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CCH Health NetNews

October 2016

In This Issue

Welcome to Health News Update

On the Front Lines

MACRA final regulations reflect input from ‘months-long listening tour’


Health care entities self-disclose to the lessen the blow

Warren: EpiPen® Medicaid rebate settlement shows ‘crime does pay’


Residents’ didactic time is not included in Medicare IME payments

CMS must review murky DSH payment determinations, $50M FFP disallowance order


AMA Coding Guidance: August 2016 CPT® Assistant


OSHA finalizes ACA whistleblower and retaliation rule

Privacy control weaknesses found in MNsure

Life Sciences

FDA bans antibacterial ingredients, citing hormonal risk and bacterial resistance

Provigil “pay-for-delay” class action remanded for numerosity analysis

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On the Front Lines

MACRA final regulations reflect input from ‘months-long listening tour’

By Kathryn S. Beard, J.D.

2017 will be a "transition year" for the Quality Payment Program (QPP) with special policies designed to test category alignment, according to a Final rule with comment period implementing the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) (P.L. 114-10). The rule includes significant changes from the Proposed rule based on nearly 4,000 public comments the agency received on the Quality Payment Program (QPP), which updates the Physician Fee Schedule (PFS) to reward high-quality patient care through the Merit-based Incentive Payment System (MIPS) and Advanced Alternative Payment Models (APMs). Changes from the Proposed rule (81 FR 28162, May 9, 2016) include more support for small practices and adopting a flexible, pick-your-own-pace approach to the initial years of the program.

CMS released the HHS-approved version of the Final rule on a new interactive website,; the rule has been submitted for publication, but has not yet been placed on public display or scheduled for publication in the Federal Register. The provisions of the Final rule with comment period are effective on January 1, 2017, and comments will be due 60 days after the date of filing for public inspection. Health Law Daily subscribers can refer to our Regulation Tracker, a weekly feature, to ensure that comments on the Final rule are submitted in time for consideration.

Final rule. The Final rule with comment period formally establishes the QPP and the two interrelated QPP pathways, MIPS and Advanced APMs. MIPS is a new program for certain Medicare-participating eligible clinicians that will make payment adjustments based on performance on quality, cost and other measures, while Qualifying APM Participants (QPs) are eligible for participation incentives to assist in the transition from fee-for-service (FFS) payments to payments based on quality and value. The QPP will reflect typical clinical workflows, and across both pathways will support the exchange of patient information while delivering high-quality care to patients. The eventual goal for QPP is that all the clinical activities captured in MIPS across the four performance categories will reflect the single, unified goal of quality improvement.

Significant changes. In response to comments to the Proposed rule, CMS made significant changes in the Final rule. Most notably, MIPS participation will no longer be required in calendar year (CY) 2017, the first performance period of the QPP (see Physician reporting streamlined, less burdensome under flexible Quality Payment Program, April 28, 2016). Instead, CY 2017 will be a "transition year" that corresponds to the first payment year, CY 2019. The agency announced its plan to gradually transition to QPP while ramping up program integration, creating less financial risk for clinicians in the first two years of the program (see CMS gives physicians options for easing into MACRA Quality Payment Program, September 9, 2016). For the transition year, physicians are able to pick their pace of participation with three flexible options to submit data to MIPS and a fourth option to join Advanced APMs in order to become QPs, which would ensure they do not receive a negative payment adjustment in 2019. The transition period will also allow clinicians and CMS to build capabilities to report and gain experience with the program. In addition to the transition year for CY 2017, the agency added support for small and independent practices, offered additional opportunities to move toward Advanced APMs, and created a unified program to support clinician-driven quality improvement.

MIPS. MIPS is for clinicians who participate in traditional Medicare and provides the opportunity to earn a performance-based payment adjustment. CMS estimates that 500,000 clinicians will be eligible for MIPS in CY 2017. There are four performance categories for MIPS: quality, improvement activities, advancing care information, and cost. Providers can report data as an individual or as a group—groups wishing to report using the CMS Web Interface must register to do so by June 30, 2017.

Advanced APMs. Advanced APMs let practices earn more for taking on a level of risk related to patient outcomes. To participate as an Advanced APM, the program must be part of certain payment models—including some created under the Patient Protection and Affordable Care Act’s (ACA) (P.L. 111-148) CMS Innovation Center, such as Medicare Shared Savings Program (MSSP) Tracks 2 and 3, and Next Generation ACOs. Advanced APMs must also (1) use certified EHR technology; (2) base payments for services on quality measures comparable to those in MIPS; and (3) either be a Medical Home Model expanded under Innovation Center authority or require participants to bear am more-than-nominal financial risk for losses. For CY 2017, CMS estimates that 70,000 to 120,000 clinicians will participate in Advanced APMs and qualify for a 5 percent incentive payment. The agency is working to create additional opportunities for Advanced APM participants and anticipates adding three payment models to the approved Advanced APM list for CY 2018.

Small practice concerns. The Final rule adjusted the MIPS low-volume threshold from $10,000 of billed Medicare Part B allowed charges to less than or equal to $30,000—or less than or equal to 100 Medicare patients—which will exclude many small practices from MIPS requirements. According to CMS, this threshold represents 32.5 percent of pre-exclusion Medicare clinicians but only 5 percent of Part B spending. Medicare clinicians in small practices will also be the recipients of the previously announced $100 million in QPP training funding (see HHS provides funding for training small practices in Quality Payment Program, June 21, 2016). CMS also simplified prior "all-or-nothing" requirements in the use of certified EHR technology. The Final rule sunsets payment adjustments under Meaningful Use and reduces the total number of required certified EHR technology measures from 11 in the Proposed rule to five. Clinicians have the option of reporting on the other measures and would allow them to receive a bonus during the transition year.

Much criticism of the Proposed rule centered around the amount of time doctors would need to prepare (see Save time and money with careful MIPS preparation, July 7, 2016) and the burden of the reporting requirements, particularly those relating to EHR technology (see Hearing addresses physicians’ MACRA preparations, April 20, 2016; CMS hears small practice MACRA concerns, pursuing compliance flexibility, July 13, 2016). The American Medical Association (AMA), which submitted lengthy comments on the Proposed rule, gave CMS credit for responding to many of its concerns, applauded the raised low-volume threshold and said "practices of all sizes will benefit from reduced MIPS reporting requirements."

Fact sheets. Along with the Final rule, CMS provided fact sheets and other resources to help explain aspects of the regulations:

MACRA. MACRA ended the failed sustainable growth rate (SGR) and combined multiple value and quality programs—the Medicare Electronic Health Record (EHR) Incentive Program for Eligible Professionals (known as Meaningful Use), the Physician Value-based Payment Modifier (VM), and components of the Physician Quality Reporting System (PQRS)—into a single framework (see Ding dong, the SGR is dead!, April 15, 2015). MACRA builds on quality improvement measures created by the ACA.

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Health care entities self-disclose to the lessen the blow

By Bryant Storm, J.D.

Several health care providers, pharmacies, and other entities self-disclosed alleged fraudulent or illegal conduct to the HHS Office of the Inspector General (OIG) in September 2016 under the Provider Self-Disclosure Protocol (SDP). The disclosures resulted in payments to the OIG as high as $3,219,483.45 for alleged violations of the Civil Monetary Penalties Law (42 U.S.C. § 1320a–7a). The disclosed conduct related to: kickbacks, improper recertification, improperly supervised radiation services, the employment of excluded individuals, improper physician documentation, improper drug claim alterations, and double billing.

SDP. Self-disclosure under the SDP gives providers the opportunity to avoid the costs and disruptions associated with a government investigation, as well as civil or administrative litigation. However, providers who self-disclose prohibited conduct remain liable for violations through the imposition of civil monetary penalties (CMPs), assessments, and exclusion. Nevertheless, the OIG strongly encourages self-disclosure of potential fraudulent conduct. The OIG considers good faith disclosure of potential fraud to be evidence of a robust compliance program. Additionally, the OIG SDP states that self-disclosing entities deserve to pay lower damages than would result in a government-initiated investigation.

Re-certification. Stony Brook University Hospital (Stony Brook), agreed to pay $3,219,483.45 after it self-disclosed its failure to timely obtain re-certification statements for inpatient psychiatric services furnished to Medicare Part A beneficiaries with stays longer than 11 days. Stony Brook also allegedly improperly coded daily activities under its New York Medicaid-qualified Continuing Day Treatment Program, resulting in improper Medicare Part B payments.

Kickbacks. Metroplex Adventist Hospital, Inc. agreed to pay $115,279.50 after it self-disclosed illegal kickback remuneration to a physician in the form of: (1) waived late fees for unpaid rent, and (2) office space leasing agreements, which were passed upon improper calculations of the space actually used by the physician. CareGivers America Home Health Services, LLC also agreed to pay $50,000 for alleged violations of provisions related to physician self-referrals and kickbacks.

Excluded individuals. Drug Abuse Comprehensive Coordinating Office, Inc.; Pediatric Plus Home Healthcare Services, LLC; as well as Consulate Health Care and Vero Beach Facility Operations, LLC paid $32,189.76, $68,353.34, and $30,978.42, respectively, for allegedly employing individuals they knew or should have known were excluded from participation in the federal health care programs. Similarly, Joy Family and Sports Chiropractic paid $12,494.27 for submitting claims for chiropractic services provided by an individual not actively licensed in the state.

Billing. Med Solutions, LLC agreed to pay $429,683.40 after self-disclosing that it double billed Medicare Part B for vials of medication. The provider allegedly improperly billed for the same vial more than once when it used partial vials to avoid waste. Costco Wholesale Corporation agreed to pay $340,157.25 after disclosing that a pharmacy manager improperly altered prescription drug claims for Medicare Part D and Medicaid in order to obtain higher reimbursement.

Documentation. Achievement Center, Inc. agreed to pay $16,523.55 after its self-disclosure led to OIG allegations that services rendered by a behavioral health specialist were unsupported by documentation and therefore not reimbursable. Orthopedic Center of Vero Beach, P.A. agreed to pay $46,904.95 after it self-disclosed it billed for services provided by a physician who used previously recorded consultation notes written by other physicians. American Professional Associates, LLC and Atlanta Oncology Associates LLC (collectively APA/AOA), and Vantage Oncology, LLC, Radiation Oncology Services of America, Inc., and ROSA of Georgia, LLC (collectively Vantage) agreed to pay agreed to pay $125,905.45 and $91,172.91, respectively, for alleged false claim submissions for radiation oncology services provided without direct physician supervision.

Warren: EpiPen® Medicaid rebate settlement shows ‘crime does pay’

By Kathryn S. Beard, J.D.

Calling a purported settlement between the Department of Justice (DOJ) and Mylan Pharmaceuticals "shamefully weak" and "shockingly soft," Sen. Elizabeth Warren (D-Mass) warned that the DOJ is failing to deter drug companies from engaging in schemes to defraud Medicaid. In a letter to Attorney General Loretta Lynch, Warren detailed her concerns about the settlement and requested a full briefing from the DOJ on the matter. Warren’s letter echoed similar concerns raised by Sen. Richard Blumenthal (D-Conn), who asked the DOJ to reject the proposed settlement agreement.

Medicaid drug rebate program. The Medicaid drug rebate program, authorized by Sec. 1927 of the Social Security Act, requires drug manufacturers to participate in exchange for state Medicaid coverage of most drugs. Manufacturers pay a rebate on drugs for which payment was made under the state plan, and the rebates are shared between states and the federal government to offset the cost of Medicaid prescription drugs. The rebate for brand-name drugs is 23.1 percent of the average manufacturer price (AMP) per unit, adjusted for changes in drug costs that exceed the inflation rate; the rebate for generic drugs is 13 percent of AMP per unit, with no inflation adjustment. Manufacturers are responsible for ensuring that their drugs are correctly classified and for paying the correct rebate amount.

EpiPen classification. After cost increases in Mylan’s EpiPen® Auto-Injector came under scrutiny (see Mylan attempts to mitigate EpiPen® cost hike controversy, August 25, 2016), CMS Acting Administrator Andy Slavitt confirmed that since 1997, the EpiPen has been misclassified as a generic (noninnovator, multiple source) drug. Under CMS’ definitions, the EpiPen—approved under a New Drug Application (NDA) by the FDA, under patent protection, and with no therapeutic equivalents—should have been classified as a brand (single source) drug (see Federal EpiPen® spending up 43 percent, Mylan misclassified drug as generic, October 6, 2016). Further, Slavitt confirmed that CMS "expressly told Mylan that the product is incorrectly classified," though the agency could not comment on the total amount of rebates owed by Mylan—which purchased the EpiPen from Merck in 2007—as a result of the misclassification.

Purported settlement. In October 2016, Mylan announced that it had settled allegations of fraud against the Medicaid drug rebate program related to the company’s classification of the EpiPen® Auto-Injector as a generic drug, rather than a brand drug; the DOJ, however, has not released any information about the alleged settlement (see Mylan settles EpiPen® Medicaid rebate dispute for $465M, October 11, 2016). According to Mylan, it will pay $465 million and enter into a corporate integrity agreement with the HHS Office of Inspector General (OIG), resolving all potential rebate liability claims by federal and state governments, and with no finding of wrongdoing.

Shame and shock. In her letter, Warren wrote that there is no excuse for Mylan’s misclassification of the EpiPen, since the company "had multiple opportunities, over multiple years" to correct the classification. According to calculations done by Warren’s staff, Mylan should have paid an estimated rebate of $416 per dose, rather than the $58 per dose it paid; as a result, Warren says, Mylan underpaid Medicaid rebates by an estimated $530 million. The $465 million settlement, therefore, would reward Mylan by fining the company about $65 million less than the amount Mylan earned by its purportedly fraudulent classification of the EpiPen. Warren reminded the DOJ of "extensive tools" to hold the company accountable, including penalties of up to $100,000 per item of false classification under the Medicaid drug rebate law (42 U.S.C. §1396r-8(b)(3)(C)(ii)), treble damages under the False Claims Act (31 U.S.C. §3729(a)(1)), and criminal penalties under the Health Care Fraud law (18 U.S.C. §1347). She called the announced settlement terms a "limp response" that fails to hold Mylan accountable and with "no deterrent value to prevent drug companies from engaging in abusive schemes to defraud Medicaid and rip off taxpayers."

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Residents’ didactic time is not included in Medicare IME payments

By Robert B. Barnett Jr., J.D.

Didactic time for medical and dental residents (conferences and seminars, case presentations, literature reviews, etc.) should not be included in the indirect medical education (IME) payment that Medicare makes to teaching hospitals to compensate them for the extra costs associated with teaching programs. In partially reversing a decision by the Provider Reimbursement Review Board (PRRB), the CMS Administrator reiterated that only those activities that constitute "patient care activities" are to be included, which has been defined as "the care and treatment of particular patients, including services for which a physician or other practitioner may bill."

Case history. A Medicare contractor, CGS Administrator, LLC, excluded didactic time, in this case for dental residents, from the Medicare reimbursement sought by a teaching hospital, the University of Louisville Hospital. The hospital appealed the decision to the PRRB, which found that the rules on didactic activities for purposes of determining the number of graduate medical education full-time equivalents (FTEs) had changed, which meant that didactic time was no longer included in the IME payment as of October 1, 2006. Thus, the PRRB ruled that the medical contractor erred in excluding didactic time prior to October 1, 2006, but was correct in excluding didactic time after that date (see Mid-year regulation change results in payment discrepancy, August 8, 2016).

Two other issues were raised in the decision. First, the PRRB upheld the Medicare contractor’s determination that time spent by foreign dental graduate students should not be included in the FTE count. Their time was excluded, the PRRB ruled, because they had not passed the United States Medical Licensing Examination, as required by Medicare regulations. Second, the PRRB ordered the Medicare contractor to update the prior year resident-to-bed ratios in cost reports for fiscal years 2000 to 2003 and 2005 to 2006 to reflect the adjustments in those years affected by this PRRB decision on didactic time.

On review before the CMS Administrator, the Intermediary and CMS’ Center for Medicare asked that the PRRB decision on didactic time and the resident-to-bed ratio adjustment both be reversed, while asking that the decision on foreign dental graduate students be affirmed.

Didactic time. The PRRB’s decision to treat didactic time differently beginning on October 1, 2006, was based on its interpretation of the HHS Secretary’s clarification of the IME regulations in a Final rule (71 FR 47870, August 18, 2006). The Administrator, however, determined that the Secretary’s clarification was merely a reiteration of longstanding policy rather than a change to existing policy. The rule had always been, the Administrator said, that costs not associated with the diagnosis and treatment of a particular patient are not reimbursable as part of the IME payment. The purpose of the IME payment is to address the additional costs that teaching hospitals incur in treating patients; it is not intended to cover the entire cost of medical education. Thus, the PRRB erred when it ruled that didactic time prior to October 1, 2006, was to be included. The Medicare contractor, on the other hand, was correct when it initially excluded all such time from the FTE IME calculation.

Foreign residents. The Medicare regulations require certification from the Educational Committee for Foreign Medical Graduates (42 C.F.R. §413.86). As a result, only foreign medical graduate residents who have passed the United State Medical Licensing Examination are permitted to be included in the FTE resident count. The fact that the foreign dental graduate residents were ineligible to take the exam because it was offered only to foreign graduates of medical schools is unfortunate but irrelevant. If they did not have the certification, they could not be counted. As a result, the PRRB decision upholding the Medicare contractor’s exclusion of that time was affirmed.

Resident-to-bed ratio. Because the Administrator ruled that no didactic time was compensable as the Medicare contractor initially concluded, the resident-to-bed ratio issue was moot because the contractor no longer had adjustments to make. Furthermore, each resident-to-bed ratio would have to have been separately and timely appealed to change them, which did not occur. As a result, the PRRB order requiring the adjustments was vacated. University of Louisville Hospital v. CGS Administrators, LLC, Review of PRRB Dec. No. 2016-D11, August 1, 2016

CMS must review murky DSH payment determinations, $50M FFP disallowance order

By Kayla R. Bryant, J.D.

Although CMS properly deemed New Jersey’s federal financial participation (FFP) claims for disproportionate share hospital (DSH) payments made to five hospitals unallowable, CMS has not yet disallowed claims that exceeded the institutions for mental disease (IMD) DSH cap. The Departmental Appeals Board (DAB) remanded New Jersey’s appeal back to CMS with orders for the agency to review claims and payments, recalculate the IMD disallowance amount, and consider whether any unallowable claims were previously reimbursed.

DSH payments. CMS provides quarterly payments to states to cover the federal share of Medicaid expenditures. These payments are based on quarterly estimates and expenditure reports, but CMS may later determine that a claim or portion of the claim is not allowable (42 C.F.R. sections 430.30(a)(2), 430.42). In order to receive extra compensation for providing services to a higher proportion of low-income patients, hospitals must be classified as a DSH. Under Soc. Sec. Act. sec 1923(d)(3), a hospital must have a Medicaid inpatient utilization rate (MIUR) of at least one percent in order to be a DSH. The MIUR is the number of inpatient days of care provided to patients who are Medicaid-eligible divided by the total number of inpatient days of care.

States may only receive a certain amount of FFP for DSH payments. Within this allotment is a separate lower cap on FFP for DSH payments made to mental health facilities, including IMDs.

New Jersey claims. The Office of Inspector General (OIG) audited New Jersey’s DSH payments claimed for fiscal years (FY) 2003 through 2007, for which the state received $3.1 billion from the federal government. The report stated that the OIG found that New Jersey claimed DSH payments totaling $50 million FFP for five hospitals that did not have at least one percent MIUR. Two of these hospitals are IMDs. CMS issued a disallowance notice to New Jersey following the issue of the final audit report.

Unallowable claims and offset. New Jersey did not dispute that the payments are not allowable because of the MIUR percentage. The state argued that the disallowance should be reduced by $45 million (the amount associated with the two IMDs) because the state made timely claims for these DSH expenditures that were sufficient to justify the amount of FFP claimed, and that these claims were not questioned by either CMS or the OIG. New Jersey also stated that the typical practice for claiming FPP for DSH payments is to make claims on its quarterly report for all expenditures, regardless of whether the claims would exceed the DSH allotment. The state also argued that the OIG report assumed that the disallowed costs associated with the IMDs are among the funds paid, rather than claims for which reimbursement was denied because they exceeded the IMD DSH limits. The state pointed out that CMS failed to support its conclusion that New Jersey already received FFP for these IMDs and must return the payments to the federal government.

The DAB agreed with this last point, and concluded that the record does not establish that New Jersey actually received FFP for the DSH payments made to the two IMDs during the audit period. Although CMS argued that the reimbursed funds in question cannot be offset against valid unreimbursed claims, the DAB determined that no prior decisions or regulations preclude such an offset. The DAB also concluded that the IMD DSH expenditures were timely claimed, still pending, and not yet determined to exceed the limits.

Remand. On remand, CMS must evaluate whether the DSH IMD payments that met the eligibility requirements were allowable and payable. CMS is to reduce the disallowance amount for all payable expenditures that do not exceed the IMD DSH limits. To the extent necessary, CMS should also consider whether any amounts it deems disallowed were included in prior reimbursements. New Jersey Department of Human Services v. CMS, Docket No. A-15-70, Decision No. 2737, September 22, 2016

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AMA Coding Guidance: August 2016 CPT® Assistant

By Jeff Erickson

Application of Multilayer Compression System (29581-29584)

CPT® codes 29581-29584 are intended to report the application of multilayer compression systems to the arms and legs, hands and feet. Multilayer compression application enhances systemic uptake of static lymphatic fluid to reduce edema in the interstitial tissue and to promote wound healing. Multilayer compression can be applied to all or part of the limb, as indicated by the swelling condition. This article provides an overview of the intent and appropriate use of codes 29581-29584 and includes clinical examples, descriptions of procedures, and frequently asked questions.

Cardiovascular Guidelines: Questions and Answers

In the CPT® 2016 code set, the guidelines related to the pacemaker and implantable defibrillator codes have been revised. The frequently asked questions in this article are meant to serve as a useful tool to help refresh and promote accurate coding related to pacemaker and implantable defibrillator services. Among the questions included in the article are:

  • If the removal of a transvenous electrode(s) is attempted by transvenous extraction, but is unsuccessful, what CPT® code(s) should be reported?
  • What CPT® code should be reported for fluoroscopic evaluation of a diagnostic lead when lead insertion, replacement, or revision procedures are not performed?
  • Is it appropriate to report the device evaluation codes 93260, 93261, 93279-93299 for the pacemaker system with lead(s) together with the pulse generator and lead insertion or revision codes?

Diagnostic Radiology: Lower Extremities (73501-73552)

For 2016, a new set of six bundled codes (73501, 73502, 73503, 73521, 73522, 73523) for hip and pelvis radio-logic examination with a specified number of views were established to replace deleted codes 73500, 73510, 73520, 73530, 73540, and 73550. In addition, two new codes (73551, 73552) were established to describe a specific number of views of the femur.

Codes 72170, 73500, 73520, and 73550 were identified by the AMA/ Specialty Society Relative Value Update Committee’s (RUC’s) Relativity Assessment Workgroup (RAW) for restructuring as bundled services for hip, pelvis, and femur radiologic examination, because code 72170 (pelvis) was reported in conjunction with code 73500 (hip) more than 75 percent of the time. Note that while code 73500 was replaced with code 73501, code 72120 was not changed for 2016 because it is still performed and reported as a stand-alone procedure.

The new bundled codes reflect that these services now consist of views of the hip and pelvis, when performed. Therefore, individual views of the pelvis should only be reported, if performed as a stand-alone procedure. This article provides clinical examples and descriptions of procedures for the new codes, plus a coding tip.

Frequently Asked Questions

An article by the CPT® Editorial Panel answers questions posed to the panel regarding the subjects of Evaluation and Management: Critical Care Services; Surgery: Integumentary System, Cardiovascular System, Digestive System; Radiology: Diagnostic Ultrasound; Pathology and Laboratory: Microbiology; and Medicine: Physical Medicine and Rehabilitation. The responses answer multiple questions including:

If the physician removes nonviable subcutaneous tissue using a selective, nonexcisional technique, which code should be reported: code 97597 for active wound management or code 11042 for a subcutaneous tissue debridement?

When is it appropriate to report code 87797, Infectious agent detection by nucleic acid (DNA or RNA), not otherwise specified; direct probe technique, each organism, vs code 87800, Infectious agent detection by nucleic acid (DNA or RNA), multiple organisms; direct probe(s) technique?

Which CPT® code should a psychologist report for computerized cognitive rehabilitation, which is administered in the office with the patient’s progress monitored and direct psychologist access before, during, and after each session?

To view these articles via Coding Comply, search from the Search Code Sets tab in Coding Comply for any of the codes listed above, view the Related Documents by clicking on the paper icon next to the code, then select the article. To view these articles in The Coding Suite, go to the CPT® Assistant Archives folder and in the Search field within this folder and enter “August 2016.”

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OSHA finalizes ACA whistleblower and retaliation rule

By Wolters Kluwer Editorial Staff

The Department of Labor Occupational Health and Safety Administration (OSHA) has issued final regulations governing whistleblower and retaliation claims under Section 1558 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), which added Section 18C to the Fair Labor Standards Act (FLSA). These regulations provide protections to employees who may have been subject to retaliation for seeking assistance under certain affordability assistance provisions, such as health insurance premium tax credits, or for reporting potential violations of the ACA’s consumer protections, such as the prohibition on rescissions.

In February 2013, OSHA issued an interim final rule governing these provisions and requested comment. Thirteen comments were received, 11 of which were responsive to the interim final rule. The final rule responds to those comments and establishes the final procedures and time frames for the handling of retaliation complaints under Section 18C, including for employee complaints to OSHA, OSHA investigations, appeals of OSHA determinations to an administrative law judge for a hearing de novo, ALJ hearings, review of ALJ decisions by the Administrative Review Board (acting on behalf of the Secretary of Labor), and judicial review of the Secretary’s final decision.

The final regulations also set forth the Secretary’s interpretations of the ACA whistleblower provision on certain matters. Final rule, 81 FR 70607, October 13, 2016

Privacy control weaknesses found in MNsure

By Patricia K. Ruiz, J.D.

Although controls, policies, and procedures existed, MNsure, the Minnesota health insurance exchange, did not always comply with federal and state information technology requirements in implementing them, which increased the risk of exposing sensitive information to unauthorized individuals, according to an audit by the HHS Office of Inspector General (OIG). The OIG did not find any evidence that the weaknesses had been exploited.

The Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) created the health insurance exchanges to allow individuals and small business to easily shop for health insurance. Because of the vast amount of personally identifiable information (PII), security of the exchanges’ data and systems is a high priority. Web applications and database systems that are improperly secured create vulnerabilities that may be exploited by individuals without authorization, compromising the confidentiality of PII.

Minnesota chose to implement a State-based marketplace under the ACA, MNsure. On the exchange, consumers can shop for, compare, and purchase health insurance that meets their needs. The website, operated and managed by the Minnesota Information Technology Agency, also allows residents to apply for financial help through premium tax credits or through MinnesotaCare and Medical Assistance.

Audit. The OIG sought to determine whether MNsure implemented security controls to protect PII on the exchange website, databases, and other supporting systems in accordance with federal and state requirements. Specifically, the OIG reviewed federal requirements under CMS’ Minimal Acceptable Risk Standards for Exchanges and the National Institute of Standards and Technology guidelines for system security plans, risk assessment, data encryption, web applications, vulnerability management, plan of action milestones, and database applications. The OIG also reviewed the Minnesota Office of Enterprise Technology’s Enterprise Vulnerability Management Security Standard. The OIG did not review MNSure’s overall internal controls.

Findings. The OIG found that MNsure implemented security controls, policies, and procedures intended to prevent vulnerabilities on its website, database, and other supporting information systems. However, it did not always comply with federal and state information technology requirements in implementing the controls, policies, and procedures, increasing the risk of exposing PII. Specifically, it failed to formalize procedures for analyzing and sharing information about vulnerabilities and had vulnerabilities related to penetration testing and website monitoring procedures. The OIG’s website and database vulnerability scans identified numerous weaknesses. Although there was no evidence that vulnerabilities had been exploited, such exploitation could have resulted in unauthorized access to and disclosure of PII and disruption of marketplace operations. The OIG did not list its recommendations because of the sensitive nature of its findings. OIG Report, A-06-15-00035, October 11, 2016

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Life Sciences

FDA bans antibacterial ingredients, citing hormonal risk and bacterial resistance

By Bryant Storm, J.D.

Nineteen chemicals commonly found in consumer antiseptic hand and body washes are no longer considered safe and effective for use in consumer products, according to an FDA Final rule. The FDA banned the over-the-counter (OTC) hand and body wash ingredients noting they are no more effective than soap and water and could cause long-term harm to users, including hormonal effects and the risk of bacterial resistance. The Final rule impacts about 2,100 products or 40 percent of the OTC antibacterial soap market. However, the FDA allowed antibacterial soap manufacturers additional time to continue using three other chemicals found in most antibacterial soaps.

Active ingredients. The FDA Final rule establishes that 19 active ingredients used in OTC consumer antiseptic washes are not generally recognized as safe or effective (GRAS/ GRAE). The Final rule specifies that the presence of one of the banned ingredients in an OTC antiseptic wash will cause that product to be considered misbranded. The banned ingredients include triclosan and triclocarban, two ingredients that are present in most antibacterial soaps and are considered ubiquitous. For example, research by the Centers for Disease Control and Prevention (CDC) found triclosan in the urine of three-quarters of Americans tested for various chemicals.

Safety. The FDA evaluated safety data for consumer antiseptic wash active ingredients across three categories: safety data in current FDA guidance, data characterizing potential hormonal effects, and data to evaluate the development of bacterial resistance. Manufacturers like Johnson & Johnson, Procter & Gamble Co. and Colgate-Palmolive Co. have already announced plans to reformulate their antiseptic wash products to delete ingredients that are no longer GRAS or GRAE.

Additional chemicals. The FDA delayed, for one year, decision making on three additional chemicals—benzalkonium chloride, benzethonium chloride, and chloroxylenol—to allow manufacturers more time to submit data on the safety and effectiveness of those chemicals as active ingredients in antiseptic washes. Final rule, 81 FR 61106, September 6, 2016

Provigil “pay-for-delay” class action remanded for numerosity analysis

By Greg Hammond, J.D.

In a pay-for-delay action concerning the prescription drug Provigil, the federal district court in Philadelphia erred in analyzing the numerosity factors for class certification when it considered the late stage of the litigation as relevant to the judicial economy factor and failed to properly consider the ability and motivation of the plaintiffs to proceed as joined, as opposed to individual, parties. The U.S. Court of Appeals in Philadelphia consequently remanded the case to the district court for a rigorous numerosity analysis.

Alleged direct purchasers of the sleeping disorder medication modafinil, sold under the brand name Provigil, filed a series of class action suits against pharmaceutical manufacturer Cephalon, Inc. and four generic drug manufacturers for delaying generic competition to Provigil, in violation of Sections 1 and 2 of the Sherman Act. The plaintiffs claimed that the manufacturers entered into reverse payment settlements to resolve patent infringement suits, thereby delaying generic competition for Provigil. Mylan Laboratories, Inc., Mylan Pharmaceuticals Inc., Ranbaxy Laboratories, Ltd., and Ranbaxy Pharmaceuticals, Inc.—the only remaining defendants in this suit—appealed a district court order granting class certification. In particular, Mylan and Ranbaxy challenged the district court’s determinations regarding numerosity and predominance (see No ‘threshold burden’ in Provigil® reverse-payment allegations, January 30, 2015, and Actavis rule of reason standard applied in Provigil® pay-for-delay suit, December 15, 2015).

Numerosity analysis. The appellate court determined that it need not specify a “floor” at which a putative class would fail to satisfy the numerosity requirement. Instead, the court noted that the number of class members is the starting point of its numerosity analysis. Further, to determine whether joinder would be impracticable, the appellate court identified a non-exhaustive list of relevant factors courts should consider, including: judicial economy; the claimants’ ability and motivation to litigate as joined plaintiffs; the financial resources of class members; the geographic dispersion of class members; the ability to identify future claimants; and whether the claims are for injunctive relief or for damages. Not all factors are created equal, the court also stated, noting that both judicial economy and the ability to litigate as joined parties are of primary importance.

Judicial economy. In concluding that judicial economy was best served by trying this case as a class action, the district court looked to the extensive history of the litigation and the exhaustive discovery that had been conducted. However, the late stage of litigation was not by itself an appropriate consideration to take into account as part of a numerosity analysis, the appellate court stated. In complex cases like this, the class certification decision is often delayed until after years of fact and expert discovery has been conducted and dispositive motions have been litigated, according to the court. Consequently, a rule that that would allow courts to consider the late stage of litigation and the sunk costs already incurred in their numerosity analyses would place a thumb on the scale in favor of a numerosity finding for no other reason than the fact that the complex nature of a case resulted in the class certification decision being deferred for years. On remand, the district court should not take into account the sunk costs of the litigation or the need to further delay trial were the class not to be certified, the appellate court decided.

Ability, motivation to be joined. The district court also failed to properly consider the second purpose behind the numerosity requirement—to further the broader class action goal of providing those with small claims reasonable access to a judicial forum for the resolution of those claims. Instead, the lower court focused on whether the individual plaintiffs could have brought their own, individual suits. However, the numerosity rule does not envision the alternative of individual suits; it considers only the alternative of joinder, the appellate court stated.

Predominance. The appellate court next considered the defendants’ predominance arguments. In particular, the defendants first argued that the plaintiffs’ theory of liability runs afoul of the Supreme Court decision Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013), because, after the grant of summary judgment on the global conspiracy claim, the plaintiffs’ damages model no longer corresponded to their remaining theory of liability that there were four independent Section 1 conspiracies. The court rejected this argument, finding that the plaintiffs’ theory of liability was not that each individual agreement caused an individual harm, such that a new damages model would be required under Comcast. Rather, their theory of liability was that each individual agreement contributed to the market-wide harm, and that all five original defendants were jointly and severally liable for this harm as concurrent tortfeasors.

Mylan and Ranbaxy also argued that predominance could not be demonstrated because the plaintiffs’ remaining theory of liability must isolate the harm that each individual reverse-payment settlement agreement caused each individual class member under the doctrine of antitrust standing. This argument, however, was also rejected because the common law principle of joint and several liability was being invoked by the plaintiffs for the proper purpose of establishing antitrust impact and therefore antitrust standing—which requires the plaintiffs to show they suffered an antitrust injury. Because all four generic pharmaceutical companies allegedly entered into the reverse-payment settlement agreements and prevented a competitive market from forming, each purportedly contributed to the market-wide harm, and each could be held jointly and severally liable for such harm. Thus, any class member would have antitrust standing to sue any or all of the four generic companies and there was no need to pursue an individualized inquiry into the harm caused by each agreement.

Dissent. Judge Rendell dissented, questioning the majority’s conclusion that the lower court abused its discretion by purportedly focusing on a consideration that the appellate court never stated it should not consider. She asked: how can it be that the majority mischaracterizes the late stage of the proceedings as being the focus of the district judge’s ruling when his reasoning actually focused on the considerations that case law dictates it should, and how can it be that in analyzing judicial economy district courts are prohibited from considering the stage of the proceedings? “I am similarly perplexed as to why the Majority is directing the District Court on remand to figure out whether joinder is practicable when the appellants have failed to make that case themselves,” Rendell wrote. In re Modafinil Antitrust Litigation, No. 15-3475, September 13, 2016

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