• Examining Fee Splitting Statutes in the Context of Value-Based Healthcare
• Antitrust Update: Cardinal Health Settlement Signals Broader Risks for Consolidating Entities
• Key Highlights: The Medicare Shared Savings Program Final Rule
• Manatt’s Healthcare Practice Wins the Legal 500 Award
• New, Free Webinar from Manatt and Bloomberg BNA, “Proceed with Caution: Navigating Safely Through the Intersection of the TCPA and HIPAA”
• Coverage Options for Massachusetts: Leveraging the Affordable Care Act
• State Licensing Boards Aren’t Immune From Antitrust Claims Unless They Are Actively Supervised by the State, Rules U.S. Supreme Court

Examining Fee Splitting Statutes in the Context of Value-Based Healthcare

Authors: Mark Ustin, Partner, Healthcare, Government and Regulatory | Carol Brass, Associate, Healthcare

Editor’s note: One of the goals of the Affordable Care Act (ACA) is to align incentives among provider communities and their patients and partners. This effort to create communities of common interest with mutually beneficial incentives is now a key driver of many innovations in the healthcare environment. Some states, however, still have antiquated statutory prohibitions in place that hamper positive attempts to create legitimate business arrangements that promote efficiency and quality. A key example is the state prohibition against fee splitting, which is in approximately two-thirds of states.

In a new article for Bloomberg BNA’s Medicaid Report^TM, summarized below, Manatt Health examines the current status of fee splitting prohibitions in the states, highlighting different legislative approaches to facilitating and promoting desirable business arrangements, with an emphasis on billing arrangements. Click here to download a free PDF of the full article.

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Fee splitting prohibitions are aimed primarily at situations where a healthcare professional, in order to generate patient referrals from other licensed or unlicensed persons, splits part of the professional fee earned from treating the referred patient with the source of the referral. In response to legitimate concerns, states adopted prohibitions against fee splitting. Some of these prohibitions, however, reach far broader than necessary to deter this behavior and instead prohibit appropriate business relationships with entities that are not healthcare providers, such as billing agencies or management companies.

Although there are understandable concerns regarding overbilling or overutilization of care, fee splitting prohibitions that broadly prohibit legitimate, nonfraudulent relationships are not the appropriate tool for addressing these issues.

States have taken a variety of legislative approaches to fee splitting. At one end of the spectrum, New York prohibits the compensation of any practice management and billing entities based on a percentage of reimbursement collection. At the opposite end, some states, including California, explicitly permit and sanction such arrangements. There are a range of fee splitting approaches in between, as well as states that have not addressed the issue at all.

Historical Context for Fee Splitting Prohibitions

The medical profession historically has recognized an ethical prohibition against physicians paying their professional peers for referrals. One form this takes is the prohibition against fee splitting. Fee splitting occurs when a physician, to generate referrals from other physicians, splits part of the professional fee earned from treating the referred patient with the referring physician. There are various harms that might arise from fee splitting, including:

• Unnecessary operations and procedures,
• Incompetent specialists, and
• Dishonest orientation by the general practitioner and the specialist.¹

Given the historical development of fee splitting, it is not surprising that the American Medical Association’s Opinion No. 6.02 on fee splitting provides that “payment by or to a physician solely for the referral of a patient is fee splitting and is unethical. A physician may not accept payment of any kind, in any form, from any source…for prescribing or referring a patient to said source. . . . All referrals and prescriptions must be based on the skill and quality of the physician to whom the patient has been referred or the quality and efficacy of the drug or product prescribed.”

Similarly the American Society for Clinical Pathology’s Statement on “Self-Referral Markups, Fee Splitting and Related Practices,” Policy No. 04-03, supports prohibitions designed to “prevent clinical providers from profiting on their patient referrals. . . . Abusive billing practices, such as markups, fee splitting and kickbacks, distort rational medical decisions as a result of economic incentive. . . . ”

The purpose of these prohibitions is to ensure that the patient’s referral to a specific specialist is not tainted by an improper remuneration incentive. Concerns are not prompted by the fact that fees are shared but rather by whom and for what intent and effect.

Survey of State Legislation Regarding Fee Splitting

Seventeen states have not adopted generally applicable fee splitting statutes per se.² The remaining two-thirds have enacted fee splitting prohibitions in some form.³ Most of these statutes are fairly broad, rarely interpreted and could be used by a Board as the basis for a claim of professional misconduct against a physician utilizing a percentage-based management or billing arrangement.⁴  

For example, Idaho’s statute, representative of many, defines the grounds on which a board may discipline physicians to include the “[d]ivison of fees or gifts or agreement to split or divide fees or gifts received for professional services with any person, institution or corporation in exchange for referral.”⁵ On the surface, this could be interpreted to prohibit a broad variety of arrangements, including percentage-based billing or management arrangements. Because virtually all billing companies and some management companies use percentage-based billing arrangements, physicians may inadvertently violate such prohibitions. This exposes them to legal risk and their partners to uncertainty, since the physician may try to exit a contractual arrangement by alleging the underlying contract is void, because it is contrary to law.

Four states (Florida, New York, North Carolina and Tennessee) have notably broad prohibitions against fee splitting. Of these, only New York explicitly states that percentage-based agreements with billing companies are impermissible. Courts in both Florida and Tennessee have expressed some concern over percentage-based arrangements with management companies but not with companies whose sole function is billing.

North Carolina is somewhat anomalous as well. Its Board of Medicine has publicly posted an online warning related to fee splitting⁶, but there are no posted records of disciplinary action taken against licensees for fee splitting that would provide more context as what the Board deems impermissible fee splitting.

Finally, two states (California and Illinois) have statutes prohibiting fee splitting but specifically authorizing percentage-based billing arrangements.

California has taken legislative action to protect arrangements that it recognizes as lawful, efficient and presenting a reasonably low likelihood of abuse. The California statute requires that fair market value compensation be paid for billing or management services, providing a reasonable check against abusive relationships.

The Illinois law is also of interest. It is even broader than the California statute, permitting a percentage-based fee calculated on service fees “billed,” while California only permits such arrangements to be based on fees “collected.” Like California, Illinois includes a fair market value requirement, which the state deems to be a sufficient check against abusive behaviors in billing, administrative preparation of claims or collection service arrangements.

Percentage-Based Billing and Management Company Arrangements

The likelihood of harm (such as upcoding or abusive billing practices) is only marginally greater using percentage-based billing arrangements than it is using per-claim billing arrangements. The preference for the latter type of arrangement is a relic of a system whose driving principle was volume rather than value.

Alignment of incentives and shared savings arrangements require that providers and their supporting organizations be able to share costs fairly and accurately among themselves. Legal prohibitions that prevent these organizations from using accurate, non-abusive means to reach that end are undesirable.

The performance of billing functions by a third party rather than by a provider itself offers key advantages. Billing companies:

• Have greater expertise and resources to support employees in billing complex claims.
• Provide cost efficiencies through economies of scale.
• Increase accuracy due to greater billing experience than office staff.

Moreover, given the general consensus that healthcare costs should be driven by considerations of quality, value and payment for performance, it follows that payments to billing companies should track those principles. Guaranteed payments to billing companies (such as fixed fees or per-claim payments) that apply regardless of the biller’s success in achieving outcomes are contrary to these principles. They are also unfair to providers who are left to bear the brunt of two risks:

• The risk of non-payment of their claims, and
• The risk the billing company will not pursue payment of their claims.

In contrast, a percentage-based billing arrangement allows providers to share risk with their billing companies. This approach supports a more equitable outcome, considering billing companies have a greater degree of control over success. Overall, compensation of billing companies on a percentage basis provides a net savings to the healthcare system and creates efficiencies for providers.

The remaining issue is whether percentage-based billing arrangements increase the likelihood of fraud and abuse. One clear indication that a billing method is susceptible to abuse is when the compensation the provider paid to the biller is not commensurate with the fair market value of the services the biller provided. Measured on this scale, flat fee billing is far more susceptible to abuse than percentage-based billing.

When a provider pays a flat fee to a billing company, neither the provider nor the billing company can predict whether the fee will or will not accurately reflect the actual cost of the billing company’s efforts to obtain collections for the provider. In contrast, a percentage-based billing arrangement ensures that the billing company has an adequate incentive to pursue claims as long as efficiently possible. Further, it more fairly allocates costs to physicians, ensuring they only pay for claims that the billing company successfully recovered.

Conclusion

While some may argue that contracting with third-party billers on a percentage-based basis incentivizes upcoding, it also can be said that per-claim arrangements incentivize duplicate billing and submission of multiple claims. The dispositive factor determining whether abuse is likely to occur is whether the biller has an abusive motive, not whether the physician pays on a flat fee or percentage basis.

Given that percentage-based billings are fairer, more efficient and more equitable in apportioning risk, more and more states are recognizing that these billing practices are not only innocuous but superior. Therefore, states with outmoded fee splitting prohibitions should—and, at least in some cases, likely will—update these statutes to account for the realities of today’s modern healthcare system.

_{¹“Concierge Medicine: Something Old, Something New,” by Leila M. Hoover (2008), at 36.}

_{²There are no statutory or regulatory fee splitting prohibitions in the following states: Alaska, Arkansas, Connecticut, Indiana, Iowa, Louisiana, Maine, Massachusetts, Mississippi, Missouri, New Hampshire, New Jersey, North Dakota, Oregon, Pennsylvania, South Carolina and Wyoming. However, it is possible that similar prohibitions may be found in case law, attorney general opinions or other sources of legal authority.}

_{³Note that some states have fee splitting prohibitions limited to certain categories of services that are particularly prone to abuse, such as:}

• _{New Jersey (clinical laboratory services, at N.J. Stat. Ann 45:9-42.42);}
• _{South Carolina (physical therapy services at S.C. Code Ann § 40-45-110(A)(1));}
• _{Georgia (optometry, at Ga. Comp. R. & Regs. § 430-4.01 (3)); and}
• _{Missouri (dentistry, at Mo. Rev. Stat. 332.321.21 (18)).}

_{In these cases, the fee splitting statutes are typically limited by their terms to referrals made for those specialized services.}

_{⁴Note that some states, including Arizona, Delaware, Michigan, Minnesota, Nevada, Ohio and Virginia, have fee splitting statutes that only prohibit fee splitting among professionals (e.g., physicians).}

_{⁵Idaho Stat. Ann. § 54-1814.}

_{⁶”It is the position of the Board that a physician cannot share revenue on a percentage basis with a non-physician. To do so is fee splitting and is grounds for disciplinary action.”}

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Antitrust Update: Cardinal Health Settlement Signals Broader Risks for Consolidating Entities

Authors: Lisl Dunlop, Partner, Litigation | Ashley Antler, Associate, Healthcare Industry

On April 20, 2015, the Federal Trade Commission (FTC) announced that it had entered into a proposed stipulated settlement with Cardinal Health, Inc. to resolve the FTC’s allegations that Cardinal had monopolized the markets for the sale and distribution of low-energy radiopharmaceuticals in 25 metropolitan areas in the United States.¹ The settlement requires Cardinal to pay $26.8 million into a fund for injured consumers, by way of “disgorgement” of Cardinal’s gains from its allegedly unlawful conduct.

The FTC’s pursuit of disgorgement, or equitable monetary remedies, and the size of the monetary settlement in the Cardinal Health case demonstrate the regulator’s increasingly aggressive enforcement stance on a broad range of potentially anticompetitive conduct and may signal heightened risks for entities operating in concentrated markets. In a healthcare environment increasingly characterized by consolidation, the FTC’s decision to pursue large disgorgement penalties in this case—where it could be argued that there was no consumer harm and that market efficiencies might have outweighed market consolidation—creates the possibility of a new layer of risk for healthcare market participants riding the wave of consolidation. The case also signals a greater agency focus on “vertical” relationships between firms at different levels of the supply chain (such as manufacturer-dealer or supplier-manufacturer) and highlights the importance of internal antitrust compliance for firms with market power.

The Cardinal Health Case

As a result of two acquisitions in 2003 and 2004—both of which the FTC allowed to proceed without detailed investigation²—Cardinal became the largest operator of radiopharmacies in the United States, and was the only radiopharmacy operator in the 25 geographic markets addressed in the FTC’s settlement. Radiopharmacies sell and distribute radiopharmaceuticals, or drugs containing radioactive isotopes used by healthcare facilities to diagnose and treat diseases. Due to the short half-life of the radioactive isotopes used in these drugs, hospitals and clinics rely on nearby radiopharmacies, resulting in very localized markets.

The sale of Heart Perfusion Agents (HPAs), one type of radiopharmaceutical used to conduct heart stress tests, commonly comprises more than half of a radiopharmacy’s revenues. During the period in which the Commission alleged that Cardinal engaged in anticompetitive conduct, there were only two HPA manufacturers in the U.S. The FTC’s complaint alleged that Cardinal employed a series of unlawful tactics to induce the two HPA manufacturers to deny distribution rights to numerous potential radiopharmacy entrants, thereby excluding potential competitors from entering the markets and unlawfully enabling Cardinal to maintain monopoly power. Specifically, the alleged anticompetitive tactics included:

• Threatening to cancel, and actually canceling, Cardinal’s current or future purchases of the manufacturers’ radiopharmaceutical products;
• Threatening to switch, and actually switching, customers from one HPA manufacturer to the other in order to pressure the first manufacturer to abandon plans to license its HPA to new competitors;
• Conditioning Cardinal’s future relationship with an HPA manufacturer on the manufacturer’s refusal to grant HPA distribution rights to new competitors in the relevant markets; and
• Threatening to compete against the HPA manufacturers as a generic HPA manufacturer and offering to forgo competing in return for exclusivity.

As a result of these tactics, the complaint alleges that Cardinal obtained de facto exclusive distribution rights to the only HPAs available in the 25 markets and prevented numerous potential entrants from gaining access to these radiopharmaceuticals. The complaint sought injunctive relief and monetary remedies.

In addition to requiring Cardinal to disgorge its allegedly unlawful profits by paying $26.8 million into a fund for compensation of customers impacted by its conduct, the settlement agreement prohibits Cardinal from engaging in certain future exclusive distribution arrangements and coercive or retaliatory conduct similar to the alleged improper schemes at issue. It also includes prospective remedies to restore competition in several of the relevant markets where Cardinal continues to operate as the sole or dominant radiopharmacy. For example, the settlement requires that Cardinal allow customers to terminate their exclusive contracts to facilitate entry by competitors.³

The FTC’s Use of Disgorgement

In 2003, the FTC issued its “Policy Statement on Monetary Equitable Remedies in Competition Cases” (Policy Statement)⁴, which set forth the factors that the Commission would consider in determining whether to seek monetary relief in a particular case.⁵ The Policy Statement explained that the FTC would not employ disgorgement and restitution as routine remedies in antitrust matters, and that it would pursue such remedies only in “exceptional cases.”

In 2012, the FTC withdrew the Policy Statement, indicating that it no longer intended to reserve monetary relief for “exceptional cases,” but instead would use this remedy as one of several at its disposal. For the nine years that the Policy Statement was in effect, the FTC sought disgorgement in only two cases, which were closely in line with FTC precedent. In contrast, in the 2½ years following withdrawal of the Policy Statement, the FTC has pursued disgorgement in three cases, including the Cardinal Health case—more cases than it pursued for the nearly ten years that the Policy Statement was in effect.

Aside from the Cardinal Health case, the other two cases in which the FTC has sought disgorgement after its withdrawal of the Policy Statement both involve challenges to pharmaceutical patent settlements, in which the patent holder paid generic pharmaceutical manufacturers to delay entering into the market for a drug in order to extend the patent holder’s monopoly (so-called “pay-for-delay” cases). Just one month after announcing the Cardinal Health settlement, the Commission announced a $1.2 billion settlement in one such matter.⁶  

While the Commission’s interest in seeking disgorgement in “pay-for-delay” cases is well known, the decision to pursue disgorgement in the Cardinal Health matter stands out as a change in course from the Commission’s usual pursuit of remedies in the competition context. Apart from the “pay-for-delay” cases, the Commission did not seek disgorgement in any of the 17 other settlements relating to anticompetitive conduct entered into since the withdrawal of the disgorgement Policy Statement in July 2012.

Many of these cases were settlements of claims against professional associations for restrictive rules⁷ or groups of healthcare providers for collective contracting,⁸ which are unsuitable candidates for monetary remedies. Others, involving conduct such as exclusive dealing by a distributor of animal diagnostic products,⁹ collusion between propane suppliers over the reduction of volume in exchange tanks¹⁰ or allocation of ski endorsers and employees by rival ski equipment manufacturers,¹¹ fall outside the realm of activities for which the FTC has sought disgorgement in the past, even though the parties likely benefited financially from their illegal conduct.

The Commission’s Debate in Cardinal Health

Pursuit of disgorgement in the Cardinal Health case sparked sharp debate within the Commission itself, prompting two of the five FTC Commissioners to issue sharp dissents.¹² The Commission was split on whether disgorgement, as opposed to injunctive relief alone, was appropriate in this case. In particular, the Commission’s disagreement regarding the propriety of disgorgement in this case centered around the strength of evidence regarding the underlying antitrust violation, and whether consumers had, in fact, been harmed by the conduct. The dissenting Commissioners were also especially concerned with the absence of policy guidance surrounding the FTC’s use of disgorgement.

Assessing the type of anticompetitive conduct alleged in the Cardinal Health case is always highly case-specific. Whether the conduct is found to be illegal under the antitrust laws depends a great deal on the facts, the economic analysis of competitive effects and consideration of the company’s business justifications for the conduct. The Commission’s majority decision identifies several key pieces of evidence supporting the basis for finding an antitrust violation and justifying its decision to pursue disgorgement:¹³  

• Direct evidence that Cardinal’s conduct actually eliminated and prevented the entry of radiopharmacy competitors;
• Evidence that the HPA manufacturers sought to license competitor radiopharmacies, and only refrained from doing so due to Cardinal’s conduct;
• Strong evidence of price effects, with customers in geographic markets in which other radiopharmacies competed paying up to 20% lower prices.

Both dissenting Commissioners, however, contended that the evidence on exclusionary effects was, at best, weak, and that other market factors, such as insufficient demand for more than one radiopharmacy, could have caused the lack of entry into the markets at issue. Although the Commission alleged that Cardinal’s conduct lacked any legitimate business or efficiency justification, one of the dissenting Commissioners suggested there were plausible efficiency justifications for Cardinal’s conduct. In light of these concerns, both dissenting Commissioners found this to be an inappropriate case for disgorgement.

The Commissioners also had diverging opinions on whether the degree of consumer harm made this case appropriate for disgorgement. The majority of Commissioners took the position that injunctive relief alone would fail to adequately address the harm Cardinal’s conduct caused, because it would not address the consumer harm and allegedly unlawful gains from charging higher prices in the monopoly markets at issue. In particular, the majority cited the long duration of Cardinal’s conduct—from 2003 to 2008—and the potential statute of limitations problems that private litigants might face in bringing a follow-on lawsuit. In contrast, the dissenting Commissioners argued that use of disgorgement in this matter was inappropriate given that they believed that there was little to no demonstrable consumer harm.

In addition, both dissenting Commissioners raised concerns about the absence of guidance from the FTC to the business community regarding when it will pursue the remedy of disgorgement. One of the dissenting Commissioners noted that “[r]isk-averse companies concerned about the financial and reputational effects associated with a disgorgement order from the FTC could respond to the lack of guidance by not engaging in conduct that could plausibly benefit consumers.”¹⁴ Both dissenting Commissioners urged the FTC to adopt policy guidance on when it plans to seek disgorgement in antitrust cases.

Looking Ahead: New Risks Associated with Consolidation

The Cardinal Health settlement and ensuing concerns about the lack of clarity regarding the FTC’s pursuit of disgorgement become increasingly significant when viewed within the context of consolidation in the healthcare market.¹⁵ There can be no denying the consolidation trend in the healthcare industry generally, and the pharmaceutical industry, in particular.¹⁶ Many factors are fueling consolidation, including increased pressure to drive down healthcare costs.

In light of this trend, the Cardinal Health settlement may increase concerns among healthcare players, such as providers and pharmaceutical supply chain members, about the FTC’s increased attention to concentrated markets and its ability to impose significant monetary penalties. Disturbingly, in the Cardinal Health case, although the FTC was sharply divided as to whether or not the conduct at issue constituted an antitrust violation, it nonetheless voted to impose a historically significant $26.8 million penalty.

This case signals the FTC’s focus on vertical relationships in markets with few sellers or those dominated by a single seller and creates the specter of possible monetary penalties for entities in consolidated markets. Consequently, this precedent might impact the behavior of healthcare entities moving forward.

More specifically, the Cardinal Health decision may prompt healthcare entities to consider and respond to new risks, both pre- and post-consolidation. Risk-averse market participants might be deterred from merging, even where their transactions may pass antitrust muster, to avoid the potential risk of post-merger disgorgement by the FTC. Perhaps more importantly, the case also highlights the need for effective post-consolidation antitrust compliance policies. Healthcare entities, especially those with significant market power, would be prudent to monitor their business conduct closely and educate their personnel on antitrust-related risks. As the Cardinal Health case demonstrates, even when regulators have not challenged a consolidation, large players who flex their market muscles may be at risk of significant monetary penalties at the discretion of the FTC.

Looking ahead, it is not clear whether, or how frequently, the FTC will pursue disgorgement as a remedy. In the future, the Commission may consider alternate remedies, such as disgorgement, to restore competition in an increasingly consolidated healthcare market, particularly if state Certificate of Need laws act as a barrier to divestiture—the FTC’s preferred remedy to restore competition where a transaction has been consummated.¹⁷ Without clear policy guidance from the FTC regarding when it will employ the disgorgement remedy, however, it becomes more challenging for healthcare market entities to assess the true magnitude of this risk.

_{¹“Cardinal Health Agrees to Pay $26.8 Million to Settle Charges It Monopolized 25 Markets for the Sale of Radiopharmaceuticals to Hospitals and Clinics,” FTC Press Release, April 20, 2015, https://www.ftc.gov/news-events/press-releases/2015/04/cardinal-health-agrees-pay-268-million-settle-charges-it.}

_{²The FTC did challenge Cardinal’s 2009 acquisition of Biotech nuclear pharmacies in the Southwestern United States, requiring Cardinal to reconstitute and sell nuclear pharmacies in Nevada, New Mexico and Texas to a third party. “FTC Settles Charges That Cardinal Health’s Purchase of Biotech Was Anticompetitive,” FTC Press Release, July 21, 2011, https://www.ftc.gov/news-events/press-releases/2011/07/ftc-settles-charges-cardinal-healths-purchase-biotech-was. It is possible that Cardinal’s conduct in other markets came under scrutiny as a result of the Biotech investigation.}

_{³These remedies are similar to those included in Cardinal’s settlement with the FTC regarding its 2009 acquisition of Biotech. Id.}

_{⁴FTC, “Policy Statement on Monetary Equitable Remedies in Competition Cases,” 68 Fed. Reg. 45820 (Aug. 4, 2003), https://www.ftc.gov/os/fedreg/2003/august/030804policystatementequitable.pdf.}

_{⁵L. Dunlop, “The FTC Is Shifting Gears on Monetary Remedies: Should You Be Worried?,” The Antitrust Counselor: The Newsletter of the ABA Section of Antitrust Law’s Corporate Counseling Committee (Oct. 2012).}

_{⁶“FTC Settlement of Cephalon Pay for Delay Case Ensures $1.2 Billion in Ill-Gotten Gains Relinquished; Refunds Will Go to Purchasers Affected by Anticompetitive Tactics,” FTC Press Release, May 28, 2015, https://www.ftc.gov/news-events/press-releases/2015/05/ftc-settlement-cephalon-pay-delay-case-ensures-12-billion-ill.}

_{⁷In the Matter of Music Teachers National Association, Inc., FTC Matter No. 131 0118 (2014); In the Matter of California Association of Legal Support Professionals, FTC Matter No. 131 0205 (2014); In the Matter of National Association of Teachers of Singing, Inc., FTC Matter No. 131 0127 (2014); In the Matter of National Association of Residential Property Managers, Inc., FTC Matter No. 141 0031 (2014); In the Matter of Professional Skaters Association, FTC Matter No. 131 0168 (2015); In the Matter of Professional Lighting and Sign Management Company of America, Inc., FTC Matter No. 141 0088 (2015).}

_{⁸In the Matter of Cooperativa de Farmacias Puertorriquenas, FTC Matter No. 101 0079 (2012); In the Matter of Praxedes E. Alvarez Santiago M.D. et al., FTC Matter No. 1210098 (2013).}

_{⁹In the Matter of IDEXX Laboratories, Inc., FTC Matter No. 1010023 (2013).}

_{¹⁰In the Matter of AmeriGas and Blue Rhino, FTC Matter No. 1110195 (2015).}

_{¹¹In the Matter of Tecnica Group, FTC Matter No. 121 004 (2014); In the Matter of Marker Volkl, FTC Matter No. 121 004 (2014).}

_{¹²Dissenting Statement of Commissioner Maureen K. Ohlausen, Cardinal Health Inc., File No. 101-0006 (Apr. 17, 2015), https://www.ftc.gov/system/files/documents/public_statements/637761/150420cardinalhealthohlhausen.pdf, and Dissenting Statement of Commissioner Joshua D. Wright, Cardinal Health Inc., File No. 101-0006 (Apr. 17, 2015), https://www.ftc.gov/system/files/documents/public_statements/637771/150420cardinalhealthwright.pdf.}

_{¹³Statement of the Federal Trade Commission, In the Matter of Cardinal Health Inc., FTC File No. 101-0006 (Apr. 17, 2015), https://www.ftc.gov/system/files/documents/public_statements/637781/150420cardinalhealthcommstmt.pdf.}

_{¹⁴Dissenting Statement of Commissioner Joshua D. Wright, In the Matter of Cardinal Health Inc., File No. 101-0006 (Apr. 17, 2015), at 4.}

_{¹⁵See, e.g., Manatt,” Five Megatrends Driving the Seismic Shift in Healthcare: How Should Pharma Respond to Succeed in a Transformed Market?” (Aug. 2014).}

_¹⁶Id.

_{¹⁷This was reflected in the FTC’s recent decision in the Phoebe Putney case, where state Certificate of Need laws precluded divestiture. See A. Antler & L. Dunlop, “Phoebe Putney: A Collision of Federal Antitrust and State Certificate of Need Laws,” Manatt Health Update (Apr. 27, 2015).}

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Key Highlights: The Medicare Shared Savings Program Final Rule

Authors: Jonah Frohlich, Managing Director | Kier Wallis, Senior Manager | David Oakley, Counsel, Healthcare, Insurance | Annemarie Wouters, Senior Advisor | Anne O. Karl, Associate, Healthcare | Keith Nevitt, Senior Analyst | Allison Garcimonde, Manager

Editor’s note: June 4, 2015, the Centers for Medicare and Medicaid Services (CMS) published a final rule addressing changes to the Medicare Shared Savings Program (MSSP or Program) established under Section 1899 of the Social Security Act. The final rule codifies much of the proposed rule CMS released in December 2014, as well as operational guidance released following the original Program final rule in 2011.

Manatt has prepared a comprehensive memo providing an in-depth overview and analysis of the final rule. Key highlights are summarized below. If you would like a copy of the full memo, please contact Jonah Frohlich at jfrohlich@manatt.com or Kier Wallis at kwallis@manatt.com. Please refer to Manatt’s summaries of the proposed rule and 2011 final rule for background on the current Program.

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ACO Eligibility Requirements

ACO Participant Agreements and Lists. CMS codified guidance regarding participant agreements and responsibilities to update enrollment information in the Web-based Provider Enrollment, Chain and Ownership System (PECOS). CMS also finalized rules regarding submission of executed agreements.

Legal Entity and Governing Body. CMS clarified rules regarding ACO formation by multiple participants with unique Tax Identification Numbers (TINs) and defined a list of criteria that an ACO’s governing body must satisfy. With these changes, CMS is signaling its intent to ensure ACO decision-making authority resides with the ACO governing body and not an existing governing body or committee of an ACO’s parent organization.

Care Coordination and Enabling Technologies. CMS finalized its proposal to require prospective ACOs to describe how they will “encourage and promote the use of enabling technologies for improving care coordination for beneficiaries” in their applications to join the Program. Going forward, applicants will also need to describe how they will partner with long-term and post-acute care providers to improve care coordination.

Transition of Pioneer ACOs into the Medicare Shared Savings Program. CMS finalized its proposal to create a streamlined transition process for Pioneers to join the MSSP. Pioneer ACOs also may consider transitioning to the Center for Medicare & Medicaid Innovation’s (CMMI’s) new Next Generation ACO Model under which ACOs would assume higher levels of financial risk and reward than under the Pioneer Model and MSSP.

Provision of Beneficiary Data

Streamlined Data-Sharing Policies. CMS finalized its proposal to streamline data-sharing policies and processes to better support ACOs in Tracks 1 and 2. CMS specified four categories of data and will finalize the specific data elements in forthcoming operational guidance. It also specified rules regarding data sharing on assigned beneficiaries at the beginning of the agreement period and each performance year, on a quarterly basis and in conjunction with annual reconciliation.

Beneficiary Notification and Claims Sharing. CMS finalized its proposal to assume responsibility for notifying beneficiaries about the opportunity to decline claims data sharing with an ACO through CMS materials and processing beneficiary opt-out requests via 1-800-Medicare. Beneficiary Assignment

Definition of Primary Care Services and Incorporation of Physician Specialties and Non-Physician Practitioners. CMS finalized its proposal to expand the definition of primary care services upon which beneficiary assignment is based to include transitional care management (TCM) and chronic care management (CCM) Current Procedural Terminology (CPT) codes. It also finalized proposals to include primary care services furnished by non-physician practitioners in the first step of the beneficiary assignment methodology. CMS modified its proposal to exclude services provided by certain CMS physician specialties from the second step of the assignment process. These changes and corresponding adjustments to ACOs’ benchmarks will take effect at the beginning of the January 2016 performance year.

Payment Track Changes

Modifications to Existing Payment Tracks. CMS finalized changes to the existing payment tracks and established a new payment track—Track 3—to “smooth the on ramp” for organizations participating in the MSSP. CMS also will allow Track 1 participants to remain in Track 1 for an additional three years. CMS will allow Track 2 ACOs to select their minimum savings rate (MSR) and minimum loss rate (MLR) from a menu of three options prior to the start of their agreement period.

CMS finalized its proposal to create a third payment track under which ACOs will assume increased levels of risk. Prospective beneficiary assignments in Track 3 will utilize a 12-month assignment window prior to the start of the performance year.

Encouraging ACO Participation in Performance-Based Risk Arrangements

CMS will waive the skilled nursing facility (SNF) three-day rule that requires beneficiaries to have a prior inpatient hospital stay of no fewer than three consecutive days to be eligible for Medicare coverage of inpatient SNF care for ACOs that participate in Track 3. CMS declined to implement other waivers at this time, but it plans to test and introduce additional waivers in a phased approach.

Changes to Establishing, Updating and Resetting Benchmarks

CMS will change how it resets ACO benchmarks and signaled its intent to propose changes that will factor in regional fee-for-service (FFS) costs in resetting benchmarks during a proposed rulemaking process this summer. In resetting the historical benchmark for ACOs in their second or subsequent agreement periods, CMS will weight each benchmark year equally and make adjustments to reflect the average per capita amount of savings earned by the ACO in its first agreement period. CMS will continue to maintain the current weighting approach when establishing the historical benchmark for an ACO’s initial agreement period.

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Manatt’s Healthcare Practice Wins the Legal 500 Award

Manatt’s national Healthcare practice has won The Legal 500 2015 United States Award in the category of Healthcare: Service Providers. Now in its second year, The Legal 500 United States Awards are given to elite practitioners to recognize the best private practice and in-house teams and individuals over the past 12 months.

The Awards are based on the most comprehensive research into the U.S. legal market. More than 50,000 interviews are conducted to ascertain the winners. Manatt, along with the winners in other practice categories, will be honored at a special dinner in New York City later this year.

The Legal 500 assesses the strengths of law firms in 106 jurisdictions and ranks the practice area teams that are providing the most cutting-edge and innovative advice to corporate counsel. Merit is the sole determinant of its Award winners.

New, Free Webinar from Manatt and Bloomberg BNA, “Proceed with Caution: Navigating Safely Through the Intersection of the TCPA and HIPAA”

The FCC has established an exemption from the TCPA consent requirements for healthcare messages that are regulated by the Health Insurance Portability and Accountability Act (HIPAA). On the surface, healthcare providers and others covered by HIPAA appear to have broad latitude in calling and texting patients. However, since HIPAA doesn’t specifically define what a healthcare message is, there is substantial ambiguity that can translate into significant risks.

In a new, no-cost webinar, Marc Roth and Christine Reilly, co-chairs of Manatt’s TCPA Compliance and Class Action Defense Group, and Anne O. Karl, an attorney in Manatt’s healthcare practice, help clarify the ambiguities at the intersection of HIPAA and TCPA. During this comprehensive session attendees will:

• Gain insights into the TCPA’s healthcare message exemption.
• Understand what is—and isn’t—defined as marketing under HIPAA.
• Discover the four key questions all HIPAA-covered entities and their business associates should consider before making automated calls to mobile devices or prerecorded calls to landlines.
• Examine case studies to help evaluate TCPA and HIPAA risks when promoting wellness programs, providing payment and appointment reminders, and performing market research.

The panelists will also share the latest news from the FCC and discuss the latest technological advances designed to help minimize TCPA-related risk.

Make sure you have the information you need to navigate the complexities of the TCPA and HIPAA.

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Coverage Options for Massachusetts: Leveraging the Affordable Care Act

Authors: Patricia Boozang, Senior Managing Director | Deborah Bachrach, Partner, Healthcare | Hailey Davis, Manager

Editor’s note: In a new issue brief for the Blue Cross Blue Shield of Massachusetts Foundation, Manatt Health reviews opportunities for the Commonwealth to reevaluate and consider changes to its system of coverage through a Basic Health Program (BHP) or 1332 State Innovation waiver. The issue brief discusses the federal requirements related to each of these vehicles for innovation and specific coverage program modifications that the state may consider to tailor further healthcare reform in the Commonwealth. Below is an executive summary, capturing key highlights. Click here to download the full issue brief.

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Massachusetts has led the country in expanding coverage and reforming its payment and delivery models, with considerable success. In 2006, the Commonwealth enacted Chapter 58, a comprehensive healthcare reform law that extended coverage to more than 96 percent of Massachusetts residents through expansion of its Medicaid program, MassHealth, and also engendered a series of private market reforms, an individual mandate, and subsidies for residents to purchase coverage in the nation’s first marketplace, the Health Connector.

With the passage of the Affordable Care Act (ACA) in 2010, Massachusetts began the task of tailoring its reforms to the ACA’s requirements. At the same time, the state tackled rising healthcare costs by passing Chapter 224 of the Acts of 2012, which set ambitious goals for private sector payers, providers and state agencies to rein in costs through payment and policy innovations, improve access and enhance quality.

Today, as its Medicaid (MassHealth) and marketplace systems continue to stabilize and the state enters its third year under Chapter 224, the time is ripe for the Commonwealth to evaluate ACA coverage programs in the context of its coverage and delivery system goals. The ACA offers two relevant vehicles: Section 1331, the Basic Health Program (BHP), and Section 1332, Waivers for State Innovation. These sections of the law allow Massachusetts to modify ACA coverage, subsidy, and insurance market requirements to address the state’s unmet coverage and delivery system goals. Section 1332 also allows the state to propose targeted fixes to features of the ACA that impede smooth operation.

Notably, Massachusetts already has acted to ensure more affordable coverage than would otherwise be available under the ACA by using MassHealth funding through its 1115 waiver to supplement marketplace subsidies for individuals with family incomes above MassHealth eligibility levels of up to 300 percent of the federal poverty level (FPL).

Section 1331: Establishing a BHP

To make coverage more affordable for individuals with incomes between 133 and 200 percent of the FPL, Section 1331 gives states the option to establish a BHP for these individuals who would otherwise be eligible for coverage through the marketplace. States electing to pursue the BHP, which to date are Minnesota and New York, receive federal funding up to 95 percent of the amount of the federal premium tax credits and cost-sharing reductions that would have been available had the individual purchased coverage through the marketplace. States were able to implement a BHP beginning in January 2015 through approval of a “BHP Blueprint” by the Department of Health and Human Services (HHS).

Section 1332: Proposing Alternatives to the Four Pillars of the ACA and Related Provisions

Section 1332 permits states to request from HHS and the Treasury Department waivers of certain ACA requirements, with the waivers first effective in 2017. Specifically, states may propose alternatives to four pillars of the ACA and various related provisions:

1. Individual mandate. States can modify or eliminate the tax penalties that the ACA imposes on individuals who fail to maintain health coverage.

2. Employer mandate. States can modify or eliminate the penalties that the ACA imposes on certain employers who fail to offer affordable coverage to their employees.

3. Benefits and subsidies. States may modify the rules governing the establishment of qualified health plans (QHPs) and their covered benefits, as well as those related to premium tax credits and reduced cost sharing. States that reallocate premium tax credits and cost-sharing reductions may receive the aggregate value of those subsidies.

4. Marketplaces. States can modify or eliminate the marketplaces as the vehicle for determining eligibility for tax credits and enrolling consumers in coverage.

While the scope of 1332 waivers offers broad opportunities for state innovation, HHS also imposes important guardrails to ensure that the ACA’s coverage goals are met. States must provide coverage that is at least as “comprehensive” and “affordable” as coverage offered through the marketplace. They must also ensure that at least as many people are covered as would have been in the absence of the waiver. In addition, 1332 waivers must not increase the federal deficit.

Regulations jointly promulgated by the HHS and the Treasury provide detailed information about the waiver application process—but notably not about the substantive requirements of Section 1332. Finally, Section 1332 requires HHS and the Treasury to develop a plan for coordinating and consolidating the 1332 waiver process with Medicaid, a critical point for Massachusetts given the importance of the MassHealth program and funding to the coverage continuum.

The Opportunity to Reconfigure the Massachusetts Coverage Continuum

Through some combination of Section 1331, BHP authority, a Section 1332 Innovation Waiver and the state’s Section 1115 MassHealth waiver, Massachusetts has the opportunity to reconfigure its coverage continuum to maximize access, affordability, and continuity for its residents and address targeted ACA rules that have proven problematic in the Commonwealth. Among the more comprehensive reforms, the state may consider new approaches to are:

• The subsidy continuum. The state could utilize a Section 1332 waiver—perhaps in combination with a 1115 waiver—to smooth the subsidy “cliffs,” or significant changes in costs as a result of modest changes in income for low- and moderate-income individuals.
• Plan purchasing and certification. The state could establish either a BHP product under Section 1331 or a BHP-like product through a 1332 waiver for certain subsidy-eligible populations. Such a new product could be operated through MassHealth managed care plans or through health plans offering coverage through the Connector. Massachusetts also could use Section 1332 authority to permit provider-led entities, such as Accountable Care Organizations (ACOs), to be certified to offer QHP or BHP products.
• The Connector’s role and responsibilities. Under Section 1332, Massachusetts could modify the functions of the Connector, augmenting or narrowing Connector functionality or eliminating the Connector altogether.
• Payment and delivery system reform. The state could design a new program, using a combined Section 1332 and 1115 waiver, through which a single set of plans or ACOs and providers serve most, if not all, of the state’s insurance affordability program enrollees. By implementing a strong purchasing strategy across as many as 1.7 million lives, the Commonwealth could gain substantial market power, which could be leveraged to accelerate payment and delivery system reform and ensure higher-value coverage.

Targeted Fixes

The Commonwealth might also pursue targeted fixes, including:

• Fixing the “family glitch” that prevents dependents from accessing federal tax credits when an employed family member has access to “affordable” employer-sponsored insurance. The problem with the current system is that “affordability” of employer-sponsored insurance for spouses and dependents is based on the cost of individual coverage—not the cost of family coverage.
• Reaching the remaining uninsured by testing new insurance products targeted to hard-to-reach uninsured populations or using a “premium assistance” or voucher approach to help certain uninsured-but-employed individuals purchase employer-sponsored coverage. The state might also consider reconfiguring coverage options for certain immigrant populations that are currently unable to apply for and purchase health insurance coverage.
• Aligning and streamlining subsidy eligibility and enrollment rules through a combined 1332 and 1115 waiver that addresses conflicts in eligibility standards and verification rules across coverage programs.
• Aligning state and federal individual responsibility requirements through a 1332 waiver that modifies the rules of the federal individual mandate or eliminates it entirely (while maintaining the state individual mandate).

Conclusion

Massachusetts leads the nation in healthcare coverage and is among the states spearheading payment and delivery system reform. Now, almost 10 years after the passage of Chapter 58 and five years after the passage of the ACA, there are significant opportunities in the Commonwealth to align and streamline coverage, not only to increase consistency among coverage programs and improve access to consumers but also to accelerate payment and delivery system transformation.

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State Licensing Boards Aren’t Immune From Antitrust Claims Unless They Are Actively Supervised by the State, Rules U.S. Supreme Court

Author: Carri Maas, Associate, Litigation

Why It Matters

Practicing professionals who serve on state licensing boards can be liable for antitrust violations unless the board’s conduct is subject to active supervision by the state, per the U.S. Supreme Court in North Carolina State Board of Dental Examiners v. FTC, 547 U.S. ___, 135 S. Ct. 1101 (2015). Because licensing boards are gatekeepers that determine who can practice in a profession and under what terms, boards are more exposed to antitrust claims than previously was the case. This decision is of nationwide importance for the many professional licensing boards that are composed primarily of individuals practicing in that profession.

The North Carolina State Board of Dental Examiners (Board), which regulates the practice of dentistry in North Carolina, had responded to complaints from licensed dentists that nondentists were charging lower prices for teeth-whitening services. The Board, made up primarily of practicing dentists, issued at least 47 cease-and-desist letters to nondentist teeth-whitening service providers, often warning them that the unlicensed practice of dentistry is a crime.

The Federal Trade Commission subsequently filed an administrative complaint against the Board alleging that the Board’s concerted action to exclude nondentists from the marketplace for teeth-whitening services constituted an anticompetitive and unfair method of competition, in violation of federal law. In response, the Board argued that its actions were protected under the doctrine of state-action antitrust immunity set forth in Parker v. Brown, 317 U.S. 341 (1943), and its progeny. In Parker, the Supreme Court had interpreted antitrust laws to confer immunity on anticompetitive conduct of states when acting in their sovereign capacity. The administrative law judge in the North Carolina lawsuit rejected application of that doctrine and ruled against the Board. The United States Court of Appeals for the Fourth Circuit affirmed.

The Supreme Court took the case and held that when a controlling number of decision makers on a state licensing board are active participants in the occupation the board regulates, the board can invoke state-action immunity, but only if it is subject to active supervision by the state. “If a State wants to rely on active market participants as regulators, it must provide active supervision if state-action immunity under Parker is to be invoked.” In its 6-to-3 decision, the Court held at page 8 that “active market participants cannot be allowed to regulate their own markets free from antitrust accountability.” Immunity extends to such actions only if the challenged restraint was “clearly articulated and affirmatively expressed state policy” and the implementation of that policy “was actively supervised by the state.”

In this case, the state of North Carolina had not formally defined teeth-whitening as the practice of dentistry, nor did it have any express policy to exclude nondentists from the teeth-whitening market. Further, the state did not actively supervise the Board’s actions or exclude nondentists from the teeth-whitening market. In addition, the Board itself was made up primarily of licensed practicing dentists within the state of North Carolina.

Takeaway

State licensing boards often are composed of professionals who practice within the profession that the board is charged with regulating. In that situation, careful consideration should be given to whether the actions of such boards enjoy state-action antitrust immunity. The relevant questions are whether (1) the challenged action was clearly articulated and affirmatively expressed in state policy, and (2) the actions of the board are actively supervised by the state.

Where It Matters

Click here to view a partial listing of states and professional boards that are, or may currently be, composed of a controlling number of actively practicing members.

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