CMS Creates Clarity and Confusion on Application of Fraud and Abuse Laws to Qualified Health Plans
By Robert Belfort, Partner, Healthcare Industry, Manatt | Daniele Capasso, Associate, Healthcare Industry, Manatt
On October 30, 2013, U.S. Department of Health and Human Services (HHS) Secretary Kathleen Sebelius sent a letter to U.S. Representative Jim McDermott stating that HHS does not consider qualified health plans (QHPs) sold through the Affordable Care Act’s (ACA’s) insurance exchanges to be part of a “federal healthcare program” under the federal anti-kickback statute (AKS). Secretary Sebelius’s letter eliminated uncertainty as to whether the AKS’s prohibition on offering inducements for referrals is applicable to financial relationships among QHP insurers, providers, suppliers, brokers and enrollees. Five days later, however, the Centers for Medicare and Medicaid Services (CMS), which is part of HHS, created confusion by posting a frequently-asked question (FAQ) stating that healthcare providers are “discouraged” from paying QHP premiums on behalf of their patients. The FAQ did not explain, in light of HHS’s earlier statement regarding the inapplicability of the AKS to QHPs, which federal laws or regulations such conduct by providers might violate.
Overview of the AKS
The AKS is a criminal statute that prohibits any person from knowingly offering or conveying anything of value to induce or reward the referral of “federal healthcare program” business1. A federal healthcare program is defined under the law as any “plan or program that provides health benefits, whether directly, through insurance, or otherwise, which is funded directly, in whole or in part, by the United States Government.” Excluded from this definition is the Federal Employees Health Benefits Program2. Federal healthcare programs include, among others, Medicare, Medicaid and veterans’ and military health benefit programs.
Background on QHPs
A QHP covers essential health benefits, follows established limits on cost-sharing and complies with other requirements set forth in the ACA. Beginning January 1, 2014, the federal government will provide tax credits to individuals with low and modest incomes purchasing a QHP through an exchange to reduce their QHP premiums. In addition, HHS will administer risk adjustment, reinsurance and risk corridor programs that, in various ways, will share risk among QHP issuers. Given the presence of federal tax subsidies for many QHP enrollees and the significant role the federal government plays in the Exchange Marketplaces, there was considerable uncertainty around whether QHP coverage would be treated as part of a federal healthcare program for AKS purposes.
Secretary Sebelius’s Letter
In her letter to Rep. McDermott, Secretary Sebelius noted that HHS “does not consider QHPs, other programs related to the Federally-facilitated Marketplace, and other programs under Title I of the Affordable Care Act to be federal health care programs.”3 In so noting, the Secretary stated that “[t]his conclusion was based upon a careful review of the definition of ‘Federal health care program’ and an assessment of the various aspects of each program under Title I of the Affordable Care Act and consultation with the Department of Justice.”4 Details regarding the legal analysis performed as part of this review were not provided in the letter.
Secretary Sebelius noted that QHPs still will be subject to oversight by the HHS Office of Inspector General (OIG), the Department of Justice, the Federal Trade Commission, and state departments of insurance. She cited as a source of that oversight authority the August 30, 2013 final rule titled Program Integrity: Exchange, SHOP, and Eligibility Appeals.5 Oversight provisions on the final rule include requirements for decertification of QHPs and the imposition of civil monetary penalties against non-compliant issuers who have plans in the exchanges. OIG will have jurisdiction to audit, investigate and evaluate the QHP program, and the False Claims Act applies to any “payments made by, through, or in connection with an Exchange if the payments include Federal funds.”6
The CMS FAQ
On November 4, 2013, CMS issued an FAQ addressing whether providers are permitted to make premium payments to health insurance issuers for QHPs on behalf of their patients.7 CMS expressed “significant concerns with this practice because it could skew the insurance risk pool and create an unlevel field in the Marketplaces.” The FAQ goes on to say that HHS “discourages this practice and encourages issuers to reject such third party payments.” While CMS indicated that HHS will “monitor this practice” in the future, and “take appropriate action” where it deems necessary, CMS did not state in the FAQ that the practice is illegal or indicate under what authority HHS would take such action.
Implications
HHS’s determination that QHPs are not part of a federal healthcare program will facilitate certain types of financial relationships that may violate the AKS. Most notably, the ruling clears the way for pharmaceutical manufacturers to provide QHP enrollees with coupons that cover the enrollee’s cost sharing for the manufacturer’s brand name drugs. Such coupon programs are offered widely to commercially insured individuals but are generally prohibited in Medicare Part C and D, as well as Medicaid managed care programs. Insurers often don’t favor coupon programs, because they reduce incentives for enrollees to purchase cheaper generic drugs.
The HHS ruling does not preclude the application of state fraud and abuse laws that cover private third party payers. But most states have not adopted such laws and the states that have tend to enforce the laws less vigorously than the federal government enforces the AKS. Insurers may still attempt to restrict practices they consider abusive through contracts with their participating providers. For example, a QHP insurer or pharmacy benefits manager could contractually prohibit its participating pharmacies from accepting manufacturer coupons. But insurers may face resistance from pharmacies in accepting such restrictions because of the coupons’ popularity with consumers. Therefore, the lack of enforcement under the AKS is likely to have a significant impact on the use of coupons and the prevalence of other practices that are barred in the Medicare and Medicaid programs.
The November 4th FAQ from CMS may have been triggered by a realization that HHS’s guidance on the AKS could promote certain practices that conflict with the policy goals underlying the ACA. In particular, CMS may have taken to heart insurers’ warnings that providers could temporarily pay the QHP premiums of very sick patients, enabling these patients to obtain QHP coverage during their expensive treatment without consistently maintaining insurance. This scenario probably prompted CMS’s comment that such a practice could “skew the insurance risk pool.”
Notably absent from the FAQ, though, are citations to any federal laws or regulations that prohibit premium payments by providers on behalf of their patients. Indeed, QHP issuers may be concerned that the rejection of such payments as recommended in the FAQ may actually violate the ACA’s guaranteed issue requirements. CMS appears to acknowledge the weakness of its legal argument by failing to state expressly that such payments are illegal, instead noting only that the payments are “discouraged.” It is unclear whether CMS will issue new regulations under the ACA barring this practice or take other action to strengthen its basis for enforcement. If not, QHP issuers concerned with the impact of such payments on the risk pool may be left only with state law remedies (if any) or contractual restrictions, at least for participating providers.
1See Social Security Act § 1128B(b), 42 U.S.C. § 1320a-7b(b).
2Social Security Act § 1128B(f), 42 U.S.C. § 1320a-7b(f).
3Letter to Rep. Jim McDermott from Kathleen Sebelius, Secretary of the Department of Health and Human Services (October 30, 2013), found at http://mcdermott.house.gov/images/The%20Honorable%20Jim%20McDermott.pdf (last visited November 11, 2013).
4Id.
578 Fed. Reg. 54070.
6Letter to Rep. Jim McDermott from Kathleen Sebelius (citing Section 1313 of the ACA, 42 U.S.C. § 18033).
7Centers for Medicare and Medicaid Services FAQ, “Third Party Payments of Premiums for Qualified Health Plans in the Marketplaces” (Nov. 4, 2013) (found at http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/third-party-qa-11-04-2013.pdf).