By Curtis Campbell, Class of 2019; Kim Looney, Partner at Waller

The Cigna-Express Scripts and the CVS Health-Aetna mergers are among the most significant healthcare mergers of the past decade and are anticipated to transform the U.S. healthcare business. Both of these vertical deals have successfully shown how they can provide consumer benefits in order to pass federal antitrust scrutiny.

Cigna-Express Scripts

The Department of Justice decided not to challenge Cigna’s $67 billion acquisition of Express Scripts because the deal would “unlikely result in harm to competition or consumers.” Regulators spent six months on the investigation, reviewed more than 2 million documents, and interviewed more than 100 people before reaching their conclusion. However, while the federal antitrust division will not seek to block the merger, the deal is still subject to state regulations and various departments of insurance. The deal is expected to close at the end of the year.

Because the DOJ is not challenging the merger, Cigna is closer to putting its medical benefit services and Express Scripts expertise in pharmacy benefit management under one roof. This will potentially help rein in spending on costly specialty drugs. However, there is some concern that consumers could end up at the “mercy of a handful of giants” as choices of medical care and pharmacy become a thing of the past. However, backers of the merger thought that it will create efficiencies in the market. Cigna CEO David Cordani stated that “we are another step closer to completing our merger and delivering greater affordability, choice and predictability to our customers and clients as a combined company.

Given the lack of overlap between Cigna’s business versus Express Scripts, analysts stated that it is not surprising that the merger went through. Cigna had to overcome last-minute opposition from some investors, but they backed down after major shareholder advisory firms came out in support of the deal. Cigna executives said they expect the deal to result in earnings per share to increase from $18 to $20-21 by 2021 with a long-term annual growth of 6 to 8 percent.

CVS Health-Aetna

Shortly after approving the Cigna-Express Scripts merger, the DOJ also conditionally approved the $69 billion merger between CVS Health and Aetna. The conditional approval was based on Aetna’s decision to sell off its private Medicare drug plans. This addressed the government’s concerns that the combined companies would control too much of the healthcare market.

CVS Health had revenues of about $185 billion last year and provided prescription plans to roughly 94 million customers. Aetna had about $60 billion in revenue last year and currently covers 22 million people in its prescription health plans. With this merger, the two companies hope to better coordinate care for consumers as the mergers aim to help tighten cost controls. The merger focuses on Aetna’s addition of a retail component and the use of CVS’s 10,000 pharmacies and 1,100 retail clinics to deliver care, enabling a variety of new services to be brought into its retail stores, potentially transforming the corner pharmacy chain to a healthcare hub with thousands of locations.   This change could enable CVS stores to serve as a location where someone could get care for ailments ranging from a sore throat to diabetes. A person could also potentially go to a CVS store to get blood tests to monitor chronic conditions.

These two mega-mergers continue the growing trend of healthcare companies vertically integrating to improve quality and lower healthcare costs. With more consumers going to outpatient facilities instead of hospitals, this merger could help claim more of a market share in the healthcare industry by utilizing the CVS stores to attract more consumers. The merger also could help by decreasing deductibles and lowering out-of-pocket spending, which are two primary concerns for consumers when deciding to seek medical care.

These mergers could also put pressure on rival companies to come up with their own deals.  Critics worry that these mergers mean that consumers could end up with fewer options and higher expenses because consumers could have less control over their medical care and prescription drugs. Only time will tell how these mergers actually affect consumers going forward.

By Seth Carver, Class of 2020; Andrew F. Solinger, Associate at Waller

With the start of hurricane season, and the recent destruction caused by Hurricane Florence on the Carolinas and beyond, hospitals must review and update their policies and procedures to ensure that proper care can be provided to patients following surges caused by natural disasters and emergencies.

Following large natural disasters such as Hurricane Florence, and other mass casualty events such as terrorist attacks or public health emergencies, hospitals are likely to experience significant surges of patients that will test and push the limits of hospitals’ capacities.  In the face of these mass casualty events, hospitals must quickly and effectively choose which patients will be treated and which will not.

This decision is likely to cause friction with a hospital’s obligations under The Emergency Medical Treatment and Active Labor Act (“EMTALA”), which requires hospitals to properly screen and stabilize all patients that present to an emergency department for care.  Because of this tension between a hospital’s ethical and legal obligations to treat patients and the realities of responding to natural disasters and other mass casualty events, hospitals must understand the requisite responsibilities under EMTALA during such disasters as well as ways in which they can protect themselves from liability for potential, but unavoidable, violations of EMTALA.

EMTALA prohibits all Medicare-participating hospitals from denying emergency medical service to individuals, regardless of ability to pay.  It also requires hospitals to provide an appropriate medical screening to determine if a medical condition exists.  If such a condition exists, the hospital is required to provide stabilizing treatment before transferring or discharging the patient.

Natural disasters do not by themselves absolve hospitals of this requirement under EMTALA.  However, it is foreseeable that hospitals in the path of a natural disaster will need to transfer patients to other facilities without conducting medical screening exams or stabilizing treatment.  An option which has been used in the past to transfer these patients without violating the requirements under EMTALA is a Section 1135 waiver. These waivers are short-term releases from the normal EMTALA requirements in the wake of declared natural disasters.  HHS has issued these waivers in previous natural disasters, including Hurricanes Katrina, Rita, Gustav, Ike and Dean, the Iowa floods of 2008, and the Minnesota floods of 2009.

When utilizing Section 1135 waivers, in order to lawfully transfer patients without conducting such medical screening exams, or if needed stabilizing treatments, all of the following conditions must apply:

• The President declares an emergency or disaster under the Stafford Act or the National Emergencies Act;
• The Secretary of HHS declares that a public health emergency (PHE) exists;
• The Secretary of HHS authorizes EMTALA waivers under Section 1135 of the Social Security Act;
• Unless EMTALA waivers are granted for an entire geographic area, the hospital in question applies for a waiver from HHS;
• The hospital has actually activated its emergency operations plan; and
• The state has activated its emergency operations plan or pandemic plan for the area that covers the hospital.

Once the Secretary of HHS authorizes § 1135 waivers a hospital may submit a request to operate under that authority by sending an email to the CMS regional office in their service area.

The request should contain the following:[i]

• Provider Name/Type;
• Full Address (including county/city/town/state) CCN (Medicare provider number);
• Contact person and his or her contact information for follow-up questions;
• A brief summary of why the waiver is needed.  For example: “Critical Access Hospital (CAH) is the sole community provider without reasonable transfer options at this point during the specified emergent event (e.g. flooding, tornado, fires, or flu outbreak)” or “CAH needs a waiver to exceed its bed limit by X number of beds for Y days/weeks” (be specific);
• Consideration – Type of relief you are seeking or regulatory requirements or regulatory reference that the requestor is seeking to be waived;
• There is no specific form or format that is required to submit the information but it is helpful to clearly state the scope of the issue and the impact;
• If a waiver is requested, the information should come directly from the impacted provider to the appropriate Regional Office mailbox with a copy to the appropriate State Agency for Health Care Administration to make sure the waiver request does not conflict with any State requirements and all concerns are addressed timely.

The waiver request is then reviewed by a cross-regional waiver validation team.  In reviewing waiver requests CMS makes the following inquiries: [ii]

• Is the hospital within the defined emergency area?
• Is there an actual need?
• What is the expected duration?
• Can this be resolved within current regulations?
• Will regulatory relief requested actually address stated need?
• Should we consider an individual or blanket waiver?

If granted, Section 1135 waivers generally last for up to 72 hours after both the emergency is declared and the hospital’s emergency plan is activated.  In some instances, the waiver will terminate prior to 72 hours if the HHS Secretary determines that the waiver is no longer necessary. It is important to note that this waiver does not allow for hospitals to selectively only treat patients with insurance and to transfer away all uninsured or underinsured patients.  If utilizing the waiver to transfer such patients, hospitals must not discriminate on

In order for hospitals to remain compliant with all EMTLA regulations during natural disasters and emergencies, it is important to review and revise EMTLA policies so that they reflect the proper steps in utilizing Section 1135 waivers.  Natural disasters and other mass casualty events impose large challenges for hospitals regarding treatment requirements. However, with active preparation and well-written emergency policies hospitals can limit violations of government regulations and ease the decision making of hospital personnel.

By Curtis Campbell, Class of 2019; Jessie C. Neil, Partner at Waller; J. Logan Wilson, Associate at Waller

The Department of Health and Human Services’ Office of Inspector General (OIG) recently announced that it had found several vulnerabilities in the Medicare hospice program while examining practices between 2006 and 2016.

The number of beneficiaries in the program expanded 53 percent between these dates, growing from 930,000 beneficiaries in 2006 to 1.4 million beneficiaries in 2016. However, spending in the same period grew 81 percent, increasing from $9.2 billion in 2006 to $16.7 billion in 2016. The number of hospices also increased 43 percent, growing from 3,062 in 2006 to 4,374 in 2016.

Beneficiaries of the program forgo curative care for terminal illnesses and instead receive palliative care. Palliative care can be provided in a variety of settings, including the patient’s home, a nursing facility, a hospital or a hospice inpatient unit. Medicare pays hospices for each day a beneficiary receives care, regardless of the quantity or quality of services. Medicare pays a different daily rate for four (4) different levels of hospice care: routine home care, general inpatient care, continuous home care and inpatient respite care.

While conducting its examination, OIG concluded that hospices did not always provide necessary services to beneficiaries. In some cases, hospices did not manage patients’ symptoms or medications effectively, leaving them in pain for many days. Additionally, OIG found that hospices often did a poor job care planning, that hundreds of hospices only offered routine home care, that many hospices did not offer services on the weekend, and that many beneficiaries did not see a physician. Some beneficiaries and their families and caregivers also did not receive critical information needed to make informed decisions about the care the beneficiary received.

OIG also identified issues with hospices inappropriately billing costs and higher-than-appropriate levels of care to Medicare worth hundreds of millions of dollars. OIG noted several fraudulent activities, including enrolling beneficiaries who are not eligible for hospice care and billing for services that were never provided.

Furthermore, OIG found that the current payment system incentivizes hospices to minimize patient services and seek beneficiaries who have uncomplicated needs. The Centers for Medicare & Medicaid Services (CMS) has made some changes to the payment system, but the underlying structure remains unchanged.

As a result, OIG made several recommendations to CMS about how to improve the hospice program, including:

• Strengthening the survey process to better ensure that hospices provide beneficiaries with needed services and quality care;
• Seeking statutory authority to establish remedies for hospices with poor performance;
• Developing and disseminating additional information on hospices to help beneficiaries and their families and caregivers make informed choices about their care;
• Educating beneficiaries and their families and caregivers about the hospice benefit;
• Promoting physician involvement and accountability to ensure that beneficiaries get appropriate care;
• Strengthening oversight of hospices to reduce inappropriate billing; and
• Taking steps to tie payment to beneficiary care needs and quality of care to ensure that services rendered adequately serve beneficiaries’ needs, seeking statutory authority if needed.

OIG is telegraphing its intent to focus enforcement efforts around hospice care in particular and post-acute care in general. Companies with a proactive compliance program will wisely adapt their processes to reflect these new government priorities.

By Clay Brewer, Class of 2020; Jesse C. Neil, Partner at Waller

In an effort to facilitate the American healthcare system’s transformation from volume-based to value-based payment, the Centers for Medicare and Medicaid Services (CMS) is requesting public comment regarding its newly proposed rule that would shift the amount of risk participants in Accountable Care Organizations (ACOs) assume under the Medicare Shared Savings Program (MSSP).

An ACO is a group of physicians, hospitals, and other healthcare providers that care for a group of beneficiaries under Medicare Parts A and B. The core principles of the system are to streamline care and reduce costs within a cohesive structure. Under the current MSSP framework, ACOs may join one of three tracks with each differing primarily on the amount of risk each ACO opts to assume. Currently, 561 of the 649 ACOs are members within one of the tracks, with eighty-two percent of the 561 being enrolled in Track 1. Under Track 1, the ACOs only experience “upside-risk,” which means the ACO members are eligible to receive any achieved savings but are not financially responsible if the ACO incurs a loss.^[1] CMS Administrator Seema Verma, however, recently opined that “[t]he results show that ACOs that take on regular levels of risk show better results for cost and quality over time.”^[2] As a result, CMS is requesting comment on a new proposed rule, entitled “Pathways to Success,” to shift more of the downside risk to providers with the goal of incentivizing more efficient care and across-the-board savings.

The proposed framework establishes two tracks: (1) BASIC and (2) ENHANCED. Each ACO would be permitted to choose the track that best fits its needs while also being able to enter into five-year agreements as opposed to three-year. This would enable the ACOs to adjust to the risk that will need to be assumed over time while also learning to manage the associated costs.

The BASIC approach will permit the ACOs to assume risk over a five-year period with the first two years being upside-only risk with a “glide path” into years three, four, and five with increasing risk assumption. One caveat to the glide path is that ACOs currently within an upside-only risk plan, such as Track 1, would be limited to one of the two years of upside-only risk under the BASIC track. However, after year five, this newly-assumed risk would qualify the ACO as an Advanced Alternative Payment Model (APM), permitting the ACO to receive additional incentive payments for meeting quality thresholds.

Under the ENHANCED approach, ACOs may enter the program immediately qualifying as an APM at a set risk amount for the entire five-year period as long as the risk is greater than year five of the BASIC approach. On the other hand, ACOs that have had no experience under a two-sided risk approach may enter into any of the BASIC’s glide paths or enroll into the ENHANCED model from the start.

Due to the differences that exist between low revenue (i.e., physician practices) and high revenue (i.e., hospitals) entities, those who qualify as low revenue would be eligible to reapply for another five-year BASIC program at the highest level of risk. High revenue entities would be required to move into the ENHANCED track and assume additional risk.

Although efficient care and lower costs are appealing to practically everyone, the timing of the announcement and a change in the economic model will have a material impact on hospitals and physicians that participate in the programs. There are few areas where public policy is so intertwined with the clinical, operational, and financial performance of healthcare providers. Some stakeholders may see a competitive advantage to an accelerated move to downside financial risk. For others, it could lead them to withdraw from participation in the program altogether. Regardless, it is a critical moment in the transition to a value-based system, and these programs will benefit immensely from thoughtful, practical feedback from the physicians, hospitals, payors, and even investors that are trying to lead the way.

 

^[1] Tracks 2 and 3 consist of only eighteen percent of enrollees with varying degrees of two-sided risk. Track 3 becomes the ENHANCED approach in the proposed rule.

^[2] Seema Verma, Pathways to Success: A New Start for Medicare’s Accountable Care Organizations. August 9, 2018.