On December 31, 2019, in New Mexico Health Connections v. U.S. Dep’t of Health and Human Services, the U.S. Court of Appeals for the Tenth Circuit upheld the methodology adopted by the U.S. Department of Health and Human Services (“HHS”) to administer the Risk Adjustment Program under the Affordable Care Act (“ACA”). In doing so, the panel, led by Judge Scott M. Matheson, Jr., overturned the decision of the U.S. District Court for the District of New Mexico that the use of statewide average premiums in the methodology was arbitrary and capricious.

The Risk Adjustment Program is a “premium stabilization” program created by the ACA to make premiums in the individual and small group markets more predictable. In essence, to limit incentives for health insurers to try to attract healthier enrollees, the Risk Adjustment Program transfers funds from health plans with healthier enrollees to those with less healthy enrollees. As with similar efforts under Medicare Advantage and some states’ Medicaid managed care programs, the Risk Adjustment Program was intended to mitigate potential adverse selection by targeting the impact of enrollee health status. Section 1343 of the ACA required that HHS create standards for the program through regulations, which have included the annual issuance of a risk adjustment formula for the payment transfers. Among other challenges to the program, insurers have challenged this formula, particularly the decision to base payment transfers on statewide average premiums instead of each plan’s actual premiums.

In 2018, in response to a challenge brought by New Mexico Health Connections, a New Mexico non-profit health plan, Judge James O. Browning of the U.S. District Court for the District of New Mexico found that the use of a statewide average premium in the risk adjustment formula was arbitrary and capricious on the basis that the agency failed to justify its reasoning in the notice-and-comment rulemaking process. This decision came one month after the U.S. District Court of Massachusetts upheld the same risk adjustment formula in a similar challenge. Judge Browning denied a request from the federal government to reconsider his decision in October 2018, and the federal government appealed to the Tenth Circuit.

In the opinion published on December 31, the Tenth Circuit reversed the district court, concluding that the use of a statewide average premium and adoption of a budget-neutral program were appropriate and reasonable. While the appeal was pending at the Tenth Circuit, HHS issued new rules for the 2017 and 2018 methodologies that rendered the case moot for those years. For the methodologies used in 2014 through 2016, the court determined that HHS appropriately justified its use of the statewide average premium in the risk adjustment methodology, including that HHS explained that it chose the statewide average premium to reduce the impact of risk selection, achieve a straightforward and predictable benchmark, promote risk neutral payments, avoid causing unintended distortions in transfers, and avoid disproportionately distributing costs to certain insurers. Further, the court determined that the budget-neutral design for the program was not improper because the ACA did not speak to budget neutrality and budget neutrality was necessary due to funding constraints.

Following this decision, New Mexico Health Connections may seek rehearing of the case en banc by the entirety of the Tenth Circuit or request review by the Supreme Court.

Payers, Providers, and Patients – Oh My! Is Crowell & Moring’s health care podcast, discussing legal and regulatory issues that affect health care entities’ in-house counsel, executives, and investors. In this episode, hosts Payal Nanavati and Joe Records sit down with Jodi Daniel and Ambassador Robert Holleyman to discuss how regulators—across the U.S. and the rest of the world—can overcome the challenges of regulating emerging digital health technologies without stifling innovation.

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Payers, Providers, and Patients – Oh My! Is Crowell & Moring’s health care podcast, discussing legal and regulatory issues that affect health care entities’ in-house counsel, executives, and investors. In this episode, hosts Payal Nanavati and Joe Records, sit down with former regulators Jon Foley, Rob Shriver, and Kristi Martin to discuss the goals and design of the Affordable Care Act’s MSP Program.

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Payers, Providers, and Patients – Oh My! Is Crowell & Moring’s health care podcast, discussing legal and regulatory issues that affect health care entities’ in-house counsel, executives, and investors. In this episode, hosts Payal Nanavati and Joe Records, talk with Todd Rosenberg about PBMs and the regulatory issues they have faced recently.

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The U.S. Court of Appeals for the Fifth Circuit could strike down the Affordable Care Act (ACA) as unconstitutional any moment. Several states are preparing for the impact.

In April 2018, Texas, 19 other states, and two individual plaintiffs filed a complaint in the U.S. District Court for the Northern District of Texas, arguing that the ACA, as amended by more recent legislation, is unconstitutional. They won—the district court held in Texas v. U.S. that the individual mandate is unconstitutional, and that the rest of the law cannot be severed from that provision, so it also must fall. The Fifth Circuit heard oral arguments in July of 2019 and may hand down a decision at any time. Rather than waiting for the possible results of that decision, many states are acting now to soften the blow.

As discussed below, if the district court’s decision is upheld and ACA is struck down, the effects likely would be widespread and dramatic. Nearly 20 million people with insurance under the ACA would be at risk of losing such coverage, markets would be disrupted, and popular consumer protections would be ineffective, including those for persons with preexisting conditions and coverage of dependent children up to age 26. As we have discussed in this space before, the sudden absence of some less-talked-about provisions of the ACA could have serious impacts on the authority behind innovative payment models, several of which have states as direct participants. In addition, billions of dollars in federal Medicaid funding would be removed from states’ budgets.

Continue Reading States Take Action in Anticipation of Possible ACA Unconstitutional Ruling

On October 21, 2019, the Federal Trade Commission (FTC) announced that it had issued orders to five health insurance companies and two health systems to provide information that will allow the agency to study the effects of certificates of public advantage (COPAs) on price, quality, access, and innovation of healthcare services. The ultimate goal of the study is to enhance the FTC’s knowledge of COPAs in order to inform the agency’s advocacy and enforcement efforts, and to serve as a resource for states considering COPAs.

A COPA is a written certificate typically issued by a state department of health under state law and regulations that seek to displace federal (and sometimes state) antitrust laws, and thereby provide immunity from antitrust law to certain healthcare-provider mergers, acquisitions, and other affiliations. Under the “state action doctrine,” states may shield certain transaction and conduct from federal antitrust law if the state (1) has affirmatively expressed and clearly articulated an intent to displace federal antitrust law and replace it with state regulation, and (2) actively supervises the transaction or collaboration.

Concerned that federal antitrust law and FTC enforcement against healthcare mergers has been too stringent and prevents procompetitive transactions, several states have passed COPA (or “cooperative agreement”) laws to permit healthcare providers to enter into transactions that might otherwise be blocked by the FTC. Proponents of COPAs believe that they allow healthcare providers to enter into transactions that eliminate costly duplicative services, achieve clinical efficiencies, facilitate more integrated care, and enable other community health benefits. Continue Reading FTC to Study the Impact of COPAs

Payers, Providers, and Patients – Oh My! Is Crowell & Moring’s biweekly health care podcast, discussing legal and regulatory issues that affect health care entities’ in-house counsel, executives, and investors. In this episode, hosts Payal Nanavati and Joe Records discuss recent FDA guidance related to digital health with Jodi Daniel and Shaina Vinayek. For more information on this topic, please see our previous blog post.

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In September 2019, the Food & Drug Administration (FDA) issued a new draft “Clinical Decision Support Software” guidance for public comments, which are due December 26, 2019. Concurrently, the agency published updates to four related guidance documents centered on regulation of digital health software products along with a consolidated summary titled “Changes to Existing Medical Software Policies Resulting from Section 3060 of the 21st Century Cures Act,[1] but is not soliciting comment on those. All of these guidance documents now account for the exclusion of certain software functions from the definition of “device” under the 21st Century Cures Act (Cures Act) amendments to the Food, Drug, and Cosmetic Act (FDCA) in 2016 and clarify FDA’s enforcement and monitoring positions vis-à-vis its legal authorities.

The rapid expansion of software and mobile medical applications in health care has made this guidance necessary in order to manage the FDA’s regulatory scope and provide clarity to medical device and health care companies seeking to use more software and mobile app solutions in their products and services. Digital health stakeholders, particularly medical device manufacturers, software developers, and mobile medical application developers should consider the effect of these guidance documents on their go-to-market strategies and submit comments regarding items from the FDA’s newest guidance documents that would create unnecessary burden or not address patient safety issues or other risks that FDA seeks to mitigate. We summarize the key points of each of the FDA’s guidance documents below.

Continue Reading FDA Seeks Comment on Clinical Decision Support Software Guidance and Issues Policy Updates on its Oversight Authority Regarding Medical Software and Apps

Payers, Providers, and Patients – Oh My! Is Crowell & Moring’s biweekly health care podcast, discussing legal and regulatory issues that affect health care entities’ in-house counsel, executives, and investors. In this “deep dive” episode, hosts Payal Nanavati and Joe Records talk to Barbara Ryland about benefits under Medicare Part C.

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On October 3, President Trump signed an Executive Order on Protecting and Improving Medicare for Our Nation’s Seniors (EO), directing the Department of Health and Human Services (HHS) to develop various proposals to “protect and improve the Medicare” program as an alternative to the Medicare for All Act.

The EO aims to:

• Expand Medicare Advantage (MA),
• Encourage innovative plan designs, and
• Reduce regulatory burdens on providers

These policies, if implemented, could have a major impact on Medicare Advantage, Medicare generally, and the health care entities that provide various services and products to the people enrolled in these plans.

Medicare Advantage Policies

An increasing number of seniors eligible for Medicare are enrolling in MA plans operated by private insurers. The Administration already has expanded services offered under MA plans to cover additional supplemental benefits that basic Medicare does not, including, inter alia, limited dental, hearing, and vision coverage; gym memberships; transportation to medical appointments; and home-delivered meals (for more information on recent changes to supplemental benefits, click here).

The EO requires HHS to propose regulation within one year to provide seniors with more choices including by: (i) reducing barriers that limit adoption of Medicare medical savings accounts; and (ii) creating a payment model that adjusts MA supplemental benefits to allow seniors to more directly share in cost savings that MA plans generate, including monetary rebates creating incentives to seek high value care.

HHS also has one year to propose regulation to adjust network adequacy requirements for MA Plans to take into account the competitiveness of a state’s market, including whether those states have certificate of need laws, and consider in network adequacy enhanced access through telehealth services and other technologies.

In addition to premium concerns in MA, HHS must develop a report within 180 days identifying approaches to modify Medicare fee for service (FFS) payments to more closely reflect prices paid in MA and the commercial market. HHS must study: (i) shared savings and competitive bidding; (ii) use of MA-negotiated rates to set FFS Medicare rates; and (iii) novel approaches to information development and sharing that may enable markets to lower cost and improve quality for FFS Medicare beneficiaries.

Encouraging Innovation

The EO also requires HHS to propose regulatory changes to bring innovative products, including medical devices and telehealth services, to the market faster. HHS must devise a way to streamline approval by the FDA and CMS’s coverage and coding processes. The EO directs HHS to adopt regulations and guidance to clarify the application of coverage standards, including the evidentiary standards CMS uses in applying its reasonable-and-necessary standard, the standards for deciding appeals of coverage decisions, and the prioritization and timeline for each National Coverage Determination process in light of changes made to local coverage determination processes.

The EO also aims to encourage innovation by asking HHS to modify the Value-Based Insurance Design (VBID) payment model to remove any disincentives for MA plans to cover items and services that make use of new technologies that are not covered by FFS Medicare. CMS currently is using this model to test various MA service delivery and/or payment approaches.

Quality and Cost Data

The EO directs HHS to propose regulations within one year to provide seniors with more quality care and cost data to provide opportunities to make more informed choices. In addition, HHS is directed to disseminate Medicare claims data to health providers regarding practice patterns that may pose undue risks to patients or about outlier practice patterns. This may subject providers to additional data collection and reporting.

Fraud and Abuse

The EO also generally calls for HHS to propose changes in the Medicare program to reduce fraud, waste, and abuse; reduce burdens on providers and eliminate inefficiencies; propose other improvements to Medicare enrollment processes; and remove barriers to private contracts that allow Medicare beneficiaries to obtain the care of their choice and facilitate the development of market-driven prices.

What’s Next?

It remains to be seen how these policies will be enacted by HHS, but it will be important to watch for these regulations in the next year as they are developed given their broad impact. The EO calls on HHS to make changes in a number of areas requiring many proposed regulations to be developed within the year. Given the continued focus on healthcare heading into an election year, these proposals may generate significant interest and commentary from stakeholders and politicians alike.