Health Reform WK-EDGE ACA provisions on returning overpayments, Medicaid drugs, home health implemented in Q1 2016
Friday, April 8, 2016

ACA provisions on returning overpayments, Medicaid drugs, home health implemented in Q1 2016

By Sheila Lynch-Afryl, J.D., M.A.

From January to March 2016—the sixth anniversary of the passage of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148)—CMS released five final rules implementing the ACA. During the first quarter, CMS released the following final rules implementing various provisions of the ACA: (1) reporting and returning overpayments; (2) face-to-face requirement for home health services reimbursed by Medicaid; (3) Medicaid reimbursement for covered outpatient drugs; (4) mental health parity; and (5) benefits and payment parameters.

Reporting and returning overpayments

In February 2016, CMS released a Final rule (81 FR 7654, February 12, 2016) pursuant to Section 6402(a) of the ACA, which added Soc. Sec. Act Sec. 1128J, requiring a provider or supplier that receives an overpayment to report and return the overpayment by the later of (1) 60 days after the date on which the overpayment was identified; or (2) the date any corresponding cost report is due (see CMS finally codifies the 60-day Parts A and B overpayment return rule, February 17, 2016). Any overpayment retained by a provider or supplier after the deadline is an obligation to the government for purposes of the False Claims Act (31 U.S.C. §3729).

CMS clarified in new 42 C.F.R. Sec. 401.305 that a provider or supplier has identified an overpayment when the provider/supplier has, or should have through the exercise of reasonable diligence, determined that it received an overpayment and quantified the amount of the overpayment.

CMS will suspend the deadline for returning overpayments when on the of the following occurs: (1) the Office of Inspector General (OIG) acknowledges receipt of a submission to the OIG Self-Disclosure Protocol; (2) CMS acknowledges receipt of a submission to the CMS Voluntary Self-Referral Disclosure Protocol; or (3) the provider/supplier requests an extended repayment schedule, as defined by 42 C.F.R. Sec. 401.603.

Lookback period. In the Proposed rule (77 FR 9179, February 12, 2012), CMS proposed a lookback period of 10 years. Industry commenters such as the American Clinical Lab Association argued that a 10-year lookback period was inconsistent with the federal False Claims Act (FCA) and unreasonably long.

In response to these comments, CMS instead provided that an overpayment must be reported and returned if a provider or supplier identifies it within six years of the date the overpayment was received. A lookback period of six years, said CMS, does not create any additional burden or cost on providers and suppliers because many retain records for six to seven years, and six years is consistent with one component of the FCA.

Medicaid face-to-face requirements for home health

Section 6407(d) of the ACA provided that no Medicaid payment may be made for home health services unless a physician documents that there was a face-to-face encounter with the beneficiary. On February 2, 2016, CMS implemented this requirement with a Final rule (81 FR 5530) that allows telehealth to be used for such encounters (see CMS aligns Medicaid face-to-face home health encounter rules with Medicare, February 3, 2016). The Final rule also amended the definition of “home health services” to include medical supplies, equipment, and appliances suitable for use in any setting in which normal life activities take place.

Face-to-face encounters. Under amended 42 C.F.R. Sec. 440.70, for the initial ordering of home health services, the face-to-face encounter must be related to the primary reason the beneficiary requires home health services and must occur within 90 days before or 30 days after the start of the services.

For the initiation of medical equipment, the face-to-face encounter must be related to the primary reason the beneficiary requires medical equipment and must occur no more than six months before the start of services. The face-to-face encounter may be conducted by one of the following: (1) a physician, (2) a clinical nurse specialist or nurse practitioner working in collaboration with the physician, (3) a certified nurse-midwife, (4) a physician assistant under the supervision of a physician, or (5) for beneficiaries admitted to home health immediately after an acute or post-acute stay, the attending acute or post-acute physician. The nonphysician practitioner must communicate the findings to the ordering physician.

Effective date. The rule is effective July 1, 2016. In response to comments, however, CMS delayed compliance with the rule for up to one year if the state legislature has not met for that year; otherwise, two years.

Medicaid reimbursement for covered outpatient drugs

Soc. Sec. Act Sec. 1927, as amended by ACA Secs. 2501, 2503, and 3301(d)(2), governs the Medicaid Drug Rebate Program and payment for covered outpatient drugs (CODs). ACA Secs. 2501 and 6504(b) also amended Soc. Sec. Act Sec. 1903(m)(2) by specifying conditions for Medicaid managed care organizations (MCOs).

CMS implemented these ACA provisions in a Final rule (81 FR 5170, February 1, 2016) adopting requirements for Medicaid reimbursement for CODs, effective April 1, 2016 (see CMS paves the way for bigger better Medicaid drug rebates, February 3, 2016).

Determination of average manufacturer price. New regulation 42 C.F.R. Sec. 447.504 provides the average manufacturer price (AMP) under Medicaid for CODs. CMS called the AMP “the key metric both for the determination of manufacturer rebates as well as pharmacy reimbursement for certain generic drugs that are subject to the Federal Upper Limit.”

The AMP generally includes the following sales, nominal price sales, and associated discounts, rebates, payments, or other financial transactions: (1) sales to wholesalers for drugs distributed to retail community pharmacies; (2) sales to other manufacturers who act as wholesalers for drugs distributed to retail community pharmacies; and (3) sales to retail community pharmacies. AMP excludes the sales, nominal price sales, and associated discounts, rebates, payments, or other financial transactions described in 42 C.F.R. Sec. 447.504(c).

CMS established a definition of AMP for inhalation, infusion, instilled, implanted, or injectable drugs (5i drugs), which, according to CMS, will allow states to collect rebates “on more expensive infused and injected drugs, which are an increasing cost to the Medicaid program.” On March 31, 2016, CMS delayed enforcement of provisions specific to the calculation of the AMP for 5i drugs to July 1, 2016.

CMS also clarified the definition of what constitutes a manufacturer’s best price and aligned it with the definition of AMP.

Generic drugs. A primary manufacturer must include in its calculation of AMP its sales of authorized generic drugs that have been sold or licensed to a secondary manufacturer, acting as a wholesaler for drugs distributed to retail community pharmacies, or when the primary manufacturer holding the new drug application (NDA) sells directly to a wholesaler. A primary manufacturer holding the NDA must include the best price of an authorized generic drug in its computation of best price for a single source or an innovator multiple source drug during a rebate period to any manufacturer, wholesaler, retailer, provider, health maintenance organization, nonprofit entity, or governmental entity in the United States, only when such drugs are being sold by the manufacturer holding the NDA.

Reporting. For Medicaid CODs, a manufacturer must report the AMP, best price, customary prompt pay discounts, and prices that fall within the nominal price exclusion to CMS within 30 days after the end of the rebate period, in an electronic format.

A state with participating Medicaid MCOs that includes CODs in its contracts with the MCOs must report data described in 42 C.F.R. Sec. 447.511(a) for CODs dispensed to individuals eligible for medical assistance who are enrolled with the MCO and for which the MCO is required to cover such drugs under contract pursuant to Soc. Sec. Act Sec. 1903.

Upper limits. Except for brand name drugs that are certified in accordance with 42 C.F.R. Sec. 447.512(c), Medicaid state agency payment for multiple source drugs must not exceed, in the aggregate, the amount that would result from the application of the specific limits established in accordance with 42 C.F.R. Sec. 447.514.

Generally, the Medicaid state agency's payments for multiple source drugs identified and listed periodically by CMS in Medicaid program issuances must not exceed, in the aggregate, payment levels determined by applying for each pharmaceutically and therapeutically equivalent multiple source drug product: (1) a professional dispensing fee established by the state agency plus (2) an amount that is equal to 175 percent of the weighted average of the most recently reported monthly average manufacturer prices for such multiple source drugs.

The upper limits for payment for prescribed drugs in 42 C.F.R. 447 Subpart I also apply to payment for drugs provided as part of skilled nursing facility services and intermediate care facility services and under prepaid capitation arrangements.

Mental health parity Final rule

The Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA) (P.L. 110-343) added certain mental health parity requirements to the Public Health Service Act (PHSA). ACA Sec. 1001 expanded the application of PHSA Sec. 2726(a), as amended by the MHPAEA, to benefits in Medicaid alternative benefit plans (ABPs) delivered outside a Medicaid MCO. ACA Sec. 2001(c) modified benefit provisions of Soc. Sec. Act Sec. 1937(b) by adding mental health benefits and prescription drug coverage to the list of benefits that must be included in benchmark-equivalent coverage.

On March 30, 2016, CMS published a Final rule (81 FR 18390) addressing how mental health parity requirements of PHSA Sec. 2726 apply to MCOs, ABPs, and the Children’s Health Insurance Program (CHIP) (see Medicaid MCOs ABPs CHIP join the mental health parity party, March 30, 2016). The Final rule added 42 C.F.R. 438 subpart K. In general, contracts with MCOs, prepaid inpatient plans (PIHPs), or prepaid ambulatory health plans (PAHPs) offering Medicaid state plan services to enrollees, and those entities, must comply with the requirements of 42 C.F.R. 438 subpart K no later than October 2, 2017.

Aggregate lifetime and annual dollar limits. The Final rule provides that if an MCO, PIHP, or PAHP providing services to MCO enrollees applies an aggregate lifetime or annual dollar limit to at least two-thirds of all medical/surgical benefits, it must either apply the aggregate limit to both to medical/surgical benefits and mental health or substance use disorder (MH/SUD) benefits in a manner that does not distinguish between the medical/surgical and MH/SUD benefits, or not include an aggregate lifetime or annual dollar limit on MH/SUD benefits that is less than the aggregate limit on medical/surgical benefits.

If a regulated entity does not include an aggregate lifetime or annual dollar limit on medical/surgical benefits or includes a limit that applies to less than one-third of all medical/surgical benefits, it may not impose an aggregate lifetime or annual dollar limit, respectively, on MH/SUD benefits.

Financial requirements and treatment limitations. An MCO, PIHP, or PAHP providing services to MCO enrollees in a state that covers both medical/surgical benefits and MH/SUD benefits under the state plan must not apply any financial requirement or treatment limitation to mental health or substance use disorder benefits in any classification that is more restrictive than the predominant financial requirement or treatment limitation of that type applied to substantially all medical/surgical benefits in the same classification furnished to enrollees.

Industry comments. The American Hospital Association, commenting on the Proposed rule (80 FR 19418, April 10, 2015), found the rule to be “an important step in bringing Medicaid MCOs, ABPs, and CHIP into compliance with MHPAEA” but urged CMS to exert greater oversight over states and MCOs to ensure compliance with parity standards.

Benefits and payment parameters for 2017

The benefits and payment parameters Final rule (81 FR 12204, March 8, 2016) covered a wide variety of ACA-related matters, including provisions related to the premium stabilization programs; eligibility, enrollment, and benefits; and payment parameters (see Consumer-friendly changes coming to marketplace plans, March 9, 2016).

Student coverage. The requirement to provide a specific level of coverage described in Section 1302(d) of the ACA does not apply to student health insurance coverage for policy years beginning on or after July 1, 2016. However, the benefits provided by such coverage must provide at least 60 percent actuarial value. Student health insurance coverage is exempted from the single risk pool requirement.

State-based marketplaces using the federal platform. Anticipating that more states will want to use the federal information technology for eligibility and enrollment functions for their own individual or Small Business Health Options Program (SHOP) marketplaces, CMS codified the state-based marketplace on the federal platform (SBM-FP). SBM-FPs must establish and oversee requirements for their issuers that are no less strict than the requirements CMS applies in the federally-facilitated marketplace. SBM-FPs must also pay CMS a monthly user fee.

Patient safety. Effective for plan years beginning on or after January 1, 2017, a qualified health plan (QHP) issuer that contracts with a hospital with greater than 50 beds must verify that the hospital (1) utilizes a patient safety evaluation system and implements a mechanism for comprehensive person-centered hospital discharge to improve care coordination and health care quality for each patient; or (2) implements an evidence-based initiative to improve health care quality through the collection, management, and analysis of patient safety events that reduces all cause preventable harm, prevents hospital readmission, or improves care coordination.

Premium rates. The premium rate charged by a health insurance issuer for health insurance coverage offered in the individual or small group market may vary with respect to the particular plan or coverage involved by determining the rating area. The rating area is determined (1) in the individual market, using the primary policyholder’s address, and (2) in the small group market, using the group policyholder’s principal business address, i.e., the principal business address registered with the state or, if a principal business address is not registered with the state, or is registered solely for purposes of service of process and is not a substantial worksite for the policyholder’s business, the business address within the state where the greatest number of employees of such policyholder work.


During the first quarter, CMS published five final rules including reporting and returning overpayments; Medicaid CODs and face-to-face requirements for home health services; mental health parity; and benefits and payment parameters. The second quarter could be as productive, as HHS’s Agency Rule List from the fall details proposed rules for various payment systems and a Final rule concerning nondiscrimination under the ACA, which is expected to be released in June (see Proposed rule, 80 FR 54172, September 8, 2015).

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