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Joe Records is an associate at Crowell & Moring LLP. He is admitted in Maryland only.

In its recent notice of proposed rulemaking setting policy for Medicare Advantage (MA) and the Prescription Drug Program (PDP) for calendar year 2020, CMS announced that it would establish extrapolation as a method to be used in risk adjustment validation (RADV) audits, and further, that it would not make any adjustments to account for errors in Medicare fee for service data in determining recovery amounts.

CMS uses a risk adjustment process to modify MA plan payments to better reflect the relative risk of each plan’s enrollees. Payments to each MA plan are adjusted based on risk scores that reflect enrollees’ health status (categorized into Hierarchical Condition Categories (HCCs)) and demographic characteristics derived from member claims data. To counteract incentives that a plan might have to over-report enrollee diagnoses, CMS emphasizes that all diagnoses submitted to enhance risk must be documented in a medical record, and uses RADV audits to ensure that medical record documentation exists, and thus, that payments to MAOs accurately reflect the level of risk assumed. Continue Reading CMS Announces and Solicits Comments on Expanded RADV Audit Methodology

In the most recent technical changes made to Part C and Part D plans for 2019, CMS codified the star ratings methodology in regulations. Now, CMS is proposing changes to these regulations, such as new definitions to clarify the meaning of terminology used in describing the star ratings methodology. In addition, CMS is proposing several changes to improve program quality and accessibility of the Medicare Advantage (MA) and Part D Prescription Drug Program (PDP) Plan Quality Rating for measures other than Consumer Assessment of Healthcare Providers and Systems (CAHPS).

Continue Reading MA/PDP Star Ratings: Proposed Technical Changes for 2020

Federal agencies are signaling closer oversight of Medicaid managed care organizations (“MCOs”). On August 21, 2018, the U.S. Comptroller General Gene Dodaro and Centers for Medicare and Medicaid Services (“CMS”) Administrator Seema Verma testified to the Senate Homeland Security and Governmental Affairs Committee about combating Medicaid fraud and urged additional oversight of Medicaid MCOs and a larger restructuring of the Medicaid program. This testimony follows other steps taken by the Governmental Accountability Office (“GAO”) and CMS earlier this year to encourage increased scrutiny of Medicaid managed care programs.

GAO Reports Recommend Improved Oversight

           Over the past few months, GAO has released several reports focused on program integrity issues in Medicaid and urging increased oversight, including in the managed care context.

           In May, the GAO released the results of a study it conducted to determine whether the methodology used by CMS to calculate program integrity risks adequately measured the risks in the Medicaid managed care context. Using the Payment Error Rate Measurement (“PERM”) methodology, CMS had estimated that $37 billion in improper Medicaid payments were made in fiscal year 2017, equaling about 10.1 percent of the $364 billion in federal spending on Medicaid. For Medicaid managed care, which constitutes about half of total federal Medicaid expenditures, the improper payment rate determined under the PERM methodology was only 0.3 percent ($500 million in improper payments out of $171 billion in expenditures). In its study, the GAO found that the PERM methodology may not account for key program integrity risks such as unidentified overpayments and unallowable costs. GAO recommended that CMS take steps to mitigate program risks not measured in the PERM, consider revising the PERM methodology, or focus additional audit resources on managed care.

           In July, GAO released another report analyzing payment risks in Medicaid managed care, based on interviews with state program integrity stakeholders in ten states. The study identified six payment risks, four of which relate to the payments made by Medicaid agencies to MCOs and two of which relate to payments by MCOs to providers. The report identified two of the payment risks as being the most significant: (1) incorrect fee-for-service payments from managed care organizations to providers, and (2) inaccurate state payments to managed care organizations due to payments being determined on incorrect data. GAO recommended that CMS expedite planned guidance on Medicaid managed care program integrity, address impediments to managed care audits, and ensure that states account for overpayments when setting future capitation rates.

           The GAO has also released several other reports on Medicaid program integrity not specific to managed care. For instance, in June, GAO released a report highlighting the major program integrity risks for the Medicaid program generally. In August, GAO released reports assessing CMS’s oversight of state-reported Medicaid expenditures and recommending additional actions CMS could take to improve oversight of Medicaid.

CMS Increases Oversight

           CMS has taken steps to increase overall Medicaid program integrity oversight. On June 26, 2018, CMS announced several new initiatives and increased emphasis on existing initiatives intended to improve Medicaid program integrity and maintain sustainability of the program. In its press release on the initiatives, CMS noted that Medicaid spending has rapidly increased over recent years due to several factors, with specific mention of the Medicaid expansion. Three of the main initiatives aim to

  1. Emphasize program integrity in audits of state claims for federal match funds and medical loss ratios (MLRs).
  2. Conduct new audits of state beneficiary eligibility determinations.
  3. Optimize state-provided claims and provider data.

The initiatives enhance audit functions, oversight of state contracts with private payers, beneficiary eligibility oversight, and enforcement of state compliance.

Senate Testimony

           On August 21, 2018, Comptroller General Dodaro and Administrator Verma testified before the Senate Homeland Security and Governmental Affairs Committee on the topic of combatting Medicaid fraud. As committee members questioned Dodaro and Verma about oversight of Medicaid managed care programs, all parties appeared to support greater scrutiny.

           Notably, both Dodaro and Verma urged the senators to increase auditors’ review of managed care organizations. Administrator Verma specifically discussed a recent action by CMS to recoup an anticipated $9.5 billion in improper payments made by the State of California to managed care organization. Her written testimony echoed “concerns that managed care rates resulted in significant profits for insurance companies . . . .”

           Comptroller General Dodaro recommended that CMS utilize state auditors to reduce improper Medicaid payments and hold Medicaid programs accountable. He suggested that it would be a “game changer” to involve state auditors in a “substantive, ongoing way.” He noted that Medicaid is projected to cost the federal government and states nearly $1 trillion annually by 2025 and that the program accounts for one-third of many state budgets.

           Verma and Dodaro also directed particular criticism at the use of federal Medicaid funds on the Medicaid expansion population, as provided for under the Patient Protection and Affordable Care Act (the “ACA”). Dodaro criticized the Obama administration for not increasing oversight of Medicaid managed care plans upon the increased Medicaid enrollment caused by the expansion.

           In her testimony, Verma emphasized her support for structural changes to the Medicaid program, which she described as an “open-ended entitlement.” Administrator Verma attributed some of the government’s overspending to the high match rates that states receive for the Medicaid expansion population and urged for a new system that would make states accountable for outcomes. For example, she noted that the high match rate may have incentivized states to improperly keep pregnant women enrolled in the expansion population rather than appropriately transition them to traditional Medicaid when they become pregnant, as traditional Medicaid has a lower match rate.

           Overall, the committee members, Comptroller General Dodaro, and Administrator Verma all agreed that increased oversight is necessary under Medicaid managed care programs.

Conclusion

           Taken together, the reports, announcements, and testimony discussed here provide a clear signal from the Administration that Medicaid managed care is likely to become subject to increasing scrutiny. CMS and federal and state auditors have not yet taken significant concrete action, but MCOs may be well served to proactively evaluate and address program integrity risks related to their payments to providers and their premium rate payments from states.

Iowa has enacted legislation to permit the offering of certain health benefit plans that would not be subject to the restrictions of the Affordable Care Act (ACA).

The bill combined two separate measures, each intended to expand access to association health plans (AHPs) that are exempt from many of the ACA’s protections. First, the new law would allow small employers to band together to form associations that would be eligible to offer members’ employees coverage as if they were a single large employer group, which would be subject to less burdensome regulation under the ACA. Second, a health benefit plan sponsored by a nonprofit agricultural organization domiciled in Iowa (the Iowa Farm Bureau Federation) and covered by a third-party administrator that has administered the organization’s health benefits plan for more than 10 years (Wellmark Blue Cross & Blue Shield) is exempt from the definition of insurance that is subject to regulation by the state insurance department.

Recently, AHPs have been touted by opponents of the ACA as a tool to avoid its effects for larger covered populations. Iowa’s measure follows an executive order by President Trump last fall directing the administration to, among other things, promote the use of AHPs. In response to that order, the Department of Labor proposed a rule that would expand the definition of AHP to allow employers greater access to AHP coverage. As we noted in a previous post, several states have pressed the idea through comments to that proposed rule that expanded access to AHPs would create opportunities for employers to offer more affordable coverage.

The impact of Iowa’s enactment remains to be seen. Critics of the measure have expressed concern that it will water down consumer protections by exempting coverage from ACA requirements that plans cover essential health benefits, such as maternity and mental health care. Although plans could continue to include such benefits, they would not be legally obligated to do so, and could cut costs by eliminating coverage for broad categories of health care. Continue Reading Iowa Enacts Legislation to Broaden Access to Association Health Plans

On Thursday, March 22, the U.S. Office of Personnel Management (OPM) and America’s Health Insurance Plans (AHIP) hosted the annual Federal Employees Health Benefits (FEHB) Program Carrier Conference. The conference featured OPM’s policy and contracting priorities for the FEHB Program for 2018. It followed and discussed OPM’s FEHB Program Call Letter (available here), which provides a high-level outline of its intentions for contract negotiations for plan year 2019.

This year’s Carrier Conference included three key highlights for FEHB carriers:

  1. OPM will re-open the Indemnity Benefit Plan to contract with either a nationwide carrier or a consortium of carriers to begin offering coverage in 2020.
  2. OPM is seeking legislative changes to apply the Anti-Kickback Statute to the FEHB Program.
  3. OPM is interested in Plans improving value by offering Accountable Care Organization or other innovative models

Continue Reading Federal Employees Health Benefits Program 2018 Carrier Conference Highlights

The U.S. Supreme Court unanimously decided, in Coventry Health Care of Missouri, Inc. v. Nevils, that the Federal Employees Health Benefits Act (FEHBA) preempts state laws that prohibit subrogation recovery by health insurance carriers.

FEHBA expressly preempts state law. Specifically, “[t]he terms of any contract under this chapter [5 U.S.C. § 8901, et seq.] which relate to nature, provision, or extent of coverage or benefits (including payments with respect to benefits)” preempt state health insurance laws and regulations. Contracts between the Office of Personnel Management (OPM) and a health insurance carrier under the Federal Employees Health Benefits Program (FEHBP) each include a provision requiring the carrier to subrogate and pursue reimbursement of FEHB claims and to condition benefits on the carrier’s rights to subrogation and reimbursement.

The plaintiff in this case, a former federal employee, was injured in an automobile accident and received medical treatment covered under his FEHBP plan. He then sued and recovered a settlement award based on the accident. His FEHBP carrier asserted a lien against his settlement award and recovered the costs of his medical treatment pursuant to its FEHBP contract. The plaintiff then sued the carrier, alleging that its recovery of the costs of his medical treatment was prohibited by Missouri state law.

The Court first discussed whether FEHBA’s preemption provision preempts state laws that would prohibit a carrier’s right to recover subrogation, and then discussed whether such preemption is prohibited by the Supremacy Clause.

According to the Court, the language of FEHBA’s preemption clause unambiguously covers the contractual subrogation provision. The decision briefly acknowledges the presumption against preemption of state law, which the Missouri Supreme Court decision on appeal had applied to find no preemption of state law. In addition, the Court points to regulations at 5 C.F.R. § 890.106 promulgated by OPM in 2015 that specifically call for the contract provisions requiring subrogation and reimbursement. But the Court declined to analyze the presumption or the regulations in depth, finding that the statutory language unambiguously requires preemption and is reinforced by FEHBA’s context and purpose. The decision distinguishes its decision from dicta in Empire HealthChoice Assurance, Inc. v. McVeigh, 547 U.S. 677 (2006), in which the Court saw two plausible readings of the FEHBA preemption clause. The Court noted that its decision in that case turned on jurisdiction, not on choice of law, and the case did not require the Court to evaluate different readings of the provision.

After finding that FEHBA’s preemption clause covered the contractual provision requiring subrogation and reimbursement, the Court turned to the constitutional question of whether the Supremacy Clause allows preemption based on the terms of federal contracts. The Court held that preemption is constitutional because it is FEHBA—not the contract—that preempts state law. The decision dismisses the counterargument that FEHBA’s preemption provision (uniquely among preemption clauses) calls for the “terms of any contract” to supersede and preempt state law whereas the Supremacy Clause provides that only federal laws can preempt state laws. The Court characterized this argument as elevating “semantics over substance” because the language manifests the same Congressional intent to preempt.

By holding that FEHBA preempts state law, and that such preemption is constitutionally permissible, this decision ends a series of disputes between private litigants and FEHBP carriers over whether state subrogation prohibitions applied to health benefits covered under the FEHBP. Soon after its decision in Nevils, the Court denied certiorari for two other cases dealing with FEHBA preemption of state subrogation prohibitions, Bell v. Blue Cross and Blue Shield of Oklahoma, and Kobold v. Aetna Life Insurance Co.

In an Interim Final Rule with Comment Period (IFC) published on March 21, 2017, CMS provided that implementation of the EPMs for cardiac and orthopedic care improvement, the cardiac rehabilitation incentive payment model, and the changes to the Comprehensive Care for Joint Replacement (CJR) model would be delayed from July 1, 2017 to October 1, 2017.

The final rules being delayed were published on January 3, 2017 by the outgoing administration. The EPM rules call for mandatory participation by hospitals within certain geographical areas—a feature that drew criticism from current Secretary of Health and Human Services Secretary Tom Price, among others.

Further changes or additional delays to the EPMs may be forthcoming. The IFC indicates that the implementation “delay is necessary to allow time for additional review, to ensure that the agency has adequate time to undertake notice and comment rulemaking to modify the policy if modifications are warranted, and to ensure that in such a case participants have a clear understanding of the governing rules . . . .” The delay may be designed to afford time for the development and promulgation of substantive changes to the models.

The IFC also specifically requests “comment on a longer delay of the applicability (model start) date, including to January 1, 2018 . . . .” CMS notes that the delay from July 1 to October 1 would leave performance year 2017 uncommonly short at only three months. This express invitation for comments suggests that CMS is at least open to—and likely is already considering—the possibility of further delay.

Comments on the delay are due to CMS by April 19, 2017.

On December 5, 2016, the U.S. Court of Appeals for the D.C. Circuit issued an order to stay  the administration’s appeal of the district court decision in U.S. House of Representatives v. Burwell, a case challenging Cost-Sharing Reduction (“CSR”) payments to health insurance issuers under the Affordable Care Act (“ACA”) Section 1402. The district court decision found that the House of Representatives had standing to sue the executive branch, that reimbursements to health insurance issuers for CSR requires an appropriation by Congress, and that the Obama Administration’s reimbursements to issuers of CSR without an annual appropriation was illegal. The D.C. Circuit’s stay order directed the parties to “file motions to govern further proceedings by February 21, 2017”—one month after President-elect Donald Trump’s inauguration.

Impact of the Stay Order

In effect, the D.C. Circuit’s order provides additional time for the president-elect to consider whether to withdraw the administration’s appeal and what will happen if it does so. If the Trump Administration withdraws the appeal, the district court’s holding will stand, cutting off CSR payments to health insurance issuers absent an appropriation by Congress. The stay order also provides time for the new administration and Congress to enact policy changes that would moot the case, either by repealing the applicable provisions or by appropriating funds for CSR payments.

It is not yet clear whether the Trump Administration will drop the appeal. On its face, the House Republicans’ challenge to CSR payments was an attack against the ACA. It eliminates certain payments to issuers of health insurance plans on ACA Exchanges unless Congress specifically appropriates funds for those payments (which it has not), making it impracticable to offer such plans and thereby hindering the viability of the exchanges. President-elect Trump has promised to repeal the ACA, which suggests that the district court’s decision prohibiting CSR payment absent an appropriation is consistent with his overall policy objectives. But, the decision found that a chamber of Congress has standing to raise a legal challenge in federal court against the exercise of executive power—a potentially unwelcome precedent for the Trump administration to leave unchallenged.

If the Trump administration does not withdraw the appeal, it may nevertheless become moot as the result of legislative changes. Specifically, Congress could appropriate amounts for CSR payments to maintain the status quo until the ACA is repealed or Congress could repeal those provisions of the ACA authorizing payment of CSRs. The absence of CSR payments would likely force issuers to leave exchange markets, causing losses of coverage and fewer options for individuals. Despite promises to immediately repeal the ACA, the political consequences of many individuals’ losses of coverage before replacement is enacted may be untenable.

The district court stayed its decision pending appeal, and issuers have continued to receive CSR payments to compensate for the reduction or elimination of enrollee cost-sharing amounts as required by the ACA. For the immediate future, the stay of the district court’s opinion permits continued reimbursements to issuers for CSR. The Trump Administration, however, could opt to discontinue making those payments even while the stay is in place by declining to make payments in the absence of an appropriation. If the administration drops the appeal without repealing ACA Section 1402, issuers would remain obligated to provide CSRs to enrollees, but they would not be reimbursed for the costs of those CSRs as required by the statute.

Options for Issuers

In the event that the Trump administration drops the appeal or otherwise leaves issuers with an uncompensated-for obligation to continue CSRs for enrollees, issuers may have several options.

First, issuers may file suit in the Court of Federal Claims under the Tucker Act to be made whole for any CSR payments to enrollees for which the government failed to make timely payment. The CSR statute obligates the federal government to make payments to issuers, and the absence of an appropriation to make such payments does not preclude a claim for payment under the Tucker Act. The Obama Administration acknowledged as much in its briefing before the district court.

Second, issuers may seek to terminate their qualified health plan (QHP) issuer agreements. To offer QHPs on federally facilitated and federal-state partnership exchange, issuers signed QHP issuer agreements that contain a provision allowing the issuer “to terminate this Agreement subject to applicable state and federal law.” Note, however, that termination of the issuer agreement would not affect state law obligations, such as requirements to continue coverage for enrollees for a full policy period. Even if the QHP issuer agreement is terminated, careful analysis would be necessary to determine whether and how a plan may be terminated or discontinued.

Finally, issuers may seek legislative or regulatory relief from the CSR provisions. The president-elect has repeatedly promised to repeal the ACA, but it is possible that an intermediate solution may be reached that achieves the dismantling of the Act without leaving health insurance issuers that participated in Exchanges with significant financial obligations for which they cannot be reimbursed.

The Government Accountability Office (GAO), in a letter to members of Congress, found that the implementation of the Transitional Reinsurance Program by the U.S. Department of Health and Human Services (HHS) violates the Affordable Care Act.

The Transitional Reinsurance Program is one of three premium stabilization programs authorized by the Affordable Care Act (ACA), commonly known as the “Three Rs.” These programs were designed to soften the impact of ACA reforms, such as guaranteed availability and the prohibition against preexisting condition limitations, that brought new health risks into the insurance markets.

Section 1341 of the ACA (42 U.S.C. § 18061) directs HHS to establish the Transitional Reinsurance Program and sets forth specific amounts for HHS to collect under the program. The statute states that the Program “shall be designed so that” HHS collects $10 billion for plan years beginning in 2014, $6 billion for 2015, and $4 billion for 2016. For each year, HHS would distribute the reinsurance amounts collected under the Program to health insurance issuers based on the number of “high-risk individuals” covered under the issuer’s commercial lines of business. In addition, the statute calls for $2 billion to be collected by HHS and paid to the Treasury for 2014, another $2 billion for 2015, and $1 billion for 2016, in addition to the costs of administering the Transitional Reinsurance Program.

HHS promulgated regulations and guidance to establish the Transitional Reinsurance Program, initially stating that, in the likely event of a shortfall, it would allocate funds on a pro rata basis to reinsurance claims, the Treasury, and administrative costs. HHS later adjusted its allocation scheme to pay reinsurance claims first and to reserve collected reinsurance amounts in excess of claims to pay reinsurance claims in future years. For example, for 2014, HHS aimed to collect $12.02 billion, but collected only $9.7 billion. It paid reinsurance claims in full, amounting to $7.9 billion, which left approximately $1.7 billion in collections under the Program. HHS remitted no funds to the Treasury, and reserved the $1.7 billion in collections that exceeded claims to be used to pay reinsurance claims in future years.

In April 2016, several members of Congress sent a letter to GAO requesting its opinion on whether HHS had exceeded its authority by declining to make a payment to the Treasury. HHS’ articulated position to GAO was that the statute failed to expressly address how HHS should allocate collected funds in the event of a shortfall, and that the amounts to be paid to the Treasury were described in the statute as “in addition” to reinsurance amounts, so the Secretary had discretion to prioritize future years’ reinsurance payments over contributions to the Treasury. GAO disagreed, concluding that HHS “lacks authority to ignore the statute’s directive to deposit amounts from collections under the transitional reinsurance program in the Treasury and instead make deposits to the Treasury only if its collections reach the amounts for reinsurance payments specified in section 1341.”

Beginning January 1, 2016, the Federal Employees Health Benefits Program (FEHBP) will include a self plus one enrollment option for its members. For 2015 and previous years, federal employees and annuitants enrolling in FEHBP plans had only two options, self only or self and family. The change was initially mandated by the 2013 Bipartisan Budget Act, and the U.S. Office of Personnel Management (OPM) published regulations on September 17, 2015 finalizing implementation of the self plus one enrollment type.

The new self plus one option will allow FEHBP members with one eligible dependent to enroll in a potentially less-expensive plan option than self and family. The rule does not impact eligibility for FEHBP benefits, either for employees and annuitants or for dependents, nor does it generally change the processes for members to enroll in coverage or modify coverage during the year. Premium conversion members—that is, FEHBP members whose shares of premiums are paid with pre-tax dollars, including most active employees—may enroll and change enrollment either during the open season in November and December of each year or upon the occurrence of a Qualifying Life Event (QLE). Like newly enrolling or changing from one plan to another, switching a covered family member will be permitted only during open enrollment or following a QLE. In addition to during open season and after QLEs, non-premium conversion members, including annuitants, may decrease enrollment type at any time by moving from self and family to self plus one or self only or from self plus one to self only. To address the novelty of the self plus one enrollment type and mitigate the effects of member confusion, in early 2016, OPM will allow a special “limited enrollment period” that will allow premium conversion members to decrease coverage from self and family to self plus one.

Continue Reading OPM Finalizes Regulations Implementing Self Plus One Enrollment Type for FEHBP and Addresses Carriers’ Cost Concerns