DSH Litigation and 340B Program Update: What Participating Hospitals Need to Know and What They Should Be Doing

DSH Litigation and 340B Program Update:

What Participating Hospitals Need to Know and

What They Should Be Doing

Presented by:

Joe Metro, Partner

Sal Rotella, Partner

Agenda

• Disproportionate Share Hospital (DSH) Payments

• Allina (Part C/Part A Issue)

• Catholic Health Initiatives (Medi-Medi Issue)

• Revised Notices of Program Reimbursement (SSI Issue)

• 340B Drug Pricing Program

• Key issues in 340B program rulemaking (if any) • Evaluating contract pharmacy arrangements

• Managing internal and external 340B compliance audits

DSH Basics

• What is DSH?

• Supplemental Medicare payments to compensate hospitals for higher operating costs incurred treating large share of low-income patients • DSH funds preserve access to care for Medicare and low-income

populations by financially assisting hospitals they use

• DSH Patient Percent (DPP) determines DSH eligibility and amount of DSH payment

DSH Basics: How is DSH calculated?

• DPP = Medicare/SSI Fraction + Medicaid Fraction

• DSH appeals challenge treatment of various types of patient

days in calculating DPP

• Methodology for calculating DSH payments changing pursuant

to 2014 IPPS Final Rule

Medicare/SSI Fraction Medicaid Fraction

Numerator Patient days for patients “entitled to benefits under Part A” and “entitled to SSI benefits”

Patient days for patients “eligible for [Medicaid]” but not “entitled to benefits under Part A”

Denominator Patient days for patients “entitled to benefits under Part A”

Allina Health Services v. Sebelius

• Part C/Part A Issue

• Pursuant to 2004 Final Rule, HHS treats inpatient days of Part C

beneficiaries as days for which those patients were “entitled to Part A benefits” for purposes of calculating DPP

• Rationale is that being entitled to Part A is prerequisite to being eligible to enroll in Part C plan

• HHS approach generally lowers DPP

Allina Health Services v. Sebelius (cont.)

• Allina (D.C. Court of Appeals decision April 1, 2014)

• Affirmed district court’s pro-hospital ruling that 2004 Final Rule dictating treatment of Part C days was invalid

• BUT, reversed trial court’s pro-hospital ruling that HHS must re-calculate 2007 cost year at issue and this time treat Part C patients as not entitled to Part A benefits

• Upshot

• HHS can reach same decision based on administrative adjudication rather than regulation

Catholic Health Initiatives v. Sebelius

• Medi-Medi Issue

• Pursuant to 2004 Final Rule, HHS treats inpatient days for which dual eligible beneficiaries have exhausted their Medicare Part A benefits as days for which those patients are nonetheless “entitled to Part A benefits” for purposes of calculating the DPP

• Rationale is that dual eligibles are still “entitled to Part A” after exhausting benefits, even though Part A isn’t paying for stay

• HHS approach generally lowers DPP

Catholic Health Initiatives v. Sebelius

(cont.)

• Catholic Health (D.C. Court of Appeals decision June 11, 2013;

plaintiff chose not to seek further review by Supreme Court)

• Involved challenge to 1997 cost year DPP

• Reversed district court’s ruling in favor of hospital on Medi-Medi Issue

• Found that “entitled to Medicare Part A” is ambiguous and could encompass dual eligible inpatients who have exhausted their Part A benefits

• Legal test was therefore only if government’s construction of statute was permissible; D.C. Circuit found that it was

• Retroactivity

• Hospital had successfully argued to district court that government could not

retroactively apply Medi-Medi Issue approach from 2004 Final Rule to 1997 cost year

• D.C. Circuit found that government could apply Medi-Medi Issue approach to earlier (1997) cost year, because approach was first reached in adjudication in 2000, not Final Rule in 2004

Revised NPRs

• SSI Issue

• Hospitals argued that in calculating DPP, CMS was using improper data matching process and undercounting patients receiving SSI benefits

• In 2008, federal district court found in hospitals’ favor in Baystate Medical

Center v. Leavitt

• Ruling 1498-R

• Instead of appealing Baystate, CMS issued Ruling 1498-R in April 2010 • Ruling provided that CMS would “remand” all properly appending SSI

Issue appeals (i.e., appeals challenging data matching process)

• “Remand” meant that appeal was concluded and CMS would issue revised NPR using improved data match process

Revised NPRs

(cont.)

• Status of Revised NPRs and Payments

• CMS has issued recalculated SSI percentages using updated data matching process for 2006-2009

• Unclear why MACs have not yet issued revised NPRs and payments for all of these years

• CMS obligated to likewise recalculate SSI percentages, and issue revised NPRs and payments for 2005 and prior

• CMS said as recently as early 2014 that it was only waiting on resolution of

Catholic Health case, which is now resolved

• Speculation that CMS was also waiting on decision in Allina, but that has now issued as well

340B Program Update

340B Program Proposed Rule

• Current status: Proposed rule submitted to OMB for Regulatory

Review on 4/9/2014

• 90-day review window plus 30-day extension authorized • Summer vacation reading?

• PhRMA v. HHS (D.D.C. May 23, 2014) – The best laid plans…

• Holds HHS final rule implementing orphan drug rule invalid

• HRSA 340B rulemaking authority only extends to price calculation, dispute resolution, and CMPs

• Potential for delay of “mega-rule,” continued informal guidance, and resolution through adjudication

• Note also CMS Medicaid rebate rulemaking is pending

• AMP/BP methodologies can affect 340B discounted price calculation • Medicaid managed care duplicate discount mechanisms?

Proposed Rule/Future Guidance: Key Issues to Watch

• Entity qualification and registration

• GPO exclusion

• Imposition of duties as part of registration process

• Covered outpatient drugs

• ER settings

• Orphan drug exclusion

• Patient definition and identification

• Replenishment models

• Duplicate discounts and Medicaid managed care

• Corrective action

• Mechanisms • Duty to report

• Audit and dispute procedures

Contract Pharmacy Arrangements

• February 2014 OIG Report finds contract pharmacy arrangements

create complications in preventing diversion and duplicate discounts,

and covered entities’ oversight and auditing of contract pharmacies

was inconsistent

• Key Issues in contract pharmacy relationships

• Mechanism for 340B-eligible patient dispensing • Billing

• Uninsured patients • Third-party payors

• Medicaid – carve-in vs. carve-out

• Compensation

• Ordering and inventory maintenance • Reporting and auditing

HRSA FY 12 340B Program Audit Summary

• 51 CEs / 412 subgrantees / 860 contract pharmacy locations

• Common areas of noncompliance for hospital covered entities

• Violation of GPO prohibition (42 percent of hospitals) • Diversion (36 percent)

• Billing contrary to exclusion file (24 percent) • Database errors (21 percent)

• Best practices

• SOPs

• Routine self-auditing and corrective action • Strong state relationships and coordination • Verification of database

Managing 340B Audits

• HRSA, manufacturer, and entity audit activity likely to continue in light of policy oversight and rulemaking

• Policies and procedures

• Understand method and data by which you will “prove” compliance, including under replenishment models

• GPO prohibition/orphan drug exclusion • Initial purchases

• Ordering and dispensing data reconciliation • Patient identification

• Prescriber • Location

• Corrective Action

• True-up of inventory vs. refund • Notice to manufacturer/HRSA

Questions?

Contact Information