• Lessons from Hawaii's Trailblazing ACA 1332 Waiver Proposal
• Administration Guidance on State Innovation Waivers Restricts Flexibility
• Part B Payments for 340B-Purchased Drugs
• Recent Changes to Stark Regulations Ease Compliance Burden for Providers
• Antitrust Update: Solomon Center Inaugural Conference Explores Implications of Healthcare Consolidation Under the Affordable Care Act
• Long-Term Services and Supports: Opportunities for MassHealth
• U.S. Supreme Court to Hear Religious Nonprofit Organizations' Challenge to the Affordable Care Act's Contraception Mandate

Lessons from Hawaii's Trailblazing ACA 1332 Waiver Proposal

Authors: Joel Ario, Managing Director | Spencer Manasse, Senior Analyst

Editor's Note: On September 9, Hawaii became the first state to post a draft 1332 waiver proposal for public comment. While Hawaii's proposal focuses on the state's unique 40-year-old employer mandate, the proposal illuminates the procedural and substantive issues that other states will have to address in advancing their own 1332 waiver proposals. In a recent article in Law360, summarized below, Manatt Health defines 1332 waivers, examines the provisions of the Affordable Care Act (ACA) that Hawaii is proposing to waive, and highlights what other states can learn from Hawaii's proposed waiver. Click here to read the full article.

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What Are 1332 Waivers?

Section 1332 of the ACA authorizes states to request waivers from the U.S. Department of Health and Human Services (HHS) and U.S. Department of the Treasury of key components of the ACA's coverage provisions, including those related to:

• Benefits and subsidies,
• Marketplaces and Qualified Health Plans,
• The individual mandate, and
• The employer mandate.

In addition, 1332 waivers must meet four guardrails, ensuring that coverage remains as affordable, comprehensive and accessible as pre-waiver coverage, as well as that the waiver does not contribute to the federal deficit. Waivers can take effect as early as 2017 subject to an approval process with specific statutory and administrative requirements,¹ including legislative authorization, public hearings at the state level and public comment periods at the federal level.

What Provisions of the ACA Does Hawaii Propose to Waive?

Hawaii proposes "to maintain all aspects on the innovative Hawaii Prepaid Healthcare Act" and to waive provisions of the ACA "that diminish [the Prepaid Act]." "The Prepaid Act," enacted in 1974 and exempted from the Employee Retirement Income Security Act (ERISA), requires "virtually every employer with at least one permanent, full-time worker to purchase employee health insurance coverage."²  

Several features of the Prepaid Act are stricter and more employee friendly than their ACA counterparts. For example, full time is defined as working 20 or more hours a week (compared to 30 hours in the ACA) and employees cannot be charged more than 1.5% of their wages for premiums (compared to a sliding scale of 2 percent to 9.5 percent under the ACA).

After three years of attempting to reconcile the Prepaid Act with the Small Business Health Option Program, Hawaii proposes to waive SHOP and related provisions of the ACA. Hawaii does not propose any waivers in its 1332 proposal that affect individual market purchasers.

What Can Other States Learn from Hawaii's Proposed Waiver?

Because Hawaii's Prepaid Act is the only state-based employer mandate that is exempt from ERISA's restrictions on state regulation of employer-sponsored health benefits, other states cannot pursue the same 1332 waiver. Some, however, may want to pursue their own SHOP waivers and can learn from Hawaii's experience as it negotiates with HHS and Treasury. Further, all states can learn from Hawaii's approach to the standard requirements for 1332 waivers.

Hawaii asserts that its draft waiver proposal complies with the four statutory guardrails as follows:

• Scope of coverage. Hawaii claims that the Prepaid Act is a more effective coverage plan than SHOP, citing near universal compliance with the Prepaid Act and noting only 1 percent of small employers have enrolled through SHOP.
• Comprehensiveness of coverage. Hawaii is not proposing any waivers with respect to the ten Essential Health Benefits.
• Affordability of coverage. The Prepaid Act limits employee contributions to premiums and employee cost sharing more strictly than the ACA. It also caps annual out-of-pocket maximums at lower levels than the ACA.
• Federal deficit. Hawaii projects that the federal government will save money by not having to administer SHOP. In place of the tax credits that small businesses would have received through SHOP, it proposes federal funds to support financial assistance to employers with fewer than eight employees in the form of prepaid premium supplementation.

Other technical and policy issues for states to watch include:

• Replacing SHOP with direct enrollment. Like many states, Hawaii has had limited success in attracting insurers to offer products or employers to purchase products through SHOP. Though Hawaii is the only state with an employer mandate, other states may be able to demonstrate that they could do as well or better on scope and affordability of coverage by relying on direct enrollment or another alternative to SHOP.
• Employer and employee choice. Hawaii's application points out that employers have five insurer choices off exchange and only one choice in SHOP. The facts will be different in each state, and it's unclear whether loss of choice will be an issue with 1332 waivers of SHOP.
• Reallocating the small business tax credit. Hawaii proposes that $46 million in federal funds be allocated to Hawaii's premium supplementation fund, which assists employers with less than eight employees in covering their obligations under the Prepaid Act. The $46 million assumes that 10% of qualified employers would have received tax credits for SHOP. The proposal raises the question of how to handle the impacts that waivers may have on ACA provisions that are outside the waivable sections of the law.
• January 2017 implementation. Hawaii proposes implementation of its waiver on January 1, 2017. Other waivers may not be ready for implementation as quickly, particularly in states where the required legislative authorization may not occur till mid 2016 or later.

Looking Ahead

The substantive issues related to Hawaii's proposed SHOP waivers will be of broad interest to states. Hawaii's negotiations with HHS and Treasury will provide insight into the federal government's approach to evaluating state innovation proposals against the statutory guardrails. The state's application also will merit a close watch for how the state and federal governments manage the waiver approval and implementation timeline.

_{¹HHS and Treasury promulgated procedural recommendations but have not addressed the guardrails.}

_{²Hawaii State Legislature. "Chapter 393: Prepaid Health Care Act." 2010 Hawaii Revised Statutes.}

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Administration Guidance on State Innovation Waivers Restricts Flexibility

Authors: Patricia Boozang, Senior Managing Director | Michael Kolber, Associate, Healthcare Industry

The Department of Health and Human Services (HHS) and the Treasury Department released long-awaited guidance this month, on how they intend to review applications for state innovation waivers under section 1332 of the Affordable Care Act (ACA).¹ While some states have considered applying for such waivers, which can first be effective on January 1, 2017, to transform their health coverage or delivery systems, the new guidance suggests HHS and Treasury, at least in this Administration, are unlikely to approve waivers that involve significant reorderings of the coverage and subsidies available to low- and middle-income people. States likely will continue to discuss these issues with the Administration and may eventually obtain waivers, but this guidance provides important insight into the Administration's starting position. The Administration appears to be taking precautions to ensure these waivers do not weaken the coverage available under the ACA today, particularly to vulnerable populations.

Under section 1332, states may seek waivers of ACA provisions related to health insurance exchanges, federal subsidies, qualified health plans, and the individual and employer mandates. To be approved, so-called 1332 waivers must provide coverage that covers a comparable number of people at least as affordably and as comprehensively, and at no greater cost to the federal government, than would be the case without the waiver. While those statutory guardrails provide some flexibility in what types of waivers may be approved, the new guidance imposes interpretations on those guardrails that limit the types of waivers that can be approved. It appears the guidance will not impede some waivers, especially operational or technical waivers with minimal impact on the guardrails. However, HHS and Treasury say they lack the operational capacity to customize federally-facilitated marketplace (FFM) or Internal Revenue Service (IRS) procedures for particular state waivers, further restricting the feasibility of some waivers.

A state can propose a section 1332 waiver in connection with waiver of Medicaid requirements, but section 1332 does not expand existing statutory Medicaid waiver authority. Waivers can be approved for five years and can be renewed.

Before the most recent guidance, HHS and the Treasury provided limited guidance on the substantive standards they intend to use in reviewing waivers, promulgating regulations that set only the procedural requirements for applying for a waiver. In the absence of federal guidance, states have considered a wide range of waiver concepts, from comprehensive rearranging of state coverage and subsidy programs (often integrating with Medicaid), to more narrow waivers. To date, only a single state, Hawaii, has released a complete waiver proposal that it intends to submit. Hawaii's waiver addresses a narrow issue that is unique to that state: the interaction of the ACA and Hawaii's pre-ACA requirement for employers to provide health coverage. (See "Lessons from Hawaii's Trailblazing ACA 1332 Waiver Proposal" above.)

The manner in which the new guidance interprets section 1332 appears to significantly limit the types of waivers that HHS and Treasury are likely to approve:

• HHS and Treasury retain the discretion to deny a waiver application even if it satisfies all guardrails.
• When considering the impact on the federal deficit, the waiver is considered alone, without taking into account the impact of any corresponding Medicaid waiver, limiting the ability to spend more on the section 1332 waiver program based on Medicaid savings.
• When evaluating the comprehensiveness, affordability, and coverage guardrails, the state is required to consider both the impact on the state as a whole, as well as on different subgroups, such as the poor, elderly, and chronically ill. It appears the waiver cannot make coverage less available, comprehensive, or affordable for any subgroup.
• HHS says it will not be able to customize the FFM for states that use it, limiting the ability of such states to implement significant waivers while still using the FFM. Similarly, Treasury says the IRS is restricted in its ability to customize tax administration for particular states, limiting the ability of states to implement some waivers of the premium tax credits and individual and employer mandates, all of which are administered by IRS.

Nonetheless, many provisions of the guidance are written in non-mandatory language, suggesting that HHS and Treasury may be willing to approve waivers that deviate from some elements of the guidance.

Legal Effect

The HHS and Treasury guidance was not published as a regulation and therefore does not have the force of law. Nonetheless, it provides guidance on how HHS and Treasury intend to review waiver applications. Future administrations will need to follow this guidance or risk being challenged for taking arbitrary and capricious action. However, should future administrations choose to revise this guidance, they are free to and could do so by publishing a notice in the Federal Register. HHS and Treasury are soliciting comments on the guidance but are under no obligation to respond to the comments or revise the guidance.

Coverage Guardrail

The guidance explains that, to satisfy the coverage guardrail, minimum essential coverage (the type of coverage that satisfies the ACA individual mandate) must be forecast to be provided to at least the same number of people under the waiver as without. Changes in enrollment across coverage programs would be considered, including coverage that is not directly affected by section 1332 (like Medicaid or large employer coverage) and the coverage guardrail "generally" must be expected to be satisfied each year of the waiver and for subgroups, such as the poor, elderly, and chronically ill.

Affordability Guardrail

Under the guidance, affordability would be tested by comparing the ratio of estimated total out-of-pocket cost to enrollee income, with and without the waiver. Total out-of-pocket costs include both premiums and cost-sharing (deductibles, copayments, and coinsurance). Affordability would be tested for the state as a whole, regardless of whether individuals were enrolled in coverage directly affected by the waiver, as well as for vulnerable subgroups. Waivers could also not increase the number of people without coverage that meets minimum value and affordability standards set by the ACA and Medicaid law. This guardrail "generally" must be expected to be satisfied for each year of the waiver.

Comprehensiveness Guardrail

Coverage provided under a waiver must, pursuant to the guidance, be at least as comprehensive as the ACA essential health benefits (EHB) package. At least the same number of residents must have coverage that is as comprehensive as the coverage required under each of the ten EHB benefit categories. The waiver could also not have the effect of reducing the number of residents with coverage at least as comprehensive as that under the state's Medicaid and CHIP programs. This guardrail is also tested for the state as a whole and for vulnerable populations. This guardrail also "generally" must be expected to be satisfied for each year of the waiver.

Deficit Neutrality

The deficit neutrality guardrail evaluates federal expenses and revenue, with and without the waiver. Revenue includes any changes in taxes collected due to the waiver, including changes to ACA-related taxes and credits, such as the premium tax credit, individual and employer mandate-related taxes and assessments, and the Cadillac tax. Expense changes would include the cost sharing reduction payments, Medicaid spending, and federal administration expenses. The waiver must be budget-neutral over the five-year waiver window and a required ten-year budget window. Although it appears a waiver could be approved if it were not expected to be budget neutral in any particular year, HHS and Treasury say they would be less likely to approve such a waiver. Budget projections should assume the waiver continues permanently. Savings generated by other waivers, such as Medicaid waivers under section 1115 of the Social Security Act, will not be counted for the sake of the section 1332 deficit neutrality test.

Operational Limitations

Because HHS says it cannot customize the FFM for particular states in the immediate future, states that use the FFM may not be able to implement certain waivers that could otherwise be approvable if they wish to continue using the FFM. Such a state could create its own exchange, or propose a waiver that does not rely on an exchange-like platform. Similarly, Treasury says IRS cannot modify tax administration for particular states. While a state could choose to waive an entire provision—such as eliminating premium tax credits under section 36B of the Internal Revenue Code and using the money saved for some other form of state-administered subsidy—IRS cannot implement waivers that keep but modify a tax provision.

Conclusion

States and other stakeholders will study this guidance carefully to understand what waivers are still likely to be approved by this Administration, but they likely will also consider whether more expansive waivers would be entertained in future administrations.

_{¹80 Fed. Reg. 78131 (Dec. 16, 2015), available at https://www.gpo.gov/fdsys/pkg/FR-2015-12-16/pdf/2015-31563.pdf.}

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Part B Payments for 340B-Purchased Drugs

Author: Helen Pfister, Partner, Healthcare Industry

Last month, the Office of Inspector General (OIG) released the results of a study finding that in 2013, the Medicare Part B program and its beneficiaries paid $3.5 billion for 340B-purchased drugs, and that in the aggregate, Part B payments were 58% more than the statutorily-based ceiling prices that year, allowing covered entities to retain approximately $1.3 billion in excess of their 340B acquisition costs for the drugs. Noting that some policymakers have questioned whether a portion of the 340B savings should be passed on to the Medicare program, the OIG report presented the following three potential shared-savings scenarios that, if implemented, would permit Medicare Part B to share in the cost savings resulting from 340B discounts:

• Scenario 1: 100% of the average selling price (ASP). Currently, Medicare pays for most Part B drugs at 106% of ASP. If the reimbursement rate were reduced to 100% of ASP for 340B-purchased drugs, Medicare Part B expenditures would have been reduced by $162 million in 2013, and 340B covered entities would have retained $1.1 billion in excess of their 340B acquisition costs for drugs paid for by Medicare Part B.
• Scenario 2: Equally Shared Savings. If the Part B reimbursement rate for 340B-purchased drugs had been reduced to ASP minus 14.4% in 2013, 340B savings would have been split evenly between 340B covered entities and the Medicare program. Medicare expenditures would have been reduced by $638 million while 340B covered entities would have retained $638 million in excess of their 340B acquisition costs for drugs paid for by Medicare Part B.
• Scenario 3: 340B Ceiling Price plus 6% of ASP. According to the OIG report, if Medicare Part B paid for 340B-purchased drugs at the 340B ceiling price plus 6 percent of ASP, 340B covered entities would receive approximately the same spread as they would receive on drugs not purchased at 340B prices (i.e., purchased outside of the 340B Program). According to the report, the add-on above the ceiling price would be intended to ensure that 340B covered entities are adequately reimbursed for drug costs and that there is not a disincentive for covered entities to provide 340B-purchased drugs to Medicare beneficiaries. Under this approach, Medicare expenditures would have been reduced by $1.1 billion in 2013, and 340B covered entities would have retained $211 million in excess of their 340B acquisition costs for drugs paid for by Medicare Part B.

The report does not make recommendations as to whether any of the above approaches should be pursued by the Medicare program, and notes that its analysis is entirely financial, and does not examine the effect these changes would have on 340B covered entities' ability to serve their communities. The report also notes that any revised payment methodology would have to provide sufficient financial incentives to ensure that 340B covered entities continue to purchase Part B drugs through the 340B program; otherwise both the Medicare program and 340B covered entities would be deprived of the benefits of the 340B program. Finally, the report notes that currently, Part B claims do not contain identifiers that would enable the Medicare program to determine which drugs were purchased under the 340B program and apply any of the above methodologies.

Click here to read the full OIG report, "Part B Payments for 340B-Purchased Drugs."

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Recent Changes to Stark Regulations Ease Compliance Burden for Providers

Authors: Robert Belfort, Partner, Healthcare Industry | Randi Seigel, Counsel, Healthcare Industry

For years, healthcare providers have complained that certain aspects of the Stark Law are virtually impossible to implement properly on a consistent basis. Providers have lamented that these Stark provisions do not advance a legitimate compliance purpose and serve only as technical traps for unwary organizations. On November 16, 2015, the Centers for Medicare and Medicaid Services (CMS) partially addressed these concerns. CMS published a final rule (Final Rule)¹ setting forth changes to the regulations designed "to accommodate delivery and payment system reform, to reduce burden and to facilitate compliance."²  

Background

The Stark Law³ and its implementing regulations prohibit physicians from referring Medicare patients for certain designated health services (DHS) to any entity with which the referring physician (or an immediate family member) has any direct or indirect financial relationship, unless an exception applies. In addition, Stark prohibits entities from billing Medicare for services provided pursuant to a prohibited referral.

New Exceptions

1. Assistance to Physicians Who Employ Nonphysician Practitioners (NPPs)

Due to alarming trends in primary care workforce shortage projections and increased reliance on NPPs to render primary care and mental health treatment, CMS created a new direct compensation exception under Stark to permit remuneration from hospitals, federally-qualified health centers (FQHCs), and rural health clinics (RHCs) to a physician to assist him/her in the bona fide employment of, or contract with, an NPP to provide primary care or mental health services within the geographic area served by the hospital, FQHC, or RHC. NPPs include clinical social workers, clinical psychologists, physician assistants, nurse practitioners, clinical nurse specialists and certified nurse midwives. This exception is designed to provide start-up assistance to physicians for hiring or contracting but not to allow for continuing financial support. With limited exceptions, a hospital, FQHC, or RHC may only assist the same physician with employing or contracting with an NPP once every three years. Additionally, a hospital, FQHC, or RHC may only provide assistance for a particular NPP for two years.

An NPP recruited under this exception must provide "substantially all" (i.e., 75%) of the patient services in the area of primary care or mental health services. The exception caps the amount of remuneration given to a physician at 50% of the NPP's aggregated compensation and benefits paid by the physician during a period not to exceed the first two consecutive years of the arrangement. The physician may not impose practice restrictions on the NPP that unreasonably restrict the NPP's ability to provide patient care in the geographical areas served by the hospital, FQHC or RHC.

2. Timeshare Exception

Consistent with CMS's desire to improve access to care and outcomes for beneficiaries, CMS established a new exception permitting timeshare arrangements for the use of premises, equipment, personnel, items, supplies or services between a physician and a hospital, or a physician and another physician organization, regardless of which party is providing or using the space. CMS requires the "licensed premises, equipment, personnel, items, supplies, and services [to be] used predominantly to furnish evaluation and management (E/M) services to patients" of the physician.

To the extent the arrangement involves the use of equipment, the new exception also requires that the equipment being provided or used: (i) be located in the same building where the physician performs E/M services, (ii) be used only to furnish DHS that are incidental to the physician's E/M services and furnished contemporaneously with such visit, and (iii) not be advanced imaging equipment, radiation therapy equipment, or clinical or pathology laboratory equipment (other than equipment used to perform CLIA-waived laboratory tests).

Clarifications and Modifications to Existing Stark Exceptions

1. "Signature Requirement"

Many of the Stark exceptions required memorialization of the arrangements in writing, which many had interpreted to require a formal contract. Due to receiving numerous self-disclosures by providers for violating the writing requirements of various Stark exceptions, CMS clarified that there is no requirement that "an arrangement be documented in a single formal contract." In short, CMS stated that a "collection of documents, including contemporaneous documents evidencing a course of conduct between the parties, may satisfy the writing requirement." By way of example, documents may include board meeting minutes, documents evidencing payment, emails, and on-call coverage documents. To satisfy the signature requirement, there must be a signature on "a contemporaneous writing documenting the arrangement." Despite the clarification under the Final Rule, we believe it is still preferable to memorialize arrangements subject to Stark exceptions in writing in a formal contract.

2. Temporary Noncompliance with Signature Requirements

As discussed above, many Stark exceptions require the parties' signatures. CMS eased the signature requirement slightly by allowing up to 90 days for the parties to obtain the signatures regardless of whether failure initially to meet the signature requirement was advertent or inadvertent. However, CMS continues to limit the use of this special rule regarding temporary noncompliance with the signature requirement to once every three years with respect to the same physician.

3. Term Requirement

CMS clarified that for exceptions that require a one-year term (rental of office space, rental of equipment and personal service arrangements) the requirement for a one-year term does not mean that the arrangement must include an explicit provision setting forth at least a one-year term. Rather, the term requirement can be met as long as there is some contemporaneous documentation establishing that the arrangement lasted for at least one year, or that the parties did not terminate the arrangement during the first year and entered into a new arrangement for the same space, equipment or services during that same first year. Similar to our recommendations above, despite CMS's clarification, we recommend that all terms of an arrangement be set forth in a formal written agreement.

4. "Holdover Arrangements"

Similar to other clarifications discussed above, CMS eased the requirement related to the existence of a formal contract in a holdover situation. CMS now will allow indefinite holdovers (under the rental of office space, rental of equipment and personal services arrangement), provided certain typical Stark safeguards are met. This change is likely to protect from potential Stark liability many leases and service contracts that expire without being formally renewed.

5. "Take into Account"

In the Final Rule, CMS noted that it has always had a uniform interpretation of the "volume or value" standard, but that the Stark regulations had used different terminology when setting forth this standard ("takes into account," "based on" and "without regard to"), thereby causing confusion. In order to ensure a uniform interpretation, CMS revised the regulations to consistently use the phrase "take into account" throughout the Stark regulations in connection with the volume or value standard.

6. "Retention Payments in Underserved Areas"

CMS clarified that the exception for retention payments in underserved areas requires consideration of the entire 24-month period of income prior to payment, and not a portion of such time.

7. Physician-Owned Hospitals

CMS provided guidance to physician-owned hospitals on acceptable methods of "public advertising" and changed the methodology to determine bona fide investment levels.

Definition Revisions

1. Remuneration

Stark's definition of "remuneration" excludes items, devices, or supplies "used solely to collect, transport, process, or store specimens for the entity furnishing the items, devices, or supplies, or ordering or communicating the results of tests or procedures of such an entity." The Final Rule clarified that the items may be used for one or more of these purposes. In addition, CMS clarified that no remuneration exists when a physician provides services to hospital patients in the hospital if both the hospital and the physician bill independently for their services.

2. "Stand in the Shoes"

CMS responded to questions arising from the first iterations of the "stand in the shoes rules" by confirming that only physicians who "stand in the shoes" of their physician organizations need to sign all agreements between their organizations and another entity that furnishes DHS. However, with respect to meeting all other requirements (besides the signature requirement), all physicians, not just the owners, would be considered parties to the arrangements—meaning, for instance, that a physician organization may not take into account any referrals of any employed or contracted physician with the physician organization.

3. Geographic Area Served by FQHC and RHC

CMS finalized the definition for the geographic area served by FQHCs or RHCs under the physician recruitment exception. An FQHC's or RHC's "geographic area" is defined as the lowest number of contiguous or noncontiguous zip codes from which the FQHC or RHC draws at least 90 percent of its patients, as determined on an encounter basis.

Conclusion

The changes in the Final Rule are a welcome development for providers as the new exceptions and clarifications provide greater flexibility and enable providers to more easily take advantage of and comply with the exceptions. Providers can now safely seek monetary assistance to recruit and employ or contract with NPPs to fill their gaps in primary care and mental healthcare services, and use space and equipment to render to patients needed services to support their E/M services. The Final Rule is a step in the right direction to allow healthcare providers to focus more on patient care issues and less on technical Stark provisions that do little to prevent fraud and abuse.

_{¹80 Fed. Reg. 70,886, 71,300 (November 16, 2015).}

_{²80 Fed. Reg. 70,886, 71,301.}

_{³42 U.S.C. § 1395nn.}

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Antitrust Update: Solomon Center Inaugural Conference Explores Implications of Healthcare Consolidation Under the Affordable Care Act

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

On November 13, the Solomon Center for Health Law and Policy at Yale Law School held its inaugural conference, "The New Healthcare Industry: Integration, Consolidation, Competition in the Wake of the Affordable Care Act." The Solomon Center was recently established to focus on the governance, business and practice of healthcare in the United States. In this update we summarize some of the key issues discussed at the conference.

The Solomon Center Conference brought together healthcare industry representatives, regulators and academics to discuss both the benefits and antitrust concerns surrounding consolidation in the healthcare industry. Panels included a range of speakers and addressed consolidation from the payer and provider perspectives, as well as economic analysis and federal and state antitrust regulatory views.

DOJ's Antitrust Division Head Underscores Benefits of Competition in Healthcare Industry

Assistant Attorney General William Baer, head of the Department of Justice (DOJ), Antitrust Division delivered the opening remarks. Baer noted that the Affordable Care Act (ACA) is premised on the benefits of both robust competition in the healthcare space, for example, through establishment of health insurance exchanges, and legitimate cooperation among healthcare providers, for example, through establishment of Accountable Care Organizations (ACOs). Baer emphasized, however, that the ACA's incentives for collaboration do not give healthcare industry participants "a pass on antitrust scrutiny," and that merger enforcement will continue to be a priority for the DOJ going forward. Baer's remarks reflected an underlying belief expressed by many regulators and economists throughout the conference that competition at all levels of the healthcare market—including among and between insurers and providers—benefits consumers by lowering prices and promoting innovation and quality.

Massachusetts Attorney General Emphasizes Interplay Between State and Federal Regulators

Massachusetts Attorney General Maura Healey also delivered an opening address discussing the cooperative and collaborative relationship between the DOJ and state regulators, as well as the active role that states' attorneys general play in enforcing antitrust laws. Healey discussed her state's ongoing efforts in this area, and highlighted some unique state resources devoted to analyzing local market dynamics.

Payer-Provider Integration Trend Examined

Representatives of health insurers and health maintenance organizations, integrated health networks and the pharmacy industry discussed the benefits of integrating payment for and delivery of health services. The panelists highlighted the ways in which increased consolidation in the healthcare market can benefit both providers and patients by fostering a shift away from a siloed, episodic care delivery system to a more integrated and holistic system focused on patient wellness. The panel discussed how some HMOs have been integrating care and payment for decades thorough capitated payment models that create financial incentives to provide better care at lower costs. While the blurring of lines between providers and payers is not a new phenomenon, this trend has accelerated under the ACA.

To realize the benefits of payer-provider integration, panelists discussed the importance of aligning incentives between providers and payers to encourage concerted efforts in care delivery; effective use of data, in particular, to support care management, engage patients in care, and improve outcomes; and innovation, as well as the importance of developing regulatory schemes that both protect competition and promote innovation.

Horizontal Integration: Perils and Promises

Conference participants addressed the benefits and drawbacks of horizontal consolidation in the healthcare market. In particular, panelists highlighted increased concentration among payers—the market share of the four largest private health insurers increased from 65% in 2002 to 83% in 2015—and providers, noting the rapid increase in hospital mergers, driven in part by a desire to drive down overhead expenses.

Proponents of consolidation in the healthcare market often cite its potential benefits, including improvements in coordination of care; decreased fragmentation; increased efficiencies, including reductions in unnecessary duplication and cost reductions from economies of scale; and improved population health.

In contrast, economists on the panel argued that the evidence does not necessarily demonstrate these benefits, and raised several concerns about consolidation in different healthcare markets. In particular, economists focused on the following examples:

• Payer market: One panelist reported that preliminary analysis suggests increased consolidation has a negative effect on innovation in the payer market.
• Provider market: Another panelist argued that integrated delivery systems do not necessarily provide better care, and that provider mergers can lead to higher prices, lower quality of care, less innovation and decreased quality of care.

The panelists also addressed the degree to which the ACA has driven consolidation and impacted antitrust enforcement. A pharmaceutical industry representative argued that the ACA and an increased focus on value-based reimbursement are driving consolidation in the healthcare market. Peter Mucchetti, Chief of Litigation I Section of the DOJ's Antitrust Division provided an enforcement perspective, explaining that while the ACA has impacted antitrust enforcement in some ways, it does not change the applicable antitrust standards.

Like business transactions in all other industries, transactions in the healthcare industry are still subject to an assessment of whether they will substantially lessen competition. The reforms under the ACA do, however, alter issues fundamental to the antitrust enforcement analysis, including market definitions and barriers to entry. For example, the increase in individual health plans has led to increasingly narrow provider networks, which raises questions about access to care and how health insurance exchanges established under the ACA have altered the manner in which insurers enter and exit the market.

Show Me the Data: Understanding the Impact of Vertical Integration

Representatives of hospitals and government debated whether vertical integration in the healthcare industry benefits or harms competition. The debate highlighted both the beneficial and potentially concerning forces driving vertical integration, including generating economies of scale to permit greater investment in technology and improve the quality of care versus anticompetitive motives, such as increasing bargaining leverage or changing referral patterns.

Economists on the panel presented potential policy solutions to foster the efficiencies of vertical consolidation and minimize its harmful effects. Focusing on the states' unique ability to assess local markets, one suggestion was for states to collect and analyze claims data in order to determine the empirical effects of vertical integration. It was also noted that the FTC is similarly focusing on incorporating evidentiary analysis into its enforcement through, for example, its retrospective reviews of hospital mergers.

Conclusion

Key takeaways from the remarks of regulators, academics, and industry representatives include:

• Although ACA reforms have driven consolidation in the healthcare market, antitrust regulators made clear that they will continue vigorous pursuit of merger review and that "the ACA made me do it" is not a valid defense to anticompetitive consolidation in the healthcare market.
• Academics and regulators emphasized that competition in the healthcare market plays a critical role in controlling prices and driving positive health outcomes.
• Industry representatives, on the other hand, suggested that efficiencies of consolidation outweigh potential competitive concerns.
• States, including states' attorneys general, have unique opportunities to analyze local market dynamics.

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Long-Term Services and Supports: Opportunities for MassHealth

Authors: Carol Raphael, Senior Advisor | Stephanie Anthony, Director | Keith Nevitt, Senior Analyst | Harsha Prabhala, Quantitative Senior Analyst

Editor's Note: Manatt Health developed a new chart pack in partnership with the Blue Cross Blue Shield of Massachusetts Foundation, titled "MassHealth Matters II: Long-Term Services and Supports (LTSS) Opportunities for MassHealth." Findings from the chart pack were featured at an event hosted by the Blue Cross Blue Shield of Massachusetts Foundation on December 2, 2015. The chart pack, summarized below, examines the current state of LTSS, an area that MassHealth (Massachusetts Medicaid) identified as a priority for reform. Using previously unpublished LTSS data, the chart pack provides insights into MassHealth LTSS spending and utilization, access and affordability, workforce capacity, and quality, and includes a summary of opportunities to improve delivery and coordination of LTSS.

_________________________________

What Are LTSS?

LTSS include a range of services that people with disabilities and chronic conditions use to meet their personal care and daily routine needs to promote independence, support their ability to participate in the communities of their choice and increase their overall quality of life. LTSS are delivered in a full spectrum of home, community and institutional settings across the care continuum. LTSS include: care coordination, transportation, homemaking, laundry/chores, meal preparation, day habilitation, durable medical equipment, adult day healthcare, personal care services, home healthcare, private duty nursing, physical therapy and skilled nursing care.

Why Focus on LTSS in Massachusetts?

1. People of all ages use LTSS to live independently in the settings of their choice. Estimates indicate that about 750,000 people—or 11% of the non-institutionalized population—report having a disability. Massachusetts' population is projected to age rapidly, with the rate of growth for those over 65 years of age expected to increase by 46% in 20 years.

2. Spending on LTSS accounts for almost one-third of all MassHealth spending and is expected to grow. MassHealth is the largest payer of LTSS in MA, with 2015 LTSS spending at $4.5 billion or 12% of the entire state budget. National estimates project the rate of spending growth for Medicaid LTSS to be more than three times that of Medicaid overall.

3. Massachusetts has expanded access to community LTSS, but there is more work to do to improve the delivery of care. Although Massachusetts has aggressively shifted LTSS utilization and spending to the community, institutional spending has yet to decline accordingly. While Massachusetts is testing several MassHealth managed care options that include LTSS, most people who use LTSS remain in a fee-for-service system. MassHealth funds many key programs, yet they are operated by various state agencies, resulting in a confusing and fragmented system.

4. There is an opportunity for Massachusetts to become a national leader. In a national ranking of states on 25 LTSS metrics, Massachusetts currently ranks 18th. It scored in the second quartile on affordability and access, choice of setting and provider, quality of life and quality of care, and ease of transitions. However, it only scored in the fourth quartile for support for family caregivers.

Who Uses MassHealth LTSS and What Does Spending Look Like?

Individuals who access MassHealth LTSS are a diverse group. Roughly 14% of MassHealth enrollees—or 251,000 people—currently utilize LTSS. Of those using LTSS, nearly half are elders and almost a third are adults and children with disabilities.

MassHealth is the largest payer of LTSS in the state, accounting for nearly half of all spending in 2010. In 2013, LTSS spending accounted for about 35% of all MassHealth spending, and that amount is expected to grow dramatically. While only 14% of MassHealth enrollees utilize LTSS, their spending accounts for nearly a third of all MassHealth spending.

How Has MassHealth Rebalanced Spending?

In 2008, MassHealth spending on community-based LTSS accounted for just 43% of MassHealth LTSS. As the state has aggressively focused on rebalancing efforts, the percent of LTSS spending on community-based LTSS grew to nearly 60% in 2013 and is expected to rise to 65% in 2015.

Over the last decade, MassHealth has made a concerted effort to rebalance LTSS and shift spending from institutional to home and community-based care. Between 2012 and 2015, per enrollee costs for MassHealth FFS community services increased 26.5% to $8,200 per person and FFS day/residential services increased 13.7% to $15,400 per person. Over the same period, spending on FFS institutional services dropped 2.3% to $31,200 per person.

Massachusetts remains a leader both regionally and nationally in providing home and community-based services. It ranks 9th overall in percent of Medicaid spending for home and community-based care.

What Issues Does the Workforce Face?

LTSS are provided by both formal direct service workers, such as Personal Care Aides (PCAs) and Home Health Aides (HHAs), and by informal caregivers, such as family members, close friends, and neighbors.

PCAs and HHAs are among the fastest growing jobs in the country, with estimates anticipating they will grow by about 70% in the next five years. Despite this expected growth, annual wages for PCAs and HHAs in Massachusetts are low—less than $27,000 a year. In 2014, PCAs and HHAs were among the lowest paid out of the 30 fastest-growing jobs. In June 2015, Massachusetts approved a new contract that aims to stabilize and support the personal care workforce by increasing hourly wages to $15 by 2018.

In 2015, a RAND study estimated that informal care for elders was more than $500 billion nationwide, larger than the entire current federal Medicaid budget. Massachusetts ranks near the bottom for supporting family caregivers. In 2013, family caregivers in Massachusetts provided 786 million hours of care, valued at almost $15 an hour. In total, it is estimated that the total economic value of care was worth $1.6 billion. Only two states provided a greater economic value of unpaid care per capita than Massachusetts.

What Are the Opportunities and Considerations Ahead?

Massachusetts can significantly advance the promise and goals of its person-centered "Community First Olmstead Plan" and become a national leader in LTSS by focusing on six opportunity areas:

1. System integration and navigation. Continue to better align and integrate the LTSS system, which is fragmented across several agencies, delivery systems, and programs. The current system makes it difficult for people to receive clear information and efficiently access LTSS.

2. Community-based LTSS access. Close remaining gaps in access to community-based LTSS by exploring additional Medicaid state plan and waiver options and dedicating sufficient resources to fully implementing the Balancing Incentive Program (a federal program that provides grants to 21 states to increase access to non-institutional LTSS).

3. Sustainable delivery system and funding reforms. Clearly define and articulate the role of community and institutional LTSS, major drivers of MassHealth program costs, with respect to the state's broader MassHealth delivery system and payment reform efforts.

4. Social determinants of health. Explore care delivery and reimbursement opportunities that integrate social determinants of health, such as affordable and accessible housing and medical transportation, with physical health, behavioral health and LTSS.

5. Workforce capacity to meet the growing demand. Dedicate focused attention and resources on providing supports to Massachusetts' nearly one million informal caregivers and sufficient wages to its direct service workers in both community and institutional settings.

6. LTSS quality improvement. Develop and utilize standardized LTSS quality metrics, as feasible, across state plans and HCBS waiver programs that measure care quality, safety and outcomes to help people remain independent and high functioning in their homes and communities.

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U.S. Supreme Court to Hear Religious Nonprofit Organizations' Challenge to the Affordable Care Act's Contraception Mandate

Author: Lydia M. Mendoza, Associate, Litigation

Last month, on November 6, 2015, the United States Supreme Court granted certiorari and consolidated seven cases brought by religious nonprofit organizations challenging the "opt out" provision of the Affordable Care Act's (ACA's) contraception mandate, claiming it violates their right to religious freedom.¹  

Federal law currently requires employers to provide all FDA-approved contraceptive measures and sterilization procedures to employees through their health plans and without any cost-sharing. A total exemption to this rule, however, is provided to houses of worship (45 C.F.R. § 147.131(a)) and a special "accommodation" is provided to religiously affiliated nonprofit organizations (45 C.F.R. § 147.131(b)).² The accommodation allows nonprofit religious organizations to opt out of purchasing contraceptive coverage for their employees. In such cases, the legal obligation to provide contraceptive coverage is transferred to the organization's insurance company.

In order to request such an accommodation, an organization was originally required to submit to its health insurer or third-party administrator (TPA) a self-certification form stating that (1) it opposes providing coverage for some or all of any contraceptive services required to be covered under the contraceptive mandate on account of religious objections, (2) it is organized and operates as a nonprofit entity, and (3) it holds itself out as a religious organization. See 45 C.F.R. § 147.131(b). The Department of Health and Human Services (HHS), however, amended the accommodation following the Supreme Court's decision in Wheaton College v. Burwell, 134 S. Ct. 2806, 189 L. Ed. 2d 856 (2014), to simplify the opt-out procedure. Now, religious nonprofit organizations are allowed simply to certify their objections in a notice to the Secretary of HHS or their insurer.

Plaintiffs Challenge the Accommodation as a Burden on Religious Freedom

Per federal law, even though the plaintiffs in the seven consolidated cases are not required to provide contraceptive coverage, they nonetheless continue to challenge the accommodation as posing a substantial burden on their religious freedom as guaranteed by the Religious Freedom Restoration Act (RFRA). Under the RFRA, a law that substantially burdens religious freedom can be upheld only if it furthers a compelling government interest and is the least restrictive means of doing so. 42 U.S.C. § 2000bb-1(a)-(b). Plaintiffs contend that even with the accommodation afforded under federal law, they are nonetheless still being forced to violate their sincerely held religious beliefs, because notifying HHS or their insurance companies of their objections will trigger their insurer's obligation to provide contraceptive coverage, thereby making them a conduit to conduct that they believe to be morally wrong. As explained in Priests For Life v. U.S. Dept. of Health and Human Services, 772 F.3d 229, 251-52 (D.C. Cir. 2014):

Plaintiffs nonetheless insist that, even with the accommodation, the regulations substantially burden their religious exercise by continuing to require that they play a role in the facilitation of contraceptive use. In particular, they contend that: (1) "signing and submitting the self-certification" or alternative notice "triggers" or "impermissibly facilitates delivery of the objectionable coverage" to the beneficiaries of their health plans; (2) the regulations require "contracting with third parties authorized or obligated to provide the mandated coverage;" and (3) the regulations require "maintaining health plans that will serve as conduits for the delivery of the mandated coverage." Additionally, self-insured Plaintiffs contend that their self-certification expressly and impermissibly authorizes their TPAs to provide contraceptive coverage.

In essence, the plaintiffs do not want contraceptive coverage to be made available to their employees—no matter who finances the coverage—because they believe that requiring their insurers or TPA to provide such coverage makes them complicit in immoral conduct that is tantamount to abortion. Therefore, they seek a total exemption from the law—such as the one provided to houses of worship.

Courts of Appeals Are Split

The United States Courts of Appeals are split, doubtless leading to the Supreme Court's grant of certiorari. Plaintiffs' argument was rejected by the Third, Fifth, Tenth and D.C. Circuits from which these seven consolidated cases stem, but was accepted by the Eighth Circuit.³  

In Little Sisters of the Poor Home for the Aged, Denver, Colo. v. Burwell, 794 F.3d 1151, 1182-84 (10th Cir. 2015), the Tenth Circuit stated:

The opt out does not "cause" contraceptive coverage; it relieves objectors of their coverage responsibility, at which point federal law shifts that responsibility to a different actor. The ACA and its implementing regulations have already required that group health plans will include contraceptive coverage and have assigned legal responsibilities to ensure such coverage will be provided when the religious nonprofit organization opts out…. Although a religious nonprofit organization may opt out from providing contraceptive coverage, it cannot preclude the government from requiring others to provide the legally required coverage in its stead. In short, the framework established by federal law, not the actions of the religious objector, ensures that plan participants and beneficiaries will receive contraceptive coverage.

The court then rejected the plaintiffs' contention that the accommodation is a substantial burden because it makes them "complicit in the overall scheme to deliver contraceptive coverage." Id. at 1191. The court noted that "the purpose and design of the accommodation scheme is to ensure that Plaintiffs are not complicit" and "[o]pting out sends the unambiguous message that they oppose contraceptive coverage and refuse to provide it, and does not foreclose them from objecting both to contraception and the Mandate in the strongest possible terms." Id. The court further noted that the "de minimis administrative task" involved in opting out does not substantially burden religious exercise. Id. at 1192.

On September 17, 2015, the Eighth Circuit created a split in authority with its opinion in Sharpe Holdings, Inc. v. U.S. Dep't of Health & Human Servs., 801 F.3d 927, 942 (8th Cir. 2015), which held the opt-out process can be viewed as a substantial burden of religious faith in violation of RFRA. "The question here is not whether [Plaintiffs] have correctly interpreted the law, but whether they have a sincere religious belief that their participation in the accommodation process makes them morally and spiritually complicit in providing abortifacient coverage. Their affirmative answer to that question is not for us to dispute."

In reaching its decision, the court found that the government had not met its burden of demonstrating that the "contraceptive mandate and the accommodation process are the only feasible means to distribute cost-free contraceptives to women employed by religious organizations and that no alternative means would suffice to achieve its compelling interest." Id. at 943. For example, "The government could provide subsidies, reimbursements, tax credits, or tax deductions to employees, or that the government could pay for the distribution of contraceptives at community health centers, public clinics, and hospitals with income-based support." Id. at 945.

The Supreme Court Will Address Whether the Accommodation Violates RFRA

On review, the Supreme Court will address the issue of whether the accommodation granted to religious nonprofit organizations violates the RFRA. In considering possible outcomes, one potential impactful issue to note is that the plaintiffs in the underlying cases offer health insurance in various ways.⁴ This may become an issue because some dissenting judges in the lower court opinions have emphasized the difference between insured and self-insured plans in terms of who bears the legal responsibility for providing contraceptive coverage once a religious nonprofit organization has opted out. See Little Sisters of the Poor Home for the Aged, Denver, Colo. v. Burwell, 794 F.3d 1151, 1184 (10th Cir. 2015).

_{¹Zubik v. Burwell, No. 14-1418, Nov. 6, 2015, 2015 WL 2473206; Priests for Life v. Dept. of Health and Human Services, No. 14-1453, Nov. 6, 2015, 2015 WL 6759640; Roman Catholic Archbishop of Washington v. Burwell, No. 14-1505, Nov. 6, 2015, 2015 WL 3867241; East Texas Baptist University v. Burwell, No. 15-35, Nov. 6, 2015, 2015 WL 4127312; Little Sisters of the Poor Home for the Aged, Denver, Colo. v. Burwell, No. 15-105, Nov. 6, 2015, 2015 WL 6759642; Southern Nazarene University v. Burwell, No. 15-119, Nov. 6, 2015, 2015 WL 4540733; and Geneva College v. Burwell, No. 15-191, Nov. 6, 2015, 2015 WL 4765464.}

_{²This accommodation was extended to closely held for-profit corporations, which have religious objections to the contraceptive mandate, in the Supreme Court's recent decision in Burwell v. Hobby Lobby Stores, Inc., 134 S. Ct. 2751, 189 L. Ed. 2d 675 (2014).}

_{³Little Sisters of the Poor Home for the Aged, Denver, Colo. v. Burwell, 794 F.3d 1151 (10th Cir. 2015) noting that "courts—not plaintiffs—must determine if a law or policy substantially burdens religious exercise"; E.Tex.Baptist Univ. v. Burwell, 793 F.3d 449 (5th Cir. 2015); Geneva Coll. v. Sec'y U.S. Dep't of Health & Human Servs., 778 F.3d 422, 435 (3d Cir. 2015) "Without testing the appellees' religious beliefs, we must nonetheless objectively assess whether the appellees' compliance with the self-certification procedure does, in fact, trigger, facilitate, or make them complicit in the provision of contraceptive coverage."; Priests for Life v. U.S. Dep't of Health & Human Servs., 772 F.3d 229, 247 (D.C. Cir. 2014) "Accepting the sincerity of Plaintiffs' beliefs, however, does not relieve this Court of its responsibility to evaluate the substantiality of any burden on Plaintiffs' religious exercise.... Whether a law substantially burdens religious exercise under RFRA is a question of law for courts to decide, not a question of fact."}

_{⁴For example, Priests for Life involves eleven different Catholic organizations that fall into four different categories: 1) the Catholic Archdiocese, which operates a self-insured "church plan" that is exempt from the Employee Retirement Income Security Act of 1974 ("ERISA"), 2) church plan plaintiffs who are nonprofits affiliated with the Archdiocese and arrange for health insurance through the Archdiocese's self-insured plan, 3) nonprofit organizations that self-insure through a trust that oversees an ERISA covered plan that is run by a TPA, and 4) organizations that provide insurance coverage through group health insurance plans they negotiate with private insurance companies.}

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