Breakthrough cancer detection device gets parallel FDA, CMS review

A breakthrough cancer in vitro diagnostic (IVD) device that uses next generation sequencing (NGS) to detect genetic mutations in solid tumors took only six months from product application to FDA approval and a preliminary national coverage determination (NCD) from CMS, thanks to the Parallel Review program. Foundation Medicine’s FoundationOne® CDx™ (F1CDx) received simultaneous overlapping review by the FDA and CMS, which reduces the time necessary to marketing and coverage of innovative medical devices.

The Parallel Review program for medical devices was fully implemented in October 2016 following a pilot program (see Parallel Review program will be fully implemented and extended indefinitely, Health Law Daily, October 24, 2016). Ordinarily, CMS does not begin the NCD decision-making process until after a device has been approved or cleared for marketing by the FDA, which results in a longer wait before Medicare beneficiaries can access the device. Through Parallel Review, manufacturers receive feedback from both agencies through the clinical trial design stage, which helps them to design trials that fulfill evidentiary requirements for both steps of the process, potentially eliminating the need for additional trials.

Although the F1CDx device is a laboratory-developed test and therefore generally would not require premarket review from the FDA, Foundation Medicine requested Breakthrough Device designation for the test. The 21st Century Cures Act (P.L. 114-255) expanded the Expedited Access Pathways (EAP) program to breakthrough technologies that provide more effective treatment or diagnosis of life-threatening or irreversibly debilitating human disease or conditions (see Will the Cures Act address what ails the FDA approval process?, Health Law Daily, March 9, 2017). The FDA granted that designation because the F1CDx test has “potential to consolidate multiple companion diagnostic claims for patients and health care providers into a single test.”

CMS cut to 340B spending overshadows OPPS update; associations threaten suit

Reimbursement to outpatient departments in 2018 will increase $5.8 billion compared to 2017, according to the hospital outpatient prospective payment (OPPS) and ambulatory surgical center (ASC) PPS Final rule for calendar year 2018. However, CMS will drastically reduce reimbursement for drugs under the 340B Program, much to the ire of providers and associations, which have already threatened to sue. (Final rule, 82 FR 52356, November 13, 2017).

340B program 

In calendar year (CY) 2018, CMS will change its reimbursement for separately payable drugs and biologics (other than pass-through drugs and vaccines) acquired through the 340B Program from average sales price (ASP) plus 6 percent to ASP minus 22.5 percent. Rural sole community hospitals, PPS-exempt cancer hospitals, and children’s hospitals will be exempt from this policy for CY 2018. This change, said CMS, addresses recent trends of increasing drug prices and will save beneficiaries about $320 million on copayments in 2018. CMS will offset the projected $1.6 billion decrease in drug payments by redistributing this amount for non-drug items and services across the OPPS.

The 340B Program (see 42 U.S.C. §256b, as expanded by Secs. 2501, 7101, and 7102 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148)), has been controversial, as critics have accused hospitals of abusing the program (see Participants in drug delivery system testify to impacts on patient prescription drug costs, Health Law Daily, October 18, 2017). However, the American Hospital Association, the Association of American Medical Colleges, and America’s Essential Hospitals criticized the cut to 340B spending as contrary to Congressional intent and a threat to safety net hospitals (see, e.g., Testimonies focus on benefits of 340B Drug Program, Health Law Daily, October 12, 2017).

Further, said the AHA, the policy “does nothing to address the stated goal of reducing the cost of pharmaceuticals” and could cause increases in beneficiaries’ out-of-pocket costs for non-drug Part B benefits. American’s Essential Hospitals predicted that, “given their fragile financial position, essential hospitals will not weather this policy’s 27 percent cut to Part B drug payments without scaling back services or jobs.” The three associations plan legal action to stop CMS from cutting 340B spending.

OPPS update

For CY 2018, CMS increased the payment rates under the OPPS by an increase factor of 1.35 percent, which is based on the hospital inpatient market basket percentage increase of 2.7 percent, minus the multifactor productivity adjustment of 0.6 percentage point, and minus a 0.75 percentage point adjustment required by Sec. 3401(i) of the ACA.

Direct supervision requirement

42 C.F.R. Sec. 410.27(a)(1) requires therapeutic outpatient services to be furnished under the direct supervision of a physician or nonphysician practitioner. Sec. 16004 of the 21st Century Cures Act (P.L. 114-255) delayed enforcement through 2016 of this requirement for therapeutic hospital services provided by critical access hospitals and small rural hospitals with fewer than 100 beds. The CY 2018 OPPS Final rule continues the nonenforcement of the direct supervision requirement for hospital outpatient therapeutic services for CAHs and small rural hospitals having 100 or fewer beds for CYs 2018 and 2019.

Inpatient only list

Services that typically would be paid in an inpatient setting will not be paid by Medicare under the OPPS (see 42 C.F.R. Sec. 419.22(n)). These are services that require inpatient care because of (1) the invasive nature of the procedure; (2) the need for at least 24 hours of postoperative recovery time or monitoring before the patient can be safely discharged; or (3) the underlying physical condition of the patient. Effective for CY 2018, CMS will remove total knee arthroplasty (TKA) and five other procedures from the inpatient only list and will add one procedure to the list. CMS is also prohibiting recovery audit contractors from reviewing TKA procedures for “patient status” for two years to give providers time to gain experience with the procedure in the outpatient setting.

Packaging

CMS will conditionally package low-cost drug administration services assigned to Ambulatory Payment Classifications (APCs) 5691 and 5692 effective January 1, 2018. In addition, CMS assigned skin substitutes with a geometric mean unit cost (MUC) or a per day cost (PDC) that exceeds either the MUC threshold or the PDC threshold to the high cost group. For CY 2018, a skin substitute product that was assigned to the high cost group for CY 2017, but does not exceed either the CY 2018 MUC or PDC threshold for CY 2018, will be assigned to the high cost group for CY 2018.

OQR program

CMS removed six measures from the Outpatient Quality Reporting (OQR) program beginning with the CY 2020 payment determination (CY 2018 reporting). CMS stated that the removal of these measures results in a burden reduction of 457,490 hours and a saving of $16.7 million in CY 2020 for hospitals. CMS also delayed the mandatory implementation of the Consumer Assessment of Healthcare Providers and Systems Outpatient and Ambulatory Surgery Survey under the Hospital OQR Program beginning with the CY 2018 data collection.

Laboratory tests

A new exception to the laboratory date of service policy will generally permit laboratories to bill Medicare directly for advanced diagnostic laboratory tests and molecular pathology tests excluded from OPPS packaging policy if the specimen was collected from a hospital outpatient during a hospital outpatient encounter and the test was performed following the patient’s discharge from the hospital outpatient department.

ASCs

For CY 2018, payments to ASCs will increase 1.2 percent, or $4.62 billion, based on a projected consumer price index of 1.7 percent minus a multifactor productivity adjustment required by the ACA of 0.5 percentage point. For CY 2018, CMS added three procedures to the ASC covered procedures list. In addition, CMS removed three measures from ASC Quality Reporting program for the CY 2019 payment determination and later and added two measures of hospital events following specified surgical procedures for the CY 2022 payment determinations and later (see Approximate 2 percent increase in OPPS, ASC payments proposed for 2018; cuts to 340B drug discount pay, Health Law Daily, July 20, 2017).

Kusserow on Compliance: Health care mergers and acquisitions due diligence

Hardly a day passes when the press does not report on a new merger or acquisition in the healthcare sector.  Some of these are monumental in scope, but most relate to individual hospitals, facilities, or entities.  The number of hospital and health system mergers and acquisitions continued their upward trend in the first quarter of 2017, with an eight percent increase from 25 to 27 transactions compared to the first quarter of 2016.  This trend is likely to continue and is stimulated by health care reform that will likely result in more consolidation and integration among hospitals and physician practices.  There are two common types of due diligence; financial and legal.  However, the highly regulated nature of the health care industry requires a third type; regulatory due diligence to avoid discovering and having to make disclosures of regulatory violations and overpayments of millions of dollars.

Financial and Legal Due Diligence

Due diligence reviews generally focuses on financial accountability and legal liabilities. An independent accounting firm focuses on reviewing and evaluating the balance sheets, income statements, audit reports, and cash flow statements and projections in measuring financial viability. There are many very competent public accounting firms that specialize in this type of work. For legal due diligence, the focus is on examining the entity’s structure; business permits and/or approvals; employment and labor law compliance; environmental law approvals, permits and compliance; contractual rights and obligations; intellectual property rights and obligations; real property law compliance; securities and financing regulatory compliance; tax exposure risks; consumer protection law and exposure risks; and/or licenses; previous and/or current litigation; media reports; and external consultants and/or advisors. There are an abundant number of law firms that provide high quality services in this type of work.  What is often missing is focusing on the potential health care regulatory and legal compliance issues.

Health Care Regulatory Due Diligence

In the health care sector, things are more complicated, wherein health care facilities are subject to a tremendous number of state and federal laws and regulations that govern how business must be conducted. As such, there are significant risks that a purchaser can inherit serious regulatory liabilities without checking to see how the entity is complying with these rules. With the right experts with experience in doing this kind of work, the time and costs for the due diligence review be only a small fraction of the costs of either a financial or legal review. The reason is simple: financial and legal due diligence involves detailed examination of a large volume of information. Regulatory compliance experts know exactly where to look for any weaknesses without having to do a “deep dive.” As such, it is difficult to imagine why a party looking to make an acquisition would not want a regulatory due diligence. High on the list for any reviews should be arrangements with referral sources—the highest enforcement priority of both the DOJ and OIG for many years—and review of the claims processing system and controls to ensure that there are not regulatory issues waiting to be discovered by CMS contractors or enforcement agencies.  In virtually all cases, problems will be identified that in very few cases would interfere with the decision to acquire, but is very likely to not only avoid a future liability but puts on the table additional tools to improve the negotiation terms and conditions.

 

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

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Copyright © 2017 Strategic Management Services, LLC. Published with permission.

CMS strategies to reward Medicaid providers that improve care and lower costs

CMS has provided information for states interested in implementing Medicaid payment initiatives designed to reward providers that, for example, cut costs, improve access to care, or raise care quality. Under the Medicaid managed care rules, states are permitted to direct specific payments made by managed care plans to providers under certain circumstances, if the state first obtains CMS approval for the program (CMCS Informational Bulletin, November 2, 2017).

Managed care rules

Under 42 C.F.R. Sec. 438.6(c) there are three categories of state plans to implement delivery system and provider payment initiatives for managed care contracts:

1. Value-based purchasing models, which include bundled payments, episode-based payments, accountable care organizations, or other alternative models intended to recognize value or outcomes.
2. Performance improvement initiatives, which include pay-for-performance arrangements, quality-based payments, or population-based payment models.
3. Provider payment parameters, which include minimum fee schedules, a uniform dollar or percentage increase, and maximum fee schedules.

CMS approval

The regulation also requires that CMS approve these state-directed payment initiatives prior to implementation. To be approved, the initiatives must (1) be based on utilization and delivery of services to Medicaid beneficiaries covered under the contract and (2) contain payments that are directed equally, using the same terms of performance across a class of providers.

Plan components

The directed payments must advance at least one of the goals and objectives in the state’s Medicaid managed care quality strategy. States must also have a plan for evaluating whether the directed payment arrangement achieved the objectives. The evaluation plan should include: (1) identification of the performance criteria used to assess progress, (2) baseline data for performance measures, and (3) improvement targets for performance measures. States are generally free to determine which performance measures are most appropriate. If a state’s initiative is from either of the first two categories listed above (value-based purchasing models or performance improvement initiatives), the directed payments must make provider participation available across all payers and providers, using the same terms of performance and a common set of performance measures. In these two approaches, states cannot set the amount or frequency of the expenditures, nor can they recoup any unspent funds.

Multi-year arrangements

Directed payment arrangements cannot be automatically renewable, for example, annually, because CMS wants states to monitor the arrangements at least annually. CMS understands, however, that some states may want to implement multi-year payment arrangements to achieve longer-term goals. As a result, CMS has said that a multi-year arrangement will be permitted if the following conditions exist: (1) the state explicitly identifies the payment arrangement as a multi-year payment effort, (2) the state develops and describes a plan for pursuing a multi-year payment effort and the impact of the multi-year arrangement on the state’s goals, (3) no changes will be made to the payment methodology during the multi-year project, and (4) CMS approves the multi-year payment arrangement.

Plans not covered

Not all payment arrangements fall within the 42 C.F.R. 438.6(c) requirements. If a payment arrangement does not meet the regulations criteria, it need not, of course, obtain CMS approval. CMS has provided two examples:

1. States implementing a general requirement for managed care plans to increase provider reimbursement for services to Medicaid beneficiaries, as long as the state is not mandating specific payment methodology or amounts, and managed care plans retain the discretion for the amount, timing, and method for making provider payments.
2. States contractually implementing a general requirement for managed care plans to use value-based purchasing or alternative payment arrangements but the state does not mandate a specific payment methodology, and managed care plans retain the discretion to negotiate with network providers on specific terms.

Compliance date

The compliance date for obtaining 42 C.F.R. 438.6(c) approval is the rating period for Medicaid managed care contracts beginning on or after July 1, 2017. If states use a preprinted form that CMS has prepared, CMS commits to process the request within 90 calendar days of receipt.

Pilot program

The 42 C.F.R. 438.6(c) approval process has already been implemented in a pilot program. Three examples of state programs that were approved under the pilot program are:

1. A state plan to require managed care plans to pay an enhanced minimum fee schedule for professional services provided to Medicaid beneficiaries in an academic medical center by faculty physicians through a sub-capitated payment arrangement, to ensure that all Medicaid managed care enrollees have timely access to high-end specialty care.
2. A state plan to require managed care plans to pay quality incentive payments to acute care hospitals rendering services to Medicaid beneficiaries, to reduce potentially preventable readmissions.
3. A state plan to require managed care plans to pay Accountable Care Organizations (ACOs) operating in their networks a per-member per-month rate for Medicaid beneficiaries, to incentivize providers to form ACOs that will be accountable for the total cost of care and the quality of care.