1. Reimbursement, Prompt Pay, and Beyond A Health Law Update By Jennifer Rangel, Partner Locke Liddell & Sapp LLP DISCLAIMER: This material should not be considered as legal advice or legal opinion, which may often turn on specific facts. The contents are for informational purposes only. Readers should seek specific legal advice before acting with regard to the subjects mentioned here.

2. Prompt Pay: Background  1997: Legislation passed to further revise prompt- payment requirements and establish requirements for submission of a clean claim, but the bill was subsequently vetoed.  1999: Legislature passed “prompt pay” legislation (HB 610) containing interest penalties, administrative finds, attorneys’ fees. –Still allowed plans to modify the penalties by contract –Regulations failed to correct payment problems –Applies to services performed after August 1, 2000  2003: Senate Bill 418: Applies to contracts that were renewed and services provided after October 5, 2003 August 16, 2003: Emergency rules October 5, 2005: Final rules

3. Prompt Pay: Background Was your HMO / PPO contact entered or last renewed on or after August 16, 2003? Was your HMO / PPO contact entered or last renewed on or after August 16, 2003? Services provided on or after August 1, 2000 are subject to HB 610 and related rules. Services provided on or after August 1, 2000 are subject to HB 610 and related rules. Services are subject to SB 418 and the Emergency rules until contract renews on or after Oct. 5, 2003. Once the contract renews on or after Oct. 5, 2003 services are subject to SB 418 and the final rules. Services are subject to SB 418 and the Emergency rules until contract renews on or after Oct. 5, 2003. Once the contract renews on or after Oct. 5, 2003 services are subject to SB 418 and the final rules. NO YES

4. Prompt Pay: Applicability  Applicable to: fully-insured HMO and PPO products licensed and sold in Texas.  Not applicable to: Medicare, Medicaid, workers’ compensation, TriCare, self-funded employer ERISA plans, state and federal employee plans, indemnity policies, and out- of-state Blue Cross plans filed to Blue Cross and Blue shield of Texas.

5. Prompt Pay: “Clean Claims”  Defined in T EX. I NS. C ODE § 1301.131 and 28 TAC §§ 21.2802-2803  Clean claims must include all required data elements such as specific information about the patient (name, address, gender, date of birth, plan ID number), subscriber, and insured’s or enrollee’s policy.

6. Prompt Pay: Submission Procedures  A clean claim must be submitted to an insurer not later than the 95th day after: –Date health care services for the claim are provided (physician or provider) –Date of discharge (institutional provider); or –Date physician or provider receives notice of payment or denial from the primary payor (coordination of benefits)  The deadline may be extended by contract between provider and insurer  A physician or provider that fails to submit a claim within the designated timeframe forfeits the right to payment unless delay is a result of a catastrophic event.

7.  After receiving a clean claim, the insurer must determine whether the claim is payable.  The insurer must pay the entire claim, a portion of the claim (if not entirely payable), or notify the provider that a claim will not be paid within: –45 days after receiving a claim in non-electronic format –30 days after receiving a claim received in electronic format –21 days for affirmatively adjudicated pharmacy claims that are electronically submitted. Prompt Pay: Processing Clean Claims

8. Prompt Pay: Auditing Procedures  When an insurer decides to audit, must pay 100% of the contract rate within the processing deadlines but indicate that payment is subject to the audit.  Insurer may notify provider that the claim will be forfeited if information requested in connection with the audit is not supplied within 45 days and. If the provider does not provide the information, the insurer may recover the amount of the claim.  An audit must be completed on or before 180 days after the date insurer receives the clean claim.  Provider has right to appeal.

9. Prompt Pay: Requests for Additional Information  An insurer may obtain additional information from the provider (or other third party) to determine payment.  Request must be made within 30 days after insurer receives a clean claim.  Information must be relevant and necessary for clarification of the claim.  Insurer must determine whether the claim is payable within 15 days from receiving additional information (or the latest date allowable).  Requests for additional information limited to one-per-claim.  Claims for which requests are made to persons other than the preferred provider cannot be delayed due to the third-party’s failure to reply.

10. Prompt Pay: Overpayment  Insurer may recover overpayment to a physician or provider if: –Insurer provides written notice of overpayment within 180 days after physician or provider received payment; and –Physician or provider does not make arrangement for repayment on or before the 45th day after receiving notice –Physician or provider may appeal request for recovery of an overpayment.

11. Prompt Pay: Penalties for Late Payments  Texas prompt pay laws say insurance companies must pay providers a penalty when they are late in paying a clean claim, based on the number of days the payment is late and the amount of the claim.  FORMULA: Graduated Late Payment Penalty [Billed Charges] ─ [Contracted Rate] × [Percentage for the applicable statutory claim payment period] A MOUNT OF P ENALTY P AYMENT

12. Prompt Pay: Penalties for Underpayments  Penalties are also imposed if the insurer pays on time but underpays the claim. If the claim is not fully paid by the statutory deadline, the insurer must pay a penalty based on the number of days the payment is late and the underpaid amount of the claim.  FORMULA [Amount underpaid on the contracted rate] ÷ [Amount of the contracted rate] × [the billed charges] the “underpaid amount” × Percentage for the applicable statutory claim payment period A MOUNT OF P ENALTY P AYMENT

13. Prompt Pay: “Percentage for the applicable statutory claim payment period”  1 – 45 days late: 50% –$100,000 maximum penalty  46 – 90 days late: 100% –$200,000 maximum penalty  91 or more days late: 100% plus 18% interest

14. Prompt Pay: Exceptions to Penalties  Catastrophic event that substantially interferes with insurer’s normal business operations  Notice of underpayment properly sent and paid within statutory period

15. Prompt Pay: Administrative Penalties  Less than 98% compliance with prompt payment requirements may result in fines of $1000 per unpaid claim per day.

16. Prompt Pay: Verification  Defined: A guarantee by an HMO or preferred provider carrier that the HMO or preferred provider carrier will pay for proposed medical care or health care services if the services are rendered within the required timeframe to the patient for whom the services are proposed. The term includes pre-certification, certification, re-certification and any other term that would be a reliable representation by an HMO or preferred provider carrier to a physician or provider if the request for the pre-certification, certification, re-certification, or representation includes the requirements of § 19.1724(d) of this title (relating to Verification). 28 TAC § 19.1703.

17. Prompt Pay: Verification  For a ‘verification for guarantee of payment,’ certain required elements about the patient and the proposed procedures to be performed must be given to the carrier.  Insurer must inform provider—without delay—whether a proposed service will be paid.  Verification is effective for 30 day or longer if specified by the insurer.  If an HMO or preferred provider carrier does not issue a verification for proposed medical care or health care services, this “declination” is not necessarily a determination that a claim resulting from the proposed services will not ultimately be paid.

18. Prompt Pay: Verification  Insurer must respond to verification “without delay,” but within the following timeframes upon receipt of request (during normal business hours): –1 hour: Life-threatening condition or post-stabilization –24 hours: Concurrent hospitalization –5 calendar days: All other requests  All carriers subject to SB418 must make a good faith effort to entertain requests for verification rather than adopting a policy of no verifications. Carrier may decline by stating the specific reason for the declination. Declination must be specific to the request.

19. Prompt Pay: Preauthorization  Defined: A determination by an HMO preferred provider carrier that medical care or health care services proposed to be provided to an enrollee are medically necessary and appropriate.  Once service is preauthorized, carrier may not deny nor reduce payment based on medical necessity or appropriateness of care.  Provider can request preauthorization only where carrier has determined that certain services require preauthorization. Carrier does not have to issue a preauthorization for proposed services.

20. Prompt Pay: ERISA  ERISA governs self-funded plans.  ERISA Prompt Pay Obligation: Applies to group health plans. –Group Health Plans: employee welfare benefit plan to the extent that the plan provides medical care.  Enforced by the Department of Labor.

21. Prompt Pay: ERISA  ERISA requires payment of claims within a “reasonable time,” but no later than 30 days after receipt of the claim. –One 15-day extension is permitted if the plan provides notice of the delay to the claimant.  Failure to Comply: –Claimant can pursue remedies under ERISA, including filing suit against the plan for denial of plan benefits and to enforce rights under the plan. –Claimant is deemed to have exhausted the administrative process.

22. Prompt Pay: ERISA & Texas Law  ERISA does not supersede state law that regulates insurance.  Health plan identification cards indicate if the health plan is fully-insured and regulated by the TDI — and thus subject to state prompt pay laws. –I.D. Card must say “DOI” or “TDI”

23. Medicare Reimbursement Update

24. Medicare Reimbursement: Legislative History  The Balanced Budget Act of 1997: Reduced the payments that providers received from Medicare.  The Balanced Budget Refinement Act of 1999: Reaction to the Balanced Budget Act of 1997.  Medicare Modernization Act of 2003: –Medicare Prescription Drug Benefit –Medicare Advantage –Part A (ex. Charges for Inpatient Hospital Services, New Medical Technologies, Hospice Consultation) –Part B (ex. Physicians’ Services, Preventative Services) –Medicaid DSH Payments  Deficit Reduction Act of 2005

25. Medicare Reimbursement: Deficit Reduction Act of 2005 Overview  President Bush signed the Deficit Reduction Act (DRA) of 2005, also known as the budget reconciliation act, into law on February 8, 2006.  DRA is expected to reduce Medicare spending by $6.4 billion and Medicaid spending by $4.7 billion from 2006 to 2010.  The majority of the savings, regarding Medicare and Medicaid, will be achieved from freezing or reducing payments to Medicare providers.

26. Medicare Reimbursement Hospital Quality Improvement (DRA, Sec. 5001)  Requires hospitals to report additional quality measures to receive the full market basket increase to their payment rates.  Penalties for not reporting quality measures: Beginning FY 2007—Increase the penalty from the market basked update less 0.4% to the market basket less 2%.  Beginning 2008—Reductions in Medicare payments for services provided as a result of certain hospital-acquired infections.  By 2009—HHS must develop and implement the Value- Based Purchasing Plan for inpatient prospective payment system (PPS) services.

27. Medicare Reimbursement Hospital Quality Improvement (CMS Final Rules)  August 1, 2006: CMS issued the final hospital inpatient prospective payment system (IPPS) rule for FY 2007.  The Final Rule addressed four issues related to quality: –Transparency of health care information; –Value-based purchasing; –Hospital quality data; and –Promoting effective use of health information technology.

28. Medicare Reimbursement Medicare-Dependent Hospital Program (DRA, Sec. 5003)  Extends the MDH program, which was created to provide financial protections to certain rural hospitals with less than 100 beds that have a greater than 60% share of Medicare patients, through October 1, 2011.  Allows hospitals the option to use 2002 base year costs, in addition to base year costs from 1982 to 1987.  Improves the blended payment rate by raising it from 50% to 75% of the difference between prospective payment system (PPS) payments and cost-based payments.  Removes the 12% disproportionate share hospital (DSH) payment cap for qualifying hospitals.

29. Medicare Reimbursement IRF Classification Criteria (DRA, Sec. 5005)  DRA delays the phase-in of the "75 percent rule."  Currently, a facility must show that at least 60% of the admitted patients meet one or more of the 13 specified conditions in order to quality for inpatient rehabilitation facility (IRF) status.  Changes the transition period for the compliance threshold (as established in the 2004) as follows: –At 60% from July 1, 2006 and before July 1, 2007 –At 65% from July 1, 2007 and before July 1, 2008 –At 75% on July 1, 2008 and thereafter

30. Medicare Reimbursement Rental of Oxygen Equipment (DRA, Sec. 5101)  Limits Medicare payments for rental of oxygen equipment to 36 months. Requires the suppler to transfer title to the equipment after the 36th month.  Limits Medicare payments for maintenance and servicing to reasonable and necessary services  Effective January 1, 2006

31. Medicare Reimbursement Rental of Oxygen Equipment (CMS Proposed Rules)  Reduces out-of-pocket costs for beneficiaries who pay a 20% coinsurance on this equipment.  Provides for payment for up to 36 months of continuous rental of oxygen equipment. After 36 months of rental payments, title transferred to the beneficiary.  Medicare pays for reasonable and necessary maintenance and servicing.  Proposes separate payment classes for: (1) new technologies that eliminate the need for refilling and delivery of oxygen contents; (2) delivery of portable oxygen contents; and (3) delivery of stationary oxygen contents.  Additional supplier requirements for safeguarding beneficiaries.

32. Medicare Reimbursement Capped Rentals for DME (DRA, 5101)  Dates of service (DOS) on or after January 1, 2006, limits payment for capped rental DME to 13 months.  Sets payments for capped rental times at 10% of the purchase price for each of the first three months and at 7.5% for the remaining months.  After 13 months, title for the equipment transferred to the beneficiary.

33. Medicare Reimbursement Capped Rentals for DME (CMS Proposed Rule)  Applies to capped rental items furnished beginning on or after January 1, 2006.  Transfers title for capped rental equipment to the beneficiary after 13 months of continuous rental payments.  Beneficiary continues to pay coinsurance of 20% of rental payments until the transfer of title.  Medicare continues monthly payments for oxygen contents for beneficiary-owned equipment.  Medicare pays for reasonable and necessary maintenance and servicing  “Capped Rental Items,”: hospital beds, nebulizers and powered wheelchairs

34. Medicare Reimbursement Imaging Reimbursement Cuts (DRA, 5102)  Caps the technical component of payments for imaging services provided in a physician’s office and reduces the technical component for second and subsequent imaging procedures performed on contiguous body parts.  Under DRA, these reductions shall be phased in during 2006 (25%) and 2007 (50%)

35. Medicare Reimbursement Imaging Reimbursement Cuts (CMS Proposed Rules)  CMS is proposing to maintain the multiple procedure reduction at its current 25% level rather than increasing the reduction to 50% next year based on information received from the American College of Radiology demonstrating that a 50% reduction in multiple procedure technical component payments was not justified.  Proposed Legislation: Access to Medicare Imaging Act: (HR 5704 and S. 3795) (introduced June 28, 2006 / referred to House subcommittee July 17, 2006): Calls for a two-year moratorium on Medicare imaging reimbursement cuts in the DRA pending a Government Accountability Office study.

36. Medicare Reimbursement Imaging Payment Caps (DRA, 5102)  Effective January 1, 2007  Imaging and computer-assisted imaging services subject to payment caps. –Includes: X-ray, ultrasound, nuclear medicine, magnetic resonance imaging, computed tomography, and fluoroscopy –Excludes: diagnostic and screening mammography  Payment for the technical component of these services will be limited to the amount that would be paid for them under Medicare’s outpatient hospital prospective payment system (OPPS).

37. Medicare Reimbursement Imaging Payment Caps (Proposed Rules)  Imaging services furnished on or after January 1, 2007.  Caps the MPFS payment amount for certain imaging services by the CY 2007 OPPS payment amount. Applies geographic adjustment.  Cap excludes: –Nuclear medicine services that were either non-imaging diagnostic or treatment services; –Diagnostic and screening mammography; –Radiation oncology services that were not imaging or computer- assisted imaging service; and –Any CPT with fluoroscopy, ultrasound, or another imaging modality.  If subject to multiple imaging reduction policy and the outpatient hospital cap, first apply the multiple imaging adjustment and then apply the outpatient cap.

38. Medicare Reimbursement ASC Payments (DRA, 5103)  Effective January 1, 2007  Medicare payment for ASC services will be capped at the amount that would be paid for these services under Medicare’s hospital outpatient prospective payment system (under the HOPD system).

39. Medicare Reimbursement ASC Payments (Proposed Rule)  ASC payments linked to rates paid under HOPD, with adjustments.  Pay a blended amount equal to 50% of the rate under the existing payment system and 50% of the rate under the new system in 2008. Starting in 2009, payment rates would be tied entirely to the new methodology. Beginning in 2010, payment rates will be updated each year by the CPI-U. Under the five- year freeze enacted in 2003, ASCs receive no updates in 2008 or 2009.  For the 500 or so lower intensity services added to the ASC list, CMS is proposing to cap facility payments at the practice expense reimbursement received by physicians in their offices.  2007: Add 14 procedures to the list of surgeries for which Medicare would make a facility payment to ASCs  2008: More than 750 additional procedures added. Most are lower intensity procedures typically performed in offices and payment rates are relatively low.

40. Medicare Reimbursement Payment for Physician Services (DRA, 5104 / Proposed Rules)  DRA: freeze Medicare physician payments at 2005 levels.  Proposed Rules: Replace the current sustainable growth rate formula (SGR), which requires the cut, with new methodology.  During the last several years, Congress passed stop-gap measures to pay doctors for Medicare services.  Under SRG, Medicare payment rates to physicians would fall 5.1% in 2007.  CMS also proposing to increase MPFS rates for physicians who spend more time with their patients –Proposal focuses on: (1) a comprehensive review of physician work relative value units (RVUs); and (2) change in methodology for calculating practice expenses. –Expect final rule in early November. –Changes will apply to payments for services furnished to Medicare beneficiaries beginning with 2007.

41. Medicare Reimbursement Therapy Caps (DRA, 5107)  Since 1999, Congress has enacted a moratorium on implementation of the therapy caps twice.  The therapy cap exceptions process is available only for services provided during calendar year 2006.

42. Medicare Reimbursement Therapy Caps: Exceptions Process  Exceptions Process: –Effective Date, March 13, 2006 –Retroactive to January 1, 2006  Automatic Exception: –Certain diagnoses, conditions, or complexities are allowed without a written request. –Clinician attestation of compliance justifies exception. –CMS expects most will qualify for automatic exceptions.  Manual Exception: –Must be submitted to carrier/fiscal intermediary for approval for exception.

43. HIPAA Update

44. Who Is a “Covered Entity”?  HIPAA covers health plans, health care clearinghouses, and health care providers who conduct certain financial and administrative transactions (e.g., electronic billing and funds transfers) electronically

45. Not Covered by HIPAA  Employers - unless they maintain and act on behalf of employee health benefits plans - many employers have self-insured health plans for employees (or large self- retentions) and are heavily involved in administering the Plans

46. Penalties for Non Compliance  $100 per violation  $25,000 of an identical requirement or prohibition during one year  $50,000 penalty for wrongful disclosure  $100,000 penalty or 5 year imprisonment or both for wrongful disclosure committed under false pretenses  $250,000 or 10 years imprisonment or both for offense committed with intent to sell or transfer information for commercial advantage

47. Final Enforcement Rule  Effective as of March 16, 2006  Details the investigation, hearing, and appeals process  Describes basis for liability and determining penalties.

48. Enforcement To Date  As of July 2006, OCR has received and initiated reviews of over 21,438 complaints, and has closed 75% of those cases.  OCR has made 337 referrals to the DOJ  Many complaints have been resolved through voluntary compliance or were found to be invalid or OCR lacked jurisdiction over the matter (i.e., not a HIPAA Privacy matter)  No CMPs assessed to date

49. Most Frequent Complaints  Impermissible use or disclosure of an individual’s PHI  Lack of adequate safeguards to protect PHI  Refusal or failure to provide the individual with  access to or a copy of his or her records  Disclosure of more information than is minimally necessary  Failure to have the individual’s valid authorization for a disclosure that requires one

50. What Information is Covered and Protected under HIPAA?  Protected Health Information (PHI) All medical records and other individually identifiable health information held or disclosed by a Covered Entity in any form, whether communicated electronically, on paper, or orally

51. HIPAA Privacy - Simply Stated:  You cannot use and disclose PHI without Authorization except for: –“TPOs” Treatment Payment Operations -- “Health care Operations” –Or if an Exception is met

52. Many Businesses that are not health care providers may be required to comply with HIPAA under the “Business Associates” Rule

53. Who is a “Business Associate?”  “Business Associate means … a person to whom the covered entity discloses protected health information so that the person can carry out, assist with the performance of, or perform on behalf of, a function or activity for the covered entity … [Business Associates] include lawyers, auditors, consultants, third party administrators … billing firms …”

54. Confidentiality Agreements with “Business Associates”  Where data or Protected Health Information is transmitted between Covered Entities and others: –Business Associate Agreements must be entered into –Business Associate must maintain same level of privacy as Covered Entities –Agreements must identify specific allowed uses and disclosures of information

55. Business Associate Agreements  BA Agreement must –Establish permitted uses and disclosures of PHI –Provide that the BA will not use or further disclose information except as specified –Use appropriate safeguards –Report to Covered Entity any unauthorized use or disclosure –Ensure that any agents or subcontractors agree to the same conditions

56. Business Associate Agreements  BA Agreement Must –Provide that, at termination of the Contract, if feasible, return or destroy all PHI received from or created by BA for Covered Entity, and keep no copies –If return or destruction is not feasible, extend protection to the information as if BA agreement were in place

57. BA Agreement Issues  Retention after termination of work/project  Accounting process for disclosures – written or electronic accounting “log”

58. Business Associates Under the HIPAA Security Rules  Standard – Must receive satisfactory assurances that the BA will appropriate safeguard EPHI received from the CE  Required Implementation Spec: –Written BA agreement (meets requirements under the Privacy Rule and require BA to implement reasonable and appropriate administrative, physical and technical safeguards)  Organization Requirements –CE Must cure known breach, terminate contract, or report to Secretary

59. Compliance Update

60. OIG FY 2007 Work Plan  http://oig.hhs.gov/publications/workplan.html  Inpatient Rehab Facility classification criteria –Did facilities bill for services in compliance with Medicare and did admissions to rehab facilities meet the regulatory requirements?  LTACs – –Review of appropriateness of early discharges to home and interrupted stays –Review extent to which admits from a sole acute care hospital (are they really a unit) –Compliance with average length of stay requirements

61. Additional OIG Work Plan Matters  Home health outlier payments  Home health therapy services –Review appropriateness of services and whether medically necessary  Pathology services –Review of appropriateness and billings for services performed in a physician’s office and the relationship with outside pathology companies  Evaluation of Incident to services to determine if medically necessary and appropriate documentation

62. CIAs  Generally have a 5 year term  Require compliance policies and a compliance contact/officer  Require contract with an approved IRO to conduct audits  Some room to scale back if entity has an effective compliance program in place

63. Compliance Programs  As part of the DRA, effective January 1, 2007.  If receive or make Medicaid payments of $5M or more, then must have a compliance program in place.  Must have policies discussing the False Claims Act and Qui Tam Suits.

64. THE END……….. DISCLAIMER: This material should not be considered as legal advice or legal opinion, which may often turn on specific facts. The contents are for informational purposes only. Readers should seek specific legal advice before acting with regard to the subjects mentioned here.