The Bill largely seeks to continue Medicare’s hospital-at-home program through 2029, which provides resources for at-home care for patients who need acute-level care. The Bill would also eliminate the geographic originating site restrictions on telehealth visits through 2026. Absent these changes, the programs will expire at the end of 2024.

Significantly, the Bill also would empower the Secretary of Health and Human Services (“HHS”) to expand the categories of practitioners that may furnish reimbursable telehealth services. This would potentially allow for any healthcare professional who bills the Medicare program to be eligible to offer telehealth services. The Bill would further enable the Secretary to maintain an expanded list of eligible telehealth services, even after the existing law’s emergency period expires.

The Bill specifically benefits patients located in a rural location by explicitly allowing additional resources to be allocated to rural health clinics providing telehealth services. For example, the Bill would make permanent the ability of Federally Qualified Health Centers and Rural Health Clinics to provide telehealth services and provide reimbursements in those settings. This is crucial because Federally Qualified Health Centers and Rural Health Clinics are critical safety-net providers of primary care for underserved populations. Permitting these types of health centers to provide telehealth services as distant sites plays a major role in expanding and maintaining access to care in underserved and rural communities, and helps ensure continuity of care in those communities. 

While the Subcommittee advanced the Bill following its markup session, it still must pass in both the House and Senate. Providers should closely track the Bill’s progress. If it is not enacted in 2024, the telehealth flexibilities borne out of the COVID-19 public health emergency may end. Practitioners should be prepared to adjust their telehealth services and billing practices in the event the flexibilities expire. On the other hand, practitioners should be prepared to continue and potentially expand their telehealth services and flexibilities if the Bill is enacted and the Secretary expands the applicability of the flexibilities to additional categories of healthcare professionals. 

The population of Medicare patients that use telehealth has grown, likely in part due to the flexibilities—12% of Medicare users had a telehealth service in the third quarter of 2023, which is nearly double the percentage that received at telehealth service in the first quarter of 2020. If the flexibilities end, many Medicare patients who have grown accustom to telehealth will need to readjust how they seek out and receive healthcare services and providers will need to reassess how to best serve those patients. 

As previewed in our prior blog post, if enacted, AB 3219 would require private equity firms and hedge funds to file an application with the state Attorney General at least 90 days in advance of a transaction involving the acquisition or change of control of healthcare facilities and provider groups and in most cases, await approval to close the transaction. Furthermore, the bill would place significant restrictions on the ability of private equity and other investors to implement “friendly PC-MSO” and similar arrangements, which are widely used today by stakeholders as an investment structure to avoid violating California’s prohibition on the corporate practice of medicine.

While the bill has not yet been enacted into law, the State Assembly’s passage of the bill does represent positive momentum for proponents of the legislation, and stakeholders should be aware of the legislation’s broad implications on the structuring and consummation of healthcare-related transactions in the state.

We will keep our readers posted on further development related to this proposed legislation.

Is your entity a covered health care facility?

Almost all health care facilities in California are covered, including general acute care hospitals, psychiatric hospitals, integrated health care delivery systems, urgent care clinics, physician groups, skilled-nursing facilities that are owned, operated or controlled by a hospital or integrated health care delivery system, dialysis clinics, surgical clinics, outpatient clinics, and even a patient’s home when health care services are being provided by an entity owned or operated by a general acute care hospital or acute psychiatric hospital. There are very few health care facilities excluded from coverage. These include hospitals owned, controlled or operated by the Department of State Hospitals and certain tribal clinics.

Does your covered health care facility have employees subject to the new minimum wage?

Like a “covered health care facility,” a “covered health care employee” is also defined broadly and is not limited to employees performing patient care services. A person is a covered health care employee if they are an employee of a facility that provides patient care, health care services, or other services supporting the provision of health care. This includes not only patient care employees such as nurses, physicians, caregivers, medical residents, interns, and fellows, but also employees providing support services to the provision of health care, such as janitors, housekeepers, groundskeepers, guards, clerical workers, nonmanagerial administrative workers, food service workers, gift shop workers, technical and ancillary services workers, medical coding and medical billing personnel, schedulers, call center and warehouse workers, and laundry workers. Additionally, contracted and subcontracted workers and temporary service workers contracted through a temporary services employer may also be covered if the health care facility is controlling their wages, hours, or working conditions, or the worker is performing work primarily on the premises of the facility to provide health care services or services supporting the provision of health care. 

There are very few workers who are excluded from the definition of a covered health care employee. These include those employed as outside salespersons, those who perform work in the public sector where the primary duties performed are not health care services, those who perform delivery or waste collection work if certain requirements are met, and those who perform medical transportation services if certain requirements are met.

What is the new minimum wage for your covered health care employees?

Under the new law, health care facilities are divided into the following four categories: (1) health care facilities that employ 10,000 or more full-time employees; (2) hospitals with a high or elevated governmental payor mix, and rural independent health care facilities; (3) clinics; and (4) other health care facilities. The applicable minimum wage depends upon which type of health care facility employs the workers.

• With respect to health care facilities in the first category, covered health care employees must be paid at least $23/hour beginning on June 1, 2024. Thereafter, the minimum wage will increase by $1/hour annually, ultimately reaching $25/hour on June 1, 2026. Starting January 1, 2028, the minimum wage will increase annually at the lesser of 3.5% or the Consumer Price Index.
• For health care facilities in the second category, beginning June 1, 2024, covered health care employees must be paid at least $18/hour. Thereafter, the minimum wage increases annually by 3.5%, reaching $25/hour on June 1, 2033. Starting January 1, 2035, the minimum wage will increase annually at the lesser of 3.5% or the Consumer Price Index.
• With respect to health care facilities in the third category, beginning June 1, 2024, and continuing to May 31, 2026, covered health care employees must be paid at least $21/hour. Between June 1, 2026 and May 31, 2027, these employees must be paid at least $22/hour. And starting on June 1, 2027, these employees shall be paid at least $25/hour. Starting January 1, 2029, the minimum wage will increase annually at the lesser of 3.5% or the Consumer Price Index.
• For health care facilities in the fourth category, beginning June 1, 2024, and continuing to May 31, 2026, covered health care employees must be paid at least $21/hour. Between June 1, 2026 and May 31, 2028, these employees must be paid at least $23/hour. And starting on June 1, 2028, these employees shall be paid at least $25/hour. Starting January 1, 2030, the minimum wage will increase annually at the lesser of 3.5% or the Consumer Price Index.

Health care facilities should review the Department of Health Care Access and Information page to determine which of the above categories applies to them. Importantly, health care facilities in the first category include both individual facilities with 10,000 or more full-time employees, as well as health care facilities that are part of a health care system that collectively employs 10,000 or more full-time employees. Those who believe they have been misclassified must file a request to be reclassified with the Department no later than January 31, 2025.

What if you have covered health care employees who are exempt, salaried workers?

Health care employees paid on a salary basis shall be paid a salary of no less than 150% of the applicable health care minimum wage, or 200% of the generally applicable state minimum wage per Labor Code Section 1182.12, whichever is greater. For health care facilities in the first category above, employees must make at least $71,760 annually (i.e., 1.5x health care minimum wage of $23/hour) to be considered exempt in 2024. On the other hand, health care facilities in the second, third and fourth categories must pay employees at least $66,560 annually (i.e., 2x the state minimum wage of $16/hour) to be considered exempt in 2024. It is important for health care employers to check this amount annually to ensure all exempt employees are satisfying the salary basis test.

What if a local government creates a higher minimum wage for covered health care employees?

SB 525 prevents a local government from passing a higher minimum wage for covered health care employees through January 1, 2034. However, a local government may pass a higher minimum wage that would apply uniformly to all employees (including non-health care employees) across all industries at any time, and that higher minimum wage would apply.

Can you seek a waiver from the new minimum wage?

Certain covered health care facilities may be able to seek a waiver of the minimum wage increase from the Department of Industrial Relations. However, the facility will be expected to demonstrate that compliance with the new law would raise doubts about its ability to continue to operate.

Takeaways

In light of this convoluted new law, health care employers should consult legal counsel to ensure that they are appropriately classifying themselves and their workers, as this determination will drive the type or category of minimum wage increase that will apply to them. Once it is determined which minimum wage increase applies, health care employers should continue to work with their counsel to implement a compliance plan as necessary before June 1, 2024. Health care employers may also consider whether they qualify for a waiver, and should be cognizant of the timing of each wage increase in the coming years.

Much like the DOJ Antitrust Division’s other recent task force, the Procurement Collusion Strike Force (PCSF), the HCMC will draw together government enforcement officials to share expertise and coordinate investigations and actions. However, reflecting the agencies’ attention to the complex and evolving nature of the health care industry, the HCMC will also include policy and industry experts, economists, and data scientists, among others. The DOJ’s announcement indicated a focus on vertical consolidation of payors, providers, and data. Executives, investors, and counsel should expect increased criminal and civil antitrust enforcement activity targeting all facets of the health care industry.

Enforcement

If the PCSF is any example, the HCMC will likely mean a further uptick in antitrust investigations and enforcement actions in the health care industry, which have already been at a high-water mark. By way of comparison, in its first five years, the DOJ touts that the PCSF has already initiated more than 100 investigations and secured more than 50 pleas and convictions.

Notably, the HCMC announcement included the launch of a new webpage on the Antitrust Divisions’ site geared towards public reporting. The page contains layman explanations of potential antitrust harms and prominently features both a hotline and complaint portal. The results of this attempt to encourage consumers to provide information remains to be seen as many of the envisioned violations would require insider knowledge or assistance of counsel to understand or even detect.

Policy

In addition to increased enforcement efforts, the Task Force will guide the Antitrust Division’s policy and overall strategy, as well as facilitate “policy advocacy.” The inclusion of a policy focus—differing from the goals of PCSF—is not surprising given the agencies’ inclination for more aggressive antitrust policy, and actions such as the Department’s withdrawal of key healthcare policy statements last year. Though policy effects could take longer to develop, they may shape the future of the industry. 

Why This Matters

While the DOJ and FTC continue to aggressively review healthcare transactions under the new Merger Guidelines, scrutiny will likely increase on business practices that could provoke civil and criminal liability under the Sherman and Clayton Acts. Currently commonplace practices and evolving methods of coordination in the health care and health care tech industries may invite a more vigorous examination.

Ambient Listening: Six health systems discussed their use of “ambient listening” to reduce physicians’ “pajama time.” What does that mean? Well, as we all know, with EHRs, physicians now have to do data entry for their patients, filling in the blanks on their EHR forms if they can’t finish up their work during their patient session. That occurs during the workday or at night at home (i.e., pajama time), and it has been a source of physician frustration and burn-out. There are multiple vendors looking to solve that through “ambient listening” where patient and physician interactions are listened to and captured by a software system that then uses natural language processing and other artificial intelligence capabilities to enter the data into the proper fields in the EHR medical record for the patient. It’s essentially a robot scribe, without the creepy robot sitting in the corner of the exam room. This has been in trial for years, including prior to the pandemic, but now every health system using this approach reported at the conference that it was working well and was generally saving physicians between 45 minutes to two hours per day of data entry. As one system reported, the physicians are much happier to be able to spend more of their time doctoring instead of typing, patients are happier that the physician is looking at them and not at their computer or tablet, and between 1-2 more patient visits per day now is possible. This is definitely a step in the right direction and hopeful news for the rest of the healthcare ecosystem. We’ll be watching to see if this effectiveness continues and grows as it rolls out further across the industry. 

Have You Noticed the “Journey?”: I should have been playing turkey bingo at the conference, or perhaps a drinking game where you took a shot every time someone said the word “journey.” It now appears that the entire conference is on a journey, as presenter after presenter characterized everything as a journey – our transformation journey, our quality journey, our leadership journey, our value-based journey. They weren’t the only ones using “journey” more than usual – it’s evidently a journey pandemic out there, with everything being characterized as a journey, per the New York Times recent article (“When Did Everything Become a Journey?,” May 13, 2024) and especially one’s heath journey. Knew I should have bought travel insurance before starting this journey....

Provider-Sponsored Health Plans: For many years, health plans owned by health systems often were the ugly stepchild. Not really prioritized by the system, separate and unequal and not well coordinated between the plan and providers. There were some clear examples of better integration, such as Geisinger, but they were the exception. This state of affairs may well be changing. Sentara, Corewell and UW Health all set out interesting theses for growing “Systemness” and connecting the dots between their plans and their provider assets. Sentara at this point is approximately 50/50 in revenue between the two lines of business, with recent expansion of their plan business into Florida to be followed by provider expansion. This expansion of their share of the premium dollar can allow a health system to undertake innovative changes, such as Sentara is doing. They have decided to allocate enterprise responsibility for care management to their health plan with the ability now to direct care management assets in the acute, post-acute and outpatient/ambulatory sectors. Previously, a patient upon discharge from the hospital could receive care management calls from three Sentara care managers, including the health plan, the acute or post-acute and the physician care management groups. That now will be centralized and improved. Similarly, Sentara is centralizing responsibility for its enterprise pharmacy, reducing the previous fragmentation that commonly is seen in the industry among doctors, facilities and the health plan. By centralizing the function under a single leader with profit and loss responsibility, it allows for more effective accountability and innovation. 

This also is a prelude to readiness for taking provider risk downstream from the health plans – a key element in risk readiness when shifting into downside risk-based reimbursement structures such as in Medicare Advantage and Medicaid. In lines of business where the government does not fully cover the cost of care, a way to control rising healthcare expenditures is to invest in prevention, chronic disease management and access improvements to reduce unnecessary utilization of higher cost emergency and inpatient resources. It is difficult to achieve the necessary cash flow in a fee for service environment (which represents more than 70% of all downstream Medicare Advantage payments today, according to the Advisory Board) but the prepayment under value-based and risk-based reimbursement systems allows for the necessary capital allocation. 

Days Cash On Hand: The presenting systems generally reported days cash on hand of at least the mid 200 days, and often into 300 days or higher. This is encouraging news for health systems, but conversely EBITDA margins for reporting entities – even at the top of the list – remained lower than pre-pandemic. While recovering somewhat, there remains significant margin pressure, in large part from continuing higher labor costs, higher financing costs and declining federal reimbursement rates. So, not necessarily a light at the end of the tunnel, but at least not an immediate crash for many of the larger health systems that were reporting their results.

Continuing Growth and Innovation: Many systems focused their presentations on recent and continuing growth. We expect to see more acquisitions, joint ventures and strategic alliances in the hospital sector in the next few years as health systems continue to look to not only achieving greater scale, but also aim to integrate and coordinate their service offering across the entire system. As one system CEO noted, we often found ourselves having two subscale programs in geographic proximity to each other, and not doing enough of a specialty surgery at a location can result in worse outcomes due to lack off enough experience for the team. So, they are moving and consolidating lines of business to get to scale and to determine what services have to be at what facility. This building outwards, while rebuilding inside is, as one health system leader said, like trying to repair the airplane while it is flying, but it is necessary for success and survival. 

The Many Uses of Artificial Intelligence: Coming in as second most mentioned behind “journey” was “artificial intelligence.” There were opinions galore at the conference but little yet in the way of consensus as to how to best use artificial intelligence (AI). Some interesting notes included the use of AI to screen all X-ray images for secondary diagnoses – the things that may be found on an X-ray that were not the focus of the primary area of inquiry by the treating physician. Northwestern Medicine reported this effort and has screened approximately 2.5 million images to date, attempting to improve clinical diagnosis and give physicians more time. 

The Mayo Clinic has a multi-faceted AI strategy. Mayo solicited input from all of its employees as to what functions and services could be improved through the application of AI, received many submissions and funded fifteen ideas. A key element of their strategy is its “foundation model” that will identify best practices for patients who meet certain criteria and can be grouped into categories. Mayo suggested that this could effectively make integrated knowledge, such as that obtained through a top-notch tumor board review approach, available through this AI model for patients globally. Other interesting Mayo areas were using AI in the context of genetic testing and counselling identification, as they reported a shortage of qualified genetic counselors which may be remedied in part through the appropriate use of AI as requested by treating physicians. More mundane but important uses included providing effective summarization of patient records for physicians who, in the case of a patient with a long treatment history, may take a physician over an hour in the absence of effective summaries. Mayo also was linking the source documents directly into the summaries to make access easier for the reviewing physician. That approach solved the “search” issue for physicians of making sure they had looked at everything and could go as deep or shallow as they wished in their review. This is a simple use of generative AI (genAI) but Mayo reported that it was saving a half-hour each time for its physicians who were looking to do patient whole record reviews. To make sure the AI app was being clinically appropriate, Mayo ran a volunteer “red team” event, where physicians on a Saturday could volunteer to evaluate the AI output and quality check it. Mayo said that they had high engagement from their physicians who were supportive of this effort. 

Another health system reported that, using AI, automated licensure review was now being done and is almost fully automated. It also is reviewing 45% of its purchase orders using bots to ensure accuracy and compliance with purchasing guidelines. Another area of low value but high intensity was the required notice of admission to payors for patients entering the hospital. That has been requiring approximately 11,000 hours of work per year from multiple employees, and now can automated and reduce the staff allocated to this mindless task to one FTE.

On an AI discussion panel, an AI entrepreneur took issue with the clinical use cases and suggested that AI should stay away from clinical diagnosis – leaving that for the physician – and focus on other areas where there is immediate need, such as expanding and improving communications with patients. For example, Hippocrates AI has a generative AI driven service that can call patients shortly after hospital discharge or after prescription of a new medicine to check on how the patient is doing, check for side effects or issues, do a compliance check and see if the patient has questions. A demonstration of this genAI ability was interesting to listen to without a single cringe during the three to four minute interaction, and, due to genAI capabilities, could be undertaken easily in multiple languages to meet the patients’ preferred language choice. More progress to be made, but it illustrated an interesting opportunity.

The CEO of Hippocrates AI posited that the healthcare industry recently has been an environment of a “high acuity, low volume” profile for resource utilization – where healthcare resources are more rare and focus on higher acuity or “tipping point” events/conditions – and now could move to a “high volume, all acuity” approach where consumers could have an “AI healthcare friend/app” sitting on their shoulder and available as a first triage level with low cost and high scalability before a patient then would move onto a higher level interaction with a person. The genAI function also could be used to move effectively provide key educational themes to patients and their caregivers. 

That said, the general consensus of the conference presenters was that AI was here and taking more and more health system mindshare but: (i) the “killer app” for AI (like Uber, social media or food delivery) has not yet arrived, and (ii) there is growing concern and exhaustion among health systems for taking on too many AI point solutions. Instead, there is a clear preference for an integrated AI platform that can allow multiple use solutions to be integrated and easily accessed, with data and other interoperability. 

Kudos to Barclays, HFMA and AHA for another excellent conference!

Covered Entities will need to appoint a Section 1557 coordinator, implement policies and procedures, provide training, distribute and post notices containing specified content and provide auxiliary aids and services to individuals with disabilities and to those with limited English proficiency. The Final Rule will become effective on July 5, 2024, but many of the requirements imposed on Covered Entities have delayed compliance dates, as discussed below.

Expansion of Section 1557 Regulations

Section 1557 prohibits Covered Entities from refusing to treat an individual, or otherwise discriminating against an individual, on the basis of race, color, national origin, sex, age or disability. DHHS had previously promulgated implementing regulations in 2016, parts of which were largely repealed in 2020. Relying on relevant court decisions and public feedback, DHHS is expanding the definition of discrimination on the basis of sex in the Final Rule to specifically include discrimination based on sex characteristics, which includes: (i) intersex traits; (ii) pregnancy or related conditions; (iii) sexual orientation; (iv) gender identity; and (v) sex stereotypes.

The non-discrimination prohibition will also be specifically applicable to services provided in-person or through telehealth and to services provided through the use of patient care decision support tools.

DHHS is also expanding its interpretation of “Federal financial assistance” to include Medicare Part B payments, thus broadening the reach of the discrimination prohibition to physician practices. Recognizing that Part B providers who do not receive any other Federal financial assistance (and were not previously subject to Section 1557 requirements) will need additional time to come into compliance with Section 1557, DHHS is providing a one-year delay until May 6, 2025, for these providers. Other Covered Entities include hospitals, health clinics, health insurance issuers (including but not limited to Medicare Advantage Organizations and Medicaid Managed Care Organizations), pharmacies, community-based health care providers, nursing facilities, residential or community-based treatment facilities and others. 

Specific Requirements

Chief among the new and/or expanded requirements are the following:

Section 1557 Coordinators. Covered Entities that employ 15 or more persons must designate at least one person as a coordinator to carry out the Covered Entity’s responsibilities, including, but not limited to, receiving, reviewing and processing grievances, coordinating the Covered Entity’s language access and communication procedures, and overseeing training of relevant persons. Covered Entities must appoint a Section 1557 coordinator no later than November 4, 2024.

Policies and Procedures. No later than July 5, 2025, Covered Entities must implement reasonably-designed written policies and procedures that address non-discrimination, grievance procedures, language access procedures, effective communication procedures and reasonable modification processes.

Training. Relevant employees must be trained on the required policies and procedures as soon as possible, but no later than 30 days following implementation of the required policies. Covered Entities must also train newly hired relevant employees on the required policies. Relevant employees include those whose roles and responsibilities entail: interacting with patients and members of the public; making decisions that directly or indirectly affect patients’ health care, (including the executive leadership team and legal counsel); and performing tasks and making decisions that directly or indirectly affect patients’ financial obligations, including billing and collections.

Effective Communication. The Final Rule requires Covered Entities to provide appropriate auxiliary aids and services to individuals with disabilities, as well as those with limited English proficiency, free of charge to enable meaningful access to services. The Final Rule also establishes standards for accessible buildings and facilities and electronic communication, including specific requirements for interpreter, translation and machine translation services, as well as video and audio remote interpreting services. This portion of the Final Rule will be effective on July 5, 2024.

Notices. Covered Entities will be required to provide two notices:

1. Notice of Non-discrimination. Covered Entities must provide a notice of non-discrimination annually and upon request to participants, beneficiaries, enrollees and applicants of their health care programs and activities, as applicable to the Covered Entity. The notice must also be made publicly available, which will require the Covered Entity to post the notice at a conspicuous location on its website and in no smaller than 20-point sans serif font in physical locations that are accessible to individuals with poor vision. The notice must include a statement affirming that the Covered Entity:

• does not discriminate on the basis of race, color, national origin (including limited English proficiency and primary language), sex (consistent with the expanded definition described above) age, or disability;
• provides reasonable modifications for individuals with disabilities, and appropriate auxiliary aids and services, including qualified interpreters for individuals with disabilities and information in alternate formats, such as braille or large print, free of charge and in a timely manner, as necessary; and
• provides language assistance services, including electronic and written translated documents and oral interpretation, free of charge and in a timely manner, as necessary.

In addition, the notice must advise how to obtain the reasonable modifications, appropriate auxiliary aids and services, and language assistance services from the Covered Entity; include contact information for the designated Section 1557 coordinator(s); describe the Covered Entity’s grievance procedures; and provide information on how to file a discrimination complaint with the DHHS Office of Civil Rights. The compliance date for this notice is November 4, 2024.

2. Notice of Availability of Language Assistance Services and Auxiliary Aids and Services. This notice must be provided in English and at least the 15 languages most commonly spoken by individuals with limited English proficiency of the relevant State(s) in which a Covered Entity operates, and must be provided in alternate formats for individuals with disabilities who require auxiliary aids and services to ensure effective communication. The notice must be given annually, upon request, on the Covered Entity’s website and where it is reasonable to expect individuals to be able to read or hear the notice. In addition, the Final Rule requires this notice to be included in many electronic and written communications when these forms are provided by the Covered Entity,

• Notice of HIPAA Privacy Practices;
• Application and intake forms;
• Notices of denial or termination of eligibility, benefits or services, including Explanations of Benefits, and notices of appeal and grievance rights;
• Communications related to a public health emergency;
• Consent forms and instructions related to medical procedures or operations, medical power of attorney or living will (with an option of providing only one notice for all documents bundled together);
• Discharge papers; and
• Communications related to the cost and payment of care with respect to an individual, including medical billing and collections materials, and good faith estimates required by the No Surprises Act.

Covered Entities must be in compliance with this notice requirement by July 5, 2025.

                                                            *          *          *

The Final Rule is voluminous and this blog posting does not cover all of the mandated requirements. Health plans, providers and facilities should review their current non-discrimination policies and the new requirements and update their documents and operations as appropriate, keeping in mind the various compliance dates.

If you have questions or need assistance, please reach out to a member of the Sheppard Mullin Healthcare Team.

The DOL’s decision to rescind the 2018 AHP Rule follows legal challenges, concerns about market stability, and the DOL’s desire to align the rule with the Biden Administration’s goal of enhancing access to quality health coverage. According to the DOL, the 2018 AHP Rule was a significant departure from the DOL’s longstanding pre-rule guidance on the definition of “employer” under ERISA and substantially weakened the DOL’s traditional criteria in a manner that would have enabled the creation of commercial AHPs functioning effectively as health insurance issuers. The 2018 AHP Rule set forth alternative criteria under ERISA for determining when employers and associations may join together to sponsor a single group health plan under ERISA.[i] For example, the 2018 AHP Rule required that the group or association have “at least one substantial business purpose unrelated to offering and providing health coverage or other employee benefits to its employer members and their employees.”[ii] Previous guidance required that such group or association “must exist for purposes other than providing health benefits.”[iii] The intent behind the 2018 AHP Rule was to encourage the creation of AHPs as alternatives for affordable health coverage for small employers and self-employed individuals.

A 2019 decision by the U.S. District Court for the District of Columbia largely invalidated the 2018 AHP Rule, finding that portions of the rule were unreasonable interpretations of ERISA designed to circumvent the requirements of ERISA and the ACA.[iv] Further, according to the DOL’s Final Rule Fact Sheet, the 2018 AHP Rule “struck the wrong balance between ensuring a sufficient employment connection and enabling the creation of AHPs.” The DOL considered, but ultimately decided against, proposing a rescission of just those provisions vacated by the federal district court, concluding that the provisions held invalid by the district court were so central to the rule that removing them would undermine the core objectives of the 2018 AHP Rule.

This recission reinstates the DOL’s pre-rule guidance and longstanding criteria for AHPs, which emphasized the need for an employment nexus in which AHPs were typically required to have a commonality of interest among members based on their employment. The pre-2018 AHP Rule guidance applies a facts-and-circumstances approach for determining whether a group or association is a bona fide employer capable of sponsoring an ERISA plan for its members by utilizing the following three criteria:

1. Whether the group or association has business or organizational purposes and functions unrelated to the provision of benefits (the “business purpose” standard);
2. Whether the employers share a commonality of interest and genuine organizational relationship unrelated to the provision of benefits (the “commonality” standard); and
3. Whether the employers that participate in a benefit program, either directly or indirectly, exercise control over the program, both in form and substance (the “control” standard).[v]

When applying the three criteria above to a group or association, the DOL also considers the following factors:

• how members are solicited;
• Who is entitled to participate and who actually participates in the group or association;
• the process by which the group or association was formed;
• the purposes for which it was formed;
• what, if any, were the preexisting relationships of its members;
• the powers, rights, and privileges of employer members that exist by reason of their status as employers;
• who actually controls and directs the activities and operations of the benefit program; and
• the extent of any employment-based commonality or other genuine organizational relationship unrelated to the provision of benefits.[vi]

According to the Fact Sheet, the DOL is unaware of any groups or associations relying on the 2018 AHP Rule, and as such, does not expect the decision to result in any regulatory costs or burdens.

FOOTNOTES

[i] 29 CFR 2510 (June 21, 2018)

[ii] 29 CFR 2510 (June 21, 2018)

[iii] 29 CFR 2510 (April 30, 2024)

[iv] New York v. U.S. Department of Labor, 363 F. Supp. 3d 109 (D.D.C. 2019).

[v] 29 CFR 2510 (April 30, 2024)

[vi] 29 CFR 2510 (April 30, 2024)

SB 1120 would require AI tools be fair and equitably applied and not discriminate including, but not limited to, based on present or predicted disability, expected length of life, quality of life or other health conditions. Additionally, AI tools must be based upon an enrollee’s medical history and individual clinical circumstances as presented by the requesting provider and not supplant healthcare provider decision-making. Health plans and insurers in California would need to file written policies and procedures with state oversight agencies, including the California Department of Managed Health Care and the California Department of Insurance, and be governed by policies with accountability for outcomes that are reviewed and revised for accuracy and reliability. 

Since SB 1120 was introduced in February, one key requirement in the original bill has been removed. This section would have required payors to ensure that a physician “supervise the use of [AI] decision-making tools” whenever such tools are used to “inform decisions to approve, modify, or deny requests by providers for authorization prior to, or concurrent with, the provision of health care services...” The genesis of this removal came about due to concerns that the language was ambiguous. 

SB 1120 largely aligns with requirements applicable to Medicare Advantage plans. On April 4, 2024, the Centers for Medicare and Medicaid Services (“CMS”) issued the 2025 final rule, written about here, which included requirements governing the use of prior authorization and the annual review of utilization management tools. CMS released a memo on February 6, 2024, clarifying the application of these rules. CMS made clear that a plan may use an algorithm or software tool to assist plans in making coverage determinations but the plan must ensure that the algorithm or tool complies with all applicable rules for how coverage determinations are made. CMS referenced compliance with all of the rules at 42 C.F.R. § 422.101(c) for making a determination of medical necessity. CMS stated an algorithm that based the decision on a broader data set instead of that person’s medical history, the physician’s recommendations or medical record notes would not be compliant with these rules. CMS made it clear that algorithms or AI on their own cannot be used as the basis to deny admission or downgrade to an observation stay. Again, the patient’s individual circumstances must be considered against the allowable coverage criteria. 

Both California and CMS are concerned that AI tools can worsen discrimination and bias. In the CMS FAQ, it reminded plans of the nondiscrimination requirements of Section 1557 of the Affordable Care Act, which prohibits discrimination on the basis of race, color, national origin, sex, age, or disability in certain health programs and activities. Plans must ensure that their AI tools do not perpetuate or exacerbate existing bias or introduce new biases. 

Looking to other states, Georgia’s House Bill 887 would prohibit payors from making coverage determinations solely based on results from the use or application of AI tools. Any decision concerning “any coverage determination which resulted from the use application of” AI must be “meaningfully reviewed” by an individual with “authority to override said artificial intelligence or automated decision tools.” As of this writing, the bill is before the House Technology and Infrastructure Innovation Committee. 

New York, Oklahoma and Pennsylvania have bills that center on regulator review and requiring payors to disclose to providers and enrollees if they use or do not use AI in connection with utilization review. For example, New York’s Assembly Bill A9149 requires payors to submit “artificial intelligence-based algorithms (defined as “any artificial system that performs tasks under varying and unpredictable circumstances without significant human oversight or that can learn from experience and improve performance when exposed to data sets”) to the Department of Financial Services (“DFS”). DFS is required to implement a process that will allow them to certify that the algorithms and training data sets have minimized the risk of bias and adhere to evidence-based clinical guidelines. Additionally, payors must notify insureds and enrollees about the use or lack of use of artificial intelligence-based algorithms in the utilization review process on their Internet website. Oklahoma’s bill (House Bill 3577), similar to the New York legislation, requires insurers to disclose the use of AI on their website, to health care providers, all covered persons and the general public. The bill also mandates review of denials of healthcare providers whose practice is not limited primary healthcare services. 

In addition, many states have adopted the guidance of the National Association of Insurance Commissioners (“NAIC”) issued on December 4, 2023 – “Use of Algorithms, Predictive Models, and Artificial Intelligence Systems by Insurers.” The model guidelines provide that the use of AI should be designed to mitigate the risk that the insurer’s use of AI will result in adverse outcomes for consumers. Insurers should have robust governance, risk management controls, and internal audit functions, which all play a role in mitigating such risk including, but not limited to, unfair discrimination in outcomes resulting from predictive models and AI systems.

Plaintiffs have already starting suing payors claiming their faulty AI algorithms have improperly denied services. It will be important in the days ahead that payors carefully monitor any AI tools they utilize in connection with utilization management. We can help payors reduce risk in this area. 

Background on Cost Targets

California joins several other states that have implemented a health care cost growth cap or target law, including Connecticut, Delaware, Massachusetts, Nevada, New Jersey, Oregon, Rhode Island, and Washington.[2] In these states, cost-growth targets or caps have ranged from 2.8% to 5.1%.[3]

As a general matter, the cost growth cap model functions as a percentage cap for year-over-year growth tied to certain economic indicators, such as total state domestic product, inflation or median family income. California’s cost target is based on the average growth rate of median family income from 2002 to 2022, with the idea that “health care spending should not grow faster than the incomes of California families.”[4]

OHCA originally proposed starting with a 3% cost target based on median family income, but following comments from industry stakeholders, the cost target approved by the Board provides a glide path approach that gradually reaches 3% over a five year period. See the table below for particular targets established for certain years.

Enforcement

Consistent with the framework set in SB 184, OHCA’s enacting legislation, the cost target for 2025 is non-enforceable. For years 2026 and after, however, OHCA will have the authority to take enforcement action against health care entities that exceed the boundary of the target. Enforcement measures available to OHCA include compelling noncompliant entities to give an explanation at public meetings, requiring the implementation performance improvement plans, and/or assessing administrative penalties.

SB 184 makes payor data on health care expenditures the primary source of data relating to cost growth, and payors will be required to submit data on total heath care expenditures starting on September 1, 2024. Nevertheless, OHCA has the authority to collect data as needed from additional sources, including other state agencies (including the Department of Health Care Services and the Department of Managed Health Care) as well as health care providers.

What’s Next?

The statewide cost target is just one cost target that OHCA is responsible for implementing. In the coming years, OHCA will develop non-statewide targets, which will include sector specific targets, and potentially geographical targets and targets associated with individual health care entities. In the meantime, we will keep our readers posted on any important activity and developments related to OHCA’s new cost target regime, including any trends related to data collection and enforcement.

FOOTNOTES

[1] See our blog on the final CMIR regulations promulgated by OHCA: The Stage is Set: California Finalizes OHCA regulations Requiring Notice and Review of Material Healthcare Transaction in 2024.

[2] Health Care Cost Commissions: How Eight States Address Cost Growth, California Health Care Foundation (Apr. 22, 2022), https://www.chcf.org/publication/cost-commissions-eight-states-address-cost-growth/.

[3] State Health Care Cost Growth Target Values & Performance Reports, Milbank Memorial Fund (Apr. 9, 2024), https://www.milbank.org/news/state-health-care-cost-growth-target-values/.

[4] Statewide Health Care Spending Target Approval is Key Step Toward Improving Health Care Affordability for Californians, California Department of Health Care Access and Information (Apr. 24, 2024), https://hcai.ca.gov/statewide-health-care-spending-target-approval-is-key-step-towards-improving-health-care-affordability-for-californians/.

While Medicaid and CHIP managed care systems vary across states, recent efforts by CMS and state authorities have focused on enhancing access to high-quality care, ensuring fair payment for providers, and strengthening program oversight. Beginning with a Request for Information in early 2022, CMS sought insights into challenges and strategies related to eligibility, data usage, equitable access, and payment alignment, culminating in the issuance of several rules, including the Final Rule. This comprehensive regulation addresses standards for timely care access, enhances monitoring and enforcement efforts, reduces administrative burdens for state-directed payments, introduces new standards for the use of In Lieu of Services and Settings (ILOSs), specifies requirements for Medical Loss Ratios (MLRs), and establishes a Quality Rating System (QRS) for Medicaid and CHIP managed care plans.

Strengthening Timely Care Access Standards, Monitoring and Enforcement

The Final Rule strengthens access to timely care by instituting maximum appointment wait time standards, setting a limit of 15 business days for routine primary care and obstetric/gynecological services, and ten business days for outpatient mental health and substance use disorder services. States are also mandated to establish wait time standards for a service of their choosing. Additionally, access is promoted through the requirement for states to maintain a user-friendly web page containing transparent information accessible to the public.

To enhance the monitoring of timely care access, the Final Rule mandates states to commission an independent entity for conducting annual secret shopper surveys. These surveys validate managed care plans’ compliance with appointment wait time maximums and the accuracy of provider directories. Furthermore, states must conduct annual enrollee experience surveys for each managed care plan. The Final Rule also requires states to submit an annual payment analysis comparing managed care plans’ payment rates for specific services against Medicare’s payment rate and, for certain home- and community-based services, the state’s Medicaid state plan payment rate. These measures are reinforced by the requirement for states to implement a remedy plan for any managed care plan failing to meet the required access standards.

Enhancing Quality, Fiscal, and Program Integrity Standards for State Directed Payments (SDPs)

The Final Rule enhances SDP standards by removing barriers for states to use SDPs in value-based purchasing and include non-network providers, eliminating prior approval requirements based on Medicare rates, and imposing strict payment guidelines to prevent exceeding commercial rates for hospital and professional services. It aligns fee schedule-based SDPs with service timelines, allows performance-based payments up to a year prior, prohibits post-payment reconciliation, and mandates inclusion in actuarially sound capitation rates. Submission timeframes are established for payment preprints and rate certifications, with provider-level expenditure reporting required. Evaluation plans are clarified, with reports mandated if costs exceed 1.5% of total capitation payments. An appeals process for SDP disapprovals is established, ensuring compliance with federal funding laws and requiring provider attestation of non-participation in tax-related arrangements, with CMS discretion for existing tax programs until 2028.

Specifying Scope of In Lieu of Services and Settings (ILOSs) to Address Health-Related Social Needs (HRSNs)

The Final Rule introduces several provisions aimed at enhancing the utilization and oversight of ILOSs within Medicaid programs. First, it specifies that ILOSs can be used as immediate or longer-term substitutes for covered services or settings under the state plan, particularly to address HRSNs such as housing and nutritional supports. In addition, the Final Rule mandates that an ILOS must be considered approvable as a service or setting through the Medicaid state plan or a Medicaid section 1915(c) waiver, ensuring formal recognition and compliance with program guidelines. Furthermore, specific information regarding each ILOS must be documented in managed care plan contracts, enhancing transparency and accountability. The Final Rule also requires states to provide additional documentation on their processes for determining the medical appropriateness and cost-effectiveness of ILOSs if their costs exceed 1.5% of total capitation payments, imposing a limit of 5% on total ILOS costs as a percentage of total capitation payments for each program. Ongoing monitoring and evaluation of each ILOS are mandated, with an evaluation required after five years if costs exceed the specified threshold. Last, states are required to develop transition plans to ensure timely provision of state plan services and settings if an ILOS is terminated, ensuring continuity of care for beneficiaries.

Specifying Medical Loss Ratio (MLR) Requirements

The Final Rule promotes transparency and accountability within Medicaid managed care plans. It mandates that these plans submit actual expenditures and revenues for state-directed payments as part of their MLR reports to states, ensuring a clearer understanding of financial flows. Additionally, the Final Rule specifies that states must provide MLRs for each managed care plan, further enhancing oversight and comparability. Moreover, technical revisions have been made for quality improvement expenditures, provider incentive payments, and expense allocation reporting to align with recent regulatory changes for Marketplace plans, promoting consistency and coherence across different healthcare programs. Furthermore, managed care plans are now required to report any identified or recovered overpayments to states within t 30 calendar days, facilitating timely resolution of financial discrepancies. Finally, the Final Rule outlines contractual requirements for provider incentive payments, establishing clear guidelines for the management of these financial arrangements. Overall, these provisions work together to bolster transparency, accountability, and efficiency within Medicaid managed care programs.

Establishment of a Quality Evaluation Systems 

The Final Rule introduces significant enhancements to the Quality Strategy and External Quality Review (EQR) framework for Medicaid managed care plans. These changes aim to foster greater public engagement by increasing transparency around states’ quality strategies and streamlining the EQR process. Specifically, the Final Rule eliminates EQR requirements for primary care case management entities, making it simpler for states to utilize accreditation reviews for EQR purposes. It also establishes consistent 12-month review periods for annual EQR activities, ensuring that reports contain the most up-to-date information and requiring more comprehensive data inclusion for improved analysis.

Additionally, the Final Rule introduces the Medicaid and CHIP Quality Rating System (MAC QRS), which serves as a comprehensive resource for beneficiaries to evaluate managed care plans. This initiative aims to empower beneficiaries by providing a centralized platform where they can access information about eligibility, compare plan quality and key features like drug formularies and provider networks, and make informed decisions. The Final Rule outlines the framework and state requirements for the MAC QRS, including initial mandatory quality measures and a process for future updates. It also establishes the methodology for calculating quality ratings and offers states flexibility to implement alternative QRS frameworks, ensuring a tailored approach to meet diverse state needs.

Conclusion In conclusion, the Final Rule underscores a commitment to transparency, accountability, and efficiency within Medicaid and CHIP managed care programs. By addressing access, finance, and quality, it represents a comprehensive effort to enhance care delivery and outcomes, aligning with broader objectives of promoting equitable healthcare access and improving health outcomes for all enrollees. For further information on the Final Rule, see CMS’s 2439-F Fact Sheet.

Background on Cost Targets

California joins several other states that have implemented a health care cost growth cap or target law, including Connecticut, Delaware, Massachusetts, Nevada, New Jersey, Oregon, Rhode Island, and Washington.[2] In these states, cost-growth targets or caps have ranged from 2.8% to 5.1%.[3]

As a general matter, the cost growth cap model functions as a percentage cap for year-over-year growth tied to certain economic indicators, such as total state domestic product, inflation or median family income. California’s cost target is based on the average growth rate of median family income from 2002 to 2022, with the idea that “health care spending should not grow faster than the incomes of California families.”[4]

OHCA originally proposed starting with a 3% cost target based on median family income, but following comments from industry stakeholders, the cost target approved by the Board provides a glide path approach that gradually reaches 3% over a five year period. See the table below for particular targets established for certain years.

Enforcement

Consistent with the framework set in SB 184, OHCA’s enacting legislation, the cost target for 2025 is non-enforceable. For years 2026 and after, however, OHCA will have the authority to take enforcement action against health care entities that exceed the boundary of the target. Enforcement measures available to OHCA include compelling noncompliant entities to give an explanation at public meetings, requiring the implementation performance improvement plans, and/or assessing administrative penalties.

SB 184 makes payor data on health care expenditures the primary source of data relating to cost growth, and payors will be required to submit data on total heath care expenditures starting on September 1, 2024. Nevertheless, OHCA has the authority to collect data as needed from additional sources, including other state agencies (including the Department of Health Care Services and the Department of Managed Health Care) as well as health care providers.

What’s Next?

The statewide cost target is just one cost target that OHCA is responsible for implementing. In the coming years, OHCA will develop non-statewide targets, which will include sector specific targets, and potentially geographical targets and targets associated with individual health care entities. In the meantime, we will keep our readers posted on any important activity and developments related to OHCA’s new cost target regime, including any trends related to data collection and enforcement.

FOOTNOTES

[1] See our blog on the final CMIR regulations promulgated by OHCA: The Stage is Set: California Finalizes OHCA regulations Requiring Notice and Review of Material Healthcare Transaction in 2024.

[2] Health Care Cost Commissions: How Eight States Address Cost Growth, California Health Care Foundation (Apr. 22, 2022), https://www.chcf.org/publication/cost-commissions-eight-states-address-cost-growth/.

[3] State Health Care Cost Growth Target Values & Performance Reports, Milbank Memorial Fund (Apr. 9, 2024), https://www.milbank.org/news/state-health-care-cost-growth-target-values/.

[4] Statewide Health Care Spending Target Approval is Key Step Toward Improving Health Care Affordability for Californians, California Department of Health Care Access and Information (Apr. 24, 2024), https://hcai.ca.gov/statewide-health-care-spending-target-approval-is-key-step-towards-improving-health-care-affordability-for-californians/.

Focus on Healthcare

The FTC received tens of thousands of comments on the proposed rule and claims that 25,000 of the 26,000 comments received supported a ban on noncompetes. The FTC noted that commenters who addressed the effects of non-competes on product quality and consumer choice primarily discussed the healthcare industry, attributing physician shortages across the country and negative impacts on quality of care and patient choice in part on the prevalence of noncompetes in the industry. The FTC has made clear that the healthcare provider space will continue be a priority for enforcement of the rule, estimating that the Final Rule will reduce spending on physician services over ten years by $74-194 billion in present discounted value, will result in thousands to tens of thousands of additional patents per year, and will increase in the rate of new firm formation by 2.7%.

FTC Jurisdiction over Nonprofits

The Final Rule recognizes that the FTC’s jurisdiction under the FTC Act generally does not cover tax-exempt organizations, which the FTC notes includes 58% of hospitals in the U.S. Nonetheless, the Final Rule explains that tax-exempt organizations “are not categorically beyond the Commission’s jurisdiction” and seems to reflect that the FTC could challenge whether a nonprofit is in fact a profit-making enterprise and thus within the FTC’s jurisdiction. 

The reach of the Final Rule cannot exceed the FTC’s authority under the FTC Act, which provides that the FTC is “empowered and directed to prevent persons, partnerships, or corporations” from engaging in unfair methods of competition, and defines corporations as an entity “organized to carry on business for its own profit or that of its members.” (15 U.S.C. § 44.) 

That said, the scope of the FTC’s jurisdiction is not entirely clear, and an entity’s having Federal income tax-exempt status under 501(c) of the Internal Revenue Code may not put it outside of the bounds of the FTC’s jurisdiction. Accordingly, the FTC attempted to clarify this issue in the Final Rule, stating that: “To dispel this misunderstanding, the Commission summarizes the existing law pertaining to its jurisdiction over non-profits.”

The Final Rule explains that, based on judicial decisions and FTC precedent, the FTC applies a 2-part test to determine if a corporation is organized for profit and thus within the FTC’s jurisdiction, requiring: (1) that there be an adequate nexus between an organization’s activities and its alleged public purposes; and (2) that its net proceeds be properly devoted to recognized public, rather than private, interests. The FTC looks to both “the source of the income, i.e., to whether the corporation is organized for and actually engaged in business for only charitable purposes, and to the destination of the income, i.e., to whether either the corporation or its members derive a profit.”

Although the Final Rule reflects that while a determination by the Internal Revenue Service (“IRS”) that a nonprofit does not qualify for tax exemption is meaningful to the FTC’s analysis of whether that entity is subject to FTC oversight, the FTC’s analysis is separate and distinct. The Final Rule states tax-exempt status is one factor to be considered but does not preclude inquiry into an entity’s operations and goals, citing related precedent.

The Final Rule describes that FTC and IRS precedent have identified “private benefits that, if offered, could render an entity a corporation organized for its own profit or that of its members under the FTC Act, bringing it within the Commission’s jurisdiction.” The Final Rule cites examples of entities over which the FTC exercised jurisdiction, including:

• A physician-hospital organization consisting of over 100 private physicians and one non-profit hospital, because it engaged in business on behalf of for-profit physician members.
• A tax-exempt independent physician association that consisted of private, independent physicians and private, small group practices, because it was organized for the pecuniary benefit of its for-profit members and contracted with payors, on behalf of its for-profit physician members, for the provision of physician services for a fee.
• Entities that have had their tax-exempt status revoked by the IRS on the basis of ceding effective control to a for-profit partner and conferring impermissible private benefits, and paying unreasonable compensation, including percentage-based compensation, to insiders.

The FTC appears to view its oversight of nonprofits that do not meet the requirements to be exempt from FTC oversight as consistent with an increasing public scrutiny of tax-exempt hospitals. The Final Rule notes that:

“Public and private studies and reports reveal that some such hospitals are operating to maximize profits, paying multi-million-dollar salaries to executives, deploying aggressive collection tactics with low-income patients, and spending less on community benefits than they receive in tax exemptions. Economic studies by FTC staff demonstrate that these hospitals can and do exercise market power and raise prices similar to for-profit hospitals.”

Quasi-Public Entities

Likewise, the Final Rule reflects that it may apply to quasi-public entities or private entities that partner with states or localities, such as hospitals affiliated with or run in collaboration with states or localities, depending on whether the particular entity or action is an act of the state itself and therefore exempt from the operation of federal antitrust laws under the so-called “State Action Doctrine,” which requires a fact-specific inquiry into the organization and operation of the entity.

What the Final Rule Requires

The Final Rule provides that an employer may not enter post-employment noncompetes with its workers after the rule’s effective date (which is likely to be in early September 2024). The Final Rule defines a “noncompete” as any term or condition of employment that “prohibits a worker from, penalizes a worker for, or functions to prevent a worker from (1) seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or condition; or (2) operating a business in the United States after the conclusion of employment that includes the term or condition.” Doing so would violate Section 5 of the FTC Act, and the noncompetes will be unenforceable. Existing noncompetes (i.e., those entered prior to the rule’s effective date) are also unenforceable after the effective date with very limited exception. The Final Rule defines “worker” broadly—meaning any “person who works or who previously worked, whether paid or unpaid, without regard to the worker’s title or the worker’s status under any other State or Federal laws, including, but not limited to, whether the worker is an employee [or] independent contractor.”

There are no carve-outs from the Final Rule for healthcare providers, and prohibited noncompetes will include terms and conditions that require an employee to pay a penalty for seeking or accepting other work or starting a business after their employment ends, such as through liquidated damages or cost-sharing provisions common in physician and other provider agreements in certain states. The Final Rule also prohibits provisions which require forfeiture of compensation in the event of post-employment competitive activity and similar types of arrangements.

Exceptions

There are a few noteworthy exceptions to the Final Rule’s prohibition on noncompetes. Under the Final Rule, existing noncompetes (i.e., those in effect prior to the Final Rule’s effective date) can remain in force with senior executives (defined as workers earning more than $151,164 annually who are in “policy-making positions”). Partners in a business, such as physician partners of an independent physician practice, generally will qualify as senior executives if the partners meet the compensation threshold and have final authority to make policy decisions about “significant aspects of the business.” In contrast, a physician who works within a hospital system, even as a department head, but does not have policymaking authority over the organization as a whole, would not qualify.

The Final Rule also carves out noncompetes entered in connection with the bona fide sale of a business or a person’s ownership interest in a business entity. The FTC noted in the Final Rule that such physician partners would likely fall under the sale of business exception in if the partner leaves the practice and sells their shares of the practice.

Finally, the Final Rule’s requirements “do not apply where a cause of action related to a noncompete clause accrued prior to the effective date,” shielding ongoing litigation from immediate implications of the Final Rule.

To comply with the Final Rule, employers must provide notice to workers that the employer will not enforce noncompetes in place when the rule takes effect, and the Final Rule includes model notification language to aid compliance.

Next Steps / Resources

• Monitor developments. Responses to the Final Rule have been heated, and the Final Rule is anticipated to be challenged in court. We anticipate particular scrutiny of the Final Rule’s application to nonprofits. 
• For tax-exempt organizations, focus on hot-button tax compliance issues. As reflected in the Final Rule, the FTC’s focus on nonprofit hospitals is occurring within a broader heightened scrutiny of nonprofit health systems by government regulators and the press in terms of how their financial assistance and bill collection efforts compare to their for-profit competitors and whether the benefits they provide to the community are commensurate with the valuable privilege of their tax exemption. Potential FTC scrutiny is now yet another reason for healthcare nonprofits to focus on compliance in the following areas – and to strategically highlight their compliance publicly, including on their IRS Form 990 (which are often looked to by government regulators, the press and donors):
  • Financial assistance, charity care and billing and collection policies for patients – and compliance with the related Section 501(r) requirements for tax-exempt hospitals (which the IRS also recently identified as a key compliance priority).
  • Executive compensation – ensuring that executive compensation is within fair market value, and preferably determined in accordance with nonprofit best practices.
  • Joint ventures with for-profits – focus on IRS guidance for protecting tax-exempt status in this context, particularly given the FTC’s reference to this topic in the Final Rule.
• For nonprofit health systems, focus on taxable affiliates. Many nonprofit health systems have taxable subsidiaries that would not qualify for the nonprofit exclusion from the FTC’s jurisdiction. 
• Join our webinar on May 7^th. Sheppard Mullin’s Antitrust and Labor & Employment lawyers issued a prior alert about this ruling here and are hosting a webinar on May 7, 2024 to provide a factual analysis and key takeaways for contacts of the firm. Please join us for more information on how the Final Rule may impact your business and contemplated transactions.

Future of Reproductive Health

O’Neill shared insight into the opportunities and challenges ahead for reproductive health, highlighting at the outset that neither women’s health nor reproductive health should be a taboo topic for discussion. Such a taboo has been a historical cause for impairments in progress and innovation. Rather, O’Neill argued that reproductive health should focus on a whole person concept, taking into consideration women’s biometrics, lifestyle factors, patient history, and menstrual patterns, among others. In addition, O’Neill emphasized that it will be critical to develop a dataset of female gynecological pathologies to improve both the accuracy and efficiency of diagnosing conditions. The foregoing are all steps to improve diagnostic health for women, which O’Neill refers to as “DiagnosTech”.

Important Roles of Employers and Education

O’Neill highlighted that employers can play a role in expanding DiagnosTech. Employers in an increasingly competitive market have begun to recognize that addressing reproductive healthcare considerations through benefits packages can be a powerful tool for retention. O’Neill noted that while employers may make promises with respect to reproductive health benefits, it is vital to recalibrate the narrative that employees (and particularly women) must put off having a family to enjoy a successful career. This situation could be improved by ensuring that employees are educated on reproductive health and available benefits including reproductive health screenings and informational resources. Further, O’Neill emphasized that it is not only women who benefit from education on reproductive health, as men also have much to gain from better understanding how reproductive health concerns can impact their co-workers, wives, daughters, and partners.

Emerging Technologies

O’Neill delved into the scientific and technological advancements spearheaded by Hertility Health while also addressing the broader implications of DiagnosTech. In particular, the availability of digital health solutions in the reproductive health space can support patients to secure additional information and treatment while avoiding some of the discomfort of disclosing certain intimate details that many avoid discussing through in-person interactions. In fact, coupling online health assessments with hormone data and AI-powered quality control can work to promote the accuracy of diagnoses.

The Bottom Line

While DiagnosTech and its emerging trends present much promise, they face a number of challenges, including regulatory compliance issues. It will be more important than ever to carefully navigate these hurdles, particularly in the highly regulated healthcare industry.

To listen to this episode, click here.

Expansion of Hospital FA Obligations

The newly enacted legislation amends several sections of the Public Health Law, including by:

• Defining “underinsured” as an individual with out-of-pocket medical costs accumulated in the past 12 months that amount to more than 10% of the individual’s gross income;
• Expanding the applicability of FA programs to such underinsured individuals;
• Prohibiting the use of immigration status in determining eligibility for FA;
• Requiring hospitals that do not participate in the distribution of the State Indigent Care Pool (the “Pool”) to use a State-approved uniform FA form and comply with certain other FA and collection procedures (which previously were only required for hospitals that do participate in the Pool);
• Requiring hospitals with 24-hour emergency departments to provide written notification about the availability of FA during the discharge process (i.e., not just during intake and registration);
• Limiting installment plan payments of outstanding balances to no more than 5% of the patient’s gross monthly income, and interest rates of no more than 2%; and
• Requiring hospitals that participate in the Pool to report statistics to the New York State Department of Health regarding the number of patients who applied for FA and were approved or denied, and specific patient demographics.

Revised Financial Thresholds

Hospitals must implement the following financial thresholds with respect to adjustments / reductions in charges for patients, based on their incomes:

• Hospitals will be required to waive all charges for individuals with incomes below at least 200% of the federal poverty level (“FPL”), and may no longer require patients to make any nominal payment;
• For patients with incomes between 200% and up to 300% of the FPL, hospitals may not collect more than either the amount specified in an applicable proportional sliding fee schedule and up to a maximum of 10% of the amount that would have been paid for the same services by the Medicaid program, or, for an underinsured patient, up to a maximum of 10% of the amount that would have been paid pursuant to the patient’s insurance cost sharing; and
• Similarly, for patients with incomes between 301% and up to 400% of the FPL, hospitals shall collect no more than either the amount specified in an applicable proportional sliding fee schedule and up to a maximum of 20% of the amount that would have been paid by Medicaid, or, for an underinsured patient, up to a maximum of 20% of the amount that would have been paid pursuant to the patient’s insurance.

Debt Collection Practices

Hospitals will also need to ensure the following requirements are implemented:

• Permitting patients to apply for FA at any time during the collection process;
• Prohibiting the denial of admission/treatment for services that are reasonably anticipated to be medically necessary because the patient has an unpaid medical bill;
• Prohibiting the sale of medical debt to a third party, unless the third party explicitly purchases the medical debt in order to relieve the patient’s debt; and
• Prohibiting commencement of a legal action to recover medical debt/unpaid bills against patients with incomes below 400% of the FPL.

Hospitals and/or collection agents will also be prohibited from commencing a civil action against a patient or from delegating collection activity to a debt collector for non-payment for at least 180 days after the first post-service bill is issued to the patient, and until the hospital has made reasonable attempts to determine if the patient qualifies for FA.

New Restrictions Related to Patient Consent, Credit Cards and Medical Financial Products

The legislation enacts a new section in the Public Health Law that will require hospitals and other healthcare providers to issue separate informed consent forms for treatment and for payment for services. Consent forms for payment must not be given prior to the patient receiving the treatment and discussing treatment costs.

In addition, the legislation amends the General Business Law to add sections prohibiting hospitals and other healthcare providers (and their employees and/or agents) from:

• Completing any portion of an application for medical financial products (i.e., medical credit cards and third-party medical installment loans) for patients; and
• Requiring credit card pre-authorization or requiring that a patient have a credit card on file prior to receiving emergency or medically necessary medical services.

Hospitals and other healthcare providers will be required to notify all patients about the risks of paying for medical services with a credit card, including notifying the patient that by doing so, the patient would be foregoing State and Federal protections related to medical debt. 

Action Required

In order to meet the legislative mandate, New York hospitals are encouraged to review their existing FA and debt collection policies and procedures and make the necessary adjustments, including the incorporation of new requirements, to ensure compliance by October. If you have any questions regarding the new FA and debt collection requirements, or the limitations on medical financial products, please contact a member of the Sheppard Mullin Healthcare Team.

A. How Psychological Safety Impacts Physicians’ Response to Workplace Stressors.

Providing front-line clinical care can be emotionally strenuous for providers, particularly if a patient suffers an adverse event and if the provider is subject to a peer review investigation or a medical board inquiry process. Providers need support and resources to manage emotional stress that comes with clinical work, including day-to-day patient interactions and relationships with other caregivers and administrative staff. As part of their efforts to combat provider burnout, organizations should assess the degree to which they provide psychological safety for team members. The Agency for Healthcare Research and Quality defines “psychological safety” as the degree to which physicians feel that their work environment supports them in efforts to seek help, develop new processes and techniques, and learn from mistakes.[1] Providers may be better equipped to navigate workplace stressors – such as tension between colleagues, changes in clinical or administrative workflows, or more serious issues like adverse patient events – if they believe they will receive appropriate protection and support in their efforts to deal with these situations.[2]

From a policy perspective, peer review and quality assurance processes receive protections from public disclosure in an effort to promote candid discussion of actual or potential risks and creative, proactive problem solving. However, even with legal protections for participation in these activities, providers may not fully disclose all facts or feel comfortable participating without a sense that the organization takes a systems-based, transparent, non-punitive, and collaborative approach in its patient safety, peer review, and quality efforts. Psychological safety is critical to ensuring that each of these processes functions in an optimal fashion.

B. Evaluating Your Organization’s Internal Processes.

As part of any effort to mitigate provider burnout, we suggest assessing the degree to which your organization’s internal peer review and/or quality assurance efforts provide psychological safety for providers. Ideally, physicians should be engaged in ongoing continuing medical education relevant to the organization’s safety goals. The organization’s quality metrics and expectations for physician performance should be clearly defined and prioritized (i.e., attending educational sessions and serving on committees), and strong performance may be rewarded through recognition, annual performance reviews, and if applicable, incentive compensation. In addition, for peer review and formal quality programming, organizations should assess existing degrees of physician participation, responsiveness to inquiries, and appropriate incentives to promote engagement. Organizations may also consider having their human resources team or an outside consultant assess elements of psychological safety associated with existing programming and ways to improve physicians’ experience of participation. Organizations may also consider offering providers other resources (e.g., professional coaching or internal education efforts) in addition to formal programming and/or engaging with peer organizations to learn how they address factors contributing to provider burnout. 

C. Exploring Opportunities for External Collaboration.

Your organization may also benefit from adopting a Communication and Resolution Program (“CRP”) that provides an organizational framework for exploring the root causes of harm events, learning from mistakes, and identifying and adopting corrective actions for future quality assurance. CRPs may help combat burnout by promoting a culture of psychological safety among physicians and staff. They allow for providers to learn from harm events, build resiliency, and ultimately reduce the negative impacts that such events may have on their mental and emotional health. Additionally, CRPs are a helpful tool to restore patient trust, rebuild patient relationships, and help healthcare organizations learn from and prevent future mistakes.

If your organization has or would like to adopt a CRP, there are resources available that can help guide that process, like the Pathway to Accountability, Compassion and Transparency Collaborative (“PACT”).[3] PACT is a learning community committed to improving how healthcare organizations respond to, and learn from, patient harm events. PACT recently completed its first PACT Collaborative, an 18-month collaborative engagement with participating healthcare organizations, divided into cohorts of similar organizations (e.g., Acute/Ambulatory Care, Children’s Hospitals, or Senior Care Facilities).[4] The PACT Collaborative included virtual learning sessions for participants to explore CRP best practices. PACT helped participating organizations test, implement, and improve their CRPs, looking at five fundamental activities:

1. Event management;
2. Event review;
3. Clinician engagement;
4. Patient/family engagement; and
5. Reconciliation/resolution.

D. Legal Considerations.

There are some legal considerations to think through when evaluating your peer review and quality assurance processes and when deciding to adopt a CRP or participate in a program like PACT. Specifically, organizations need to assess how state laws could impact the structure of, or physicians’ participation in, such programs, particularly with respect to medical malpractice liability and any related evidentiary protections. Consider California’s “Apology Law,” effective as of January 1, 2023, which extended California’s evidentiary protections to now include certain expressions or suggestions of fault relating to the suffering or death of a person, adverse patient safety event, or unexpected health care outcome. The law now protects statements if they relate to an act or omission in the provision of health care and were made to the affected person or their family/representative prior to the filing of a lawsuit. [5] With this change, those statements are treated as confidential, are not subject to subpoena, discovery, or disclosure, and may not be used or admitted into evidence in a civil proceeding (including civil lawsuits licensure hearings or disciplinary board actions). Previously, any suggestion that a sympathizer might be at fault for a person’s suffering or death were largely admissible (with only general expressions of sympathy or benevolence protected). [6] Protections like the Apology Law and California Evidence Code § 1157 (which bars the proceedings and records of peer review bodies from discovery in civil litigation) can give providers and organizations the space to transparently and candidly assess and improve patient safety and quality of care.[7]

While California is among many states to have adopted these types of protections, rules vary significantly by jurisdiction.[8] Your organization will need to evaluate the applicable laws of your state when establishing internal programming to improve physician psychological safety and quality of patient care and when choosing to participate in any external programs like the PACT Collaborative. Ultimately, solving for physician burnout requires a holistic approach that includes forward-looking solutions to support physicians during unexpected health outcomes or adverse patient safety events.

FOOTNOTES

[1] Agency for Healthcare Research and Quality, Creating Psychological Safety in Teams (Aug. 2018), Creating Psychological Safety in Teams (ahrq.gov).

[2] Id.

[3] The application deadline for the 2024-2025 PACT Collaborative is September 20, 2024 with the first event scheduled for October 16, 2024. Ariadne Labs, The PACT Collaborative Information Packet 9 (2024), PACT Collaborative 3.0 Information Packet 02.27.24.docx (ariadnelabs.org). Sheppard Mullin is not affiliated with PACT or any other CRP.

[4] Ariadne Labs, The PACT Collaborative Frequently Asked Questions (2021), available at PACT FAQ (ariadnelabs.org).

[5] Cal. Health & Safety Code § 104340.

[6] Cal. Evid. Code § 1160.

[7] Cal. Evid. Code § 1157.

[8] See William J. Naber, Several States Protect Physicians Who Apologize, But Be Careful, American College of Emergency Physicians (Nov. 23, 2021). See also Hicks & McCray, Don’t Regret Saying You’re Sorry: A Fifty-State Survey of “Apology Laws” and Their Effect on Medical Malpractice Suits, For the Defense: Med. Liab. and Healthcare Law (May 2021).

Hardship Exemptions

The Final Rule allows facilities to apply for hardship exemptions, which will only be available in limited circumstances. To qualify for an exemption, a facility must meet certain criteria for geographic staffing unavailability, financial commitment to staffing and good faith efforts to hire. In addition, facilities will not be eligible for an exemption if they have (i) failed to submit required Payroll Based Journal (PBJ) data; (ii) been designated as a Special Focus Facility; (iii) been cited for widespread insufficient staffing with resident harm; or (iv) been cited for immediate jeopardy with respect to insufficient staffing. 

Staggered Implementation Timeline

Non-rural facilities must be in compliance with the total nurse staffing standard of 3.48 HPRD by May 11, 2026, and rural facilities must be in compliance by May 10, 2027. Facilities must comply with the RN on-site 24 hours/7 day a week requirement by these same dates. 

CMS expects non-rural facilities to be in compliance with the minimum standard of 0.55 RN HPRD and 2.45 NA HPRD by May 10, 2027, and rural facilities to be in compliance by May 10, 2028.

Facility Assessments

The Final Rule also expands Facility Assessment requirements, adding “behavioral health” to the list of issues that facilities must address during the Facility Assessment process, and requiring active participation in the assessment process by nursing home leadership and management, direct care staff, residents, resident representatives, and family members. All facilities – whether rural or non-rural – will need to incorporate the new Facility Assessment requirements within 90 days after publication of the Final Rule.[2] 

Enforcement

CMS anticipates using a combination of PBJ data and on-site surveys to assess compliance with the Final Rule and will publish detailed information on the assessment process in sub-regulatory filings. Among other penalties, CMS may terminate provider agreements, deny payment for new admissions and/or impose civil monetary penalties for noncompliance. CMS also stressed its commitment to “robustly funding the survey, certification, and enforcement programs,” noting the President’s FY 2025 budget calls for an increase in funding for this purpose.

Final Thoughts

It is very likely that long-term care associations are preparing to file lawsuits to prevent the Final Rule from taking effect. In addition, at least one bill has been introduced in the U.S. Senate aimed at preventing implementation and enforcement of the Final Rule. While facilities should take steps to meet the staffing requirements over the long-term and, more immediately, to incorporate the new Facility Assessment requirements, keep an eye on further Sheppard Mullin Healthcare Blogs for updated information.

If you have any questions regarding the Final Rule, please contact a member of the Sheppard Mullin Healthcare Team.

FOOTNOTES

[1] The Final Rule is on file at the Federal Register for public inspection. It is expected to be officially published on May 10, 2024. 

[2] Ninety days after May 10, 2024 is Thursday, August 8, 2024.

Gamification as a Bridge to Better Health

Gamification in healthcare transcends traditional treatment methods by incorporating elements of play and entertainment into therapeutic practices. Craig Lund, with his rich background in digital health, emphasized gamification’s potential to make healthcare more engaging, particularly for younger demographics. By blending the allure of video games with therapeutic goals, gamification can address the challenges of patient motivation and engagement, both of which are crucial factors in the success of healthcare interventions. Indeed, the experiential nature and easy scalability of gamification show promise to help address the current pediatric mental health crisis.

Future Roles of Gamification

Gamification also has a role outside of pediatric care, such as in wellness. At its core, gamification helps to address the challenge of promoting patient interest and motivation, which in turn encourages patients to remain engaged with treatment to effectuate higher quality results. This process is facilitated by both short term and long term goals, which help to keep the treatment process both interesting and entertaining.

Navigating the Path to Accessibility and Reimbursement

Two pivotal aspects of integrating gamification into healthcare include ensuring accessibility and securing reimbursement pathways. Lund discussed the importance of reaching patients with minimal barriers, as well as the role of innovative reimbursement models in achieving this goal. By working with payers to establish gamification tools as forms of traditional behavioral health treatment rather than treatments requiring a prescription will be critical for gamification products to become both successful and accessible. In addition, Lund also highlighted that it is critical to collaborate with payers to coordinate member outreach.

The Bottom Line

While gamification presents tremendous promise, it also faces a number of challenges, including regulatory compliance issues. It will be more important than ever to carefully navigate these hurdles, particularly in the highly relegated healthcare industry.

To listed to this episode, click here.

Gamification as a Bridge to Better Health

Gamification in healthcare transcends traditional treatment methods by incorporating elements of play and entertainment into therapeutic practices. Craig Lund, with his rich background in digital health, emphasized gamification’s potential to make healthcare more engaging, particularly for younger demographics. By blending the allure of video games with therapeutic goals, gamification can address the challenges of patient motivation and engagement, both of which are crucial factors in the success of healthcare interventions. Indeed, the experiential nature and easy scalability of gamification show promise to help address the current pediatric mental health crisis.

Future Roles of Gamification

Gamification also has a role outside of pediatric care, such as in wellness. At its core, gamification helps to address the challenge of promoting patient interest and motivation, which in turn encourages patients to remain engaged with treatment to effectuate higher quality results. This process is facilitated by both short term and long term goals, which help to keep the treatment process both interesting and entertaining.

Navigating the Path to Accessibility and Reimbursement

Two pivotal aspects of integrating gamification into healthcare include ensuring accessibility and securing reimbursement pathways. Lund discussed the importance of reaching patients with minimal barriers, as well as the role of innovative reimbursement models in achieving this goal. By working with payers to establish gamification tools as forms of traditional behavioral health treatment rather than treatments requiring a prescription will be critical for gamification products to become both successful and accessible. In addition, Lund also highlighted that it is critical to collaborate with payers to coordinate member outreach.

The Bottom Line

While gamification presents tremendous promise, it also faces a number of challenges, including regulatory compliance issues. It will be more important than ever to carefully navigate these hurdles, particularly in the highly relegated healthcare industry.

To listed to this episode, click here.

AI Privacy Themes

The first presentation within the segment highlighted a study involving more than 10,000 participants and gauged their concerns around the intersection of AI and privacy.[2] The study uncovered four privacy themes: (1) data is at risk (the potential for misuse); (2) data is highly personal (it can be used to develop personal insights, manipulate or influence people); (3) data is often collected without awareness and meaningful consent; and (4) concern for surveillance and use by government. The presentation focused on how these themes should be addressed (and risks mitigated). For example, AI cannot function without data, yet the volume of data inevitably attracts threat-actors. Developers and stakeholders will need to responsibly develop AI and tailor it to security regulations. Obtaining data-subject consent and transparency are critical.

Privacy, Security, and Safety Considerations for LLMs

The second presentation discussed how LLM platforms are beginning to offer plug in ecosystems allowing for the expansion of third-party service applications.[3] While the third-party service applications enhance the functionality of the LLMs, such as ChatGPT, security, privacy, and safety are concerns that would need to be addressed. Due to ambiguities and imprecisions between the coding languages of the third-party applications and LLM platforms, these AI services are being offered to the public for use without addressing systemic issues of privacy, security, and safety.

The study created a framework to see how the stakeholders of the LLM platform, users and applications, can implement adversarial actions and attack each other. The study findings described that attacks can occur by: (1) hijacking the system by directing the LLM to behave a certain way; (2) hijacking the third-party application; or (3) harvesting the user data that is collected by the LLM. The takeaway from this presentation is that developers of LLM platforms need to emphasize and focus on security, privacy, and safety when creating these platforms to enhance the user experience. Further, once strong security policies are enacted, LLM platforms should clearly state and enforce those guidelines.

AI Functionality

The last presentation focused on AI functionality.[4] A study was conducted of an AI technology tool that served as an example of the fallacy of AI functionality. The fallacy of AI functionality is a psychological basis that leads individuals to trust the AI technology at face value under the assumption the AI works, all the while overlooking its lack of data validation. Consumers tend to assume the AI functionality and data output is correct, when it might not be. When AI is used in healthcare, this can lead to misdiagnosis and misinterpretation. Therefore, when deploying AI technology, it is important to provide validation data to ensure AI is providing accurate results. In the healthcare industry there are standards for data validation that have yet to be applied to AI. AI should not be exempt from the same level of validation analysis to determine whether the tool reaches the category of clinical grade. This study emphasizes the importance of the recent Transparency Rule (HT-1) which helps facilitate validation data and transparency.[5]

The study demonstrated that without underlying transparency and validation data, users struggle to evaluate the results provided by the AI technology. Overall, it is important going forward to validate AI technology to correctly classify and categorize it, allowing users to judge what value to attribute to the AI’s results.

As the development and deployment of AI grows, healthcare organizations need to be prepared. Healthcare organization leadership should establish committees and task forces to oversee AI governance and compliance and address the myriad issues that arise out of the use of AI in a healthcare setting. Such oversight can help address the complex challenges and ethical considerations that surround the use of AI in healthcare and help facilitate responsible AI development with privacy in mind, while keeping ethical considerations at the forefront. The AI segment of FTC’s PrivacyCon helped raise awareness around some of these issues, reminding about the importance of transparency, consent, validation and security. Overall, the presentation takeaways underscore the multifaceted challenges and considerations that arise with the integration of AI technologies in healthcare.

FOOTNOTES

[1] Carolyn Metnick and Carolyn Young, SheppardMullin Healthcare Law Blog, Healthcare Highlights from FTC’s 2024 PrivacyCon (Apr. 5, 2024).

[2] Aaron Sedley, Allison Woodruff, Celestina Cornejo, Ellie S. Jin, Kurt Thomas, Lisa Hayes, Patrick G. Kelley, and Yongwei Yang, “There will be less privacy of course”: How and why people in 10 countries expect AI will affect privacy in the future.

[3] Franziska Roesner, Tadayoshi Kohno, and Umar Iqbal, LLM Platform Security: Applying a Systematic Evaluation Framework to OpenAI’s ChatGPT Plugins.

[4] Batul A. Yawer, Julie Liss, and Visar Berisha, Scientific Reports, Reliability and validity of a widely-available AI tool for assessment of stress based on speech (2023).

[5] U.S. Department of Health and Human Services, HHS Finalizes Rule to Advance Health IT Interoperability and Algorithm Transparency (Dec. 13, 2023). See also Carolyn Metnick and Michael Sutton, Sheppard Mullin’s Eye on Privacy Blog, Out in the Open: HHS’s New AI Transparency Rule (Mar. 21, 2024).

Context and Legislative History

If enacted, the law would impact transactions entered into on or after January 1, 2025. However, passage of the proposed legislation is by no means guaranteed. AB 3129 must pass out of the Judiciary Committee and survive an Assembly vote before moving through an analogous process in the California Senate. All of this must occur before the legislative session closes at the end of August.

Putting aside the creation of OHCA through the passage of SB 184 in 2022, previous bills that have similarly attempted to regulate health care consolidation, such as AB 2080 (the Health Care Consolidation and Contracting Fairness Act of 2022), have not passed. However, AB 2080 proposed a wider scope of entities and transactions requiring AG consent, and would have gone further to ban numerous provisions in health care agreements deemed to be anticompetitive. Members of the California legislature could be more amenable to AB 3129’s narrower scope.

The ultimate fate of AB 3129 will be clearer by early July, when the legislature is tasked with passing this year’s budget bill before the start of its summer recess.

Who Would Be Required to File and Obtain Approval from the State?

The bill targets “private equity groups” and “hedge funds” that directly or indirectly acquire a material amount of, or establish a change in governance or sharing of control over, health care assets. The change of control can occur through a wide range of arrangements, including partnerships and joint ventures.

Private equity groups are defined to include any “investor or group of investors who engage in the raising or returning of capital and who invests, develops, or disposes of specified assets,” while hedge funds include any pool of funds managed by investors, including private limited partnerships, to earn investment returns. These definitions as currently drafted appear to cover a wide range of investment strategies and approaches, including venture capital investments.

Which Health Care Assets are Covered?

AB 3129’s prior approval requirement would apply when the aforementioned investors acquire control of a health care facility or provider group doing at least a “substantial part” of their business in California. The bill broadly defines “health care facility” to include any “nonprofit or for-profit corporation, institution, clinic, place, or building where health-related physician, surgery, or laboratory services are provided,” such as inpatient and outpatient centers, long-term care facilities, and even labs. Covered provider groups include all groups of 10 or more licensed health professionals (LHPs) or groups of 2-9 LHPs with $10 million or more in annual revenue.

Private equity groups and hedge funds that enter into an otherwise covered transaction with providers consisting of 2-9 LHPs that earn between $4 and $10 million in annual revenue would be required to notify the AG, but the transaction is not subject to approval. The same is true for groups of 2 or more nonphysician LHPs that earn more than $4 million annually.

While not expressly contemplated by the bill text, certain health care entity structures may also fall under the scope of AB 3129, depending on operational details. For example, Program of All-Inclusive Care for the Elderly (PACE) organizations, which under Medicare and Medicaid provide comprehensive health care services to elderly patients, could fall within the definition of health care facility due to the requirement that they operate at least one care center offering primary care services. It remains to be seen whether the legislative text will be modified further to clarify whether more specific health care lines of business are included within the scope of the law.

Filing Timing & Burden

Parties engaging in covered transactions would be required to file an application for AG approval at the same time as any other state or federal transaction notifications, or otherwise at least 90 days prior to the change of control. These concurrent notifications include the recently enacted cost and market impact review (CMIR) reporting regime administered by OHCA and the federal HSR filing, and any other pre-transaction notification requirements applicable to the health care asset.

The exact form of the filing and list of required information and documentation is not yet delineated, but minimally would require sufficient information for the AG to assess whether the transaction may have anticompetitive effects or significantly affect access to health care, and is generally in the public interest. The AG may request supplemental information and may impose a corresponding additional 45-day waiting period, and may deny or impose conditions on the proposed transaction following its review.

Failing Firm Exemption

In keeping with the stated goal to improve health care access and competition, the bill provides an exemption from the necessary notice and approval where the health care asset is financially unviable without the transaction. A party may apply for a waiver only if 1) the asset’s costs have exceeded its revenue for the previous three years or it cannot meet its debts, and 2) there is a substantial risk of immediate failure or bankruptcy.

Friendly PC and CPOM Implications

Additionally, the proposed legislation would have a significant impact on a contracting structure many PE and other investors and stakeholders utilize to carry out investments while navigating California’s prohibition on the corporate practice of medicine (CPOM)—the “Friendly PC-MSO Model.” This model can take different forms, but essentially involves a PE or lay person-controlled management services organization (MSO) contracting to perform administrative services for a health care practice in return for a management fee, while also having certain rights regarding the ability to designate successor ownership of the practice upon the occurrence of certain triggering events. As currently drafted, § 1190.40(b) of the bill could render the Friendly PC-MSO Model unviable (or at least more difficult to employ) by prohibiting any physician practice from contracting with any entity controlled “by a private equity group or hedge fund in which that private equity group or hedge fund manages any of the affairs of the physician…practice in exchange for a fee.”

Planning Ahead

While the passage of AB 3129—and its final form—are far from certain, parties contemplating affected transactions should begin factoring potential enactment into their timelines. Investor consolidation of health care assets has been a hot topic among state and federal enforcement agencies alike,[2] and there is good reason to believe that should AB 3129 be enacted, California would scrutinize all required filings closely.

FOOTNOTES

[1] See our blog series on SB 184, OHCA and its CMIR regulations, available at:

• California Office of Health Care Affordability: Another Regulatory Hurdle for California Healthcare M&A Transactions?, published 3/3/23.
• Update from California’s Office of Health Care Affordability (OHCA): Proposed Regulations re Material Change Transactions and Pre-Transaction Review, published 8/3/23.
• Public Workshop for OHCA’s Proposed Regulations Sparks Lively Discussion Among Industry Stakeholders, published 9/7/23.
• OHCA’s Revised Regulations Following Comments from Industry Stakeholders, published 10/24/23.
• OHCA Published Near-Final Draft of Regulations Requiring Notice and Review of Material Healthcare Transactions in 2024, published 12/6/23.
• The Stage is Set: California Finalizes OHCA Regulations Requiring Notice and Review of Material Healthcare Transactions, published 1/2/24.

[2] https://www.sheppardhealthlaw.com/2024/03/articles/federal-trade-commission/the-ftc-hosts-workshop-on-private-equity-in-health-care/

Shifting Regulatory Landscape

Current Regulation. MAOs must comply with the requirements and compensation caps applicable to agent and broker remuneration, set forth in 42 CFR § 422.2274.[i] Currently, agents or brokers can receive “compensation”– including commissions, bonuses, gifts, prizes or awards – set at or below fair market value (“FMV”), for each MA beneficiary’s enrollment into an MA plan in the initial enrollment year and up to 50% of FMV for enrollment in a renewal year.[ii]

If an MA agent or broker engages in services other than beneficiary enrollment, or “administrative” services (e.g., agent recruitment, training, operational overhead, customer service, assistance with completion of health risk assessments), payment “must not exceed the value of those services in the marketplace.”[iii] These “administrative payments” can be based on enrollment, so long as the “payments are at or below the value of those services in the marketplace.”[iv]

In addition, MAOs may also reimburse individuals for referrals. A referral includes a “recommendation, provision, or other means of referring beneficiaries” to an MA agent, broker, or other entity for enrollment purposes.[v] A referral payment “may not exceed $100 for a referral into an MA or MA–PD plan and $25 for a referral into a PDP plan.”[vi]

Final Rule. In November 2023, CMS proposed a new rule to revise 42 CFR § 422.2274 and “enhance guardrails” for MA agent/broker compensation.[vii] CMS published the final rule on April 4, 2024, which will go into effect on October 1, 2024.[viii] 

While CMS has already implemented upper limits on agent/broker compensation, it claims that “many MA and PDP plans, as well as third-party entities with which they contract (such as Field Marketing Organizations (FMOs)) have structured payments to agents and brokers that that allow for separate payments for these agents and brokers and have the effect of circumventing compensation caps.”[ix] The final rule revises the definition of “compensation” to set a single compensation rate for all plans, removes “administrative” payments, and prohibits contractual terms between MAOs and agents/brokers that may interfere with the agent/broker’s ability to objectively assess and recommend a plan that best fits a beneficiary’s health needs.

CMS notes a shift in the MA marketplace, as MAOs have “increasingly consolidated,” resulting in centralized, increased capital to spend on agent/broker marketing, incentives, and other bonus payments that many smaller MAOs cannot afford.[x] Because many of these bonus payments are categorized as “administrative” rather than “compensation,” CMS states that the MAOs can operate “outside and potentially in violation of” the regulatory compensation caps.[xi] CMS claims that greater financial incentives “distort” the marketing tactics of agents/brokers, who may encourage a beneficiary to enroll in a plan that will offer the agent/broker a substantial administrative payment, even though the MA plan may not be the best fit for the beneficiary’s health needs.[xii] While current regulations are designed to prohibit agents/brokers from engaging in marketing tactics that mislead or confuse beneficiaries, CMS believes additional payment limitations are necessary to address the rise in MA marketing complaints.[xiii]

CMS also expresses continued concern surrounding third party marketing organizations (“TPMOs”), including Field Marketing Organizations (“FMOs”), which employ agents/brokers and engage in MA marketing activities, including lead generating (i.e., an FMO obtains information about potential enrollees and provides their affiliated agents/brokers with their contact information for MA plan enrollment purposes).[xiv] Because FMOs have also consolidated into large, often private equity backed or publicly traded companies, larger MAOs continue to increase the administrative payments to these entities, contributing to CMS’ (and HHS OIG’s) concern about the unlevel playing field among plans and the double dipping effect, as both the FMO and agent/broker may receive administrative payments for the same enrollment.[xv]

The goal of CMS’ final rule is “to deter anti-competitive practices engaged in by MA organizations, agents, brokers, and TPMOs that prevent beneficiaries from exercising fully informed choice and limit competition in the Medicare plan marketplace among Traditional Medicare, MA plans, and Medigap plans.”[xvi] The current regulation and finalized changes to 42 CFR § 422.2274 are outlined below (with changes highlighted in bold):

CMS requested comments regarding the proposed rule through January 5, 2024 and over 1,500 comments were received.[xvii] The Office of Information and Regulatory Affairs (“OIRA”) recently completed regulatory review of the proposed rule on March 29, 2024, and published the final rule shortly thereafter.[xviii] 

Government Inquiry & Enforcement

Congressional Scrutiny. Although MA agent and broker compensation has been on the Congressional agenda since 2008,[xix] Congress renewed its focus in 2022 after an uptick in complaints surrounding alleged deceptive broker advertising, an increase in robocalls, and the enrollment of beneficiaries into MA plans without their consent.[xx] As open enrollment kicked off last fall, and following CMS’ implementation of additional broker marketing regulations,[xxi] the Senate Finance Committee held a hearing on MA broker and agent marketing practices to emphasize the importance of objective advertising, protections for beneficiaries, and effective broker payment schemes.[xxii]

In January of this year, the Senate Finance Committee opened an investigation into MA brokers, sending letters to multiple TPMOs to gain a better understanding into how they market to potential MA beneficiaries.[xxiii] The letters include questions about how FMV is determined for brokers’ services (i.e., enrollment and member onboarding) and how TPMOs ensure that any inducements are not used to procure names on a lead generator purchased list or that any gifts are of nominal value.

DOJ & HHS OIG Enforcement. The DOJ has identified “protecting the Medicare Advantage program” as a “significant health care fraud priority” in 2024 and is focused particularly on the role of third parties, like brokers and agents.[xxiv] Enforcement efforts by DOJ and HHS OIG have focused on alleged violations of the Anti-Kickback Statute (“AKS”) and False Claims Act (“FCA”). The AKS prohibits offering or accepting kickbacks in exchange for referrals for, recommendations of, and arrangement of the order or purchase of items or services reimbursed by federal health care programs.[xxv] This prohibition applies to MAOs, TPMOS, FMOs, and agents or brokers who are paid to encourage beneficiaries to enroll in an MA plan, since MA is funded by the federal government, unless such arrangements fit within an applicable AKS safe harbor. This type of violation can also expose these organizations to FCA liability, as a claim arising from an AKS violation may also constitute a false or fraudulent claim for purposes of the FCA.[xxvi] The DOJ is currently investigating and pursuing a large number of these broker and agent arrangements under the FCA —a statute that is known to bring in hefty recoveries for the federal government and whistleblowers alike, given the availability of treble recoveries and substantial per-claim penalties. As of the date of this article, no court has weighed in yet as to whether or which of these broker or agent arrangements, in fact, violate the FCA. 

Takeaways & Next Steps

CMS’ final rule introduces a drastic shift in agent/broker compensation – mainly through the revised, all-inclusive definition of “compensation” and removal of “administrative” payments. MAOs, TPMOs, FMOS, and agents/brokers need to adapt quickly to ensure their contractual compensation arrangements align with the final rule. Impacted entities should also review CMS regulations governing agents and broker conduct generally to confirm compliance with all marketing and broker certification regulations, in addition to payment methodologies, in order to reduce the risk of AKS and FCA exposure.

With the final rule set to take effect on October 1, 2024 and the Congressional investigation ongoing, compliance with the updated regulation will be critical, and the Congressional inquiry will be telling as to whether Congress pressures CMS to implement additional regulations or Congress itself decides to take legislative action. Keep an eye on the Sheppard Mullin Healthcare Blog to stay up to date and in the know on the implications of the final rule and the Congressional investigation.

FOOTNOTES

[1] For more information on the final rule’s changes to the Part C and Part D marketing rules as well as other provisions of the final rule, please read our other blog post available here.

[i] 42 CFR 422.2274, available here; An MAO is defined as “a public or private entity organized and licensed by a State as a risk-bearing entity (with the exception of provider-sponsored organizations receiving waivers) that is certified by CMS as meeting the MA contract requirements.” An “MA Plan” means “health benefits coverage offered under a policy or contract by an MA organization that includes a specific set of health benefits offered at a uniform premium and uniform level of cost-sharing to all Medicare beneficiaries residing in the service area of the MA plan. See 42 CFR 422.2, available here. 

[ii] 42 CFR 422.2274(d), available here.

[iii] 42 CFR 422.2274(e), available here.

[iv] Id.

[v] 42 CFR 422.2274(f), available here.

[vi] Id.

[vii] Medicare Program; Contract Year 2025 Policy and Technical Changes, 88 Fed. Reg. 78476 (proposed Nov. 15, 2023), available here.

[viii] https://public-inspection.federalregister.gov/2024-07105.pdf

[ix] Id.

[x] Id.

[xi] Id.

[xii] Id.

[xiii] Id.

[xiv]Id.; see also Levinson, Daniel R., Beneficiaries Remain Vulnerable to Sales Agents’ Marketing of Medicare Advantage Plans, Dept. of Health & Human Servs., March 2010, available here.

[xv] Id.

[xvi] Id.

[xvii] https://www.regulations.gov/document/CMS-2023-0187-0376/comment

[xviii] https://mobile.reginfo.gov/public/do/eoDetails?rrid=416811

[xix] https://www.federalregister.gov/d/E8-21686

[xx] https://www.finance.senate.gov/imo/media/doc/Deceptive%20Marketing%20Practices%20Flourish%20in%20Medicare%20Advantage.pdf

[xxi] https://www.ecfr.gov/current/title-42/part-422/subpart-V

[xxii] https://www.finance.senate.gov/hearings/medicare-advantage-annual-enrollment-cracking-down-on-deceptive-practices-and-improving-senior-experiences

[xxiii] https://www.finance.senate.gov/chairmans-news/wyden-questions-medicare-marketers-business-tactics

[xxiv] https://www.justice.gov/opa/speech/principal-deputy-assistant-attorney-general-brian-m-boynton-delivers-remarks-2024

[xxv] 42 U.S. Code § 1320a–7b

[xxvi] Id.

Summarized below are key provisions of the Final Rule, which will be published in the Federal Register on April 23^rd.

Medicare Advantage/Part C and Part D Prescription Drug Plan Marketing

One area of the Final Rule that is receiving significant attention in the press is CMS’ changes to its marketing rules. The Final Rule changes in this area impact the sharing of beneficiary leads by third party marketing organization and the agent and broker compensation, including the terms of Medicare Advantage organizations’ (“MAOs”) and Part D sponsors’ contracts with agents, brokers, and third party marketing organizations (“TPMOs), including field marketing organizations (“FMOs”).

1. Distribution of Personal Beneficiary Data by TPMOs

In the CY2024 proposed rule, CMS proposed to a blanket prohibition on TPMOs distributing personal beneficiary data to other TPMOs. CMS did not finalize its proposed rule, but finalized a modified version that permits TPMOs to share personal beneficiary data with other TPMOs for marketing or enrollment purposes only if they first obtain express written consent from the relevant beneficiary. Moreover, the prior express written consent from the beneficiary to share the data and be contacted for marketing or enrollment purposes must be obtained separately for each TPMO that receives the data through a “clear and conspicuous” disclosure.

Prior express written consent will not be required in order for a TPMO to “warm transfer” a beneficiary to another TPMO as long as the beneficiary has verbally agreed or consented to be transferred during the live phone call. However, if the TPMO would need to share a beneficiary’s personal data with anyone that the beneficiary will not immediately be speaking with, the TPMO would need to receive prior express written consent from the beneficiary to share their personal data. 

The prior express written consent requirement applies to affiliated TPMOs as well as independent agents affiliated with the same FMO.

2. Agent and Broker Compensation

In recent years, CMS issued regulations and subregulatory guidance to address abusive marketing practices by TPMOs that sell MA and Part D plans. Please refer to our January 5, 2023, November 4, 2022 and May 16, 2022 blog posts for more information. However, these changes did not address how MA organizations and Part D sponsors compensate agents, brokers and other TPMOs, which CMS first regulated in 2008. Since then, CMS has seen the FMO landscape change from mostly smaller, regionally based companies to a largely consolidated group of large national private equity backed or publicly-traded companies.

Current regulations allow plans to pay initial and renewal commissions up to the fair market value (“FMV”) amounts annually established by CMS, referred to as “capped compensation”. Second, plans may pay “add-on” administrative payments for services other than the enrollment of beneficiaries so long as such payments do not exceed the value of those services in the marketplace. Third, plans may reimburse TPMOs for expenses incurred for marketing activities.

CMS suspects that agents and brokers are influenced by the amount and type of administrative payments they expect to receive, directly or on their employer’s behalf, to engage in high pressure tactics that may confuse beneficiaries and contribute to increasing MA marketing complaints. In addition, CMS expressed concern about payments made from MAOs to FMOs for services that do not relate directly to enrollments. These services may include training, material development, customer service, direct mail, and agent recruitment. CMS is concerned that increased fees paid to larger, often national, FMOs have created a “bidding war” among MAOs with anti-competitive results.

To address these concerns, the Final Rule focuses on payment structures among MAOs[1] and agents, brokers, and TMPOs that may incentivize agents or brokers to prioritize one plan over another regardless of each beneficiary’s needs. Specifically, the Final Rule makes three key changes:

• First, the Final Rule prohibits anti-competitive provisions in an MAO’s contract with an agent, broker, or other TPMO with the direct or indirect effect of creating an incentive that would reasonably be expected to inhibit an agent’s or broker’s ability to objectively assess and recommend which plan best meets the healthcare needs of a beneficiary. For example, contract terms that make renewal or other terms of the contract contingent upon preferentially high rates of enrollment will be prohibited beginning with activities related to the 2025 contract year. CMS expects to review contracts as part of routine monitoring, as well as relying on complaints and other methods of investigation, and work conducted by the Office of the Inspector General, to enforce this regulation.
• Second, the Final Rule redefines “compensation” to include payments for activities previously excluded under that definition and will change the capped compensation payments to set fixed rates to be paid by all plans. As a result, CMS will remove the current compensation reporting requirement because all agents and brokers will be paid the same moving forward.
• Third, CMS has eliminated separate payments for administrative services and such payments will be included in the definition and calculation of enrollment-based compensation for agents and brokers. Following widely varying comments from stakeholders, the final national agent/broker fixed compensation amount for initial enrollments will be raised by $100, compared to only $31 as proposed. This means that the FMV will increase to account for administrative payments at a rate determined annually, beginning at $100 in 2025.

In response to comments, CMS clarified that the Final Rule’s provisions are limited to independent agents and brokers, and do not extend to TMPOs more generally. Therefore, the Final Rule limits payments in excess of those paid under “compensation” only for commissions paid for enrollments to independent agents and brokers. It does place limitations on payments from an MAO to a TPMO that is not an independent agent or broker for activities that are not undertaken as part of an enrollment by an independent agent or broker. However, CMS is continuing to consider future rulemaking in this area.

For an in-depth analysis of CMS’ new agent and broker compensation rule, please read our other blog post available here.

Improving Access to Behavioral Health Care Providers

The Final Rule adopts the proposals of the proposed rule, and also adds specific criteria for the inclusion of some nurse practitioners (“NPs”), physician assistants (“PAs”), and clinical nurse specialists (“CNSs”) in the new Outpatient Behavioral Health facility-specialty type to meet updated network adequacy requirements. The Final Rule expands MA network adequacy requirements to encompass outpatient behavioral health in order to improve access to behavioral health care providers. CMS adds a facility-specialty type called “Outpatient Behavioral Health” to (1) the list of facility-specialty types that are evaluated for network adequacy standards and (2) to the published time and distance standards.

The “Outpatient Behavioral Health” facility-specialty type can include Marriage and Family Therapists (“MFTs”), Mental Health Counselors (“MHCs”), Community Mental Health Centers (“CMHCs”), Opioid Treatment Programs (“OTPs”), and certain other practitioners who regularly furnish behavioral health counseling or therapy services. The inclusion of MFTs and MHCs was spurred by the Consolidated Appropriations Act, 2023, which authorized payment for services furnished by these providers, and the CY2024 Physician Fee Schedule final rule, which permitted MHCs to enroll in Medicare.

To address concerns from commenters that some NPs, PAs, and CNSs might lack the necessary skills, training, or expertise to effectively address the behavioral health needs of enrollees, the Final Rule establishes a standard to identify when an NP, PA, or CNS regularly furnishes, or will furnish, behavioral health counseling or therapy services, including psychotherapy or medication prescription for substance use disorders (“SUDs”). For an NP, PA, or CNS to satisfy the Outpatient Behavioral Health network adequacy standards, the NP, PA, and/or CNS must have furnished certain psychotherapy or SUD prescribing services to at least 20 patients within the previous 12-months. MAOs must independently verify that the provider has met that standard using reliable information about services furnished by the provider such as the MAO’s claims data, prescription drug claims data, electronic health records, or similar data.

Additionally, CMS finalized its proposal to add a “Outpatient Behavioral Health” to the list of specialty types that are eligible to receive a ten percent (10%) point credit towards the percentage of beneficiaries that reside within published time and distance standards for certain providers when the plan includes one or more telehealth providers of that specialty type that provide additional telehealth benefits in its contracted network.

Special Supplemental Benefits for the Chronically Ill (“SSBCI”)

Under the Final Rule, CMS established new requirements for MAOs plans to demonstrate that special supplemental benefits for the chronically ill or “SSBCI” that they offer meet the threshold of having a reasonable expectation of improving or maintaining the health or overall function of chronically ill enrollees. These requirements include the following and will apply during the CY2025 bid process and subsequent years.

• MAOs must establish and maintain a bibliography of relevant research studies or other data to demonstrate that an item or service offered as a SSBCI has a reasonable expectation of improving or maintaining the health or overall function of a chronically ill enrollee. The bibliography must be made available to CMS upon request. 
• MAOs must follow their written policies based on objective criteria for determining an enrollee’s eligibility for an SSBCI when making such eligibility determinations.
• MAOs are required to document both denials and approvals of SSBCI eligibility.

CMS also codified its authority to (1) review and deny approval of an MAO’s bid if the MAO has failed to demonstrate, through relevant acceptable evidence, that its proposed SSBCI has a reasonable expectation of improving or maintaining the health or overall function of a chronically ill enrollee; and (2) review SSBCI offerings annually for compliance purposes, considering the evidence available at the time. These revisions are aimed at ensuring that the benefits offered as SSBCI are reasonably expected to improve or maintain the health or overall function of the chronically ill enrollee while also guarding against the use of MA rebate dollars for SSBCI that are not supported by acceptable evidence.

Additionally, to promote transparency and protect beneficiaries from misleading or confusing marketing practices, the Final Rule modifies the SSBCI disclaimer requirements for MAOs by requiring that such disclaimers: (1) list the relevant chronic condition(s) the enrollee must have to be eligible for the SSBCI offered by the MA plan; (2) convey that, even if the enrollee has a listed chronic condition, the enrollee may not receive the benefit because other coverage criteria also apply; (3) establish specific font and reading pace parameters for the SSBCI disclaimer on various advertising platforms; and, (4) clarify that MAOs must include the SSBCI disclaimer in all marketing and communications materials that mention SSBCI.

Mid-Year Enrollee Notification of Available Supplemental Benefits

MAOs are permitted to offer mandatory supplemental benefits, optional supplemental benefits, and SSBCIs. Although the number of MA rebates quintupled from $12 billion in 2014 to $67 billion estimated for 2024, CMS has received reports that MAOs have observed low utilization of supplemental benefits by their enrollees. Currently, there is no specific requirement for MAOs to conduct outreach to enrollees to encourage utilization of supplemental benefits, beyond general care coordination requirements. However, to ensure enrollees are aware of the availability of supplemental benefits and ensure appropriate utilization, beginning January 1, 2026, CMS will require MAOs to issue mid-year notices to enrollees regarding unused benefits.

CMS has expressed concern that some MAOs are primarily using supplemental benefits as marketing tools to steer enrollment towards their plans but are not taking steps to ensure that enrollees are using their benefits or tracking if the supplemental benefits are improving health, or quality of care outcomes, or addressing social determinants of health. CMS believes that targeted communications specific to the utilization of supplemental benefits may help further inform beneficiaries of their covered benefits available during the plan year.

MAOs will be required to mail a personalized mid-year notice annually, but not sooner than June 30 and not later than July 31 of the plan year to each enrollee with information pertaining to each supplemental benefit available during that plan year that the enrollee has not accessed during the first six months of the year. In addition, the mid-year notice must include the scope of the supplemental benefit(s), applicable cost cost-sharing, instructions on how to access the benefit(s), list the benefits consistent with the format of the Evidence of Coverage (“EOC”), and a toll-free customer service number including, as required, a corresponding TTY number, to call if additional help is needed. 

The mid-year notice requirement is designed to help make consumers more aware of their plan benefits, facilitate better decision-making in the MA marketplace, and achieve policy goals that advance health equity by further ensuring more equitable utilization of supplemental benefits offered by MAOs.

Annual Health Equity Analysis of Utilization Management Policies and Procedures

In April 2023, CMS established a requirement for MAOs to create utilization management (“UM”) committees to address the barriers that prior authorization (“PA”) used as a UM practice can create for enrollees who need access to medically necessary care. In its CY2025 proposed rule, CMS proposed to change the composition and responsibilities of the required UM committees to ensure a health equity focus, based on research which shows that the use of PA may disproportionately impact individuals who have been historically underserved, marginalized, and adversely affected by persistent poverty and inequality. The composition and responsibility changes included: (1) the addition of at least one member with health equity expertise to each UM committee; (2) the production of an annual health equity analysis on the use of PA by each UM committee; and (3) the publication of the health equity analysis results on the websites of the MA plans. 

Based on the comments received, CMS finalized its proposal, but clarified the exclusion of drugs from the scope of the reporting and health equity analysis metrics to align the Final Rule with the 2024 Interoperability Final Rule and to ease the burden on the MAOs that will be gathering, validating, and formatting the data.

The deadline for the publication of MAOs’ first health equity analyses is July 1, 2025.

Increasing the Percentage of Dually Eligible Managed Care Enrollees Who Receive Medicare and Medicaid Services from the Same Organization

CMS finalized several significant changes designed to enhance patient experience and health outcomes by increasing the percentage of full-benefit dually eligible MA enrollees who are in plans that are also contracted to cover Medicaid benefits. These changes aim to strengthen and reflect care coordination strategies that have been deployed at both the state and federal level over the past decade.

To facilitate expanded care coordination, integration, and access for dually eligible beneficiaries, the final rule:

• replaces the current quarterly special enrollment period (“SEP”) with a continuous, one-time-per month SEP for dually eligible individuals and others enrolled in the Part D low-income subsidy (“LIS”) program to elect a standalone prescription drug plan (“PDP”);
• creates a new integrated care SEP to allow dually eligible individuals to elect an integrated dual eligible special needs plan (“D-SNP”) on a monthly basis;
• limits enrollment in certain D-SNPs to those individuals who are also enrolled in an affiliated Medicaid managed care organization (“MCO”); and
• limits the number of D-SNP plan benefit packages an MAO organization, its parent organization, or entity that shares a parent organization with the MAO, can offer in the same service area as an affiliated Medicaid MCO.

Many commenters expressed support for these changes, stating that such initiatives would simplify provider billing, mitigate choice overload, strengthen integrated care plans, and promote unified appeals and grievance processes. While a few commenters noted that the proposed changes may result in short-term disruptions to care, in the long term, the increase in the percentage of dually eligible individuals receiving integrated care would likely result in improved care coordination, access to services, health outcomes, and enrollee experience.

According to CMS, by limiting the number of plans that can enroll dually eligible individuals outside of the annual election period, the rule will also help reduce the volume of aggressive and confusing marketing tactics directed toward dually eligible individuals throughout the year. In addition, these policies advance the goals of President Biden’s Competition Council and Executive Order signed in July 2021 by prioritizing beneficiary choice and facilitating improved access to an array of Medicare coverage options for low-income individuals.

Amendments to Part C and Part D Reporting Requirements

CMS is solidifying its authority to collect information from MAOs and Part D sponsors. Under the Final Rule, CMS amends 42 C.F.R. §§ 422.516(a)(2) and 423.514(a)(2) so that the reporting requirements imposed upon MAOs and Part D Plan sponsors include procedures relating to coverage, utilization (in the aggregate and at the beneficiary level), and the actions required of beneficiaries to obtain covered services or items. This should provide greater insight into UM utilization management and prior authorization practices. Further, the revised regulations clarify that the MA and Part D reporting requirements are not limited to statistical or aggregated data under §§ 422.516(a)(2) and 423.514(a)(2). CMS emphasizes that this is in line with the Biden-Harris Administration’s effort to enhance transparency and data in Part C and Part D plans.

Further, in response to comments from stakeholders, CMS amended MAOs reporting requirements under 42 C.F.R. § 422.516(a)(2) to protect the confidentiality of patients’ relationships with a broader range of providers, rather than just doctors. Commenters had noted that a diverse range of health care professionals deliver care to patients, and CMS agreed and chose to revise the regulation increase confidentiality protections for patients.

Expansion of Enrollees’ Appeal Rights for Medicare Advantage Plan’s Decision to Terminate Coverage for Non-Hospital Provider Services

The Final Rule takes several key steps to align appeal rights afforded to MA enrollees with those historically available to traditional Medicare enrollees. Specifically, MA enrollees enjoy an appeal right which is normally triggered when an MAO delivers a Notice of Medicare Non-Coverage (“NOMNC”) relating to certain non-hospital provider services, including services in a home health agency, skilled nursing facility, or a comprehensive outpatient rehabilitation facility.^[2] A NOMNC ordinarily outlines the appeal process as well as a deadline by which an enrollee should submit his/her appeal.^[3]

Significantly, both traditional Medicare and MA enrollees have the right to a fast-track appeal by an Independent Review Entity (“IRE”).^[4] The Quality Improvement Organization (“QIO”) ordinarily fills the role of an IRE, but where an enrollee fails to submit an appeal by the deadline set forth in the NOMNC, MA Plan enrollees forfeit their right to a fast-track appeal with the QIO but may appeal to the MAO itself, whereas traditional Medicare enrollees do not forfeit the right to submit an untimely appeal to the QIO.^[5] Many in the industry complained that this distinction produced disparities in access, particularly with respect to post-acute care.

The Final Rule works to align QIO access rights by allowing MA enrollees to access the fast-track appeal process provided through the QIO even where the appeal is untimely, similarly to the path currently available to traditional Medicare enrollees. Not only will MA enrollees have access to the fast-track option, but the QIO would also assume responsibility for the review of those appeals by replacing the MAO’s current review role.

Separately, the Final Rule also eliminates the automatic forfeiture of an MA Plan enrollee’s right to appeal a termination of non-hospital provider services which is ordinarily triggered where the enrollee leaves a facility or otherwise ends the services at issue prior to the appeal deadline set forth in the NOMNC.^[6] Historically, traditional Medicare enrollees have retained the right to appeal to the QIO regardless of whether the services ended prior to a deadline set forth in an NOMNC.

Changes to an Approved Formulary— Including Substitutions of a Biosimilar Biological Products

CMS finalized many aspects of the proposed rule, which introduced changes that would permit more flexibility for enrollees in the cost and accessibility of drug products available under their Part D plans. Under the proposed changes, Part D plans would be able to expedite the process of substituting lower cost biosimilar biological products for their reference products providing enrollees with greater accessibility to biosimilar biological and generic drugs which are often less expensive while being equally effective as their reference product counterpoint.

In response to comments surrounding enrollee accessibility concerns, CMS reiterated that Part D sponsors have always had the ability to add Part D drugs or biosimilars to their formularies where the sponsors have determined the drugs were necessary for enrollees’ treatment. Currently, if a Part D sponsor seeks to make a formulary change that replaces a reference product with a biosimilar biological product, other than an interchangeable biological product, the sponsor must first obtain explicit approval from CMS and must provide 30 days advance notice to affected enrollees prior to removing or otherwise changing the tiered cost-sharing status of a Part D drug absent certain considerations that qualifies the formulary change for an immediate substitution. Further, even if the replacement is approved by CMS, enrollee access is still restricted as the Part D sponsor can only apply the approved change to enrollees who begin their treatment after the effective date of change, effectively preventing enrollees already on the reference product from changing to the replacement biosimilar biological product through the remainder of the plan year, absent an approved exception.

In the Final Rule, CMS took the extra step to establish and codify approval and notice requirements for different formulary changes, noting that these requirements “strike the appropriate balance” between protecting enrollees and allowing Part D sponsors the flexibility to establish formularies which reflect the latest market developments and clinical guidelines. Specifically, for drugs currently provided on a formulary CMS is permitting the following changes:

1. immediate substitutions of corresponding drugs, such as new generic drugs for brand name drugs and interchangeable biological products for reference products;
2. immediate removal of drugs withdrawn from sale by their manufacturer or that FDA determines to be withdrawn for safety or effectiveness reasons;
3. maintenance changes, which include substitutions of generic drugs for brand name drugs that are not being made on an immediate substitution basis; substitutions of interchangeable biological products for their reference products; and removals based on long term shortage and market availability;
4. non-maintenance changes, which can only be made if CMS provides explicit approval and which do not apply to enrollees currently taking the applicable drug; and
5. enhancements to the formulary (for instance, Part D sponsors can add a drug to the formulary or lower its cost-sharing), which can be made at any time.

The 30-day notice advance notice requirement set forth in the proposed rule still applies under this Final Rule. Further, CMS declined suggestions that sponsors should not be required to provide direct notice of immediate substitutions to affected employees. Instead, in the case of immediate changes to the formulary, Part D sponsors are required to provide advance general notice to beneficiaries describing the types of changes in place of advance direct notice which should include language that enrollees will receive direct notice of any specific changes to drugs that the enrollees are currently taking. Further, Part D sponsors will be required to provide retroactive direct notice to affected enrollees in addition to updating online formularies on a monthly basis. This similarly aims to strike a balance between providing enrollees with proper notice of changes to their drugs and treatment while providing sponsors some flexibility, especially in the case of providing notice for immediate substitutions.

With respect to formulary changes substituting biosimilar biological products, CMS confirms in the Final Rule that biosimilar biological products and interchangeable biological products remain separate categories and are not to be used similarly. CMS responded to commenters on this issue and reiterated that the substitution of biosimilar biological products, the broader category of substitute products which includes interchangeable biological products, remains a “maintenance change.” CMS notes that while it is the agency’s goal to promote greater use of biosimilar biological products, ultimately, they looked to state requirements with respect to pharmacy-level substitutions of biosimilar biological products. In doing so, CMS identified that states primarily require health care provider intervention in order to substitute a biosimilar biological product for a reference product, whereas interchangeable biological products can be substituted without consulting a provider. And since pharmacists cannot substitute a biosimilar product without the intervention of a health care provider, CMS relies on this to reassert that any substitutions of biosimilar biological products should constitute maintenance changes requiring 30-days advance notice. The 30-day advance notice is intended to provide patients with the time obtain new prescriptions for the biosimilar biological products or to obtain formulary exceptions for the reference products. As CMS emphasized in the proposed rule, the categorization of biosimilar biological products substitution as “maintenance changes” and the difference in treatment of biosimilar biological products as compared to interchangeable biological products is derived from FDA’s stringent approval standards and strict regulation of the manufacturing standards applicable to both biosimilar biological products and reference products, so healthcare providers and patients can take comfort in knowing that the safety and efficacy of biosimilar biological products are consistent with existing reference products.

Other Changes

Other changes made by the Final Rule include:

1. D-SNP PPO Cost-Sharing – CMS finalized limits on out-of-network cost sharing for D-SNP provider organizations (“PPOs”) for certain Part A and Part B benefits, on an individual service level beginning in 2026. The changes are intended to reduce cost-shifting to Medicaid, increase payments to safety net providers, expand dual eligible enrollees’ access to providers, and protect dual eligible enrollees from unaffordable costs.
2. D-SNP Look-Alike Plans – CMS lowered the D-SNP look-alike threshold from 80% to 70% in 2025 and to 60% in 2026. This change is intended to address the continued proliferation of MA plans that are serving high percentages of dual eligibles without meeting the requirements to be a D-SNP and promoting full implementation of requirements for D-SNPs, including minimum integration standards.
3. Risk Adjustment Data Validation (“RADV”) Appeals Process – CMS finalized changes to its RADV appeals process whereby MAOs will not request both a medical record review determination appeal and a payment error calculation appeal at the same time. MAOs that request a medical record review determination appeal may only request a payment error calculation appeal after the completion of the medical record review determination administrative RADV appeal process. The Final Rule also clarifies that CMS will not issue a revised audit report containing a recalculated payment error calculation at each level of appeal. Instead, CMS will issue a revised audit report when a medical record review determination appeal or a payment error calculation appeal is final, as applicable. Finally, the Final Rule includes a requirement that if the CMS Administrator does not decline to review or does not elect to review within 90 days of receipt of either the MAO’s or CMS’ timely request for review (whichever is later), the hearing officer’s decision becomes final.

For more information on the Final Rule or its implications for your business, please contact a member of the Sheppard Mullin Healthcare Team.

FOOTNOTES

[1] The Final Rule changes also apply to sponsors of standalone Part D plans.

[2] 42 C.F.R. § 422.626.

[3] 42 C.F.R. § 422.624.

[4] 42 C.F.R. § 422.626; 42 C.F.R.§ 405.1200, et seq.

[5] 42 C.F.R. § 422.626; 42 C.F.R.§ 405.1202, et seq.

[6] 42 C.F.R. § 422.626(a)(3).

In the Advanced Notice, CMS (i) provided notification of the changes it planned to make in the MA capitation rate methodology and risk adjustment methodology applied under Part C of the Medicare statute for CY 2025, (ii) discussed the annual adjustments for CY 2025 to the Medicare Part D benefit parameters for the defined standard benefit, and (iii) noted that the MA capitation rates and final payment policies for CY 2025 would be forthcoming. CMS received numerous comments in response to the Advanced Notice and settled on the rates and payment policies outlined here. CMS expects payments from the federal government to MA plans to increase by 3.70% or over $16 billion from 2024 to 2025 and the federal government to make $500 to $600 billion in MA payments to private health plans in 2025.

Growth Rates

Every year, CMS estimates the growth rates for the anticipated changes in per capita costs for non-End Stage Renal Disease (“ERSD”) beneficiaries receiving benefits under the Medicare Fee-for-Service (“FFS”) program or from Medicare health plans, such as MA plans, Section 1876 Cost plans, Program of All-Inclusive Care for the Elderly (“PACE”) programs, and Medicare-Medicaid Plans. Then, CMS averages those estimates to determine the Effective Growth Rate, which it uses to establish MA capitation rates. The Effective Growth Rate is the national average of the expected change in Medicare per capita costs from one year to the next. 

For CY 2025, the Effective Growth Rate is 2.33%. This is a change from the 2.44% Effective Growth Rate that CMS presented in the Advanced Notice. CMS stated that the change is attributable to the incorporation of additional payment data prior to the most recent calculation. Specifically, to get the most accurate estimate, CMS noted that it included Medicare FFS payments from the fourth quarter of 2023, an updated FFS enrollment base figure, and an updated medical education adjustment, all of which were unavailable at the time of the Advanced Notice. Comparably, the Effective Growth Rate for CY 2024 was very similar at 2.28%.

The medical education adjustment is a continuation of a technical update from the 2024 Medicare Advantage and Part D Rate Announcement (“CY 2024 Announcement”), which removes the medical education costs for services received by MA enrollees from the historical and projected expenditures supporting the FFS costs that are included in the growth rate calculations. The adjustment is occurring because CMS developed the capability to separate the MA payments from those made for services furnished to FFS beneficiaries. The adjustment is being phased in, and the final adjustment is set to occur in CY 2026.

Part C Risk Adjustment

In the CY 2024 Announcement, CMS also announced an update to the Part C Risk Adjustment Model with routine data updates and clinical updates to the Hierarchical Condition Categories (“HCCs”), which were necessary to develop a risk adjustment model using the ICD-10 diagnosis codes implemented in 2015. The CY 2025 Announcement now builds on that effort. Notable actions that CMS will take in CY 2025 include:

• continuing of the phase-in of the 2024 CMS-HCC model by blending 67% of the risk score calculated using the updated 2024 CMS-HCC risk adjustment model with 33% of the risk score calculated using the 2020 CMS-HCC risk adjustment model; and
• finalizing the CY 2025 Normalization Factors, which were calculated using a five-year multiple linear regression methodology and average historical FFS risk scores from 2019 through 2023.

According to CMS, the new CMS-HCC model will allow for more accurate risk calculations because it (i) accounts for more recent diagnoses and costs, (ii) has predictive accuracy for all demographic segments, and (iii) includes clinically meaningful conditions that predict costs using ICD-10 and with clinician input. Also, according to CMS, the new normalization factors will allow for CMS to account for FFS risk score trends between the time that the risk adjustment model was recalibrated with new FFS data and the MA payment year.

MA Risk Score Trend

CMS computes the MA risk score trend by averaging the increase in MA risk scores across MA plans. For CY 2025, CMS used a combination of the 2020 and 2024 CMS-HCC risk adjustment models to compute the MA risk score trends, based on the 2024 CMS-HCC risk adjustment model. Under the 2024 CMS-HCC model, the MA risk score trend for CY 2025 is 3.30%, and under the 2020 CMS-HCC model, the MA risk score trend for CY 2025 is 5.00%. Therefore, CMS calculated the MA risk score trend to be 3.86%, after combining 67% of the MA risk score trend under the 2024 CMS-HCC model and 33% under the 2020 CMS-HCC model. This blend of the CMS-HCC models is expected to represent a $9.2 billion net savings to the to the Medicare Trust fund in CY 2025. By CY 2026, all of the MA risk score trend is expected to be calculated using the 2024 CMS-HCC model.

MA Beneficiaries in Puerto Rico

Due to the proportion of Puerto Rico residents receiving MA benefits compared to FFS benefits is higher than any other US territory or state, CMS will adjust the FFS experience in Puerto Rico to reflect the propensity of zero-dollar beneficiaries nationwide in CY 2025. The policy adjustments relating to Puerto Rico will continue to provide stability for the MA program in the Commonwealth and for Puerto Ricans enrolled in MA plans. Furthermore, the policy is a response to comments on alternative adjustment approaches for MA beneficiaries in Puerto Rico.

Inflation Reduction Act Updates

In CY 2025, the Part D program will be amended pursuant to the Inflation Reduction Act (“IRA”). The amendments include a $2,000 cap on out-of-pocket expenses and the elimination of the coverage gap phase of the benefit, resulting in a three-phase benefit involving deductibles, initial coverage, and catastrophic coverage. Previously instituted IRA amendments, such as a $35 supply cap per month on cost sharing for covered insulin products and no cost-sharing for vaccines recommended by the Advisory Committee on Immunization Practices, will remain for CY 2025.

Part D Risk Adjustment

In connection with the revisions to the Part D benefits required by the IRA, CMS will update the Part D Risk Adjustment Model in CY 2025, which will result in an increase in plan liability due to the $2,000 out-of-pocket cost cap. The Part D Risk Adjustment Model will also have to be adjusted to reflect the elimination of the coverage gap phase and the shift from a four-phase structure to a three-phase structure. In an attempt to improve payment accuracy, CMS will also be recalibrating the Model for CY 2025 based on data from recent periods with an updated normalization methodology based on differences between MA-prescription drug plan and stand-alone prescription drug plan risk score trends.

Part C and D Ratings

In CY 2025, CMS will make measurement updates for the Part C and D Star Ratings. These updates codify disasters eligible for adjustment and measure specification updates. Also, as in prior years, CMS is considering potential new measure concepts and methodological enhancements. The new measure concepts and methodological enhancements may be helpful for organizations to review as they prepare comments to proposals in the future. 

Background: “Junk Insurance”[2]

“Junk insurance” refers to health insurance plans that offer limited coverage and often lack critical consumer protections. These plans typically provide minimal coverage for only a narrow range of medical services and frequently impose high-deductibles, copayments, and coinsurance, leaving policyholders vulnerable to high out-of-pocket costs for necessary healthcare such as prescription drugs, preventative care, maternity care, mental health services, and emergency treatments. Unlike comprehensive health insurance plans, “junk insurance” plans often are not subject to certain mandated protections that address pre-existing conditions limitations, waiting periods, excessive provider network restriction, or coverage rescission.

As noted in the Centers for Medicare & Medicaid Services Fact Sheet, published in connection with the Final Rules, one category of “junk insurance” is short-term, limited-duration insurance (“STLDI”). STLDI plans were originally intended to provide temporary coverage during transitions between comprehensive plans. STLDI plans fall outside the scope of “individual health insurance coverage,” as defined by the Public Health Service Act, and typically do not fall under the purview of federal individual market consumer protections and the mandates for comprehensive coverage. Despite such deficiencies, issuers have marketed these plans as long-term alternatives to ACA-compliant coverage. Another category of “junk insurance” is fixed indemnity excepted benefits. Traditionally, hospital indemnity and other fixed indemnity insurance has been used as a form of income replacement upon the occurrence of a health-related event, under which policyholders receive fixed cash benefits that can be utilized at their discretion, covering out-of-pocket expenses not included in comprehensive coverage or non-medical expenses such as rent or mortgage payments. In group markets, payments are fixed amounts per fixed term, while in the individual market, payments can be made per hospitalization, illness, or service. When these insurance plans meet certain payment standards and regulatory criteria, they are exempt from federal requirements and consumer protections applicable to comprehensive coverage.

Biden-Harris Administration’s Action[3]

The Departments of Health and Human Services (HHS), the Department of Labor, and the Department of the Treasury (collectively, the “Departments”) issued the Final Rules, which revise the federal definition of “STLDI” to cap the initial contract term at a maximum of three months and restrict the total coverage period to no more than four months, inclusive of any renewals or extensions. This is a significant restriction on such policies as the previous administration permitted STLDI total coverage periods of up to three years. Therefore, this restriction realigns the federal definition of STLDI with its intended, traditional role as temporary coverage and more clearly distinguishes it from comprehensive coverage for consumers. The revised STLDI definition further clarifies that an STLDI renewal or extension includes STLDI sold by the same issuer, or any issuer that is a member of the same controlled group, to the same policyholder within a year. The Departments have clarified that this provision aims to reduce the practice known as “stacking,” by which issuers provide separate, sequential STLDI policies that collectively evade duration limits. The Departments also refined the federal notice standard with respect to STLDI policies, requiring issuers to prominently display a notice that uses clear and concise language that distinguishes STLDI policies from comprehensive plans on the first page of the policy, certificate, contract of insurance, and any marketing materials.[4]

In addition to those changes to the STLDI regime, the Departments also revised the consumer notice standard applicable to fixed indemnity excepted benefits coverage in the individual market and set forth a new notice requirement in the group market.[5] Under the revised standards, issuers must prominently display a notice that clearly communicates the limitations of the coverage and highlights the differences between fixed indemnity excepted benefits coverage and comprehensive coverage in all policies, certificates, contracts of insurance, and marketing materials. Notably, however, the Departments have not yet finalized additional amendments regarding the payment standards and non-coordination requirement for fixed indemnity excepted benefits coverage, which were proposed in July 2023.

Intended Stakeholder Impact

According to the Press Release, increasing consumer understanding of short-term, limited-duration insurance and fixed indemnity excepted benefits coverage and making short-term plans truly short term will empower consumers to make decisions that are “more informed” with respect to the risks associated such types of coverage and options for comprehensive coverage. This is consistent with HHS’s stated goal of helping more people gain access to high-quality, affordable coverage. HHS Secretary Becerra stated that “We want everyone to have the peace of mind that comes with having coverage that includes the protections and benefits they expect.” This goal builds upon CMS’s stated commitment to “furthering the promises made by the ACA 14 years ago.”

FOOTNOTES

[1] The Final Rules were published by the Federal Register at 26 CFR Part 54 on April 3, 2024. See Fact Sheet on Final Rules and Press Release for the Final Rules, Ctrs. for Medicare & Medicaid Servs. (Mar. 28, 2024).

[2] See generally, 88 FR 44596 Section II, “Promoting Access to High-Quality, Affordable, and Comprehensive Coverage,” Subsection B “Risks to Consumers.”

[3] See generally, 88 FR 44596, Section III “Overview of the Final Regulations – The Departments of the Treasury, Labor, and Health and Human Services.”

[4] See 88 FR 44596, Section III “Overview of the Final Regulations – The Departments of the Treasury, Labor, and Health and Human Services”, Subsection A “Short-Term, Limited-Duration Insurance.”

[5] See 88 FR 44596, Section III “Overview of the Final Regulations – The Departments of the Treasury, Labor, and Health and Human Services”, Subsection B “Independent, Noncoordinated Excepted Benefits Coverage.”

In the healthcare privacy segment of the event, the FTC shined a spotlight on three privacy research projects that focused on: (1) tracking technology use by healthcare providers;[1] (2) women’s privacy concerns in the post Roe era;[2] and (3) the bias that can be propagated through large language learning models (“LLMs”). [3] Here are the key takeaways.

In light of newly published guidance from the Office of Civil Rights (“OCR”)[4] and increased FTC enforcement,[5] healthcare stakeholders are more aware than ever that certain tracking technologies are capable of monitoring a user’s activity and collecting user data from apps, websites, and related platforms, and that the technologies can reveal insights about an individual’s personal health status. According to the panel, roughly 90-99% of hospital websites have some form of tracking, which can include monitoring how far down the page someone scrolled, what links they clicked on, and even what forms they filled out.[6] This can reveal very personal information, such as treatment sought or health concerns, and it may be exploited in harmful ways. The presenters highlighted some examples:

• A person viewing information on dementia treatment may be flagged as potentially vulnerable to scams or phishing schemes.[7]
• Period tracking data can reveal if and when a user becomes pregnant and any early termination of such pregnancy. This data could potentially be used in investigations and related prosecutions where abortion treatment is criminalized.[8]

Additionally, despite the high personal stakes involved, healthcare data privacy concerns are simply not on people’s radars. In fact, even after the overturn of Roe v. Wade, users of period tracking apps remained largely unaware of these concerns despite the increased risks related to storing period and intimacy-related information.[9]

Lastly, the panel highlighted the ways in which bias in LLM training can lead to biased healthcare. To train an LLM, the model is fed large data sets, primarily extensive batches of textual information, and then rewarded for generating correct predictions based on that information. This means that the LLM may propagate the biases of its source material. In the case of healthcare, models are primarily trained with internet and textbook sources, some of which contain racial bias and debunked race-based medicine.[10] As a result, LLMs have been found to allege racist tropes including false assertions of biological differences between races such as lung capacity or pain threshold. This means medical centers and clinicians must exercise extreme caution in the use of LLMs for medical decision making and should not rely on it LLMs for researching patient treatment.

Ultimately, these presentations highlight a common theme for all platforms interacting with healthcare data – transparency is key. Use of LLMs should be accompanied by transparent disclosures of the potential biases and related risks. Websites and apps need to have clear and transparent policies around how user data is being collected and used. As seen with the OCR’s latest guidance released in March, the OCR is prioritizing compliance with the HIPAA Security Rule as it relates to tracking technologies.[11] Regulated entities should only use protected health information (“PHI”) collected by tracking technologies in accordance with the Health Insurance Portability and Accountability Act (“HIPAA”),[12] which involves, in part, ensuring that the disclosures and uses are permitted by the Privacy Rule after identifying whether any PHI is involved (neither of which is often straight-forward). For transparency purposes, regulated entities should identify tracking technology use in their privacy policies and notices. Any entity interacting with healthcare data in the digital space should ensure that its data protection policies comply with applicable state and federal law, including HIPAA and FTC rules,[13] and develop transparent and accurate privacy notices for users.

FOOTNOTES

[1] Ari B. Friedman, Hospital Website Privacy Policies, March 6, 202 (hereinafter Hospital Website Privacy Policies).

[2] Hiba Laabadli, Women’s Privacy Concerns Towards Period-Tracking Apps in Post-Roe v. Wade Era, March 6, 2024, “I Deleted It After the Overturn of Roe v. Wade’’: Understanding Women’s Privacy Concerns Toward Period-Tracking Appsin the Post Roe v. Wade Era (ftc.gov) (hereinafter Period-Tracking Apps in Post-Roe).

[3] Jesutofunmi Omiye, MD, MS, How LLMs Can Propagate Race-Based Medicine, March 6, 2024, Beyond the hype: large language models propagate race-based medicine (ftc.gov) (hereinafter How LLMs Can Propagate Race-Based Medicine).

[4] See OCR Guidance, March 18, 2024, Use of Online Tracking Technologies by HIPAA Covered Entities and Business Associates | HHS.gov (Hereinafter March OCR Guidance).

[5] See Web Tracking Creates a Web of Data Privacy Risks | Healthcare Law Blog (sheppardhealthlaw.com).

[6] Hospital Website Privacy Policies.

[7] Id.

[8] Period-Tracking Apps in Post-Roe.

[9] Period-Tracking Apps in Post-Roe.

[10] See How LLMs Can Propagate Race-Based Medicine.

[11] March OCR Guidance. For additional information on past OCR guidance, see OCR Releases Guidance on Use of Tracking Technologies | Healthcare Law Blog (sheppardhealthlaw.com). See also Caught in the Web: Hospital Associations Sue OCR on Third-Party Web Tracking Guidance | Healthcare Law Blog (sheppardhealthlaw.com).

[12] Id.

[13] See also FTC Proposes Changes to Health Breach Notification Rule Clarifying Application to Health and Wellness Apps | Healthcare Law Blog (sheppardhealthlaw.com).

Background: “Junk Insurance”[2]

“Junk insurance” refers to health insurance plans that offer limited coverage and often lack critical consumer protections. These plans typically provide minimal coverage for only a narrow range of medical services and frequently impose high-deductibles, copayments, and coinsurance, leaving policyholders vulnerable to high out-of-pocket costs for necessary healthcare such as prescription drugs, preventative care, maternity care, mental health services, and emergency treatments. Unlike comprehensive health insurance plans, “junk insurance” plans often are not subject to certain mandated protections that address pre-existing conditions limitations, waiting periods, excessive provider network restriction, or coverage rescission.

As noted in the Centers for Medicare & Medicaid Services Fact Sheet, published in connection with the Final Rules, one category of “junk insurance” is short-term, limited-duration insurance (“STLDI”). STLDI plans were originally intended to provide temporary coverage during transitions between comprehensive plans. STLDI plans fall outside the scope of “individual health insurance coverage,” as defined by the Public Health Service Act, and typically do not fall under the purview of federal individual market consumer protections and the mandates for comprehensive coverage. Despite such deficiencies, issuers have marketed these plans as long-term alternatives to ACA-compliant coverage. Another category of “junk insurance” is fixed indemnity excepted benefits. Traditionally, hospital indemnity and other fixed indemnity insurance has been used as a form of income replacement upon the occurrence of a health-related event, under which policyholders receive fixed cash benefits that can be utilized at their discretion, covering out-of-pocket expenses not included in comprehensive coverage or non-medical expenses such as rent or mortgage payments. In group markets, payments are fixed amounts per fixed term, while in the individual market, payments can be made per hospitalization, illness, or service. When these insurance plans meet certain payment standards and regulatory criteria, they are exempt from federal requirements and consumer protections applicable to comprehensive coverage.

Biden-Harris Administration’s Action[3]

The Departments of Health and Human Services (HHS), the Department of Labor, and the Department of the Treasury (collectively, the “Departments”) issued the Final Rules, which revise the federal definition of “STLDI” to cap the initial contract term at a maximum of three months and restrict the total coverage period to no more than four months, inclusive of any renewals or extensions. This is a significant restriction on such policies as the previous administration permitted STLDI total coverage periods of up to three years. Therefore, this restriction realigns the federal definition of STLDI with its intended, traditional role as temporary coverage and more clearly distinguishes it from comprehensive coverage for consumers. The revised STLDI definition further clarifies that an STLDI renewal or extension includes STLDI sold by the same issuer, or any issuer that is a member of the same controlled group, to the same policyholder within a year. The Departments have clarified that this provision aims to reduce the practice known as “stacking,” by which issuers provide separate, sequential STLDI policies that collectively evade duration limits. The Departments also refined the federal notice standard with respect to STLDI policies, requiring issuers to prominently display a notice that uses clear and concise language that distinguishes STLDI policies from comprehensive plans on the first page of the policy, certificate, contract of insurance, and any marketing materials.[4]

In addition to those changes to the STLDI regime, the Departments also revised the consumer notice standard applicable to fixed indemnity excepted benefits coverage in the individual market and set forth a new notice requirement in the group market.[5] Under the revised standards, issuers must prominently display a notice that clearly communicates the limitations of the coverage and highlights the differences between fixed indemnity excepted benefits coverage and comprehensive coverage in all policies, certificates, contracts of insurance, and marketing materials. Notably, however, the Departments have not yet finalized additional amendments regarding the payment standards and non-coordination requirement for fixed indemnity excepted benefits coverage, which were proposed in July 2023.

Intended Stakeholder Impact

According to the Press Release, increasing consumer understanding of short-term, limited-duration insurance and fixed indemnity excepted benefits coverage and making short-term plans truly short term will empower consumers to make decisions that are “more informed” with respect to the risks associated such types of coverage and options for comprehensive coverage. This is consistent with HHS’s stated goal of helping more people gain access to high-quality, affordable coverage. HHS Secretary Becerra stated that “We want everyone to have the peace of mind that comes with having coverage that includes the protections and benefits they expect.” This goal builds upon CMS’s stated commitment to “furthering the promises made by the ACA 14 years ago.”

FOOTNOTES

[1] The Final Rules were published by the Federal Register at 26 CFR Part 54 on April 3, 2024. See Fact Sheet on Final Rules and Press Release for the Final Rules, Ctrs. for Medicare & Medicaid Servs. (Mar. 28, 2024).

[2] See generally, 88 FR 44596 Section II, “Promoting Access to High-Quality, Affordable, and Comprehensive Coverage,” Subsection B “Risks to Consumers.”

[3] See generally, 88 FR 44596, Section III “Overview of the Final Regulations – The Departments of the Treasury, Labor, and Health and Human Services.”

[4] See 88 FR 44596, Section III “Overview of the Final Regulations – The Departments of the Treasury, Labor, and Health and Human Services”, Subsection A “Short-Term, Limited-Duration Insurance.”

[5] See 88 FR 44596, Section III “Overview of the Final Regulations – The Departments of the Treasury, Labor, and Health and Human Services”, Subsection B “Independent, Noncoordinated Excepted Benefits Coverage.”

The FTC has long expressed concerns about the impact of the Orange Book patent listing process on generic competition. The FTC has characterized improperly listed patents as an abuse of the regulatory system that creates an artificial barrier to entry and prevents lower cost drug alternatives from entering the market, hindering competitive drug pricing and harming the consumer and healthcare system as a whole. The FTC has cited such improper Orange Book listings as actionable conduct in challenging monopolization under Section 2 of the Sherman Act, asserting that the specter of infringement suits by brand drug manufacturers may chill investment in particular therapies.

The FDA’s Orange Book lists all approved drug products, and includes, among other things, information relating to a product’s patent and exclusivity protections. Under the Hatch-Waxman Amendments to the federal Food, Drug, and Cosmetic Act (FDCA), all New Drug Application (NDA) applicants must submit certain information concerning patents that claim either the drug itself—i.e., a drug substance (active ingredient) patent or drug product (formulation or composition) patent— or a method of using the drug. Upon approval, FDA includes such patent information in the Orange Book listing for the drug. The Orange Book puts generic companies on notice of patent protections for brand drugs. Generic companies seeking to file an ANDA must include within their application certifications relating to the patent protections of the brand drug. If a brand company timely sues a generic competitor for infringement of an Orange Book listed patent, this triggers an automatic statutory bar on the FDA’s approval the generic drug for up to 30 months.

In September 2023, the FTC issued a Policy Statement (supported and endorsed by the FDA) on Brand Pharmaceutical Manufacturers’ Improper Listing of Patents in Orange Book[1] warning pharmaceutical companies that they could face legal action if they improperly list patents in the Orange Book and outlined a number of potential enforcement methods for combatting these perceived harms. In November 2023, the FTC issued notice letters to a number of brand drug manufacturers challenging more than 100 patents held by manufacturers of brand-name drugs and drug products as improperly or inaccurately listed in the Orange Book.[2] Among these warning letters were notices to Teva covering, among others, the inhaler device-related patents at issue in the case against Amneal.

The FTC’s amicus brief argues for a narrow interpretation of the types of patents that may be listed in the Orange Book—excluding any patent that is not on its face specific to any FDA-approved drug. The FTC argues that device patents, such as the Teva patents at issue, that do not mention any drug in their claims do not meet the statutory criteria for Orange Book listing. In this case, the FTC notes that the same patents at issue are also listed in the Orange Book entries for 21 other drugs, only some of which contain the same active ingredient as the asthma inhaler that is the subject of Amneal’s ANDA. The FTC cites favorably the First and Second Circuit opinions in In re Lantus Direct Purchaser Litigation, 950 F.3d 1 (2020) and United Food & Com. Workers Loc. 1776 & Participating Emps. Health & Welfare Fund v. Takeda Pharm. Co., 11 F.4^th 118 (2021), in support of its position.

Both brand name and generic pharmaceutical and medical device manufacturers should be aware of these developments. We will continue to monitor the FTC’s high-priority campaign to utilize the FDA’s public comment processes, as well as its authority to enforce the federal antitrust laws to impact competition by generic drug development.

FOOTNOTES

[1] Fed. Trade Comm’n, Policy Statement, “Federal Trade Commission Statement Concerning Brand Drug Manufacturers’ Improper Listing of Patents in the Orange Book” (Sept. 14, 2023), available here.

[2] See Fed. Trade Comm’n, Press Release, “FTC Challenges More Than 100 Patents as Improperly Listed in the FDA’s Orange Book” (Nov. 7, 2023), available here.

Additionally, on April 2, 2024, CMS released Part 2 of a complementary Final Rule on Streamlining the Medicaid, CHIP, and Basic Health Program Application, Eligibility Determination, Enrollment, and Renewal Processes. Whereas the Unwinding SEP extension helps ensure coverage continuity for those recently ineligible for Medicaid and CHIP, the Final Rule does the same for those who are still Medicaid or CHIP eligible. The Final Rule takes effect on June 3, 2024.

The COVID-19 Continuous Enrollment Requirement

Before the pandemic, state Medicaid agencies conducted yearly eligibility reviews of Medicaid and CHIP enrollees and were permitted to disenroll ineligible individuals. During the COVID-19 pandemic, in the spring of 2020, Congress enacted the Families First Coronavirus Response Act (FFCRA), which paused this eligibility review process and prohibited state Medicaid agencies from involuntarily disenrolling beneficiaries or transferring enrollees to a different coverage group that provides a more restrictive benefit package. Medicaid and Medicaid-expansion CHIP programs were required to maintain continuous enrollment for all beneficiaries through the duration of the COVID-19 public health emergency (PHE) in exchange for enhanced federal funding. This requirement protected coverage for beneficiaries whose circumstances changed such that they were no longer traditionally eligible for Medicaid or CHIP.

Mass Disenrollment and the Unwinding SEP

The PHE ended in the spring of 2023, and the 2023 Consolidated Appropriations Act ended the Medicaid and CHIP continuous enrollment requirement on March 31, 2023. The termination of this requirement effectively resumed the pre-pandemic status quo, permitting states to abruptly disenroll Medicare and CHIP beneficiaries. This mass-disenrollment event “present[ed] the single largest health coverage transition event since the first open enrollment period of the Affordable Care Act.” Approximately 15 million individuals (17.4% of all Medicaid and CHIP beneficiaries) became at risk for loss of health insurance coverage. Disenrollment from Medicaid and CHIP programs has been occurring since last March on a rolling basis, catching off-guard beneficiaries who had been previously guaranteed coverage for years and resulting in insurance coverage disruptions.

To mitigate these insurance coverage disruptions, in January of 2023, CMS created the Unwinding SEP, permitting recently disenrolled Medicaid and CHIP beneficiaries to enroll in a Marketplace plan outside of the normal open enrollment window. The Marketplace is a government-run portal where individuals who are not eligible for Medicaid or CHIP and who do not have employer-based insurance can compare and enroll in affordable insurance policies. The standard open enrollment period for the Marketplace is November 1 to December 15, so without this Unwinding SEP, individuals who were disenrolled from Medicaid and CHIP outside of this window would have lacked the opportunity to maintain affordable coverage in the period between their disenrollment and the standard Marketplace open enrollment period. The Unwinding SEP originally opened Marketplace enrollment from March 31, 2023 through July 31, 2024.

2024 Unwinding SEP Extension

Now, the Unwinding SEP has been extended through November 30, 2024. This extension will help those recently excluded from Medicaid or CHIP to promptly secure affordable, comprehensive coverage through the start of the next open enrollment period. Individuals who are recently non-Medicaid/CHIP-eligible but are Marketplace-eligible can apply for insurance anytime during the extended Unwinding SEP at HealthCare.gov.

Complementary Final Rule: Streamlining Medicaid and CHIP Enrollment and Renewal

Hand-in-hand with the Unwinding SEP extension, which is aimed at safeguarding coverage for those recently ineligible for Medicaid or CHIP, is the Final Rule, which establishes several measures to safeguard coverage for those still eligible for Medicaid or CHIP. The Final Rule endeavors to decrease the administrative barriers to Medicaid and CHIP enrollment and renewal, specifically by:

• Prohibiting states from requiring in-person interviews for those whose eligibility is based on having a disability or being at least 65 years old;
• Allowing flexibility for beneficiaries with a disability or who are 65+ to renew coverage via phone, mail, in-person, or online;
• Removing the option for states to impose a “Lock-Out Period,” which temporarily blocked families from re-enrolling after a missed CHIP premium payment;
• Requiring Medicaid agencies to check certain categories of available data prior to terminating enrollment when beneficiaries cannot be reached via mail; and
• Requiring Medicaid agencies to provide potential beneficiaries at least 15 calendar days to return supplemental information requests in connection with an application, and 30 calendar days to return information in connection with a renewal.

Conclusion

Both CMS’s extension of the Unwinding SEP and publication of the Final Rule expand upon its efforts over the past year to protect insurance coverage for millions during the post-PHE transition period. For more information about the Final Rule’s adjustments to the Medicaid and CHIP enrollment and retention processes, see the Final Rule Fact Sheet.

On March 21, 2024, the Department of Health and Human Services (“HHS”) Office of the Inspector General (“OIG”) posted an informational video directed to beneficiaries regarding the potential risks and concerns of managed care plans. It includes infographics and quotes like the one above to capture the attention of the approximately 100 million Americans who currently receive managed healthcare benefits paid for by a federal health care program, and to explain the complex alternative healthcare delivery model in digestible terms. The video, as summarized below, was accompanied by statistics relating to the use of government-funded managed care, a blurb about the OIG’s 2023 Strategic Plan for Oversight of Managed Care for Medicare and Medicaid (“Strategic Plan”), and an inclusive list of other resources. 

Overview of Managed Care and Key Payment Terms 

The government delivers federal health care program managed care benefits via its Medicare Advantage (“MA”) and Medicaid Managed Care (“MMC”) programs. In the case of MMC, state Medicaid agencies – not the federal government – contract with health plans operating in their state. According to the OIG, more than half (54%) of Medicare beneficiaries received care via MA in 2023, and a significant majority (81%) of current Medicaid enrollees receive at least one component of care via MMC. To summarize the flow of taxpayer funds within the managed care model generally: the federal government in the case of MA pays private health plans to provide care to Medicare beneficiaries, and those plans pay providers to give care to beneficiaries enrolled in the MA plan (as reflected in the OIG’s infographic, below).

This differs from the traditional payment/delivery model (referred to as fee-for-service), in which the federal (or state) government pays providers directly for episodes of care provided to their Medicare (or Medicaid) patients. There are potential risks and rewards assumed by plans that participate in managed care: the plan gets to keep the full fixed per member per month (“PMPM payment”) payment from the government regardless of the amount of care each member receives in the month. However, the plan is also responsible for footing the bill if a member receives care in a month the cost of which exceeds the PMPM payment it receives from the government.

Of course, the model is not entirely that simple. For example, the government can also increase the fixed PMPM payment under a risk adjustment payment methodology for enrollees whose health status indicates that they will have higher utilization of healthcare services than the average enrollee.

Concerns Associated with Managed Care 

The OIG warned viewers that managed care, which can benefit millions of Americans by delivering high quality care more efficiently, also poses risks of abuse or misuse. Specifically, OIG raised the following potential concerns in its video: 

• After plans agree to cover the cost of care, some plans might improperly limit enrollees’ access to care so that they can retain a larger share of the fixed payment; 
• To “game” the risk adjustment payment program, the OIG warned that some plans may inappropriately seek more money than they should by overstating how sick their enrollees are. 

The OIG issued a report in 2022 that found some MA plans improperly deny authorization or payment for services, which it calls “stinting on care.” For more information regarding that report as well as industry’s response to it, please refer to our prior blog post. The OIG emphasizes that beneficiaries should stay informed, ask questions, and report suspicious activity to Medicare or their state’s Medicaid agency. 

The 2023 Strategic Plan 

In response to the risks summarized above, in 2023, the OIG published a strategic plan designed to counteract utilization risks and protect beneficiaries. This includes the following objectives: 

1. Promoting patients’ access to healthcare services, including mental health services 
2. Establishing quality standards in delivering patient care (including standards relating to reducing health disparities) 
3. Ensure payments to managed care plans are accurate and reduce fraud 
4. Oversee data collection and reporting. 

What’s Next? 

Plans should expect significantly more guidance and enforcement in the managed care area, particularly with respect to access to care initiatives, financial oversight, and data-driven decision-making. Our team will continue to monitor developments in the managed care area. If you have any questions about these laws or their impact on you or your business, please contact a member of the Sheppard Mullin Healthcare Team. 

On March 7^th, the Alabama Legislature passed SB159 (“SB159” or the “bill”), as a means of granting certain protections to IVF clinics and providers in the wake of the LePage v. Center for Reproductive Medicine decision. The bill among other things, grants civil and criminal immunity to any individual or entity in connection with death or damage to an embryo when providing or receiving services related to in vitro fertilization (“IVF”). The protections afforded by SB159 apply to (i) manufacturers of goods used to facilitate the IVF treatments and (ii) individuals engaged in the transportation of the stored embryos. Once enacted, the new law would take retroactive effect to shelter providers and suppliers engaged in providing IVF treatments as of the LePage ruling. 

The Alabama Supreme Court’s February 16^th decision in LePage gave personhood to “extrauterine embryos” extending liability for wrongful death cases to include unimplanted embryos. In deciding, the court held that the statutory term “child” under Alabama’s 1872 Wrongful Death of a Minor Act, included unborn children without exception based on developmental stage, physical location, or any other ancillary characteristics. The court’s decision raised a myriad of issues for Alabama medical professionals engaged in the process of IVF, including the possibility of becoming subject to a host of legal actions and professional liability. As an immediate consequence of this ruling, three of Alabama’s largest IVF treatment providers stopped providing IVF services for fear of being held potentially liable in wrongful death lawsuits related to their handling of embryos.[1] 

SB159 aims to resolve some of the issues raised by the LePage decision, by paving the way for fertility clinics that paused IVF services, including Alabama’s largest health care system, University of Alabama at Birmingham, to restart IVF treatments and provide patient care once again. However, some experts are concerned that the bill does not go far enough in addressing the court’s underlying conclusion that embryos are people.[2] Additionally, the bill fails to explicitly state when life begins, leaving additional loopholes in the protections afforded to IVF providers and clinics. The American Society for Reproductive Medicine issued a press release stating although Alabama legislature provided a temporary solution, the bill did not address whether a fertilized egg is legally equivalent to a child, thus leaving IVF physicians and clinics at risk of liability for continued IVF treatments.

II. Current and Ongoing Legislation for Consideration

Although the LePage decision stands out as a unique ruling, a number of states have either enacted, or are considering similar legislation regarding the treatment of extrauterine embryos. Louisiana (RS § 9:121) and Georgia (O.C.G.A. § 1-2-1) have enacted or proposed legislation which recognizes IVF embryos as having personhood, extending criminal and civil penalties for the destruction or termination of these embryos. Missouri statute, MO Stat § 1.205, asserts that life begins at conception and accords the unborn child all rights, advantages, and immunities much earlier than the remaining states. Florida had introduced SB 476 which would have extended civil liability for wrongful death to those of an unborn child, however the bill was sidelined following the recent decision and subsequent constituent outcry in Alabama. On the federal level, the Access to Family Building Act, which would have provided protections to IVF, was ultimately blocked by objection in the senate.

III. The Aftermath of LePage

The Aftermath of the LePage decision leaves an uncertainty in the IVF treatment space. Despite recent comments from Katherine Robertson, chief counsel for the Alabama Attorney General’s office, stating that “Attorney General Marshall has no intention of using the recent Alabama Supreme Court decision as a basis for prosecuting IVF families or providers”, many IVF clinics/providers remain on high-alert regarding their actions within the state. A concern that is certain to affect how IVF services are provided and received within the state. Although, Alabama’s SB159 proposes a stop-gap resolution regarding the punitive response to IVF providers, it still leaves a number of unanswered questions regarding IVF procedures and treatments by providers.[3] Future concerns center on the effects of patients who are compelled to travel across state lines for medical care or adopt different approaches in order to minimize possible liability.

In the wake of Dobbs v. Jackson Women’s Health Organization, the potential for states to regulate IVF appears to be gaining momentum as seen by LePage in Alabama and recent legislative developments. We will continue to monitor similar litigation and legislation as they continue to arise in other states across the country.

FOOTNOTES

[1] Alabama bill to protect IVF signed into law by governor – ABC News

[2] “[The law] does not nullify the Supreme Court’s analysis that says the law ought to treat embryos just like people,” Katherine Kraschel, an assistant professor at Northeastern University School of Law. Alabama clinics resume treatment under new IVF law, but experts say it will take more work to protect fertility services | CNN

[3] Alabama passes IVF immunity law: NPR