Academic Physician Compensation Plans Take a New "Curve" Towards Performance Incentives

Over the last several years, there has been a trend on the part of Academic Medical Centers (AMCs) to adopt more performance incentive-based faculty compensation plans for their physicians. AMCs must take several items into consideration when designing these plans, particularly in regards to financial allocation. As Reed Smith partner Karl Thallner and Ronald Vance, Managing Director at Navigant Consulting, point out in an American Health Lawyers Association member briefing entitled “Developing Progressive Academic Physician Compensation Plans for an Emerging ‘Curve 2’ Health Care Market,” most AMCs are demonstrating an increased reliance on clinical health care delivery revenue as a result of decreased funding for other pursuits, such as teaching and research. Such constraints present additional challenges for AMCs trying to construct viable financial models that will support incentive-based physician compensation plans.

To read the member briefing, click here.

Something to Give Up for the New Year: Pennsylvania Hospitals May Forgo Some DOH Licensure Reviews

This post was written by Karl A. Thallner, Jr. and Zachary A. Portin

With the arrival of 2014, the Pennsylvania Department of Health (“DOH”) is now authorized to grant “deemed status” for licensure purposes to hospitals that have been accredited by national accreditation organizations, such as The Joint Commission. This past July, Governor Corbett signed Act 60 of 2013 (“Act 60”) into law, which amends the Health Care Facilities Act to require DOH to accept hospital surveys and inspections conducted by national accreditation organizations designated as acceptable to DOH in lieu of DOH’s regular licensure renewal surveys. In addition, Act 60 extends the term of licensure from two years to three years for all Pennsylvania hospitals.

Cutting red tape? Described by DOH as a “historic rewrite” of Pennsylvania hospital licensure requirements, Act 60 was championed to help eliminate the redundant nature of multiple and sometimes inconsistent licensing and accreditation surveys that Pennsylvania hospitals routinely undergo. In this regard, most Pennsylvania hospitals complete voluntary accreditation inspections conducted by national accreditation organizations, in addition to the required licensing inspections conducted by DOH. The Pennsylvania House Appropriations Committee predicted that Act 60 would eliminate approximately 55 percent of regular licensure renewal surveys that DOH conducts annually.

What is “deemed status”? “Deemed status” is a process under which a hospital may choose to be exempt from routine licensure renewal surveys conducted by DOH. Hospitals are exempted by securing accreditation from a national accreditation organization – an organization authorized by CMS to conduct hospital surveys to ensure compliance with the CMS conditions of participation.

Pursuant to Act 60, if a national accreditation organization’s final report finds a hospital to be in “substantial compliance” with the accreditation organization’s standards, DOH must accept the report as evidence that the hospital has met DOH’s licensure requirements. The hospital must furnish a copy of the report to DOH within 10 days of its receipt from the national accreditation organization, and then DOH will grant the hospital “deemed status.” If, however, a hospital receives “anything less than full accreditation” in the national accreditation organization’s final report, that hospital will be subject to a full licensure survey by DOH.

Even if a hospital is granted “deemed status,” DOH reserves the right to make unannounced visits for a number of reasons. For example, DOH may respond to complaints, follow up on concerns or events identified by the national accreditation organization, and validate that organization’s findings that the hospital is in compliance with the conditions of participation issued by CMS.

Accreditation organization standards. “Deemed” hospitals are required to comply with the standards established by the national accreditation organization that accredits the hospital. In order for an accreditation organization to be approved by DOH, DOH must determine that the accreditation organization’s standards are equal to or more stringent than DOH’s existing survey requirements, evaluate the integrity of the accreditation organization’s survey process, and require the accreditation organization to enter into a written agreement with DOH. DOH has thus far approved the following four national accreditation organizations: The Joint Commission, the AOA Healthcare Facility Accreditation Program, Det Norske Veritas and the Center for Improvement in Healthcare Quality. In practice, the national accreditation organization will be required to apply the more stringent standards during licensure surveys.

Facilities eligible for “deemed status.” In general, Act 60 provides that a “hospital” that has been licensed by DOH to operate for at least three years and has not been subject to a provisional or restricted license is permitted to request DOH to grant deemed status.

Accordingly, Act 60 applies to health care facilities licensed as a “hospital” under Pennsylvania law. DOH has clarified that general acute care hospitals, children’s hospitals, long-term acute care hospitals, rehabilitation hospitals, cancer hospitals and other specialty hospitals are eligible for “deemed status.” DOH has also opined that ambulatory surgical facilities, behavioral health hospitals, behavioral health units within hospitals, home health agencies and/or divisions, rural health clinics, and inpatient psychiatric hospitals licensed by the Department of Public Welfare are not eligible for “deemed status.”

“Deemed status” is voluntary. Pennsylvania law does not require hospitals to be accredited by a national accreditation organization. Even if a hospital has achieved such accreditation, it is not required to utilize “deemed status.” DOH has clarified that it will continue to perform regular licensure renewal surveys, as it currently does, for facilities that have not secured accreditation by a national accreditation organization or that do not choose to use “deemed status.” Hospitals that desire “deemed status” are required to notify DOH using a form posted on DOH’s website.

What aspects of licensure are not impacted by Act 60? All hospitals, including those obtaining “deemed status,” are still required to submit plans for new construction and renovation to DOH, and receive approval from DOH before providing services in the newly constructed or renovated areas. DOH will also continue to survey hospitals for compliance with occupancy requirements.

Conclusion. Act 60 enables hospitals to potentially streamline and simplify the survey process by conforming to a single set of requirements and avoiding DOH licensure renewal surveys. “Deemed status” will be particularly attractive to any Pennsylvania hospital that has already developed a productive relationship with an approved national accreditation organization and familiarity with its standards. At the same time, DOH has noted that hospitals that are concerned that the accreditation organizations’ reviews will be “more intense” may elect to forgo “deemed status.”
 

China: Life Sciences Regulatory Crackdown Spreads to Medical Device Sector

This post was written by John Tan and Crystal Xu.

On August 15, 2013, the local Beijing office of the Ministry of Health (MOH) of the People's Republic of China announced (Chinese link) that it has started a three-month review of the use of high-value medical consumables and large-scale medical equipment in Beijing. In its announcement, the Beijing MOH noted that prior inspections of hospitals had found continuing problems with the misuse and overuse of medical devices to increase profits. The investigation is intended to strengthen hospitals’ management of the use of medical devices and to regulate the use of high value medical consumables.

In addition to this investigation, the Beijing MOH will also develop a database that will track the price and model of devices implanted in each patient, require hospitals to improve their purchasing management systems, and conduct periodic inspections of hospitals’ purchasing and management of medical consumables.

This latest investigation follows on increased regulatory enforcement actions throughout China's life sciences industry. In the last two months, there have been criminal and administrative enforcement actions targeting the pharmaceutical sector and a pricing investigation by the National Development and Reform Commission (NDRC) into the infant formula sector that culminated in the largest fine in the history of China's enforcement of its anti-monopoly law. The NDRC is also conducting an ongoing investigation of pharmaceutical industry pricing practices and considering systemic revisions to China's drug pricing system. Additionally, on August 14, 2013 the State Administration for Industry and Commerce (SAIC) announced a new three-month-long investigation into the pharmaceutical and medical services sectors, targeting bribery, fraud and anti-competitive practices.

The August 15th announcement by the Beijing MOH appears to signal the first recent enforcement action to specifically target the medical device sector.

In the run up to these enforcement actions, Chinese authorities issued a number of administrative regulations targeting the life sciences industry, including a new code of conduct for HCPs, and new guidance on strengthening anti-bribery controls in public medical institutions. Authorities also issued regulations on the centralized purchasing of medical consumables and large scale medical equipment containing provisions that would exclude companies found to have engaged in commercial bribery from participation in centralized purchasing.

At the end of 2012, China's Supreme People's Court, in conjunction with the Supreme People's Procuratorate, issued a new judicial interpretation of China's criminal law prohibiting bribery. This interpretation was widely viewed as signaling a new emphasis by Chinese authorities on prosecuting not just officials who accept bribes, but those who pay bribes as well.

Medicare and Sequestration

Continuing budget gridlock in Washington has triggered sequestration and automatic budget cuts to a wide range of federal programs have gone into effect, including Medicare payments to providers and health plans. Reed Smith's Health Industry Washington Watch blog post answers some basic questions about sequestration, including what Medicare spending is impacted, when the Medicare cuts start, and how long sequestration will last.

China Life Sciences and Health Industry Client Briefing - November 2012 (December 13, 2012)

This post was written by Jay J. Yan, Hugh T. Scogin, Jr., John J. Tan, Mao Rong, Katherine Yang, May Wong, Amy Yin and Gordon B. Schatz.

Reed Smith’s China Life Sciences and Health Industry Client Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries.

Some important developments during November include:

  • Priorities, Practical Tips and Lessons Learned from Reed Smith’s China Device Regulatory Briefing on December 4, 2012
  • Drug Firms Pursue Joint R&D
  • Drug Makers and the Unpredictability of Drug Development; New Draft Regulations on Stem Cell Industry to be Issued
  • SFDA Approval concerning Drug Registration and Appraisal Reform on Pilot Basis in Guangdong Food and Drug Administration
  • MOH Stresses Monitoring Medical Costs in New Announcement; PRC to Allocate RMB 27.26 Billion to Support Public Health Services for 2013
  • Nestlé in Chinese Medicine Deal with Li Ka-Shing's Firm

To read the full briefing by Reed Smith China team members, click here.

China Life Sciences and Health Industry Client Briefing - October 2012 (November 16, 2012)

This post was written by Jay J. Yan, Hugh T. Scogin, Jr., John J. Tan, Mao Rong, Katherine Yang, May Wong, Amy Yin and Gordon B. Schatz.

Reed Smith’s China Life Sciences and Health Industry Client Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries.

Some important developments during October include:

  • China Becoming a Healthcare R&D Hub
  • Imported Drugs to Go on China's Electronic Monitoring Network
  • Guangxi to Build Pharmaceuticals as a Pillar Industry
  • China to Set Up Database for Organ Transplants
  • Private Medical Care Gets Boost
  • State Council Issues the 12th FYP for Public Health Services Development

To read the full briefing by Reed Smith China team members, click here.

China Life Sciences and Health Industry Client Briefing - August 2012 (September 18, 2012)

This post was written by Jay J. Yan, Hugh T. Scogin, Jr., John J. Tan, Mao Rong, Katherine Yang, May Wong, Amy Yin and Gordon B. Schatz.

Reed Smith’s Life Sciences Health Industry China Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries.

Some important developments during August include:

  • New Regulations Concerning Hospital Procurement of Class-A Large-Scale Medical Equipment
  • MOH to Investigate Infection Events in Hospitals
  • Wenzhou Develops New Plans to Attract Private Medical Investors
  • Notice Concerning Public Hospital Reform in 2012
  • MOH to Establish EDLs for Secondary and Tertiary Hospitals
  • Pricing Developments for Drugs of Foreign Companies
  • Revised Regulations on Criminal Prosecutions for Leaks of Confidential Patient Information
  • State Council to Release Regulation Permitting Local Governments to Buy Commercial Insurance on for Serious Illnesses

To read the full briefing by Reed Smith China team members, click here.

China Life Sciences and Health Industry Client Briefing - July 2012 (August 8, 2012)

This post was written by Jay J. Yan, Hugh T. Scogin, Jr., John J. Tan, Katherine Yang, May Wong and Gordon B. Schatz.

Reed Smith’s Life Sciences Health Industry China Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries

Some important developments during July include:

  • Counterfeit Drug Crackdown in China
  • China Agencies Drafting Policies to Accelerate Development of Medical Devices
  • Mindray Medical Completes Acquisition of Dragonbio's Orthopedics Business
  • Multinational Medical Device Companies Focus on Grassroots Market
  • J&J Plans Training Center in China
  • New Round of Drug Price Cuts Expected
  • MOH Enhances Planning of Private Medical Institutions and Further Relaxes Threshold for Private Investors

To read the full briefing by Reed Smith China team members, click here.
 

Life Sciences Health Industry China Briefing - June 2012 (July 20, 2012)

This post was written by John Tan, Jay J. Yan, Mao Rong, Katherine Yang, and Gordon B. Schatz.

Reed Smith’s Life Sciences Health Industry China Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries.

Pharmaceuticals, Medical Devices, Health Care & Life Sciences 

News

  • China's Compulsory License Rule Has Drug Companies On Edge (Law360 2012-06 12) — June 14, 2012

China's new patent regulations allowing the government to force drug companies to grant compulsory licenses for generic versions of their products if it is deemed to be in the "public interest" has the pharmaceutical industry worried about where China will draw the line, attorneys said. The new regulations issued by China's State Intellectual Property Office last month say the government can order compulsory licenses for generic drugs when there is a "national emergency or any extraordinary circumstances, or for public interest purposes." What constitutes the public interest is very much open to interpretation and appears to give the Chinese government broad leeway to order drug companies to allow generic versions of drugs that are still covered by patents.

  • Beijing to Carry out Pilot Project of Separation of Dispensing from Prescription: Medical Service Fee up to 100 Yuan (Caixin Media 2012-05-19) — June 20, 2012
Following Shenzhen and Shanghai, Beijing will initiate the pilot project to cut off the relationship between the income of hospitals and drug sales. Beijing plans to cancel the price addition to lower drug price, and to cancel the registration fee and diagnosis fee, which will be replaced by the medical service fee. The medical service fee will be divided into four levels:  42 yuan for ordinary physicians, 60 yuan for deputy chief physicians, 80 yuan for chief physicians and 100 yuan for expert physicians. The medical insurance will reimburse 40 yuan for the medical service fee. In addition, Beijing Friendship Hospital, Beijing Chaoyang Hospital, and Beijing Children's Hospital will carry out the legal person governance mechanism in order to provide experiences for the further reform of public hospitals in Beijing.
  • Drug Company to Acquire Controlling Stake (China Daily 2012-06-28) — June 29, 2012
China Pharmaceutical Group Ltd, which derives almost half of its sales from antibiotics, will buy a maker of finished drugs from its controlling shareholder for HK$8.98 billion ($1.2 billion) worth of new stock and convertible bonds. The purchase of Robust Sun Holdings Ltd will reduce the company's reliance on drug intermediaries, bulk antibiotics, and vitamin C, which now account for 66 percent of its sales.
  • Investors Eye Chances in High-End Healthcare (Shanghai Daily  2012-06-19) — June 19, 2012
As demand for high-quality health care rises in China, venture capital and private equity companies are taking advantage of ample investment opportunities in the nation's private and specialized hospitals. There were 158 investment deals in the medical and health care sector last year, worth $4.14 billion, around the same amount as the total deals in the sector from 2006 to 2010, according to a report from the Zero2IPO research center. The report said 28 medical and health care companies were listed last year, raising $5.33 billion, and 12 of them were backed with VC or PE investment.  The State Council passed a medical reform plan in 2009 that promised to spend 850 billion yuan ($123 billion) by last year to provide universal medical services to the country's 1.3 billion people. "We treat private medical institutions equally (with public ones), and they can be included in the scope of basic medical insurance under certain conditions," said Li Jinghu, deputy director of the Institute of Social Security at the Ministry of Human Resources and Social Security. In April, the State Council issued a statement on deepening the medical system reform, which states that local governments are required to issue detailed regulations to encourage private capital into this industry, and to guide the restructuring of certain public hospitals. A total of 300 county-level hospitals will take part in a pilot program that will see them undergo reforms in finance, management and human resources, according to guidelines published on the central government's website in June.
  • CIRC Encourages Insurance Companies to Establish Medical Institutions to Expand Business (Caijing 2012-06-20) — June 21, 2012
China Insurance Regulatory Commission (CIRC) issued a Notice concerning Fulfillment of the Programs on Deepening the Medical Reform during the 12th Five-Year Period. According to the Notice, CIRC will conduct research on the feasibility and the effective way for insurance companies to establish medical institutions and become involved in the restructuring of public hospitals. In fact, the encouragement on insurance companies to invest in hospitals has been mentioned in the Opinions of State Council on Reform and Development in the Insurance Industry in 2006. Accordingly, China PingAn Insurance signed an agreement with the Longgang District Government of Shenzhen to establish a Chinese medicine hospital in Longgang last year as a pilot.
  • MOH and Medical Reform Office under State Council Respond to Questions on Opinions of Comprehensive Reform Pilot Project of Public Hospitals at County Level (National Development and Reform Commission 2012-06-15) — June 15, 2012
The State Council recently issued the Opinions concerning the Comprehensive Reform Pilot Project of Public Hospitals at County Level. The Opinions aim to ease the difficulties and the problems of expensive medical charges in the medical treatment for rural residents. The comprehensive system for the medical cost through drug-selling profits shall be eradicated. The pilot public hospitals at county level will be compensated through service charges and government subsidy. Each county (city) shall have one to two hospitals (including Chinese medicine hospital) at county level. The county (city) with more than 300,000 population shall have at least one Grade 2A hospital. Remote consultation, remote diagnosis, and distance education will be realized among hospitals at county level. In addition, excellent professionals will practice at county level hospitals through nurturing and offering preferential treatment.
  • 311 Counties to Pilot China's Hospital Reform (Xinhua News Agency 2012-06-27) — June 27, 2012
China has nominated 311 counties or county-level cities in a program to pilot reform of the country's public health care facilities, the Ministry of Health announced Tuesday. The national initiative includes 83 counties or county-level cities in East China, 136 in Central China, and 92 in West China, according to the ministry. The 311 counties or county-level cities are expected to undergo reforms in finance, management and human resources by 2015 to enhance their capacity.
  • First Wholly Taiwan-funded Hospital Opens (Shanghai Daily 2012-06-27) — June 27, 2012
The Chinese mainland's first wholly Taiwan-funded hospital opened in Shanghai yesterday. It is the first solely invested Taiwan hospital to receive the green light on the mainland after the Economic Cooperation Framework Agreement, or ECFA, was signed between the mainland and Taiwan authorities in 2010. Established by the Taipei-based Landseed International Medical Group, the Shanghai Landseed International Hospital, with a 150 million yuan (US$23.81 million) investment, is mainly aimed at Taiwanese, expatriates living in Shanghai, and locals with high-end health demands, hospital officials said.
  • Smiling Angel Children's Hospital To Go into Operation (Caixin Media 2012-06-24) — June 25, 2012
Beijing Smiling Angel Children's Hospital, the first private charity children’s hospital run by film star Li Yapeng, will go into operation July 1. The hospital will operate in nonprofit mode based on the Smile Angel Foundation. Given the current shortage of pediatricians, the hospital will provide medical services through the multi-site practice of the pediatricians from the public hospitals. Apart from the children from poor families, the hospital will also be opened to ordinary families. Some high-quality services will be charged highly accordingly. All the income will be used to develop the hospital in sectors including R&D and medical assistance, and there will not be dividends to the shareholders. The operation cost will be mainly from the social donations through charity dinners, small donations and other manners. 
  • China Medical Services Market to Hit $500B (Agencies 2012-06-25) — June 25, 2012
China needs to bolster its medical services and investors are ready to help, Bloomberg reported. The latest is Carlyle Group LP-backed Concord Medical Services Holdings Ltd, which last week completed a deal for a 52 percent stake in Chang'an Hospital, a 1,000-bed facility at the eastern end of the Silk Road, according to Bloomberg. China's medical services market is growing 18 percent annually and is projected to reach 3.16 trillion yuan ($500 billion) in 2015, Bloomberg reported, citing accountancy firm Deloitte China.

Life Sciences Health Industry China Briefing - May 2012 (June 14, 2012)

This post was written by John Tan, Jay J. Yan, Mao Rong, Katherine Yang, and Gordon B. Schatz.

Reed Smith’s Life Sciences Health Industry China Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries.

Some important developments during May include:

  • Introduction of Administrative Measures on Clinical Application of Antimicrobial Drugs
  • Two Agencies Crack Down on Violent Crime Against Medical Personnel
  • Medical Insurance Reimbursement for Hospitalization to Reach 75% of Total Expenses During 12th Five-Year Plan
  • Foreign Medical Workers to Receive TCM Training in Shanxi 
  • MOH Requires Class B and Higher Hospitals to Establish Security Offices
  • China to Expand Medical Payment Reform
  • SFDA Campaign to Regulate TCM Raw Material Market
To read the full briefing by Reed Smith China team members, click here.

 

Life Sciences Health Industry China Briefing - January 2012 (February 13, 2012)

This post was written by Jay J. Yan, Mao Rong, Zack Dong, Katherine Yang, Joyce Sun, Sara Lai and Gordon B. Schatz.

Reed Smith’s Life Sciences Health Industry China Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries.

Some important developments during January include:

  • Outline of China's Nursing Development Plan from 2011 to 2015
  • Promulgation of Eight Recommended Medical Product Industry Standards
  • Strengthening Implementation of 2010 GMP Amendment
  • Circulation of the 12th Five-Year Plan for Medical Device Technology Industry

To read the full briefing by Reed Smith China team members, click here.
 

Life Sciences Health Industry China Briefing - December 2011 (January 12, 2012)

This post was written by Jay Yan, Mao Rong, Zack Dong, Gordon Schatz, and Katherine Yang.

Reed Smith’s Life Sciences Health Industry China Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries.

Some important developments during December include:

  • SFDA Issues Catalogue of Class II Medical Devices Exempted from Submitting Clinical Trial Materials
  • SFDA Issues Notice Concerning Circulation of Guiding Principles of Phase I Clinical Trial Management of Drugs
  • SFDA Issues Notice on Soliciting Comments on Revisions of the Good Supply Practice for Pharmaceutical Products
  • China Adopts Drug Safety Plan: All Drugs to be Qualified by 2015
  • NDRC Issues Rules on Drug Price Parity to Prevent Disguised Price Hikes
  • Guangdong Issues Drug Price Adjustment Program: 307 Western Drugs’ Price have a 22 percent Reduction in Average
  • Shenzhen Public Hospitals to Revoke Drug Price Addition by the End of 2012

To read the full briefing by Reed Smith China team members, click here.

VA Seeks to Regulate Promotional Activities by Pharmaceutical Sales Representatives

This post was written by Lorraine Campos and Joelle Laszlo.

The Department of Veterans Affairs ("VA") has issued a Notice of Proposed Rulemaking on pharmaceutical sales representatives' access to and activities in VA medical facilities.  Drug and Drug-Related Supply Promotion by Pharmaceutical Company Sales Representatives at VA Facilities, 75 Fed. Reg. 24,510 (May 5, 2010).

The proposed rule is designed to "reduce or eliminate any potential for disruption in the patient care environment, manage activities and promotions at VA facilities, and provide sales representatives with a consistent standard of permissible business activities at VA facilities."  One way the proposed rule endeavors to meet those aims is by requiring that any drug or drug-related promotion at a VA medical facility (broadly defined to include any VA-run source of medical services or benefits) is consistent with the published "criteria-for-use" of the subject drug or drug-related supply, which itself must not have been classified as "non-promotable."  The proposed rule also requires: (1) that any corporate-furnished educational program or materials be approved in advance by the target VA facility's Chief of Pharmacy (or equivalent official); (2) that sales representatives make appointments in advance of VA facility visits; and (3) that gifts (of anything but drugs and food) and donations of drugs and drug-related supplies comply with current restrictions, and, with respect to the latter, be approved for acceptance and subject to proper storage, documentation, and dispensing.  Potential penalties for non-compliance will include limitations on VA facility access, though the VA notes that since most sales representatives are generally well-behaved, it "do[es] not envision that the proposed paragraph [on penalties for non-compliance] will be invoked with regularity." 

The VA asserts that the proposed rule will largely formalize what are currently informal practices and therefore, if anything, the rule will make it easier for pharmaceutical representatives to act, knowing that they will not be subject to some unwritten code.  This may be true insofar in many respects.  But the proposed rule's pre-approval requirements for “educational programs and materials,” may create confusion. For example, it is unclear whether the VA would (or could) apply the VA’s distinction between promotional programs and “educational” (non-promotional) programs. Moreover, the requirement for prior content approval might create FDA compliance concerns or even raise First Amendment issues. 

Comments on the proposed rule must be received by the VA on or before July 6, 2010.  Click here to read the full text of the notice.

Health Care Reform: Whither Property Tax Exemptions for Hospitals?

This post was written by Michael J. Wynne.

Last week, in Provena Covenant Medical Center v. Department of Revenue, the Illinois Supreme Court issued a decision in which it denied a property tax exemption for a Catholic hospital. The Court denied the exemption, in part, because the amount of charity care provided by the hospital was insufficient. However, the chilling national repercussions some portend for the Provena Covenant decision, with its inquiry into how much charity is enough to justify a property tax exemption, may ultimately be dwarfed by the repercussions of the new federal health care legislation. By 2014, under the new federal legislation, the extended coverage offered under Medicaid and the insurance exchanges will displace much of the charitable patient care that hospitals have traditionally dispensed. As hospital charitable patient care ebbs, so too may ebb the state and local grants of exemption for hospital properties.

To learn more about property tax implications of the Provena Covenant decision and the new federal health care legislation, read our full alert.

Sebelius Issues Section 1135 Waiver

This post was written by Kevin Madagan and Paul Sheives.

On October 24, 2009, President Obama signed a proclamation declaring the 2009 H1N1 influenza pandemic a National Emergency to facilitate the nations ability to respond to the H1N1 pandemic by enabling – if warranted – the waiver of certain statutory federal requirements for medical treatment facilities.  

This proclamation provided Kathleen Sebelius, the Secretary of the U.S. Department of Health & Human Services, the ability under section 1135 of the Social Security Act [42 U.S.C. § 1320b–5] to waive certain legal requirements that could otherwise limit the ability of the nation’s healthcare system to respond to the surge of patients with the 2009 H1N1 influenza virus. 

Secretary Sebelius recently issued a Section 1135 waiver that becomes effective at 5:00 p.m. today but is retroactive to October 23, 2009.  

Accordingly, healthcare facilities may now petition the Department for 1135 waivers to ensure that sufficient healthcare items and services are available to meet the needs of Medicare, Medicaid, and CHIP beneficiaries. Listed below are a few examples of when 1135 waivers may be necessary:

  • Hospitals request to set up an alternative screening location for patients away from the hospital’s main campus (requiring waiver of sanctions for certain directions, relocations or transfers under EMTALA).
  • Hospitals request to facilitate transfer of patients from ERs and inpatient wards between hospitals (requiring waiver of sanctions under EMTALA regulations).
  • Critical Access Hospitals requesting waiver of 42 C.F.R. § 485.620, which requires a 25-bed limit and average patient stays less than 96 hours.
  • Skilled Nursing Facilities requesting a waiver of 42 C.F.R. § 483.5, which requires CMS approval prior to increasing the number of the facility’s certified beds.

CMS Proposes to Relax Controversial Physician Supervision Requirements for Hospital Outpatient Services

On July 1, 2009, the Centers for Medicare & Medicaid Services (“CMS”) proposed to relax its controversial position concerning physician supervision of hospital outpatient services. The hospital industry had recently been vocal in its objection to CMS’s position, and the latest proposal signifies a potential important win for hospitals. If adopted, hospitals will be able to meet Medicare supervision requirements for outpatient services, without incurring some of the high costs necessary to ensure physician presence while those services are furnished. 

The July 1 proposal is contained in CMS’s hospital outpatient prospective payment system (“HOPPS”) rule for 2010. The controversy arose a year earlier in CMS’s HOPPS rule for 2009. In the 2009 HOPPS rule, CMS “clarified” that direct supervision by a physician is required for outpatient hospital therapeutic services furnished “incident to” a physician’s services – not only in an off-campus hospital-based location, but also in the main hospital building or an on-campus department. This means that a physician must be present in each provider-based department when these services are furnished. While styled as a clarification, most hospitals saw CMS’s position in the 2009 HOPPS rule as a significant change from prior CMS guidance. Specifically, in the original HOPPS regulations from 2000, while CMS required that services furnished at a location designated as a department of a provider under the Medicare “provider-based” rules must be furnished under the direct supervision of a physician, CMS also stated that it “assumed” that the direct supervision requirement would be met when the services are furnished on a hospital’s campus. 

In the latest proposal, CMS articulated three new proposed policies for physician supervision for hospital outpatient services that would go into effect Jan. 1, 2010. 

  • First, nonphysician practitioners (physician assistants, nurse practitioners, clinical nurse specialists, and certified nurse-midwives) would be permitted to directly supervise all hospital outpatient therapeutic services that they may perform themselves in accordance with state law, and scope of practice, hospital-granted privileges, and other Medicare requirements. 
  • Second, for outpatient services furnished in the hospital or in an on-campus outpatient department of the hospital, the “direct supervision” requirement would be met if the physician or nonphysician practitioner is present on the same campus, in the hospital or on-campus provider-based department, and is immediately available to furnish assistance and direction throughout the performance of the procedure.
  • Third, for hospital outpatient diagnostic services, the physician supervision requirements attributable to each particular test under the Medicare physician fee schedule would have to be satisfied, whether the test is performed directly or under arrangements. While the same definition of “direct supervision” applicable to therapeutic services would also apply to diagnostic tests, nonphysician practitioners would not be permitted to supervise diagnostic tests.

These changes would allow hospitals significantly more flexibility in meeting the supervision requirements, and would represent a relaxation not only from CMS’s policy articulated in the 2009 HOPPS rule, but in some respects also from CMS’s policy prior to 2009. In particular, for example, nonphysician practitioners will be able to supervise therapeutic services furnished in off-campus provider-based departments.

An advance copy of the proposed 2010 HOPPS rule, which is scheduled to be published in the Federal Register July 20, 2009, is available here. Hospitals desiring to comment on the proposal must do so by Aug. 31, 2009. The final HOPPS rule is likely to be released in December 2009. Hospitals should monitor regulatory developments in this area in order to be able to adjust physician and nonphysician staffing and scheduling of services accordingly.

Health Information Privacy and Incentives, Medicaid Funding, and Other Health Care Provisions in the American Recovery and Reinvestment Act

This post was written by Karl A. Thallner, Jr., Carol C. Loepere, Debra A. McCurdy, Brad M. Rostolsky, Jacqueline B. Penrod, and Amie E. Schaadt.

On February 17, 2009, President Obama signed into law H.R. 1, the American Recovery and Reinvestment Act (the “ARRA”). The sweeping $790 billion economic stimulus package includes a number of health care policy provisions. Reed Smith's Health Care Memorandum summarizes the major health policy provisions of the Act.

Hospital Agrees to Pay $700,000 To Texas AG For Allegedly Orchestrating an Insurer Boycott of Competitor

This post was written by Diane Green-Kelly and Karl A. Thallner.

In a time of economic crisis, when hospitals, like most other businesses, are struggling to operate within a constrained budget, Memorial Hermann Healthcare System (“Memorial Hermann”) agreed Jan. 26, 2009 to pay $700,000 to settle claims of the Texas Attorney General alleging that Memorial Hermann orchestrated an agreement among health plans not to do business with a new competitor, Town and County Hospital (“Town and Country”).  According to the complaint, Memorial Hermann, which owns and operates acute care hospitals furnishing inpatient care, is the largest hospital system in the Houston area.  Town and County, a physician-owned hospital, opened in November 2005.  Before opening, Town and County approached insurers to enter into contracts to be included in those insurers’ hospital networks.  Memorial Hermann allegedly took steps to discourage insurers from entering into contracts with Town and Country, including sending notification of an intent to terminate its contract with one insurer as to all Memorial Hermann facilities, and subsequently renegotiating a contract with the insurer for substantially higher rates. 

According to the complaint, the rate increase proposed by Memorial Herman exceeded any increase reflective of a reasonably foreseeable change in volume resulting from increased competition from Town and Country. Memorial Hermann also was alleged to have notified another insurer of a 25 percent rate increase after learning that that insurer was considering entering into a contract with Town and Country. According to the Texas AG, that increase exceeded any reasonably expected economic impact of increased competition. Pursuant to the settlement agreement, Memorial Hermann has agreed to refrain from engaging in the foregoing conduct and pay $700,000 to the Texas AG as partial reimbursement for the cost of the investigation.

Now more than ever, especially in light of the current economic woes and the new administration’s stated intention to focus on health care and antitrust enforcement, it is essential that health care providers be prepared for an increase in antitrust enforcement activities at the state and federal levels, and be ready to ensure that contract negotiations are conducted with this in mind. What may be intended to be merely tough negotiation tactics designed to increase revenue or reduce costs may be viewed by government authorities as anti-competitive conduct when coupled with other factors. The decision of a health care provider, or group of health care providers, to revise contractual arrangements to respond to changes in the competitive environment should take care to support proposed changes with objective data. Further, exclusive arrangements between health care providers and suppliers, while often considered to be pro-competitive, should be approached with careful consideration.