On December 31, 2021, New York Governor Kathy Hochul signed landmark legislation to increase the transparency of prescription drug pricing and to establish requirements on pharmacy middlemen. This new law is amongst 100 [1] state bills introduced in 2021 that shed light on the business practices of pharmacy benefit managers (PBM). In an approval memo, Governor Hochul described the New York legislation as the most comprehensive regulatory framework in the country for PBMs. The new law requires PBMs to register with the State Department of Financial Services (DFS) by April 1, 2022 and thereafter to be licensed by January 1, 2023. Failure to obtain a license by 2023 could result in a cease and desist order from DFS and financial penalties. The new legislation also sets forth duties and obligations that PBMs must follow, which are outlined below.

Duties

The new legislation creates a duty on the PBM to perform their services to covered individuals, health plans, and providers with “care, skill, prudence, diligence, and professionalism”.

Price transparency

The new law requires the PBM to place all money for service in trust to be distributed according to the PBM’s contract with the health plan, provider, or applicable law, including any payment that has been specifically allocated to compensate the PBM. In addition, PBMs must inform the health plans and providers of any pricing discounts, rebates, credits, fees, grants, reimbursements or other benefits “annually or more frequently.” The PBM is required to ensure that any portion of such income or financial benefit is passed in its entirety to the health plan or provider.

The new law also requires PBMs to disclose to DFS financial information and the terms and conditions of any contract they have with any party in writing, including dispensing fees paid to the pharmacies. Annually on or before July 1, PBMs are required to file a detailed report of: 1) any pricing discounts, rebates, credits, fees, grants, reimbursements and other benefits received by the PBM, and 2) the terms and conditions of any contract or arrangements between the PBM and “any other party relating to PBM services provided to a health plan or provider.” Medicare and Medicaid have had similar price transparency rules, but now those rules will apply across all lines of business in New York.

Disclosure requirements

If any activity, policy, practice or contract presents a conflict of interest with a PBM’s relationship or obligation to a health plan or provider, the PBM is required to disclose this information in writing.

Private Right of Action

If a PBM is in violation of any of their duties, providers and patients are afforded a private right of action to seek legal or equitable relief for any injury or loss resulting from a violation.

DFS along with the Department of Health in New York (DOH) will issue regulations that establish the minimum standards and requirements of PBM services in order to address the elimination of: conflicts of interest, deceptive and anti-competitive practices, and unfair claims practices. The new statute authorizes DFS to examine any registrant or licensee at any time they deem it expedient to ensure compliance.

***

The new legislation was passed as part of a three-part pharmacy reform package, one of which was vetoed. The vetoed Senate Bill 6603 prohibited PBMs from limiting an individual’s option to receive medications from non-mail order pharmacies, and from denying a retail pharmacy participation in another provider’s network. No other PBM measures were included in Governor Hochul’s proposed 2023 Budget, released yesterday. However, time will tell if other legislation is contemplated in the budget negotiations and this legislative session. Given the newly enacted legislation and the evolving landscape on PBM regulatory oversight, Proskauer attorneys can assist self-insured employers and health plans regarding PBM business practice compliance.

[1] https://www.nashp.org/rx-legislative-tracker/

Recently, in Siegel v. Snyder, Slip.Op. 07624, New York’s Appellate Division, Second Department interpreted New York’s peer review/quality assurance confidentiality statute in a manner that may require modifications to the standard documentation of such meetings.  New York’s Education Law 6527(3) shields from disclosure “the proceedings [and] the records relating to performance of a medical or a quality assurance review function or participation in a medical . . . malpractice prevention program,” as well as testimony of any person in attendance at such a meeting when a medical or quality assurance review function or medical malpractice prevention program was performed (see Logue v Velez, 92 NY2d 13, 16-17).  Public Health Law 2805-m(2) affords similar protection from disclosure for “records, documentation or committee actions or records” required by law, which includes peer review activity.

Continue Reading Failure to Disclose Speakers at Protected QA Meeting Loses Protection for All Speakers

On November 2, 2021, the Centers for Medicare and Medicaid Services (“CMS”) issued its Calendar Year (CY) 2022 Physician Fee Schedule (“PFS”) Final Rule. In this post, we sample some key highlights from the Final Rule. Continue Reading Physician Fee Schedule Final Rule for Calendar Year 2022 – CMS Cuts Rates and Extends Telehealth

On November 2, 2021, the Centers for Medicare & Medicaid Services (“CMS”) issued a final rule (“Final Rule”) that advances the shift from paying for Medicare home health services based on volume to a system that pays based on value. In addition to other matters, the Final Rule expands the HHVBP Model from 9 states to all 50.

The new rule stems from a decade of CMS Innovation Center experimenting with alternative home health payment models, all launched with the goal of incentivizing quality of care improvements for home health patients. The HHVBP Model was originally piloted in 9 states and resulted in reductions in acute hospitalizations and skilled nursing facility stays. Thus, CMS determined that expanding the model will further reduce Medicare spending and improve quality. Beginning on January 1, 2022, the HHVBP Model shall apply to all Medicare certified HHAs in the 50 States, Territories, and the District of Columbia. In this blog post, we highlight the key components of the expanded HHVBP Model.

Of note, CY 2022 will be a pre-implementation year with CMS providing HHAs with training and resources to prepare for success. CY 2023 will be the first performance year with payment adjustments occurring in CY 2025. Payment adjustments will be based on each HHA’s performance on a set of quality measures in a given performance year relative to other HHAs grouped in the same cohort.

Cohorts are identified based on the unique nature of the HHAs beneficiaries served in the year prior to the performance year with assignment based on either nationwide large-volume or nationwide small-volume of similar size and quality performance HHAs.  Adjustments will range from -5% to +5% of Medicare fee-for-service payments.

Specifically, payment adjustments are based on each HHA’s Total Performance Score (TPS) in a given performance year, which is comprised of performance on: (1) A set of measures reported via the Outcome and Assessment Information Set (OASIS), (2) completed Home Health Consumer Assessment of Healthcare Providers and Systems (HHCAHPS) surveys, and (3) claims-based measures (e.g., acute care or ER hospitalizations during the first 60 days of HHA use). Quality measures do not count: (i) for patients that were not responsive at the start of care or resumption of care, (ii) if the HHA has less than 20 eligible quality episodes and (iii) for any patients in Medicare Advantage or Medicaid.

The expanded Model will use benchmarks, achievement thresholds, and improvement thresholds based on CY 2019 data to assess achievement or improvement of HHA performance on applicable quality measures. Competing HHAs that demonstrate they can deliver higher quality of care in a given performance year when measured against a baseline year and relative to peers nationwide (as defined by larger- versus smaller-volume cohorts), will be eligible to have their HH PPS claims final payment amount adjusted higher than the amount that otherwise would be paid. Payment adjustments for a given year will be based on the TPS calculated for performance two years prior. All HHAs certified to participate in the Medicare program prior to January 1, 2022, will be required to participate and will be eligible to receive an annual TPS based on their CY 2023 performance.

Note that while the HHVBP Model does not apply to Medicaid or commercial patients, it does provide a path and format for use in these markets as most payors move toward paying for value instead of volume.

More information on the CMS HHVBP Model can be found at https://innovation.cms.gov/innovation-models/expanded-home-health-value-based-purchasing-model and as will be updated with further guidance in 2022.

Proskauer’s Health Care team can help you strategize and consider alternative payment and value-based payment arrangements for home care and other healthcare services.

In a November 12, 2021 revision of its prior draft guidelines for hospital co-location compliance with Medicare conditions of participation (COP) for hospitals (QSO-19-13), CMS has apparently softened its approach to co-location. The modified guidance is less prescriptive and appears more practical and supportive of co-location where appropriate. In July 2019, CNS issued draft QSO-19-13 that purported to ease its earlier flat prohibition on co-location that it had adopted through sub-regulatory guidance. Although the 2019 version of QSO-19-13 allowed the sharing of non-clinical spaces, CMS noted that “due to infection control, patient management, confidentiality, and other quality and safety concerns, the use of shared clinical space would be limited.” In the recent revision, CMS no longer includes the admonition against sharing clinical space and merely states, “when hospitals choose to co-locate, they should consider the risk of compliance through any shared space or shared services arrangements.” Further, the prior requirement that hospitals have “distinct” clinical space is replaced with an admonition that “hospitals have spaces of operation that meet the [COP],” considering, among others, the conditions regarding patient rights, infection prevention and control, governing body and the physical environment. The modified guidance seems to support co-location where each provider can separately establish that it meets the COP applicable to it, and as such is an important liberalization at a time when hospitals are desperate for operational efficiencies.

In an advisory opinion posted November 10, 2021 (AO 21-15), the Office of the Inspector General of the United States Department of Health and Human Services (OIG) appeared to soften a disturbing position that it had taken in 2012 regarding the employment safe harbor.

The issue is the breadth of the employment safe harbor, which is also specifically included in the Federal Anti-Kickback Statute (AKS) as a statutory exception.  In Advisory Opinion 12-06 (AO 12-06), the OIG confronted referring physicians attempting to profit from anesthesiology services.  Without going into the details of that complicated opinion, AO 12-06 evaluated a situation where a new entity was created (owned by the referring physicians’ professional entity) that would employ or contract with anesthesiologists to provide services at the ASC.  The OIG noted that, “neither the employment safe harbor nor the personal services and management contracts safe harbor would protect the remuneration” reflected in the distribution of profit generated by the employees to the owners of the practice.  This statement effectively meant that the OIG had largely eviscerated the employment and personal services safe harbors because those safe harbors would only apply where the referring employer or contractor did not potentially profit from the employment or contract.  But this is almost never the intent, and in fact, failure to profit might itself raise FMV and commercial reasonableness issues.  It is also difficult to imagine that Congress, in adding the statutory exception to the AKS, meant it only to apply where the referring employer did not anticipate a profit.

In its recently-published AO 21-15, the OIG cleared the air a bit.  It blessed the employment of a CRNA to provide anesthesia services to a pain management practice, while aware that the practice would likely profit off its referrals to the CRNA as a result of the CRNA’s assignment of its billing rights.  The OIG first noted that it continues to maintain that the employment safe harbor does not protect the distribution of profits to referring shareholders related to the employment.  However, the OIG noted that bona fide employment in which a professional reassigns billing rights in exchange for compensation is “a commonplace practice in the health care industry, explicitly authorized by … the Medicare program.”  Since at issue was a “straightforward employment agreement” where the employer “assumes certain duties that may be typical of an employer and where … the CRNA is a bona fide employee,” the OIG deemed the employment to present a low risk of abuse and approved the relationship.

While it is disappointing that the OIG continues to argue that the employment exception does not protect a standard and accepted component of health care employment, it appears that the OIG is aware of the problems its position creates.  Its new position accepts bona fide employment despite the profit to be generated for the CRNA’s employer based on the CRNA’s referrals.

Earlier this month, the Centers for Medicare and Medicaid Services (CMS) released its final rules for the 2022 Medicare Physician Fee Schedule (PFS Final Rule) and 2022 Medicare Hospital Outpatient Prospective Payment System and Ambulatory Surgical Center Payment System (OPPS Final Rule).  Both rules take effect January 1, 2022.  This post is the first in a series covering the myriad Medicare-related changes set forth in those rules.  We turn first to an area addressed extensively in the PFS Final Rule—the amendments to the Physician Self-Referral Law (Stark Law) regulations.

Those amendments correct inadvertent omissions in a previous CMS rulemaking and clarify the reach of the prohibition related to “indirect compensation arrangements.”  As the tale unfolded, within a matter of months of publishing its Modernizing and Clarifying the Physician Self-Referral Regulations Final Rule (MCR Final Rule), which went into effect January 19, 2021, and which made significant changes to the Stark Law, CMS identified certain crucial omissions related to the regulatory calculus for analyzing indirect compensation arrangements, and sought to correct those oversights through its 2022 Medicare Physician Fee Schedule Proposed Rule (PFS Proposed Rule).  85 Fed. Reg. 77492 (Dec. 2, 2020); 86 Fed. Reg. 39104 (July 23, 2021).  After a short notice-and-comment period, on November 2, 2021, CMS announced that it had taken care of the issues through the PFS Final Rule, which is scheduled to be published in the Federal Register on November 19, 2021.

As explained in more detail below, the import of the PFS Final Rule for physicians, their immediate family members, and entities furnishing designated health services (DHS) is that, while indirect compensation arrangements still must satisfy the requirements of an applicable exception to avoid the Stark Law’s referral and billing prohibitions, the number of indirect compensation arrangements subject to those prohibitions, currently enforceable under the law set forth in the MCR Final Rule, is now reduced.  More specifically, CMS’s corrections to that rule ultimately reduce the number of arrangements that satisfy the definition of “indirect compensation arrangement” and, thus, decrease the number of arrangements that fall within the prohibitions’ purview.  To CMS’s credit, the changes appear to be consistent with its long-standing policy of ensuring program integrity against the risk of program or patient abuse.  To better understand the significance of CMS’s clarifications, we provide a chronological-based history of the amendments to the definition of “indirect compensation arrangement.”

Continue Reading CMS Corrects Inadvertent Omissions in Recent Stark Law Regulatory Amendments, Clarifies Reach of the Prohibition Related to Indirect Compensation Arrangements

This post reviews Part II of the federal No Surprises Act regulations.  In previous publications, we have commented upon the No Surprises Act, and Part I of the regulations.

The “Requirements Related to Surprise Billing; Part II” (the “Part II Rule”), published on October 7, 2021, is the second interim final rule (IFR) implementing the No Surprises Act, following a prior No Surprises Act IFR (the “Part I Rule”) published on July 13, 2021.  Both of these regulations are generally set to take effect on January 1, 2022.

In this post, we outline how the Part II Rule addresses: (A) the independent dispute resolution (IDR) and open negotiation processes for health plans and other payers (“Plans”), (B) patient-provider dispute resolution processes for uninsured individuals, and (C) the expansion of the federal external review provisions of the Affordable Care Act to cover disputes regarding the application of the No Surprises Act.

Continue Reading The Devil may be in the Details of the Part II No Surprises Act IFR

In the last few years, we have seen an uptick in behavioral health groups focused on psychedelic treatments.  There are now at least five (5) psychedelic-assisted therapy platforms traded on NASDAQ with numerous others listed on the Toronto Stock Exchange and elsewhere.[1]  Ketamine treatments, in particular, have garnered considerable attention from patients, providers and investors.   Treatment models range from more traditional psychotherapy and infusion services similar to those offered by Columbia University[2] to telemedicine-enabled psychotherapy coupled with mail-delivered tablets of ketamine under the Mindbloom model.[3]  However, despite the growth in adoption, Ketamine remains a controlled substance and ketamine behavioral health remains an industry with material regulatory risks.

We have set forth certain key considerations for various stakeholders involved with ketamine behavioral health. Continue Reading Key Legal Considerations Relating to Ketamine Behavioral Health Platforms

Although the COVID-19 pandemic is still active worldwide, health care industry leaders and regulators have already begun to think about how to implement post-pandemic changes to health care delivery based on lessons learned during the global emergency of the past year and a half. We have reported on some such post-pandemic changes to the health care industry in previous blog posts. For instance, some temporary solutions to challenges presented by COVID-19 are being made permanent due to their proven efficiency or effectiveness. The expansion of telehealth is a primary example of this. We have seen the Centers for Medicare and Medicaid Services (“CMS”), as well as state governors and legislators, expand and extend certain regulatory waivers that were initially designed as temporary solutions to allow for greater access to patient care during the pandemic, but that are becoming permanent fixtures due to their usefulness in innovative patient care delivery generally.

Other post-pandemic changes to the health care delivery landscape will be borne out of sheer necessity rather than innovation. Continue Reading Lessons from the COVID-19 Pandemic: Planning for Disaster Preparedness and Emergency Management in Hospitals