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COA Dismisses AHA 340B Lawsuit!

The 340B drug program is a topic that needs daily updates. It seems that something is happening constantly. Like a prime time soap opera or The Bachelor, the 340B program is all the talk at the water cooler. From lawsuits to legislation to executive orders – there is no way of knowing the outcome, so we all wait with bated breath to watch who will hold the final rose.

On Tuesday, July 17, 2018, the metaphoric guillotine fell on the American Hospital Association (AHA) and on hospitals across the country. The Court of Appeals (COA) dismissed AHA’s lawsuit.

The Background 

On November 1, 2017, the US Department of Health and Human Services released a Final Rule implementing a payment reduction for most covered outpatient drugs billed to Medicare by 340B-participating hospitals from the current Average Sales Price (ASP) plus 6% rate to ASP minus 22.5%, which represents a payment cut of almost 30%.

Effective January 1, 2018, the 30% slash in reimbursement rates became reality, but only for locations physically connected to participating hospitals. CMS is expected to broaden the 30% reduction to all 340B-participating entities in the near future.

What is the 340B drug program? The easiest explanation for the 340B program is that government insurance, Medicare and Medicaid, do not want to pay full price for medicine. In an effort to reduce costs of drugs for the government payors, the government requires that all drug companies enter into a rebate agreement with the Secretary of the Department of Health and Human Services (HHS) as a precondition for coverage of their drugs by Medicaid and Medicare Part B. If a drug manufacturer wants its drug to be prescribed to Medicare and Medicaid patients, then it must pay rebates.

The Lawsuit

The American Hospital Association (“AHA”) filed for an injunction last year requesting that the US District Court enjoin CMS from implementing the 340B payment reduction. On the merits, AHA argues that the HHS’s near-30% rate reduction constitutes an improper exercise of its statutory rate-setting authority.

The US District Court did not reach an opinion on the merits; it dismissed the case, issued December 29, 2017, based on lack of subject matter jurisdiction. The District Court found that: Whenever a provider challenges HHS, there is only one potential source of subject matter jurisdiction—42 U.S.C. § 405(g). The Medicare Act places strict limits on the jurisdiction of federal courts to decide ‘any claims arising under’ the Act.

The Supreme Court has defined two elements that a plaintiff must establish in order to satisfy § 405(g). First, there is a non-waivable, jurisdictional requirement that a claim for benefits shall have been “presented” to the Secretary. Without presentment, there is no jurisdiction.

The second element is a waivable requirement to exhaust administrative remedies. I call this legal doctrine the Monopoly requirement. Do not pass go. Go directly to jail. Do not collect $200. Unlike the first element, however, a plaintiff may be excused from this obligation when, for example, exhaustion would be futile. Together, § 405(g)’s two elements serve the practical purpose of preventing premature interference with agency processes, so that the agency may function efficiently and so that it may have an opportunity to correct its own errors, to afford the parties and the courts the benefit of its experience and expertise, and to compile a record which is adequate for judicial review. However, there are ways around these obsolete legal doctrines in order to hold a state agency liable for adverse decisions.

Following the Dec. 29, 2017, order by the District Court, which dismissed the lawsuit on jurisdictional grounds, the plaintiffs (AHA) appealed to the U.S. Court of Appeals (COA), which promptly granted AHA’s request for an expedited appeal schedule.

In their brief, AHA contends that the District Court erred in dismissing their action as premature and that their continued actual damages following the Jan. 1 payment reduction’s effective date weighs heavily in favor of preliminary injunctive relief. More specifically, AHA argues that 30% reduction is causing irreparable injury to the plaintiffs “by jeopardizing essential programs and services provided to their communities and the vulnerable, poor and other underserved populations, such as oncology, dialysis, and immediate stroke treatment services.”

By contrast, the government’s brief rests primarily on jurisdictional arguments, specifically that: (1) the Medicare Act precludes judicial review of rate-setting activities by HHS; and (2) the District Court was correct that no jurisdiction exists.

Oral arguments in this appeal were May 4, 2018.

AHA posted in its newsletter that the COA seemed most interested in whether Medicare law precludes judicial review of CMS’ rule implementing the cuts. AHA says it hopes a ruling will be reached in the case sometime this summer.

In a completely different case, the DC District Court is contemplating a request to toll the time to file a Section 340B appeal.

AHA v. Azar, a case about RAC audits and the Medicare appeal backlog. During a March 22, 2018, hearing, the COA asked AHA to submit specific proposals that AHA wishes the COA to impose and why current procedures are insufficient. It was filed June 22, 2018.

In it proposal, AHA pointed out that HHS is needlessly causing hospitals to file thousands of protective appeals by refusing to toll the time for hospitals to file appeals arising out of the reduction in reimbursement that certain 340B hospitals. In order to avoid potential arguments from the government that 340B hospitals that do not administratively appeal the legality of a reduced rate will be time barred from seeking recovery if the court holds that the reduction in payments is unlawful, AHA proposed that the Secretary agree to toll the deadline for such appeals until resolution of the 340B litigation—an arrangement that would preserve the 340B hospitals’ right to full reimbursement in the event the 340B litigation is not successful. HHS has refused to toll the time, meaning that Section 340B hospitals will have to protect their interests in the interim by filing thousands upon thousands of additional claim appeals, which will add thousands upon thousands of more appeals to the current ALJ-level backlog.

The Decision

In a unanimous decision, three judges from the COA sided with HHS and ruled the hospitals’ suit was filed prematurely because hospitals had not formally filed claims with HHS because they were not yet experiencing cuts.

Basically, what the judges are saying is that you cannot ask for relief before the adverse action occurs. Even though the hospitals knew the 30% rate reduction would be implemented January 1, 2018, they had to wait until the pain was felt before they could ask for relief.

The lawsuit was not dismissed based on the doctrine of exhaustion of administrative remedies. The Decision noted that in some cases plaintiffs might be justified in seeking judicial review before they have exhausted their administrative remedies, but that wouldn’t be the solution here.

Hindsight is always 20-20. I read the 11 page decision. But I believe that AHA failed in two ways that may have changed the outcome: (1) Nowhere in the decision does it appear that the attorneys for AHA argued that the subject matter jurisdiction issue was collateral to the merits; and (2) The lawsuit was filed pre-January 1, 2018, but AHA could have amended its complaint after January 1, 2018, to show injury and argue that its comments were rejected (final decision) by the rule being implemented.

But, hey, we will never know.

Medicare Appeals to OMHA Reaches 15,000 Per Week, Yet Decisions Take Years; Hospital Association Sues Over Medicare Backlog

When you are a health care provider and make the business determination to accept Medicare or Medicaid, you are agreeing to deal with certain headaches.  Low reimbursement rates and more regulations than you can possibly count make accepting Medicare and Medicaid a daunting experience.  Throw in some pre- and post-payment review audits, some inept contractors, and dealing with the government, in general, and you have a trifecta of terrible to-dos.

But having to “pay back” (by reimbursement withholding) an alleged overpayment before an appeal decision is rendered is not a headache which hospitals have agreed to take, says the American Hospital Association.  And it said so very definitively, in the form of a Complaint in the U. S. District Court for the District of Columbia

In both Medicaid and Medicare audits, if you get audited and are told to pay back XX dollars, you have a right to appeal that determination.  Obviously, with Medicare, you appeal on the federal level and with Medicaid, you appeal to the state level.  But the two roads to appeal (the state and federal) are not identical.  Robert Frost once said, “Two roads diverged in a wood, and I, I took the one less traveled by, And that has made all the difference.”  However,the Medicare appeal route is NOT the route less traveled by.

As of February 12, 2014, over 480,000 Medicare appeals were pending for assignment to an Administrative Law Judge (ALJ), with 15,000 new appeals filed each week.  In December 2013, HHS Office of Medicare Hearings and Appeals (OMHA) announced a moratorium on assignment of provider appeals to ALJs for at least the next two years, and possibly longer.  The average wait-time for a hearing is approximately 24 months, but will undoubtedly increase quickly due to the moratorium.  A decision would not come until later.  And all the while the parties are waiting, the provider’s reimbursements will be withheld until the alleged overpayment amount is met.  Literally, a Medicare appeal could take 3-5 years.

The American Hospital Association is fed up. And who can blame them?  On May 22, 2014, the American Hospital Association (AHA) filed a Complaint in the United States District Court in the District of Columbia against Kathleen Selebius, in her official capacity as Secretary of Health and Human Services (HHS), complaining that HHS is noncompliant with federal statutory law because of the Medicare appeal backlog.  I am not surprised by AHA’s Complaint; I am only surprised that it took this long for a lawsuit.  I am also surprised that more providers, other than hospitals, are not taking action.

AHA is requesting relief under the Mandamus Act, 28 U.S.C. § 1361.  The Mandamus Act allows a court to compel an officer or employee of the United States or any agency thereof to perform a duty owed.  In this case, the AHA is saying that HHS has a statutory duty to resolve Medicare appeals within 90 days.  So, AHA is asking the district court to compel HHS to resolve Medicare appeals by not later than the end of the 90-day period beginning on the date a request for hearing has been timely filed.

And, here, I am obliged to insert a quick, two thumbs-up for our very own Office of Administrative Hearings (OAH)  in NC for its handling of Medicaid appeals.  If you file a contested case at OAH, it will not take 3-5 years.

AHA’s lawsuit is significant because AHA does not restrict the relief requested to only hospital Medicare appeals.  AHA requests that the District Court “enter a declaratory judgment that HHS’s delay in adjudication of Medicare appeals violates federal law.”  If granted, I would assume that this declaratory judgment would impact all Medicare providers.  The only way to ensure all providers are covered by this decision is for all providers to either (1) file a separate action (to include damages, which is not included in AHA’s action for some reason); or (2) to join AHA’s action (and forego damages), but its impact will be broad.  I am not sure why AHA did not seek damages; the time value of money is a real damage…the non-ability for the hospitals to invest in more beds because their money is stuck at HHS is a real damage…the loss of the interest on the withheld money, which is obviously benefiting the feds, is a real damage.

AHA’s request is not dissimilar to an arrested individual’s right to a speedy trial.  During a criminal trial, the defendant remains incarcerated.  Therefore, because we believe our liberty is so important, the defendant has a right to a speedy trial.  That way, if he or she is innocent, the defendant would have spent the least number of days imprisoned.

With a Medicare audit appeal, HHS begins immediately withholding reimbursements until the alleged overpayment amount is met, even though through the appeal, that overpayment will most likely be decreased quite substantially.  Apparently, across the nation, the percent of overturned Medicare audits through appeal is around 72%,  but I could not find out whether the 72% represents ANY amount overturned or the entire 100% of the audit being overturned.  Because, in my personal experience, 99.9% of Medicare appeals have SOME reduction in the alleged amount (I would have said 100%, but we are taught not to use definitive remarks as attorneys).

Because the provider’s Medicare money is withheld based on an allegation of an overpayment, the fact that the cases are backlogged at the ALJ level is financially distressing for any provider.Even without the backlog, Medicare appeals take longer than Medicaid appeals.  In Medicare, there is four-step appeal process.  Going before the ALJ is the 3rd level.

First, a Medicare appeal begins with the Medicare Administrative Contractor (MAC) for redetermination.  The MAC must render a redetermination decision within sixty days.

If unsuccessful, a provider can appeal the MAC’s decision to a Qualified Independent Contractor (“QIC”) for reconsideration. QICs must render a decision within sixty days.

Provided that the amount in controversy is greater than $140 (for calendar year 2014), the next level, and where the backlog begins, is at the level of appeal to an ALJ. The ALJ is required both to hold a hearing and to render a decision within ninety days, which is not happening.

Hence, AHA’s lawsuit.  Hopefully AHA will be successful, because a backlog of Medicare appeals at the ALJ level doesn’t help anyone.  And audits are not going away.

More Financial Pressure on Hospitals By 2013’s Legislative Medicaid Budget

Representative David Price spoke as the Keynote Speaker at the North Carolina Society of Health Care Attorneys annual meeting yesterday morning.  Since Representative Price was actually up in Washington D.C. during the shutdown, it was very interesting to hear him speak.  His opinion, as one would expect from his ideology, was that the shutdown was idiotic and unnecessary.

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What I found interesting was how he described the relationships between congressmen and women today versus in the 90s.  Remember, he has represented NC in Washington for more than one decade.  He described the relationships, even across party lines, as more cordial in the 90s than today’s relationships.  I wonder why our legislative body has become more segregated.

In the afternoon session, Linwood Jones from the North Carolina Hospital Association spoke about recent legislative action.  This legislature was not good to hospitals.  As Linwood described the legislative session this year…”It was all about Medicaid.” (I know you were wondering how the NC Society of Health Care Attorneys annual meeting was going to be germane to Medicaid).  According to Mr. Jones, the Medicaid budget was the primary factor in almost all budget cuts.  And what entities get most of Medicaid funding?

Duh…Hospitals.  Hospitals are the biggest providers in the state, and, in some areas, the biggest employers.

Our Medicaid budget is approximately $13 billion.

Remember…36 million a day is what we spend on Medicaid in NC.

How much of that $13 billion Medicaid budget goes to hospitals?   According to Kaiser Family Foundation, 25.7% for inpatient care.  Or $3.341 billion annually.  Or $9.252 million a day!!

Including outpatient care?  38.7%  Or $5.031 billion annually.  Or $13.932 million a day!!

According to the handy-dandy Wikipedia website, North Carolina has 126 hospitals in 83 counties.  For those of you who never went to 6th grade in North Carolina, we have 100 counties in NC.  (In the 6th grade, if you grew up here, you learn all about North Carolina geography, which apparently didn’t stick, because I still get lost).

That is $13.932 million dollars a day going to 126 hospitals in NC.  That is a lot of money!!!

Does Medicaid matter to hospitals?

Heck, yes!! Remember, a hospital cannot turn anyone away, including Medicaid recipients and uninsured.  Add the fact that the mentally ill in NC are not getting medically necessary services because our managed care organizations (MCOs) have monetary incentives to NOT provide the expensive mental health services; PLUS the fact that Medicaid reimbursements are painfully low, which leads to many physicians not accepting Medicaid, and you get the sad sum of Medicaid recipients ending up in emergency rooms of hospitals.

Don Dalton, a spokesman for the Hospital Association, said that statewide about 46 percent of hospitals’ revenue comes from Medicaid. (See Rose Hoban’s article).

But, hospitals don’t make a huge profit.  Especially on Medicaid recipients.

On average, Medicaid reimburses hospitals 80% of the actual cost for hospital services.

But this year, the General Assembly created a budget in which the 80% will be reduced to 70%.

Medicaid reimbursements were already bad.  But now, the Medicaid reimbursements will be 10% worse.  Subtract 10% from the $13.932 million dollars a day…

This is not a good thing for hospitals nor Medicaid recipients.

When Representative Price was speaking, a woman raised her hand with a question/vignette.  She said that she and her friends had gotten on the health care exchange (Obamacare) (Healthcare.gov) website and “shopped” for health insurance.  She said that all the people who signed up for health care exchange (because it is mandated and there is a penalty for not having insurance) had their premiums increase anywhere from 300%-800%.  Although Rep. Price made a good point, that they all should have contacted Blue Cross Blue Shield (BCBS) and asked why BCBS dropped that particular insurance plan.  Nonetheless, the woman harped on the fact that Obama had promised, “You like your insurance? You can keep it! You like your doctor? You can keep him/her!” (I added the “her.”)

So, here we are…with low Medicaid reimbursements to begin with, high medical costs, and the General Assembly reducing the Medicaid rates for hospitals by 10%.

Incentive to accept Medicaid recipients?  I think not…but hospitals have no choice.

Physicians and other Medicaid providers have the choice as to whether to accept Medicaid patients, but hospitals?  No choice there.  Hospitals must accept Medicaid recipients.  Mandatory!!!

In my opinion, the very first step toward fixing the Medicaid system is RAISING Medicaid reimbursement rates.

Sound counterintuitive? Yes, I agree it sounds counterintuitive.  But think about Medicaid like this:

If you agree with me that Medicaid is an entitlement and that the Medicaid budget is way too high, but that all Medicaid recipients deserve quality health care…if you agree with all that…

And you also agree with me that it is drastically more expensive for Medicaid recipients to go to the emergency room (ER) for health issues that could be solved in a family physicians’ office…if you agree with all that…

Then we would save Medicaid dollars by increasing (drastically) the Medicaid reimbursements.  If doctors had a monetary incentive to accept Medicaid, then more doctors would accept Medicaid (Logic 101).  If more doctors accept Medicaid, then more Medicaid recipients have the ability to go see a doctor.  If more recipients have more office visits then ER visits drop.  If more unnecessary ER visits drop, then the State pays less money to the hospitals, which is an extremely higher rate (even with the 10% reduction) than a higher Medicaid reimbursement to physicians.  Cut the $13.932 million a day to hospitals, not by decreasing the reimbursement rate, but by fewer Medicaid recipient going to the ER…instead have the recipients receive quality care outside the hospital, thus saving money…

Get it?

By reducing the Medicaid reimbursements to hospitals, the legislature did decrease the Medicaid budget, but not in a way that intelligently attempts to fix the system.  The same amount of Medicaid recipients will be going to hospitals.  Since the hospitals cannot turn anyone away, reducing reimbursements to hospitals merely hurts the hospitals.

Want to decrease the Medicaid budget? Increase Medicaid reimbursements (drastically) to Medicaid providers.  More providers accepting Medicaid means more recipients receiving quality care and NOT checking into the ER….

Money saved intelligently.  Too bad the legislature didn’t ask my opinion prior to slashing Medicaid reimbursement rates.