• A New Look at Digital Health Business Models
• Is SB-17 Real Progress on Drug Pricing—or an Illusion?
• New Webinar: Discover the Megatrends Remapping the Pharmaceutical Market
• Integrating MassHealth LTSS: Considerations for ACOs and MCOs
• Tennessee Approves Ballad Health COPA Over FTC Protests
• Now on Demand: ‘Fraud and Abuse 2017’
• Understanding New York State’s Proposed Single Payer Bill
• Justice Department Abandons Medicare Advantage FCA Suit Against UnitedHealth

A New Look at Digital Health Business Models

By William Bernstein, Partner, Chair, Manatt Health | Jill DeGraff, Partner, Manatt Health | Jared Augenstein, Senior Manager, Manatt Health

Editor’s Note: The Commonwealth Fund is developing an innovative digital health advisor (DHA)—an integrated suite of digital services that would provide consumers with health information, connect them with care providers and empower them to achieve their health goals. The DHA—named Sage—would be key to connecting care providers with patients and helping consumers address a broad range of health-related questions, decisions and tasks. To help advance this exciting initiative, Manatt Health performed a research project for The Commonwealth Fund to understand the current state of digital health business models and to learn from digital health experts which types of models would support a successful DHA. The research consisted of interviews throughout the summer of 2017 with digital health leaders from 14 organizations, including investors, industry analysts, technology innovators, health system executives and a leading drug manufacturer. Below is a summary of key results.

We shared an in-depth look at building a sustainable business model for digital health, including the results of our research and paths to making digital health more accessible and useful, at a recent webinar for The Commonwealth Fund. To view the program free, click here.

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Few observers doubt that machine learning, voice assistants and technologies we haven’t even heard of yet will supplant our traditional “brick-and-mortar” health system. Future technologies will be matched with business models that enable a new paradigm of care—one that may not be tethered to health plans or providers. In the meantime, innovators are left to ponder how to pay for their digitally supported applications.

To help understand—and begin to resolve—the complexities around launching and sustaining a robust digital health advisor, like the one The Commonwealth Fund envisions in Sage, Manatt Health spoke to leading digital experts across the country. Here are the insights and guidance they shared.

Industry Leaders Disagree About the Prospects for a Digital Health Advisor

A key challenge with adopting a human-centered design approach—like the one Sage would use—is that its features would need to become part of consumers’ online workflows. Some see overcoming this challenge as a critical and achievable goal, while others are less certain about the future for digital health apps. One health system executive we interviewed declared that getting patients online with his health system is his first priority, followed by building a digital presence that makes his system relevant to consumers between episodes of care.

One veteran investor, however, expressed doubt about the prospects for a digital health advisor, believing that consumers simply aren’t interested enough in digital health to support a sustainable revenue model. According to the investor, “People don’t want to use [health apps] unless they are desperate—either they have cancer or their kids are really sick. In practice, people just aren’t excited about health apps.”

Seniors, Their Caregivers or Underserved Populations Are Not the Target Users

One health system executive described his system’s lofty expectations for digital health to help improve access and outcomes for underserved populations. In spite of the initial enthusiasm, he shared that his health system chose to stop piloting digital health for underserved communities, because the populations didn’t have smartphones, were not facile with them, or weren’t connected to a data plan or Wi-Fi. Instead, his health system has shifted its attention to digital health applications that enhance its ability to improve fee-for-service revenue from commercial plans.

Another industry observer believes that Medicaid and Medicare managed care organizations could do more to address the spectrum of unmet needs among dual-eligible populations. She advocates a toolkit approach that would allow plans to test digital health services to learn what individuals need and which services would be of greatest benefit. Plans should not need to wait for scientifically rigorous evaluations. They can do their own assessments to determine how best to apply digital health to benefit specific populations.

Should a Digital Health Entrepreneur Sell to Health Plans or Health Systems?

Depending on their industry vantage point, the executives we interviewed hold vastly opposing views about whether health plans or health systems would be the most effective go-to-market entry point for digital health tools. Health system executives believe they can be most successful in building online relationships with patients, based on the trust patients have in their healthcare providers.

Health plan executives challenge this perspective, however, with one pointing out that health systems tend to be financially constrained and sometimes internally conflicted about their investment priorities. For example, to defend revenues, a health system might be more likely to invest in recruiting physicians with strong referral networks rather than in services to build consumer loyalty.

A few leaders observe that health plans regard consumer-centered features as strategic levers to attract and retain members, because these features can decrease marketing costs and extend the timeline for plans to generate returns on their R&D investments. Plans’ financial responsibility for target populations also motivates them to test and implement clinically oriented point solutions. Plans view innovation as a way to help employers reduce medical spending without shifting more of the cost burden to their employees.

Some Organizations Are Better Positioned Than Others to Invest in Digital Health

Our research revealed some common characteristics that entrepreneurs should look for when prequalifying their potential buyers: 

• Deep financial resources. Potential buyers should have sufficient resources to support large up-front development costs and a comprehensive, multiyear digital health strategy.
• In-house product development capability. A skilled technology development team is critical to building, testing and implementing the convenience-oriented features that drive digital health success.
• Financial alignment. Entrepreneurs should seek buyers who are financially aligned with high-value care delivery.
• A competitive position in the commercial insurance market. The desire to improve their competitive position with employers is an important characteristic of potential buyers.
• Consumer acquisition and retention. Entrepreneurs should look for buyers who place building and sustaining online relationships with consumers among their strategic priorities.
• Scale. Potential buyers should have a large enough patient or member base to ensure their digital health services will yield a meaningful impact.

Entrepreneurs may find that more health plans than health systems possess these characteristics. According to one health system executive, only a handful of health systems can afford to have the patient density, geographic reach and balance sheet to make sustained, multiyear investments in digital health. For healthcare, the path to digital adoption may well be a B2B strategy, where the largest health systems eventually commercialize their digital health platforms for smaller health systems.

It’s Critical to Understand How Buyers Evaluate Digital Health Solutions

When the objective of a digital health solution is to inspire brand loyalty, buyers typically consider the target user to be a head of household who controls 90% of healthcare decisions for the family. Even when the objective is to reduce medical spending, target users are not necessarily those in the sickest populations, such as older adults or the chronically ill. Instead, buyers target those populations most likely to welcome and benefit from technology.

For example, one health plan executive designed a digital health pilot specifically for teenagers with type 1 diabetes. Not only are these teenagers tech-savvy, they are motivated to engage in their health because they already make “15 life-saving decisions a day” and, developmentally, they want to act with autonomy. In addition, diabetes is a condition of sufficient magnitude to justify covering the digital solution as a plan benefit offered by employers.

Drug Manufacturers May Play a Larger Role in Digital Health

One executive flagged an emerging trend among drug manufacturers: the development of digital therapeutics. Designed to demonstrate and maximize adherence, these services involve a combination of digitally enabled support services coupled with a therapy.

The trend is a response to complaints among employers about their high drug spending. It also appeals to drug manufacturers by helping them gain market access for their emerging, more expensive personalized therapies.

What Are the Implications for Entrepreneurs and Investors?

A common refrain heard during our interviews is that healthcare cannot out-innovate the technology sector. The technology sector excels at both advancing technology and disrupting business models.

The time may have come for innovators to replace the prevailing business models in healthcare with one that views individuals holistically. This is The Commonwealth Fund’s vision for the Sage digital health advisor.

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Is SB-17 Real Progress on Drug Pricing—or an Illusion?

By Ian Spatz, Senior Advisor, Manatt Health

Editor’s Note: In a recent article for the Health Affairs Blog, Manatt Health examines the California legislature’s recent passage of SB-17 to facilitate greater transparency in brand-name and generic drug pricing. On October 10, after the article’s publication, California Governor Jerry Brown signed SB-17 into law. Summarized below, the Health Affairs Blog post addresses whether SB-17 truly represents meaningful change—or just gives the illusion of progress. To read the full Blog post, click here.

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On September 13, 2017, the California state Senate followed the Assembly in passing SB-17 to increase the transparency around brand-name and generic drug pricing. California Senator Ed Hernandez called the legislation “one of the most transformative pieces of health legislation in the country.”

Governor Jerry Brown has now signed the bill into law. Backed by a broad coalition of consumer advocates, insurers, employers and unions, and opposed by the Pharmaceutical Research and Manufacturers of America (PhRMA) and life sciences companies, SB-17 is unlikely to have any impact on drug prices—other than, potentially, to push them higher.

A Public Policy Conundrum

The context for SB-17 is the increasingly charged political atmosphere around drug pricing. President Trump’s statement that drug companies are “getting away with murder” has added a bipartisan note to the debate.

Drug pricing represents a political conundrum. On one hand, policies such as patents and market exclusivity give drug manufacturers the power to set and raise prices, so they have the incentive to undertake risky research and development work. On the other hand, once a new drug comes out, everyone wants to pay less to address cost and access concerns.

Congress and state legislatures have failed to wrestle this conundrum to the ground. Several proposals—such as prescription drug importation—have gotten close to passage, only to fall short in the end.

Key Provisions of SB-17

SB-17 represents one of the new strategies—often pursued at the state level—to push drug companies into reducing their prices and price increases. The bill, as finally approved by the legislature and signed by Governor Brown, has several key provisions:

1. SB-17 requires health plans to describe the components of their premium increases, presumably to blame growing costs on prescription drugs. However, as inpatient and outpatient care make up a larger portion of health spending than drugs, the reports are likely to highlight these factors as relatively stronger drivers of health insurance cost increases.
2. Starting in 2019, SB-17 requires drug manufacturers to prepare a report to the state—which would appear quarterly on the web—for any drug that had increased its list price by at least 16% over a period of less than three years. The report must include factors such as pricing history; the reasons for the increase, including any changes to the drug; and the drug’s patent expiration date. For acquired drugs, the report has to include the acquisition prices. This transparency is virtually useless. It applies only to the wholesale acquisition or list price, which is already readily available—and is not the price that insurers and pharmacy benefit managers actually pay, because it doesn’t include rebates and other discounts. In addition, the legislation is clear that drugmakers are not required to report any information that is not already in the public domain. In essence, it requires companies to make transparent what is already transparent.
3. SB-17 requires a similar report for any new specialty drug, which the legislation defines as any drug costing $670 a month or more. Like the other report, the specialty drug report does not require manufacturers to reveal anything that isn’t already public.
4. Most significantly, SB-17 requires companies meeting the threshold of a product price increase of at least 16% over less than three years to provide customers with 60-days’ advance notice of the increase. Given that price increases consistently stay close to but just below the 10% mark—with increases averaging 9.8% in 2016, according to Credit Suisse—this threshold means most brand-name drug price increases would trigger advance notices. What will customers do with this information? The bill’s sponsors assert the advance notice will aid purchasers, perhaps leading to a scale-back in prices. Purchasers, however, already can push back against increases through rebate negotiations, so it’s unclear how advance notice will facilitate that process. There is the theory that manufacturers will be reluctant to increase prices and trigger a notice. In reality, however, the trigger point is so low that most increases will generate notices—and companies willing to live with the public relations consequences of price increases are unlikely to be moved by experiencing those consequences 60 days earlier.

Potential Negative Consequences 

Countering the illusory advantages of the advance price increase notices is the risk of unintended negative consequences. We can expect drug wholesalers and distributors to react to the notices by increasing their purchasing to beat the price rise. Basically, they can buy low and sell their inventory at higher prices later.

Even more troubling, the disclosures that SB-17 mandates may provide competitors with information that would allow them to coordinate tacitly to raise prices. While directly working with competitors to set prices is a violation of antitrust law, drugmakers certainly keep an eye on each other’s pricing—and the SB-17 disclosures would make competitive pricing information even more easily accessible.

In highly competitive markets, price transparency can be a force that brings prices down. In the prescription drug world, however, many classes of drugs have few competitors. Therefore, there is a greater risk that competitors will look at a dominant competitive brand’s price increase to judge how far they might go without risking a significant loss of sales. While this is already an industry dynamic, SB-17 has the potential to make such price shadowing easier.

With SB-17, competitors only have to wait for the 60-day notice to become public to see each other’s final price changes. They can then decide on their own strategies and issue their own notices. Furthermore, as there is no requirement to proceed with the noticed increases, competitors can take each other’s actions into account before finalizing their own prices—without ever speaking to each other.

Whether such behavior raises antitrust concerns is beyond the scope of this article. It is safe to anticipate, however, that manufacturers would offer the defense that the price disclosures were required by California law. It is also important to note that the price increases that SB-17 might theoretically drive would affect all U.S. purchasers.

Conclusion

SB-17 has succeeded in serving as an outlet for frustration with high and rising prescription drug prices. However, it will certainly fail as an actual remedy for the policy conundrum that drug pricing represents—and could potentially cause real harm.

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New Webinar: Discover the Megatrends Remapping the Pharmaceutical Market

Click Here to Register Free—and Join Us on November 14 from 1:00 – 2:00 p.m. ET to Explore the Megatrends Reinventing the Ways Your Patient, Provider and Payer Customers Think.

From the shift to new payment models to the explosion of mHealth to the creation of personalized therapies, powerful trends and disruptive innovations are converging to reshape the healthcare market. Patients, payers and providers are all facing transformational forces that are reinventing healthcare—and redefining how they interact with each other and with you. But which of the trends grabbing headlines are the true game-changers for pharma? How can your organization adapt to a radically changing customer base and excel in the years ahead?

Manatt Health makes sense of today’s tidal wave of change—and reveals the megatrends that life sciences leaders need to watch and respond to—in a new, educational webinar for PharmaVOICE. Click here to register free. During the session, you will:

• Discover the megatrends that are re-creating the life sciences industry and how they relate to new thinking by patients, providers and payers.
• Gain insights into each trend’s trajectory—from its current status to its anticipated impact.
• Explore how the shifts in the patient, payer and provider landscapes will affect life sciences companies—and reinvent business models and relationships.
• Examine the decisions and actions you need to take to help your organization successfully navigate a dramatically different market.
• See each megatrend through your customers’ eyes—and understand their challenges, needs and expectations for pharma.

Because Manatt Health partners with major players across every healthcare segment—including four of the top five payers, eight of the top ten life sciences companies, 30-plus states, and leading health systems across the country—we bring you a unique, 360^o view of each megatrend and its implications. Don’t miss this chance to analyze the change drivers remapping your market—and to prepare to succeed in a new healthcare system. Even if you can’t make our original airing on November 14 from 1:00 – 2:00 p.m. ET, click here to register free now, and receive a link to view the session on demand.

Presenters:

Helen Pfister, Partner, Manatt Health
Annemarie Wouters, Senior Advisor, Manatt Health
Adam Finkelstein, Counsel, Manatt Health

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Integrating MassHealth LTSS: Considerations for ACOs and MCOs

By Stephanie Anthony, Director, Manatt Health

Editor’s Note: In November 2016, the Centers for Medicare & Medicaid Services (CMS) approved a Section 1115 waiver extension request for MassHealth to implement programwide delivery system and payment reforms over the next five years. One of the waiver’s five goals is to “improve integration of physical health, behavioral health, long-term services and supports (LTSS), and health-related social needs.” To accomplish this goal, the waiver creates a Medicaid Accountable Care Organization (ACO)-based delivery system that offers three different ACO models—Accountable Care Partnership Plan, Primary Care ACO and Managed Care Organization (MCO)-Administered ACO—with varying degrees of financial risk and reliance on the existing MCO structure, which the state will retain.

In a new issue brief for the Blue Cross Blue Shield of Massachusetts Foundation, summarized below, Manatt Health prioritizes issues for consideration as ACOs and MCOs plan to integrate and manage comprehensive LTSS. These findings result from lessons learned from managed LTSS programs in other states, as well as from interviews with key stakeholders in Massachusetts. To download the full issue brief free, click here.

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MassHealth, Massachusetts’ Medicaid program, is the largest payer of LTSS in the Commonwealth and administers a number of LTSS programs, some in conjunction with other state agencies. Only 14% of MassHealth enrollees utilize LTSS, yet they account for more than 30% of all MassHealth spending or about $4.5 billion annually. Individuals who utilize LTSS span the population and have diverse and complex care needs. Nearly half are elderly, and a third are nonelderly adults and children with disabilities.

Massachusetts and the nation as a whole are grappling with how to improve access to quality care for individuals who require LTSS while containing costs. States are increasingly covering LTSS through managed care arrangements, as well as shifting care away from institutional settings to the home- and community-based services (HCBS) that individuals and their families prefer. In fact, HCBS now account for 70% of all MassHealth LTSS expenditures.

Under the new Medicaid ACO structure created through MassHealth’s Section 1115 waiver extension, approximately 68,000 adults under age 65 and children who use LTSS in Massachusetts will be eligible to enroll in ACOs and MCOs. Those who enroll will access a comprehensive array of physical and behavioral health services and a limited number of LTSS currently covered by MCOs, such as short-term nursing facilities, home health services and durable medical equipment. All other LTSS will be provided on a fee-for-service (FFS) basis outside the ACOs and MCOs until year 3 or 4 of the waiver. All ACOs and MCOs, however, are required to work with competitively procured LTSS community partners (CPs) throughout the five-year waiver to identify people with the highest LTSS needs and actively manage their care.

By year 3 or 4 of the waiver, it’s anticipated that all ACOs and MCOs will assume financial responsibility for the full range of Medicaid-authorized LTSS. For the first few years, a new LTSS third-party administrator (TPA) will support the ACOs by performing LTSS utilization management, data analytics, quality reporting and other functions in conjunction with MassHealth. The TPA will continue these functions for Primary Care ACOs, even after they assume financial responsibility for LTSS, since the Primary Care ACO networks are based on the Primary Care Clinicians’ (PCC) plans’ FFS provider network. The Partnership Plan and the MCO-Administered ACOs, however, will assume the TPA’s functions when they assume financial responsibility for LTSS.

Four Priorities for ACOs and MCOs

As ACOs and MCOs prepare to assume financial accountability for LTSS by year 3 or 4 of the program, they must develop and build internal capabilities to serve individuals with LTSS needs. This will require adjusting their care delivery models, operational protocols and financial/rate development models. ACOs and MCOs also may need to adapt their enrollment protocols, clinical care and continuity of care policies, network adequacy standards, credentialing and contracting processes, information technology systems, and grievance and appeals rules. In addition, organizations will need to ensure they are in compliance with the new federal Medicaid Managed Care rules, which include specific protections for beneficiaries in managed LTSS programs.

Among all the changes that ACOs and MCOs will need to make to integrate LTSS populations successfully, stakeholders identify the following four priorities:

1. Cultural competency. Stakeholders identified the historical divide between medical and nonmedical models of care for those with LTSS needs as the single biggest barrier to integrating care successfully. Long-standing administrative, purchasing, provider and delivery system silos have created two parallel yet separate systems of care for people who have LTSS and non-LTSS care needs. To break down the silos, build trust, facilitate communication and coordinate comprehensive services, managed care entities and their contracted providers must understand the disability rights movement and culture, and be able to deliver culturally competent care that respects the diversity in clinical and functional care needs, language, beliefs, and behaviors of LTSS populations.

It is important to remember that members with LTSS often have broad care needs that extend beyond typical medical interventions and include the need to access social supports. ACOs and MCOs will have to work with CPs and the community to incorporate nonmedical interventions into members’ care management activities, which will provide higher-quality care and may produce savings.

2. Care management and utilization management. Another key consideration for ACOs and MCOs is how they will develop and implement person-centered care management processes, particularly during care transitions, for individuals needing LTSS. To avoid confusion, service duplication and substandard care for the member, ACOs and MCOs need to clearly define care management roles and responsibilities in their member and provider materials, as well as for each party involved in the care management process. Establishing clear roles and responsibilities includes acknowledging the important part nonmedical providers, including family caregivers, play in care management.

While provider and caregiver input is valuable, the care should ultimately meet the member’s goals and preferences, to the extent possible. Options counseling can provide information about the services and resources available and can help members and their families understand their choices, make informed decisions, and determine the next steps themselves. In addition, ACOs and MCOs need to consider how to structure their clinical policies for individuals requiring LTSS. They must identify which services can help keep members in the community and out of costlier settings—even if that involves higher upfront costs.

3. Technology. Stakeholders agreed that providing successful care management to individuals with LTSS needs often involves robust information sharing, including electronic medical records (EMRs) and quality reporting. ACOs and MCOs will need to navigate the complicated and expensive world of health information technology and health information exchange to establish clear and secure lines of communication with providers and CPs. ACOs and MCOs must assess gaps in communication and technology—which are commonplace among small LTSS providers that may still depend on paper records and faxes—and decide what new capabilities they will require and support.

4. Workforce. The LTSS workforce largely consists of direct care workers, such as home health aides, patient care assistants and nursing assistants, as well as unpaid family caregivers. Both the direct care workforce and informal caregivers are overworked and undersupported. In addition, community-based organizations report challenges in recruiting case managers and other staff who will be critical to supporting the integration and coordination of services.

As ACOs and MCOs prepare to care for those with LTSS needs, they must consider how to tap into, support and expand the LTSS workforce to meet the growing need for LTSS. They also may need to work with their contracted LTSS providers to help address low wages and promote clear career paths for direct caregivers, as well as to improve both financial and emotional support for family caregivers.

Conclusion

MassHealth has clearly signaled that integration and coordination of LTSS with other healthcare services is integral to furthering its healthcare delivery system’s reform. CMS’s approval of Massachusetts’ new waiver shows that both the state and federal governments are prepared to make significant financial and infrastructure investments to achieve greater integration.

ACOs and MCOs should take advantage of the three-to-four-year lead time they’ve been given to ensure they are fully prepared to care for their members with LTSS needs. Doing so not only will provide better and more appropriate care for members, but also will help ACOs and MCOs—and ultimately, the state—contain costs.

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Tennessee Approves Ballad Health COPA Over FTC Protests

By Lisl J. Dunlop, Partner, Antitrust and Competition | Shoshana S. Speiser, Associate, Litigation

In the face of the Federal Trade Commission’s (FTC’s) string of litigation successes over the last several years challenging hospital mergers on antitrust grounds, there has been an increased focus on the potential use of state Certificate of Public Advantage (COPA) laws to gain approval for hospital merger transactions. COPA laws effectively supplant federal antitrust oversight of hospital transactions with a state regulatory review process, typically overseen by the state Department of Health. While competition concerns are factored into a COPA review, they may be overshadowed by perceived public benefits to the local community in terms of enhancing quality of services and addressing particular public health concerns. COPAs are still relatively rare: They have permitted hospital mergers to proceed in Montana (Benefis Health System, 1996) and North Carolina (Mission Health, 1995), as well as more recently in West Virginia (Cabell Huntington/St. Mary’s, 2016).

The most recent COPA in the spotlight is for the combination of Mountain States Health Alliance (Mountain States) and Wellmont Health System (Wellmont) to form Ballad Health. After more than two years and six public hearings—as well as multiple public statements and written comments submitted by the FTC opposing the transaction—the Tennessee Department of Health (TDH) granted a COPA on September 19, 2017. The systems await a decision from the Virginia Department of Health on its COPA approval before they may consummate their transaction.

The Parties and the COPA Application

Wellmont provides healthcare services in Northeast Tennessee and Southwest Virginia through six acute care hospital facilities and one critical access hospital. It also directly or indirectly owns, controls, or is affiliated with various nonprofit and for-profit corporations and organizations that provide healthcare and related services throughout its geographic area. Mountain States is comprised of 14 hospitals in the same geographic area. It also provides an array of outpatient and post-acute care services and has an ownership interest in several joint ventures, primarily providing ambulatory surgical services. There are few other hospital competitors in the region: Wellmont and Mountain States are currently the only full-service hospital systems for many patients and combined have significant shares of inpatient and several outpatient services and physician specialty service lines in the region.

Although the Tennessee COPA law had been on the books since 1993, the Wellmont/Mountain States merger prompted a revision of the law and the introduction of detailed implementing regulations (the Permanent Rules). The Permanent Rules contain several interesting elements, including the requirement that the applicants include in their application a “Plan of Separation” (which must be updated annually) for unwinding the transaction in the event that the COPA is subsequently withdrawn.

The systems filed a letter of intent in September 2015 and their full COPA application in February 2016. It took another 14 months for the application to be deemed complete following further information requests, and the TDH held six public hearings that included testimony both for and against the transaction from interested parties, including the FTC, which strongly opposed the transaction on antitrust grounds. The final decision granting the COPA came two years from the initial letter of intent and several years from initial discussions about the affiliation.

The FTC’s Concerns: Reduced Competition Could Lead to Higher Costs and Lower Quality

The FTC conducted its own investigation into the proposed merger and participated in the TDH’s COPA application process. The FTC determined that the transaction would substantially lessen competition in relevant healthcare markets and that the benefits claimed by Wellmont and Mountain States would not exceed the likely harm to competition. The FTC emphasized its determination of likely competitive harm, reinforced by numerous economic studies demonstrating that substantially reduced competition results in increased prices for healthcare services, as well as diminished quality.

The FTC dismissed the parties’ efficiency claims, noting that the greater the potential anticompetitive effects from a merger, the greater the cognizable efficiencies need to be to outweigh the harm, and that efficiencies almost never justify a merger that results in a monopoly or near-monopoly. The FTC also cautioned against reliance on the Plan of Separation, noting the difficulty of unscrambling merged entities. Finally, the FTC found that the reports submitted by the two systems did not contain sufficient analysis or evidence to conclude that the transaction’s benefits would outweigh its harms.

The TDH’s Conclusions: Benefits Outweigh the Downsides

The TDH, in consultation with the Tennessee attorney general, disagreed with the FTC, finding that the benefits to the residents of Northeast Tennessee would outweigh any downsides of creating a monopoly in certain healthcare services. In order to ensure these benefits, the COPA included certain conditions that increased state supervision, accountability and transparency (the Terms of Certification) and substantially lessened the autonomy of the systems.

Underpinning the TDH’s findings was the fact that the geographic service area impacted by the transaction presents a uniquely challenging environment for improvements in quality, access, and outcomes, due to health, economic and other factors. These factors include a higher percentage of smokers and obesity, an insufficient number of primary care physicians and mental health providers, lack of education, a high percentage of children in poverty, low per capita personal income and median household income, a high percentage of residents over age 65, and a mostly rural population. As a result, the geographic service area disproportionately suffers from serious health issues that carry an unsustainable cost.

The TDH’s approval describes the systems’ goals as reducing cost growth, improving the quality of healthcare services and access to care, and enhancing overall community health in the region, by reinvesting the savings the transaction would yield in new services and capabilities. Some specific initiatives include:

• Standardized management and clinical practice procedures and policies to promote efficiency and higher standards of care;
• Expanded quality reporting on a timely basis for the public to evaluate system performance easily;
• Optimized service locations and staff to improve productivity and ensure access; and
• Integrated clinical programs to establish centers of excellence that coordinate and optimize care.

Other than avoidance of duplication of hospital resources (on which the TDH took no position), the TDH found that the systems’ purported benefits were likely to occur, at least with the additional protections of the Terms of Certification. These benefits include:

• Enhancement of hospital and hospital-related care quality;
• Preservation of hospital facilities close to the communities they traditionally service;
• Gains in cost containment and cost-efficiency of hospital services;
• Improvement in the utilization of hospital resources and equipment;
• Population health improvement in the region served;
• Investments in programs and partnerships to address and ameliorate behavioral and addiction problems; and
• Acceleration of risk-based contracts.

The TDH also acknowledged several potential disadvantages to the transaction, but found that these would not likely occur with the Terms of Certification.

COPA Conditions

The Terms of Certification are a 50-page document with numerous addenda and appendices containing provisions designed to counter any anticompetitive impacts of the transaction. Notable provisions include:

• Restrictions on health plan negotiations and limitations on managed care pricing;
• Prohibitions preventing Ballad Health from restricting suppliers, vendors or other contractors from contracting with competitors;
• Prohibitions preventing Ballad Health from opposing the award of Certificates of Need in the region;
• Prohibitions on restricting nonemployed physicians from performing services outside Ballad Health;
• Various aggregate and annual spending commitments tied to specific services, research, education and population health improvement;
• Employee benefits and protections;
• Quality of care requirements; and
• Procedures to ensure access to healthcare services, by requiring certain facilities to remain hospitals; TDH approval to remove or repurpose other hospitals, facilities or service lines; discounts for under- or uninsured patients; and a charity care policy.

Most importantly, the Terms of Certification contain a regulatory regime for active supervision by the TDH, including provisions related to structure, monitoring, reporting, auditing and noncompliance. TDH also explicitly maintained the ability to modify the COPA with notice.

What’s Next?

The Ballad Health COPA experience illustrates the potential of the COPA process in providing avenues to merge when an FTC review is unlikely to be favorable. The FTC has consistently opposed state protections for hospital consolidations and questioned the effectiveness of ongoing state regulation of merged systems. However, the COPA process does permit a state to judge for itself whether consolidation and rationalization may be in the best interests of its residents, taking into account a broader array of public benefit concerns than might otherwise be considered by the FTC.

But the COPA route is not for the fainthearted. Clearly, the process took considerable time and demanded substantial efforts by the parties and their advisors. The Ballad Health COPA process makes clear that applying for a COPA does not exclude FTC involvement, including detailed FTC review, which would have required the parties to cooperate with the FTC in supplying documents and data in the same manner as if they were in a traditional FTC merger review. Finally, the detailed conditions and intensive reporting and oversight requirements will impose an ongoing regulatory burden on Ballad Health for as long as it remains subject to the COPA.

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Now on Demand: ‘Fraud and Abuse 2017’

Click Here to View Manatt’s New Webinar Free on Demand—and Here to Download a Free Copy of the Presentation

In fiscal year (FY) 2016, the Department of Justice (DOJ) recovered $2.5 billion from healthcare fraud cases, marking the seventh consecutive year that healthcare civil fraud recoveries exceeded $2 billion. Between January 2009 and the end of FY 2016, the DOJ recovered $19.3 billion in healthcare fraud claims—and these figures represent just federal dollars. In many cases, the DOJ was instrumental in recovering additional millions of dollars for state Medicaid programs. And states continue to bring their own healthcare fraud cases.

In a recent webinar for Bloomberg BNA, Manatt examined game-changing fraud and abuse trends and cases—and revealed strategies for avoiding False Claims Act (FCA) actions. We want to be sure you don’t miss out on this important look at the growing use of the FCA as an enforcement tool and other key enforcement developments—including the increasingly aggressive techniques making the healthcare landscape more perilous than ever before in history.

If you or anyone on your team were unable to attend the webinar, click here to view the program free, on demand. To download a free copy of the presentation for your continued reference, click here. Key topics covered during the CLE-eligible session include:

• The types of FCA violations being investigated for each healthcare segment
• Current trends in recoveries—and what’s next
• The implications of the Escobar decision on implied false certification, materiality and FCA cases moving forward
• Other major FCA cases that are remapping the fraud and abuse landscape—and the decisions to watch for in the year ahead
• Innovative enforcement techniques that are changing the game
• The impact of recent DOJ cases on decisions relating to Medicare Advantage
• The enhanced provisions that are increasingly common in Corporate Integrity Agreements (CIAs)
• Strategies for protecting your organization, including how to build effective compliance programs and what to do if faced with a government investigation

If you have any questions or issues you’d like to discuss after viewing the program, please contact our presenters:

• Richard Hartunian, Partner, Corporate Investigation and White Collar Defense, at 212.790.4520 or rhartunian@manatt.com
• Jacqueline Wolff, Partner, Co-chair, Corporate Investigations and White Collar Defense and Co-chair, False Claims Act practice, at 212.790.4620 or jwolff@manatt.com
• Randi Seigel, Counsel, Manatt Health, at 212.790.4567 or rseigel@manatt.com

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Understanding New York State’s Proposed Single Payer Bill

By James Lytle, Partner, Manatt Health, Government and Regulatory | David Oakley, Counsel, Manatt Health

Editor’s Note: The continuing push to repeal/replace or reform the Affordable Care Act has prompted further discussions of the single payer concept by Senator Bernie Sanders (I-VT) and many of his Democratic colleagues in Washington as well as at the state level, where single payer proposals have been advanced in Vermont, California, Colorado and elsewhere. In a new memo, summarized below, Manatt Health reviews the key provisions of New York State’s proposed single payer bill. To download the full memo free, click here.

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New York State’s single payer bill has (in various forms) passed the New York State Assembly on numerous occasions including, most recently, in May 2017. While the New York State Senate has not yet taken action on the bill, which is sponsored in that house by a member of the Senate Democratic minority conference, the bill’s prospects could be much brighter if the Democrats resumed control of that house, either as a result of the 2018 elections or through a reunification with the Senate Independent Democratic Conference, which has aligned with the Republicans. Moreover, the fact that Governor Andrew Cuomo recently expressed some support for the proposal has increased interest in the legislation.

Below are the principal details of the legislation. Click here to download the full bill.

Overview of the Bill’s Approach

The bill is premised on the New York State Constitution’s declaration that protecting and promoting citizens’ health is a matter of public concern and provision and therefore should be made by the state and other governmental units. It incorporates three principal components: universal coverage, a comprehensive set of covered benefits and a single payer to deliver those results.

In lieu of individual or employer premiums, the proposal envisions a tax-supported insurance plan for all New Yorkers, entitled the “New York Health” program. The government would collect payroll taxes plus taxes on certain income (other than wages subject to payroll tax). Revenues from those two taxes would fund coverage. This approach is intended to enable lower-income individuals to obtain the same coverage as higher-income individuals, regardless of their ability to pay—although those with higher incomes (or their employers) would effectively be paying more through taxes for identical coverage. Other key proposals include:

• Medicare and Medicaid would be delivered via coverage under New York Health. Pursuant to waivers, the Centers for Medicare & Medicaid Services (CMS) would make payments to the New York State Department of Health (NYSDOH) under an agreed formula to constitute the federal payment of claims costs for Medicare beneficiaries and federal matching fund payments for Medicaid expenditures.
• There would be no role for health plans, such as commercial insurers, managed care organizations (MCOs), Medicaid Managed Care plans or Medicare Advantage plans. However, the bill does not prohibit not-for-profit health plans from serving as care coordinators.
• The bill is intended to avoid federal Employee Retirement Income Security Act (ERISA) pre-emption by imposing the new state taxes and, effectively, offering a free coverage program. (The federal ERISA law often pre-empts state mandates that dictate covered benefits to employer health benefit plans.) To assist in deflecting ERISA concerns, the bill does not create any employment benefit or require or limit employment benefits. It also precludes employers from duplicating benefits covered under New York Health. It’s difficult to predict whether this approach will entirely resolve ERISA-related litigation challenges.

Organization and Governance

The program would be established under the Public Health Law and administered by the NYSDOH. There initially would be a 15-member temporary commission—appointed by the governor and legislative leaders—focused on implementation. There also would be a permanent Board of Trustees of New York Health, with 26 members appointed by the governor and 14 by legislative leaders. New York Health regulations would be proposed by the NYSDOH but approved by the Board.

In addition, there would be six 27-member regional advisory councils appointed by legislative leaders, with committees representing each borough of New York. The councils would develop community health improvement plans and provide general advice on the program.

Enrollment and Covered Benefits

All New York residents would be eligible to enroll, regardless of immigration status. Colleges could purchase coverage for students who were not otherwise residents of New York. Retiree coverage could be included, but the bill defers details to a later date. Claims payments would be made both for members and for newly arrived individuals who have not yet had a “reasonable opportunity” to enroll.

Covered benefits would be very comprehensive and include all benefits currently covered in Medicaid, Medicare, Child Health Plus and the New York State Employees Health benefit plan, as well as benefits mandated under the Insurance Law for health plans. There would be one benefit package for all enrollees, with no deductibles, copayment or coinsurance for patients to pay.

Long-term care would not be covered. Within two years, however, the Board is charged with developing a proposal around adding and funding long-term care.

Care coordination would be a covered benefit, with standards set by the NYSDOH. All enrolled members would be required to have a care coordinator at all times. Finally, the Board of Trustees would develop a proposal for including worker’s compensation in New York Health.

Role of Providers and Methods of Compensating Providers

Providers already participating in Medicaid or Medicare would be deemed qualified to participate in New York Health, though they may need to complete additional credentialing applications or participating provider agreements.

The only express references in the bill to organized networks of providers for the purpose of contracting with New York Health are accountable care organizations (ACOs) and Taft-Hartley funds, which are both classified as healthcare organizations. (It is important to note that the term “healthcare organizations” in the bill refers only to state-licensed ACOs and Taft-Hartley funds.) These organizations must be not-for-profit or a government entity. Accordingly, it appears that Independent Practice Associations (IPAs) and other networks of providers could not directly contract with New York Health until they become licensed under the state’s ACO statute or part of the Taft-Hartley benefit fund delivery system.

The NYSDOH would establish reimbursement rates and fee schedules for providers. The rates would initially be on a fee-for-service basis. The exception would be care coordination, which would have an alternative payment approach, such as a fixed monthly fee. Reimbursement rates would be payment in full with no balance permitted. Since there would be no deductibles, copayments or coinsurance, the New York Health payment would be the sole revenue to the provider.

The bill calls for use of a variety of payment methods and authorizes demonstration projects using different rates. It also establishes a minimum statutory standard for rate setting for providers, stating that the rates must be “reasonable and reasonably related to the costs of efficiently providing the healthcare service and assuring an adequate and accessible supply of the healthcare service.” The NYSDOH and the Board would be responsible for setting the rates.

In addition, the bill authorizes collective negotiations by otherwise unaffiliated physicians and other health professionals with New York Health in regard to reimbursement rates and other factors. These health professionals, however, are prohibited from striking. The collective negotiations could not be for the purpose of excluding other providers, and New York Health can agree to different terms with one group versus another.

Finally, the bill stipulates freedom of choice among providers. It prohibits New York Health from limiting provider participation for “economic purposes.”

Medicare and Medicaid

The bill proposes that Medicare and Medicaid coverage be delivered via coverage under New York Health. The NYSDOH would apply for any waivers from CMS to obtain the funding. To the extent possible, the state would negotiate with federal officials to obtain lump-sum payments from CMS rather than use separate funding streams under the standard federal spending process. If the preferred form of waivers is not received, the NYSDOH is authorized to undertake alternative approaches.

Funding and Funds Handling

In addition to the federal funds, revenues at the state level would come from two sources:

• A payroll premium on all payroll and self-employed income, imposed on a graduated scale, so higher income brackets would be assessed at a higher marginal rate than lower brackets; and
• A nonpayroll premium—set on a graduated scale—assessed on taxable income not subject to the payroll premium, such as interest, dividends and capital gains.

All of the receipts (including those from CMS) would be placed in the New York Health Trust Fund, newly created under the State Finance Law.

The sponsor’s memorandum does not project a cost for the program but simply notes that “[N]umerous analyses document that a single payer system would be most effective for reducing and controlling costs…”

Role of Health Plans and Subcontractors

As noted above, there would be no role for health plans. The bill mandates that health insurers not issue coverage for benefit packages that duplicate the benefits covered under New York Health. Some types of health plans could serve as care coordinators, but only if they were not-for-profit entities. It also is possible that health plans could serve as vendors to ACOs or clinical providers for data analysis but would play no role in providing coverage.

Specialty networks currently subcontracting with health plans to support provider networks and/or care coordination for a limited range of services (such as mental health only) appear to need ACO licensure to qualify as a network provider and directly serve New York Health. To do so, they would need to be not-for-profit entities. As an alternative, specialty networks could become subcontractors to hospitals and other parties serving as care coordinators.

To assist health plan employees who lose their jobs as a result of New York Health, the bill provides funds for job transitions and retraining.

Out-of-State Situations

State residents employed out of state would be included in New York Health. If the employer is subject to New York State law, the employer and employee would pay the payroll premium taxes as if the employee were in New York. If the employer is not subject to New York law, the employee would pay as if he or she were self-employed.

Out-of-state residents employed in New York would not be covered but would be subject to the payroll premium taxes (and a credit would be applied in the amount of conventional health insurance premiums paid for that out-of-state resident).

Coverage under New York Health would include use of some out-of-state providers. The NYSDOH would set procedures and standards for using, regulating and paying out-of-state providers.

Consumer and Provider Assistance

The bill would provide funding to not-for-profit assistance organizations. The assistance would include assistance to consumers, providers and care coordinators.

Effective Date

The bill would take effect immediately after being signed by the governor. It would take some time, however, to implement the many changes that New York Health would introduce. Therefore, the NYSDOH would determine when enrollment would begin.

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Justice Department Abandons Medicare Advantage FCA Suit Against UnitedHealth

By John LeBlanc, Partner, Healthcare Litigation | Andrew Struve, Partner, Healthcare Litigation | Joanna Allen, Associate, Litigation

On October 13, 2017, the U.S. Department of Justice (DOJ) decided to abandon its lawsuit accusing UnitedHealth Group and affiliated health plans¹ (UnitedHealth) of exaggerating how sick its patients were to procure millions of dollars in inflated Medicare Advantage payments. The case is United States of America et al. v. Scan Health Plan et al., CV 09-5013-JFW (JEMx) (Cal. Cen. Dist., July 13, 2009).

A whistleblower first sued UnitedHealth for violation of the False Claims Act (FCA) over allegedly inflated Medicare Advantage payments in 2009. The DOJ did not decide to intervene, however, until May 2017, despite joining another, similar lawsuit against UnitedHealth in February 2017. This is the government’s first FCA complaint in a whistleblower-led suit alleging Medicare Advantage fraud.

In this case, the DOJ accused UnitedHealth, the nation’s largest Medicare Advantage insurer, of “systematically ignoring information that would have led to decreased payments” from the Centers for Medicare & Medicaid Services (CMS). The DOJ’s complaint-in-intervention alleges that UnitedHealth had audited a large provider group called HealthCare Partners and found records indicating overlooked diagnoses that would legitimately increase its Medicare Advantage payments, as well as questionable diagnoses that would decrease the payments.

According to the DOJ, United Health investigated the overlooked diagnoses but not the suspicious ones. As a result, the DOJ claims that UnitedHealth failed to repay overpayments for upcoded claims, thereby improperly boosting United Health’s “risk adjustment” payments from CMS for covering purportedly sicker Medicare Advantage patients. “By failing to look both ways, the DOJ complaint claims that UnitedHealth improperly generated and reported skewed data artificially inflating beneficiaries’ risk scores, avoided negative payment adjustments and retained payments to which it was not entitled.”

UnitedHealth Wins Argument to Dismiss

On October 5, 2017, U.S. District Judge John F. Walter dismissed the entire complaint-in-intervention. UnitedHealth’s motion to dismiss made several arguments, each of which the court found persuasive.

First, UnitedHealth argued that the complaint-in-intervention failed to allege that the individuals who signed the relevant attestations on behalf of UnitedHealth had the requisite “knowledge” that those attestations were false. The complaint-in-intervention failed to identify the corporate officers who signed the attestations or allege that those individuals knew or should have known that the attestations were false. Although the DOJ argued that a company may be liable under the FCA, if that company acts to “ensur[e] that signers of attestations are kept in the dark about company fraud,” the court held that the complaint-in-intervention failed to allege that anyone from UnitedHealth undertook any action to shield the signatories of the attestations from gaining the necessary knowledge that would have demonstrated that they were false, nor did the complaint-in-intervention identify anyone at UnitedHealth who possessed the requisite knowledge. Therefore, the court found that the complaint-in-intervention did not allege that UnitedHealth “knowingly” made false statements.

Second, UnitedHealth argued that the complaint-in-intervention failed to allege that UnitedHealth’s attestations were “material” to the DOJ’s decision to pay. The DOJ’s complaint-in-intervention only included conclusory allegations that UnitedHealth’s conduct was material, failing to allege that CMS would have refused to make risk adjustment payments to the UnitedHealth Defendants if it had known the facts about the defendants’ alleged involvement with the Healthcare Partners chart review process. The court found these allegations were insufficient to allege materiality under the FCA in light of the recently heightened materiality standard espoused by Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989, 2003 (2016), which “look[s] to the effect on the likely or actual behavior of the recipient of the alleged misrepresentations,” and held that a misrepresentation cannot be deemed material merely because the government designates compliance with a particular statutory, regulatory or contractual requirement as a condition of payment.

Third, UnitedHealth argued that the complaint-in-intervention failed to identify with particularity the acts of each of the seven distinct corporate entities that comprised the UnitedHealth Defendants and, instead, simply referred to those entities collectively as “UnitedHealth” throughout the complaint-in-intervention The court found that the DOJ did not “identify the role of each defendant in the alleged fraudulent scheme,” thereby failing to satisfy Rule 9(b).

UnitedHealth also made arguments that the complaint-in-intervention attempted to revive a “reverse false claims” theory that had been waived and that some of the DOJ’s claims were untimely under the statute of repose. Those arguments were likewise successful, causing Judge Walter to dismiss the entirety of the complaint-in-intervention on October 5.

Although Judge Walter permitted the DOJ to file an amended complaint with beefed-up allegations, the DOJ decided to dismiss its suit against UnitedHealth on October 12, 2017. The dismissal validates the argument that it is not a Medicare Advantage plan’s responsibility to check whether healthcare providers are giving correct information when they submit claims.

Other Actions Pending

This case does not mark the end of possible legal action against UnitedHealth for allegations against its Medicare Advantage business. A separate lawsuit filed by former UnitedHealth executive Benjamin Poehling, which the DOJ had also joined, is still pending. Poehling has claimed he monitored data mining projects to find conditions to increase payments to UnitedHealth, calling it a “perfect scheme” that may have netted more than $1 billion for the company since 2005.

UnitedHealth has attempted to undermine the entire basis of the DOJ’s theory by filing its own complaint accusing the government of improperly holding Medicare Advantage insurers to higher antifraud standards than traditional Medicare.

_{¹The defendants are United Healthcare Insurance Company, UnitedHealthCare Services Inc., UHIC, UnitedHealth Group, UnitedHealthCare, United Health, PacifiCare Health Plan Administrators, UHC of California (f/k/a PacifiCare of California), PacifiCare Life and Health Insurance Company and PacifiCare Health Systems (collectively, the “UnitedHealth Defendants”).}

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