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Federal News

General News

Federal News:

CMS proposes changes to Medicaid drug payments

CMS has proposed changes to the Medicaid drug rebate program and the upper limits on Medicaid payment for covered outpatient prescription drugs.

The average manufacturers price (AMP) is used to calculate both the federal upper limits (FUL) for Medicaid payment for outpatient drugs and the rebates that drug makers must pay to states for their prescription drug expenditures. Before the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148) was enacted, manufacturers calculated the AMP based on published compendia compiled from information received from drug manufacturers. These prices were widely known to have little connection with the prices that wholesalers actually paid or that manufacturers received.

The Deficit Reduction Act of 2005 (DRA) (P.L. 109-171) was a beginning effort to prevent manipulation of the prices that Medicaid paid for drugs. The AMP became the basis for determining prices and rebates, and AMP was defined as including most discounts and excluding certain sales at nominal prices. In 2007, CMS attempted to implement the DRA changes with a Final rule. However, that rule was never fully implemented because of an injunction entered after an association of pharmacies challenged the rule.

Section 2503 of PPACA made several changes to the requirements, primarily by changing the crucial defined terms. The term "average manufacturer price" (AMP) was clarified to include sales to other manufacturers acting as wholesalers, to wholesalers for distribution to retail community pharmacies, and direct sales to retail community pharmacies. Section 2503 also: (1) changed the FUL from 250 percent of AMP to "no less than 175 percent" of the weighted average of previously reported AMP; (2) ended the exclusion of the United States Territories from the Medicaid rebate program; (3) raised the minimum rebates that manufacturers must pay to the states; and (4) required an offset of much of the increase to reduce the amounts due to states from the federal government.

The Proposed rule eliminates the use of prices published in compendia and bases AMP on actual acquisition cost, which states must obtain with respect to sales by specific manufacturers. It excludes from consideration drugs that are bundled with or provided incident to inpatient or outpatient hospital services, hospice services, physician or dentist services, long-term care, laboratory and x-ray or end-stage renal disease (ESRD) services, unless the drugs are separately billable.

The Proposed rule would exclude from AMP several common discounts or rebates, such as: (1) bona fide service fees paid by manufacturers to wholesalers or retail community pharmacies; (2) reimbursement for recalled, damaged, expired or otherwise unusable drugs; and (3) payments from, and rebates or discounts provided to, pharmacy benefit managers, managed care organizations, long-term care providers or other entities that do not operate either as a wholesaler or a retail community pharmacy. Sales to specialty pharmacies and home infusion pharmacies are included, however, notwithstanding that they do not necessarily meet the statutory definition. CMS reasons that the statute requires manufacturers to report the sales and pay rebates, on those drugs, and no rebate could be calculated if these specialty or home infusion pharmacies were excluded.

The agency addressed the question whether manufacturers should include in their AMPs sales to wholesalers whose disposition of the drugs is unknown. CMS could require the manufacturers to presume that products sold to wholesalers would be distributed to retail community pharmacies and, therefore, include the sales, or permit the manufacturers to exclude those sales for which distribution is unknown. Having stated the problem, the agency did not choose either alternative, but asked for comments.

Proposed rule, 77 FR 5318, February 2, 2012

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Self referral disclosure settlements posted by CMS

CMS has now posted summaries of four Self-Referral Disclosure Protocol (SRDP) settlements. The SRDP, enacted as Section 6409 of the Patient Protection and Affordable Care Act (PPACA) provided a process for providers of services and suppliers to self-disclose actual or potential violations of the physician self-referral statute. The law also required the Secretary of HHS to establish and post information on the CMS' public Internet Web site concerning a SRDP that sets forth a process for providers of services and suppliers to self-disclose actual or potential violations of Soc. Sec. Act §1877.

The SRDP settlements with CMS are summarized below—

  • A general acute care hospital in Massachusetts disclosed that it failed (1) to satisfy the requirements of the personal services arrangements exception for arrangements with certain hospital department chiefs and the medical staff for leadership services, and (2) to satisfy the requirements of the personal services arrangements exception for arrangements with certain physician groups for on-site overnight coverage for hospital patients. All violations disclosed were settled for $579,000.00.
  • A critical access hospital in Mississippi disclosed that it failed to satisfy the requirements of the personal services arrangements exception for arrangements with certain hospital and emergency room physicians. All violations disclosed were settled for $130,000.00.
  • A hospital located in California disclosed that it exceed the calendar year non-monetary compensation limit for a physician. All violations disclosed were settled for $6,700.
  • A hospital located in Georgia disclosed that it exceeded the calendar year non-monetary compensation limit for two physicians. All violations disclosed were settled for $4,500.

CMS’ Self-Referral Disclosure Protocol Settlement page is located at http://www.cms.gov/PhysicianSelfReferral/DPS/list.asp#TopOfPage

CCH Chicago Bureau, January 31, 2012

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CMS requests information on potential reinsurance providers

The Centers for Medicare and Medicaid Services (CMS) has published a notice requesting information to help the CMS gain market information on entities that could administer a transitional reinsurance program. The notice was published in the January 30 Federal Register.

Under the Patient Protection and Affordable Care Act (ACA), each state must establish a transitional reinsurance program to help stabilize premiums for coverage in the individual market during the first three years of Affordable Insurance Exchange operation. Each state must establish or contract with an entity to carry out this reinsurance program. The request for information seeks comment on the entities that could carry out this transitional reinsurance program.

Comments should be received by February 29 and may be sent electronically through http://www.regulations.gov, or by mail to CMS, Department of Health and Human Services, Attention: CMS-9970-NC, P.O. Box 8016, Baltimore, MD 21244-8016.When commenting, refer to file code CMS-9970-NC.

For more information, contact Milan Shah at (301) 492-4427.

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Federal health care spending expected to double over next decade

Federal health care spending is projected to more than double in the coming decade, according to the Congressional Budget Office in its report, The Budget and Economic Outlook: Fiscal Years 2012 to 2022.

Total federal health care spending on mandatory programs, such as Medicare and Medicaid, will grow from $847 billion in the current fiscal year to $1.8 trillion in fiscal 2022, according to the CBO.

The provisions of the Patient Protection and Affordable Care Act (ACA) that will have spending impacts include new state health insurance exchanges, on which the federal government will spend $645 billion over the ten-year span. Also, the ACA’s Medicaid provisions are projected to drive growth in its enrollment from 67 million to 95 million people and federal spending on it from $275 billion to $605 billion over the next ten years.

The projection also includes an “alternative fiscal scenario,” based on likely congressional actions, such as extending a popular tax cut that is scheduled to expire. A significant health care item under the alternate scenario is the additional $360 billion Medicare is likely to spend over the ten years above the baseline projections if it replaces a planned 27.4 percent physician payment cut in March with a continuation of current rates.

“If those payments were increased over time, the impact on Medicare outlays would be even greater,” according to the report.

For more information, visit http://www.cbo.gov/ftpdocs/126xx/doc12699/01-31-2012_Outlook.pdf.

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General News:

Where we’ve been, where we are, where we’re going on health care reform journey

Adopting necessary changes to plan documents and training internal staff regarding the new heath care reform requirements are just two of the suggestions that Ann M. Caresani, CPA, and Richard P. McHugh, both partners at Porter Wright Morris & Arthur, LLP, made during a January 23 webcast sponsored by the International Foundation of Employee Benefit Plans (IFEBP).

Caresani and McHugh discussed which reforms under the Patient Protection and Affordable Care Act (ACA) are currently in place, which ones will be forthcoming in the next few years, and how employers can prepare for them.

Reforms currently effective

Caresani and McHugh first reviewed the reforms that were phased in during 2011. These reforms range from the prohibition on annual and lifetime limits on "essential health benefits" to the simple cafeteria plan alternative for small employers.

McHugh also noted the automatic enrollment provision for employers with 200 or more full-time employees was supposed to take effect, but is on hold until regulations are issued. "We don’t know when it will become applicable," he said.

Regarding non-grandfathered plans, the nondiscrimination requirements for insured plans are also postponed indefinitely "amid regulatory confusion," according to McHugh.

Other reforms with respect to non-grandfathered plans include:

  • providing preventive care with no cost sharing for specified items,
  • prohibiting prior authorization or increased cost-sharing for emergency services, whether in-network or out-of-network,
  • permitting enrollees to select a primary care provider from any available participating care provider, and
  • prohibiting authorization or referral for OB/GYN care by a specialist.

McHugh also noted that the new claims and appeals requirements are in effect now for 2012 calendar year plans. While the internal process required is not too difficult to comply with, the external review process is a new, complicated step for plans, he said. These ACA provisions require changes to plan documents. "There’s a lot of catch up to be done here," McHugh said.

Upcoming reforms

Reforms in 2012. Caresani and McHugh next explained the reforms that are taking place this year. Most notable is the Form W-2 information reporting requirement on the value of employer-sponsored health coverage. This reporting is optional in 2011 and required for 2012, Caresani explained. Small employers (fewer than 250 Forms W-2 in 2011) are exempt for 2012, and reporting is optional for numerous types of plans. If a Form W-2 is not otherwise required, such as for retirees, then this reporting requirement doesn’t apply, she said.

Caresani wondered about the purpose of this requirement and advised plans to start on it sooner rather than later, especially focusing on who is going to collect this information. "This is a tough requirement from a systems standpoint," she said.

Providing a Summary of Benefits and Coverage is another provision that was supposed to take effect in 2012. Employers were supposed to provide this notice by March 23, 2012, but this deadline has been extended, and we are waiting on guidance, McHugh said. Such guidance could be issued in the next few months, he added.

Other provisions taking effect in 2012 include the quality reporting requirement (from which grandfathered plans are exempt), and the medical loss ratio rebates. Although the rebate provisions apply to insurance plans only, when the first rebates, if any, come out this summer, plan sponsors will be faced with various decisions about such rebates. Caresani said plan sponsors might have to determine whether these rebates are plan assets or must be shared with participants. Further, if a plan receives a rebate, that plan might want to question why it did and may want to check the plan’s coverage.

Reforms in 2013. Moving onto a discussion about 2013, McHugh described it as a "respite year" for health care reform. One provision that will take effect is the notification of the availability of state health exchanges in 2014. The standards on this notice have not been issued yet, however. There could be some initial guidance on the notice this year, McHugh said.

Another change in 2013 is that FSA benefits will be capped at $2,500 annually. Although there were some rumblings in the legislature about getting this provision changed, there’s not a challenge to it right now. McHugh said to keep an eye on the issue and, in the meantime, realize this provision requires plan administration changes.

Also in 2013, the deduction for expenses allocable to the Medicare Part D prescription drug subsidy expires. Companies will have to decide whether to keep or terminate their retiree drug plans. "Many companies are likely to drop these plans," McHugh predicted.

Reforms in 2014. Unlike 2013, 2014 is a "big year" for health care reform, McHugh said. In 2014, the state health exchanges will be established. In addition, the nondeductible excise tax for employers that don’t offer health coverage will kick in. This tax is $2,000 per affected employee. The nondeductible monthly excise tax for unaffordable coverage also will take effect. This is the lesser of 1/12 of $3,000 times the number of employees receiving a premium tax credit or cost share reduction, or 1/12 of $2,000 times the number of full-time employees, he explained.

For non-grandfathered plans, eligibility discrimination based on health status will be prohibited, and cost-sharing cannot exceed certain limits. In addition, discrimination as to participation or coverage against health care providers is prohibited, except that reimbursement rates may vary based on quality.

Also in 2014, clinical trial coverage kicks in. McHugh explains that this provision applies to life-threatening diseases and applies only if your plan already covers that disease. It does not require plans to add a certain type of coverage. Note that grandfathered plans are exempt from this provision.

In addition, 2014 will bring requirements such as limitations on waiting periods, increases in wellness program incentive caps, and premium rating requirements for insured plans.

Some additional reporting requirements will be effective in 2014, too. Employers providing health plan coverage must provide information to the IRS on prescribed forms. In addition, employers must report to the IRS if any employee is required to pay more than a set percentage of wages. The range of information that will be required is unknown, McHugh said.

Reforms beyond 2014. Caresani noted there are a few reforms that take place beyond 2014. In 2017, the health exchanges may be open to large employers. In addition, in 2018 the "Cadillac plan" tax takes effect. There’s uncertainty as to what these plans are, Caresani said. In addition, this provision is controversial and she wonders whether it will stay in place. She also pointed out that a lot of collectively bargained plans could be affected by this provision.

Planning ahead

Short-term preparation. There are some steps employers can take in the short term to prepare for these reforms, McHugh said. He suggested making changes to health care plans only after careful consideration of grandfather plan status. Also, consider and adopt necessary changes to health care plan documents to conform to the changes. Keep in mind that cafeteria plan documents might need changes as well and should not conflict with the health plan documents, McHugh advised.

Also, it’s important to start reviewing the new reporting and disclosure requirements. Figure out what needs to be done and when to do it, he said.

Also in the short term, train your internal staff regarding the new requirements and update administrative procedures (including payroll systems) to ensure compliance. Further, develop an employee communication strategy concerning health plan changes, McHugh advised.

Long-term preparation. Caresani concluded with some steps to take in the long term to prepare for the reforms. She said to identify future changes that must be made to health care plans to comply with ACA’s phased-in requirements, and analyze whether to retain grandfathered status. Also, consider the cost and competitive implications of eliminating your health care program altogether. After 2014, plans should begin modeling plan costs, she said.

Finally, be sure to monitor future legislative, judicial and regulatory developments.

Source: "Health Care Reform Developments in 2012 and Beyond: Don’t Wait!,"IFEBP webcast, January 23, 2012

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