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Government Relations Update - November 27, 2012

Pennsylvania Issues


Election Update: On November 6, 2012, Pennsylvania residents elected candidates for all 203 seats in the House of Representatives and 25 seats in the Senate. Representatives Clymer (R-Bucks), Day (R-Berks, Lehigh), Hahn (R-Northampton), Heffley (R-Carbon), Knowles (R-Berks, Schuylkill), Mackenzie (R-Berks, Lehigh), Samuelson (D-Lehigh, Northampton) and Simmons (R-Lehigh, Northampton) were reelected despite opposition. Representatives Freeman (D-Northampton) and Harhart (R-Lehigh, Northampton) were reelected without opposition. Representative Mann (D-Lehigh) did not seek reelection; Democrat Mike Schlossberg was elected as her successor without opposition. Democrat Daniel McNeill defeated Republican David Molony and will fill the seat being vacated by Representative Brennan (D-Lehigh, Northampton). Senator Dave Argall (R-29) successfully defended his seat against Democratic challenger Tim Seip.

Republicans continue to control the House of Representatives, the Senate and the Governor's Office. Following the election, Republican leadership announced plans to focus on transportation and pension issues during the next two years.

Federal Trade Commission: In May 2012, the Reading Health System (RHS) announced that it had entered into an asset purchase agreement to acquire the Surgical Institute of Reading (SIR), a physician-owned surgical hospital specializing in orthopedic and spinal procedures in Wyomissing that opened in 2007. RHS operates Reading Hospital, a 737-bed facility located on a 36-acre campus in West Reading. On November 16, 2012, the Federal Trade Commission (FTC) announced that it would seek a preliminary injunction to halt the proposed acquisition. The FTC stated that the acquisition would reduce the number of meaningful competitors in the market from three to two and result in RHS owning 71% of the local market for specialized surgical procedures and related outpatient care and services. The FTC asserted that the transaction would give RHS increased leverage to raise the reimbursement rates it negotiates with commercial health plans and thereby increase health care costs. According to the FTC, the lack of competition could also decrease the quality of locally available medical care. On November 19, 2012, RHS announced that it would not proceed with the acquisition of SIR given the FTC's position.

New Jersey Issues


Disproportionate Share Payments: On November 14, 2012, the Office of Inspector General (OIG) reported that the State of New Jersey inappropriately claimed Medicaid Disproportionate Share Hospital (DSH) payments totaling $100 million, including $50 million from the federal government, for the following five hospital psychiatric programs that did not meet federal requirements for DSH payments: Hudson County Meadowview Psychiatric Hospital in Secaucus; Buttonwood Hospital in Pemberton; Mount Carmel Guild in Newark; Saint Barnabas Behavioral Health, which operates five locations statewide; and Healthsouth Garden State Rehab in Toms River. Under the DSH program, a state is required to make special payments, known as DSH payments, to hospitals that serve a disproportionate share of low-income and/or uninsured patients. For a hospital to receive DSH payments, the state must classify the hospital as a DSH. A state may not define or deem a hospital as a DSH unless the hospital has a Medicaid inpatient utilization rate (MIUR) of not less than one percent. A hospital's MIUR, expressed as a percentage, is the number of inpatient days attributable to patients who were Medicaid-eligible, divided by the total of the hospital's inpatient days in a particular year. According to the OIG, New Jersey calculated a MIUR of less than one percent for the five hospitals during one or more state fiscal years but claimed DSH payments for the hospitals because it misinterpreted federal regulations on DSH eligibility. The OIG recommended that the state refund $50 million to the federal government. The State of New Jersey has offered to repay $3.46 million and is reviewing its options, including seeking a refund from the five hospitals.

Federal Issues


Patient Protection and Affordable Care Act (PPACA): Following conclusion of the national elections earlier this month, the Department of Health and Human Services (HHS) began to accelerate its regulatory activities in order to implement certain provisions of PPACA. The Centers for Medicare & Medicaid Services (CMS) sent several PPACA implementation rules to the Office of Management and Budget (OMB) for final regulatory clearance. Among other things, CMS is seeking clearance for the highly-anticipated proposed rule establishing the essential health benefits standards and related health insurance issuer and health insurance exchange responsibilities. The proposed rules are not available to the public until they reach the Federal Register. Premier, the New Jersey Hospital Association (NJHA), the Hospital & Healthsystem Association of Pennsylvania (HAP) and the American Hospital Association (AHA) plan to comment on the proposed rules once they become available.

Health Insurance Exchanges: As previously reported, PPACA creates statewide health insurance exchanges by 2014 for individuals and small businesses to compare health insurance plans and rates. If a state fails to create an exchange, the federal government must design one for it. On November 16, 2012, HHS extended the deadline for states to determine whether they will create an exchange. States now have until December 14, 2012 to submit plans for a state exchange and until February 15, 2013 for an exchange in partnership with the federal government. If a state fails to submit plans by both deadlines, the state will default into a federal exchange. Eighteen states and the District of Columbia plan to build their own exchanges, six states are planning for an exchange in partnership with the federal government, sixteen states have announced that they will default into the federal exchange and ten states, including Pennsylvania and New Jersey, remain undecided.

Unfair Medicare Practices: On November 1, 2012, the AHA, Missouri Baptist Sullivan Hospital, Munson Medical Center in Michigan, Lancaster General Hospital and Trinity Health Corporation in Michigan filed a lawsuit against HHS in the United States District Court for the District of Columbia claiming that the Medicare Program improperly denied payment to hospitals for reasonable and necessary services provided to hospital patients who Medicare contractors found were improperly admitted as hospital inpatients. The plaintiffs claim that these Medicare denials issued by Recovery Audit Contractors (RACs) are both procedurally and substantively flawed. From a procedural standpoint, the plaintiffs assert that although Medicare requires that the complex medical decision on whether to admit a patient be made by a physician, RACs rarely use physician reviewers to overturn the physician's admission. In addition, RACs receive financial incentives (a percentage of funds recovered by the Medicare program for the denials) that provide improper motives for the RAC denials. Substantively, the plaintiffs assert that the payment denials result in inadequate payment for the services rendered. The RAC denials are determinations that the patients should have been treated as outpatients rather than inpatients, and hospitals are required to return the entire Part A (inpatient) payment. Hospitals are then entitled to receive payment under Part B. However, Medicare policy prohibits payment for most items and services that were billed under Part A when it is determined the patient should have been treated on an outpatient basis. The complaint alleges this payment policy is unlawful and seeks full payment under Part B for these services.


Election Update: Senators Bob Casey (D-PA) and Robert Menendez (D-NJ) and Congressmen Dent (R-15-PA), Fitzpatrick (R-8-PA), and Lance (R-7-NJ) were reelected despite opposition. Lackawanna County personal injury attorney Matt Cartwright (D) was elected to succeed Congressman Holden. During the 113th Congress, Republicans continue to hold the majority in the House with 234 seats, despite losing seven seats to Democratic members, and Democrats continue to hold the majority in the Senate with 53 seats and two independents who will caucus with them, reflecting two additional seats secured by Democrats.