Salvatore G. Rotella, Jr. Partner, Washington, D.C. Partner, Philadelphia +1 202 414 9284 +1 215 851 8123 jmetro@reedsmith.com srotella@reedsmith.com 19