Health Highlights

The Connected Patient: Using Digital Health in Care Management

Authors: Jill Thorpe, Partner, Healthcare | Kier Wallis, Senior Manager

Editor's note: Medicaid programs are increasingly driving delivery system transformation, changing how providers care for Medicaid populations and how they are paid for their services. Working with their community partners, providers have begun to develop a variety of innovative, person-centered care management models that attempt to better integrate the delivery system with critical social services—and the reinvention of care delivery is just beginning. In a recent webinar, "The Connected Patient: Using Digital Health in Care Management," Manatt Health explored how emerging care management models supported by digital technologies can help improve the health of Medicaid populations and the quality of care they receive, while also reducing costs. Key points are summarized below. To download a free copy of the presentation, click here.


What Is Connected Health?

Broadly speaking, connected health is a model for healthcare delivery that uses technology to provide healthcare remotely. Connected health aims to maximize healthcare resources and provide increased, flexible opportunities for consumers to engage with clinicians and manage their own care. Connected health can cover a wide variety of areas. For example, it can be a way for life sciences companies to engage with patients, for researchers to collect patient-generated data, or for family and friends to build a support network to promote a patient's health and wellness. For connected health in care management to scale, however, selecting the right digital health tools for a targeted population is essential.

Because possibilities of connected health in care management are vast, this article focuses on the use of connected health for a particular target population: Medicaid patients. Not only are Medicaid patients a large, addressable population with particular needs, we believe connected health in care management for these patients will gain significant traction as a result of Medicaid-led reforms. Before turning to specific connected health solutions for this population, we provide an overview of "megatrends" driving the adoption of connected health solutions generally and an overview of these Medicaid-led reforms.

What Are the Megatrends Driving Connected Health Adoption?

There are five key megatrends driving the adoption of connected health:

1. The shortage of physicians and nurses;

2. The move to value-based care and payment;

3. The ubiquity of consumer devices, making it possible to address disparities in access;

4. Consumer demand for choice, including price and quality transparency, as well as increased convenience and personalization; and

5. The aging population, requiring in-home care.

In addition, there are four key enablers of connected health adoption:

1. The rise of HIPAA-compliant clouds that offer stronger levels of privacy and security;

2. Emerging assessment standards that reduce friction between technology vendors and the covered entities;

3. The rise of electronic medical records (EMRs) and the associated demand for interoperability and real-time data to drive actionable interventions; and

4. The growing venture capital investment, with $8 billion currently invested in health technology companies.

What Are the Medicaid Trends Opening Opportunities for Digital Health?

Since Medicaid's creation in 1965, it has become the nation's main public health insurance program for the low-income population. The passage of the Affordable Care Act (ACA) in 2010 sought to expand Medicaid coverage to millions of previously uninsured adults and streamline enrollment. The ACA also emphasized the need for the Medicaid delivery system to transition to increasingly coordinated and innovative care models with the goal of achieving the "Triple Aim"—improved care for individuals, better population health and reduced costs.

As of February 2016, 30 states and Washington, D.C., have expanded Medicaid, and Medicaid is the single largest source of coverage in the United States. Most states that are expanding Medicaid are doing so through their existing delivery systems. In many states, that means expanding through managed care where states contract with managed care organizations (MCOs) to provide services to the Medicaid population. MCOs accept capitated payments or a set payment amount for the services they provide, encouraging the MCO and its provider network to effectively manage care and reduce unnecessary utilization.

As we think about emerging trends in Medicaid, expansion is certainly at the forefront, but expansion is happening in conjunction with delivery system and payment reform. New York's Delivery System Reform Incentive Payment (DSRIP) Program and Arkansas's multipayer, episode-based bundled payment program are just two examples.

Why Should Technology Be Integrated Into the Care Process?

The dynamic between patients and providers is quickly changing to include technology. Just as people are increasingly comfortable navigating between physical and virtual environments using their smartphones, patients are becoming increasingly comfortable using connected technologies to interact with their healthcare providers.

According to some studies, as many as 20% of patients actually prefer some form of electronic communication—such as video, email or texting—to an in-person office visit. Also, according to survey results released by the Office of the National Coordinator for Health IT (ONC), 81% of people who access their health information online found the information to be useful. ONC also found that people with online access to their electronic health records (EHRs) have a greater desire to do something about their health. Connected health solutions in care management therefore present additional avenues for patients to engage in their health, supported by their health teams.

What do providers think about patients and technology? A recent Accenture report found that providers have a favorable view of patients' technology adoption, reporting that it improved patient engagement, satisfaction and communication.

How Can Connected Health Technologies Be Integrated Into the Care Process?

Integrating connected health technologies into new modes of delivering care is a doubly daunting process and presents its own barrier to adoption. To overcome this barrier, it's worth learning from a real-world example of how it was done. We provide below a case study of how in-home remote monitoring technologies were adopted in a new care management program, and then consider other kinds of connected health technologies that are particularly well-suited to be integrated onto the same care management platform for Medicaid patients.

Case Study 1: Care Management With In-Home Monitoring

In 2012, the Health Resources and Services Administration (HRSA) awarded its first peer-to-peer grant for one federally qualified health center (FQHC) to teach another FQHC how to stand up and provide chronic care management services using in-home remote monitoring technologies. The project offers a model of how a DSRIP-funded project could be established to accomplish the same goals.

The Mentor: Roanoke-Chowan Community Health Center (RCCHC) is an FQHC operating in Eastern North Carolina in one of the poorest congressional districts, with a median income of just $23,500 and 21% of the population uninsured. As one might expect among low-income, poorly educated populations, there is a high incidence of chronic disease, such as cardiovascular disease, diabetes and hypertension. There also are significant barriers to care, including lack of transportation and poor health literacy.

RCCHC adopted in-home remote monitoring technologies—wireless weight scales, blood pressure monitors, glucometers and pulse-oximeters—into its care management program in 2006. Researchers from Wake Forest Medical School validated the positive clinical outcomes of its care management practice and published its findings in peer-reviewed journals. In the intervening years, RCCHC provided care management services to other healthcare providers in North Carolina through North Carolina's Telehealth Provider Network and began to contract with accountable care organizations within the state.

The Mentee: Mosaic Medical Community (Mosaic) is an FQHC in Oregon with 12 locations serving 23,000 patients, most of whom are enrolled in Medicaid. Mosaic did not have any care management workflows and was in the preparation stage of being connected to the Oregon Clinical Health Information Network (OCHIN), the health information exchange and shared electronic medical record for Mosaic and other members of Oregon's Coordinated Care Organization (CCO).

The Project: Under the HRSA grant, RCCHC's team of clinicians and project management consultants provided technical assistance on all phases of implementing a care management program with in-home remote monitoring but did not do so in a vacuum. At the same time, RCCHC worked with Mosaic to plan the transition of its care management program from a paper-based program to an automated workflow integrated with OCHIN. In addition, RCCHC worked with Mosaic to develop a train-the-trainer program, so that Mosaic can eventually train other members of the CCO to stand up their own chronic care management programs using in-home remote monitoring.

The RCCHC-Mosaic case study illustrates the complex environment in which connected health solutions have been expected to operate as other aspects of healthcare delivery are being transformed. Connected health adoption does not occur in a vacuum, but in an environment in which staff, clinical processes and information flows are continuously adapting to Meaningful Use and the transition to accountable care. These reasons highlight why HRSA grants, DSRIP and other sources of non-dilutive funding can accelerate the adoption of connected health solutions, and provide some runway before financial sustainability needs to be demonstrated.

For example, it took the RCCHC-Mosaic team two years to bring 212 patients into the remote monitoring program. While that number may not be large enough for financial sustainability, it was a robust enough sample to capture demographic data and quality metrics.

As of late 2015, most program participants were between the ages of 50 and 70, with diabetes and hypertension as the predominant conditions. Over 59% of the participants had two or more chronic diagnoses. Of the initial 212 participants, 76% or 161 patients successfully graduated or remained on the program. In general, significant reductions in blood pressure and A1c values were observed. At the same time, PAM scores—a validated tool to measure individuals' knowledge of their conditions and medications, confidence levels and willingness to make changes in their behaviors to improve their health—increased significantly. Emergency room visits also were reduced by 33% between the six months prior to enrollment and the six months after enrollment.

Case Study 2: Spot Monitoring a Single Biometric

In addition to conventional remote monitoring technologies used in a home, what other connected health solutions might work for Medicaid and uninsured populations? One example to consider is a wireless glucometer that is completely autonomous from a cell phone, such as the FDA-cleared glucometer from Telcare, which has its own cellular chip, so glucose blood readings can be transmitted automatically to care managers wherever patients are and not just in their homes.

In one pilot, a Medicaid managed care organization established a program to engage uninsured populations with diabetes in a state that had not yet accepted Medicaid expansion. The goal of the pilot was to engage and manage these populations before they became high utilizers in order to reduce emergency department visits.

To meet this objective, the MCO contracted with nonclinical community service groups to identify candidates and refer them to clinics. Candidates tested with an A1c value of nine or greater were provided with a Telcare glucometer, and assigned a nurse manager to provide instructions on how to use the glucometer, monitor them remotely thereafter, and use text messages through the device to interact with the patient. To date, over 1,000 patients have been enrolled in the program.

Case Study 3: Leveraging Consumer Mobile Devices

Another option to conventional in-home remote monitoring technologies is connected health solutions that leverage mobile devices that consumers already have. These options can be an attractive alternative, because they eliminate the need for expensive equipment and management of logistics for deploying, recovering and reprocessing the equipment.

According to Pew Research, 86% of households with annual incomes under $30,000 have cell phones and 43% have smartphones. These populations—which may be on Medicaid or uninsured—use text messages twice as frequently as populations in the $75,000 or more income bracket. Consequently, connected health solutions that engage Medicaid and uninsured populations not only have a cost advantage, but also leverage a preferred means for communicating with the outside world.

An example of this kind of solution is CareMessage, which draws deeply on research of human behaviors to support patients as they work on specific health-related challenges, including nutrition, exercise goal-setting and chronic condition management, as well as reminders for preventive care. An advantage of automated text messaging is its ability to leverage data analytics in real time to personalize and scale care management. Research also confirms that texting can reduce appointment no-shows, encourage the proper use of prescription drugs within a four-hour window, and motivate individuals to self-report their glucose readings.

Case Study 4: Connecting Patients to Community Resources

Finally, not all connected health strategies in care management relate directly to patient engagement and collection of patient health parameters. To manage whole Medicaid populations, managed care organizations and healthcare providers also need to leverage nonclinical resources. For these reasons, care management platforms are beginning to integrate solutions like Healthify. Healthify uses semantic search and the power of networks to make it easier for care managers to refer patients to appropriate community-based organizations and manage follow-up. Over time, more of these organizations can be expected to use connected health tools as part of their outreach and "boots on the ground" engagement.

Moving Ahead With Digital Health

As the examples illustrate, adopting digital health in care management is not a "one-off" program but rather is part of a multiyear, comprehensive care management strategy. Consequently, in considering these solutions, follow the same methodology used to select other health information technologies and develop new care delivery models.

First, where will the money come from to support the digital health program? It's important to consider the reimbursement model and how care management fits within that.

Second, what's the level of organizational readiness? There are a number of buckets to consider, including:

  • Patient engagement (i.e., patient outreach and screening, care planning, care plan governance and provider support).
  • Clinical supervision (i.e., provider network, protocol development and compliance, target population identification and performance monitoring).
  • Workforce, staffing and training (i.e., workforce planning and development, and staff recruitment, deployment and training).
  • Data and analytics (i.e., population risk modeling, data/trend reporting, metrics computation/tracking and partner performance feedback).
  • Information technology (i.e., regional IT infrastructure and planning, implementation and help desk support, and central data management).
  • Financial program management (i.e., network management/contracting, financial evaluation, sustainability and value-based payment planning, and fiscal agent/funds distribution functions).

Third, does the organization have the buy-in of clinicians? Clinician support and leadership are key to the success of digital health programs. When managing inpatient or ambulatory patients, connected health combines automated processes with clinician monitoring to serve as the bridge between the clinical information system and patent engagement.

Fourth, does the organization's internal development and planning support digital health? It's important to have a strong and shared point of view around key decisions:

  • Select the beneficiary population. Choose the target audience—such as Medicaid patients, Medicare patients or employees—and agree on the metrics to measure effectiveness.
  • Identify high-priority use cases. Analyze claims and health systems data to identify high-prevalence diseases within each population.
  • Evaluate the potential impact of digital health solutions. Crosswalk high-prevalence diseases with digital health solutions to determine priority areas.
  • Define prospective reimbursement models. Delineate possible models, such as risk taking, bundled payments, sub-capitation or case management fees.

Generating Value in the Short Term and Long Term

As we see in the Mosaic example, when creating a connected health program, it's important to identify some quick wins. Connected health is different than conventional approaches, so it's important to identify some interim wins the organization can build on as it moves to the later stages of program maturity. The key to success is establishing a methodical and realistic road map, recognizing that standing up a care management program is an iterative process. Below is a useful timeline to follow:

  • Now. Establish an organizational structure to inventory, assess and prioritize digital health projects. Focus on identifying "quick wins" to establish buy-in.
  • 6 months. Establish integrated clinical and information architectures, including creating internal development plans and identifying third-party partners. Complete case development and advance contracting discussions.
  • 12 months. Implement activities that may not be reimbursable under the current financing structure but may increase volume or drive future revenue.
  • 24 months. Analyze results of existing digital health initiatives, noting successes and failures. Expand in areas of high-growth opportunity.
  • 36 months. Continue to expand digital health initiatives while continuously recalibrating based on the development of payment reform and new opportunities to improve outcomes.


There are six key success factors that must be in place to ensure the effective implementation of a connected health program:

1. Gain leadership from clinicians and have a strong governance model in place.

2. Understand the reimbursement model toward which the organization is working.

3. Define physician incentives and performance metrics and align them with the reimbursement model.

4. Establish the technology and monitoring infrastructure to support the selected measurement and reimbursement models.

5 Conduct all legal, regulatory and security reviews.

6. Finalize contracts in support of new arrangements and collaborations to drive clinically integrated care.

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MSSP Rules: Barriers to Using ACOs for Multipayer Contracting

Author: Anne Karl, Associate, Healthcare

Editor's Note: In the initial rules governing the Medicare Shared Savings Program (MSSP) released in 2011, the Centers for Medicare and Medicaid Services (CMS) stated that it intended for MSSP to create a platform for multipayer, value-based purchasing. Once accountable care organizations (ACO) gained experience with value-based purchasing through the MSSP, they would look to contract with commercial insurers, employer plans, and even, potentially, state Medicaid agencies. Despite the initial excitement over the prospect of using MSSP ACOs across multiple payers, CMS's own rules and guidance have limited providers' ability to use a single ACO structure to contract with multiple payers. In a new article for Executive Insight, summarized below, Manatt Health describes the provisions in the MSSP rules and guidance that restrict ACOs' ability to engage in multipayer contacting. Click here to read the full article.


All Providers in an ACO Must Agree to Participate in the MSSP

The MSSP rules require that all providers in the ACO agree to participate in the MSSP, leading many ACOs to create separate corporate entities for the MSSP contracting. If even a single provider intends to opt out of the MSSP, the ACO must create a new corporate entity and re-contract with the participating providers.

Further, even providers who are willing to participate in the MSSP may not be able to do so, since participating providers must be enrolled in Medicare. Specialists such as pediatricians and obstetricians would have few if any Medicare patients so would not be able to enroll in Medicare. Therefore, providers looking to form an ACO to contract with Medicare and Medicaid would likely need to create two separate corporate entities with two separate sets of participating provider contracts.

ACOs Are Prohibited From Contracting Through Intermediaries

The MSSP guidance prohibits ACOs from contracting through intermediaries, such as independent practice associations (IPAs). Instead, the MSSP guidance requires that the ACO contract directly with each Tax Identification Number level (TIN-level) provider. Therefore, IPAs currently in value-based purchasing arrangements cannot contract directly with the ACO on behalf of its participating providers. Rather than leveraging existing participating provider contracts, ACOs must re-contract with providers directly.

Questions Around Permissible Structures Challenge Multipayer Models

The preamble to the revised rules released in 2015 states that the governing body of the ACO—not the parent entity—must retain responsibility for certain core functions, such as holding management accountable and determining distribution of shared savings, as well as appointing and removing members of the governing body. Traditionally, shareholders of for-profit corporations or members of nonprofit entities retain the right to appoint directors.

The CMS guidance not only runs counter to convention but also may limit the ability of MSSP ACOs to receive capital from participating providers. The right to appoint directors would be the primary way that providers investing in an ACO could exert control over its strategic direction. Because of the requirement that governing bodies appoint their own members, well-funded providers interested in providing capital may prefer to create a separate corporate entity in which to place their investment, leaving the MSSP ACO with the sole purpose of participating in the MSSP.


CMS's rules and guidance may inhibit the ability of MSSP ACOs to become multipayer platforms for value-based purchasing. Because of current requirements, MSSP ACOs have limited use in other contracting models and risk being limited-purpose vehicles on the periphery.

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Federal Court Upholds Virginia's Certificate of Public Need Laws, Fueling Ongoing Antitrust Debate Concerning the Future of State CON Programs

Authors: Lisl Dunlop, Partner, Litigation | Ashley Antler, Associate, Healthcare | Shoshana Speiser, Associate, Litigation

On January 21, 2016, in Colon Health Centers of America, LLC v. Hazel1 (Colon Health), the U.S. Court of Appeals for the Fourth Circuit upheld the constitutionality of Virginia's certificate of public need (COPN) program, which requires healthcare providers to obtain permission from the state before establishing or expanding healthcare facilities. Virginia's COPN laws are equivalent to what many other states dub Certificate of Need (CON) laws, which have been the subject of widespread antitrust criticism and scrutiny. The Colon Health case represents the latest in an ongoing debate about the propriety of state CON laws, and signals that these laws are likely to remain a contentious issue for courts, legislators and policymakers.

Ongoing Debate Regarding CON Laws

Currently, 36 states plus the District of Columbia and Puerto Rico have CON laws in place.2 CON laws typically require that potential new entrants into healthcare markets and market participants seeking to expand demonstrate a sufficient public need for their proposed ventures in the relevant geographic areas. States vary in the design and scope of their CON programs.

As we have discussed in prior "Manatt Health Updates," the future of CON programs has been, and remains—as this recent Virginia case exemplifies—the subject of ongoing debate on antitrust grounds. (See our April "Manatt Health Update" article on Phoebe Putney for additional discussion of policy concerns regarding CON laws.) Opponents of CON laws, including the Federal Trade Commission and Department of Justice's Antitrust Division, have argued that they serve as barriers to competition, and urged states to consider whether these laws best serve the needs of their citizens.3

CON law proponents argue that these laws benefit consumers and providers by preventing overinvestment in medical facilities, excluding facilities that are likely to be underutilized, protecting the economic viability of existing providers, providing increased access to care for the indigent, and facilitating cost-effective healthcare spending. Virginia cited these benefits in defending its COPN law in Colon Health.

However, even Virginia has acknowledged the need to carefully review its COPN program and its impact on access to healthcare. Just last year, a state-sponsored task force spent several months evaluating the COPN program and made recommendations for its reform, suggesting both substantive and procedural changes.4 Virginia's deliberation of its COPN program coincides with recent litigation challenging these laws.

The Colon Health Case: The Latest Attack on CON Laws

In Colon Health, the Fourth Circuit upheld the lower federal court's dismissal of claims challenging Virginia's COPN laws as unconstitutional. Plaintiffs, two out-of-state medical imaging service providers, sought to enter the Virginia market to offer MRI and CT scanning services but encountered roadblocks in navigating the state's COPN process. Plaintiffs subsequently alleged that the state's COPN laws are unconstitutional because they place an undue burden on interstate commerce and discriminate against interstate commerce in both purpose and effect. Although plaintiffs conceded that, on their face, the laws apply to all healthcare providers, they argued that since existing providers are all in-state, the laws effectively shelter in-state providers from out-of-state competition.

The court rejected this argument. Instead, it upheld Virginia's COPN laws, finding that they:

  • Serve multiple legitimate public interests,
  • Do not give in-state providers a systematic advantage, and
  • Do not impose burdens on interstate commerce that outweigh the local benefits.


Both regulators and private parties have complained that CON laws act as barriers to competition in the healthcare market. In recent decades, many states have studied and evaluated their CON programs to assess their impact and effect. Yet, the majority of states have maintained their CON programs: since 2000, only one state has repealed its program.5 The Colon Health case is the latest in this ongoing series of attacks against CON laws, and adds to long-standing questions about the future of state CON programs.

Colon Health represents both the limitations and the potential policy benefits of litigation concerning CON laws. On the one hand, Colon Health demonstrates the difficulties in uprooting CON laws in the courts, here on constitutional grounds. These difficulties stem, at least in part, from courts' deference to states' determination of public health benefits. At the same time, the Colon Health case also shows that litigation activity has potential to fuel the ongoing policy debate regarding effects of these programs on the healthcare market. Ongoing litigation activity centered on anticompetitive effects of CON laws, even if unsuccessful in the courts, may lead states to continue reassessing their effectiveness.

1No. 14-2283, 2016 U.S. App. LEXIS 1014 (4th Cir. Jan. 21, 2016).

2Nat'l Conf. State Legis., Certificate of Need: State Health Laws and Programs (Jan. 2016),

3See Press Release, Fed. Trade Comm'n, Agencies Submit Joint Statement Regarding Virginia Certificate-of-Need Laws for Health Care Facilities (Oct. 26, 2015), available at

4See Final Report, Virginia Certificate of Public Need Workgroup, available at

5See Va. Dep't of Pub. Health, Certificate of Public Need in Other States (Jul. 1, 2015), available at

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New Webinar: "Healthcare Without Borders: The Opportunities and Challenges of Medical Tourism"

Join Us March 3 from 1:00 p.m. to 2:30 p.m. ET to Learn the Benefits and Risks of Medical Tourism. 

Once considered a fringe option, medical tourism has gained mainstream acceptance. According to the Centers for Disease Control, up to 750,000 Americans a year travel abroad for healthcare. Projections for the next decade call for U.S. residents to spend more than $300 billion in foreign care, up from less than $2 billion in 2005.

With the globalization of healthcare, people are increasingly open to looking beyond their backyards for effective and affordable care. What are the benefits—and the risks—for employers, payers, providers and patients? Which trends in U.S. healthcare are driving the desire to seek foreign alternatives? How does medical tourism work—and what are the legal issues to consider? Manatt provides the answers in a new, educational webinar for Bloomberg BNA, "Healthcare Without Borders: The Opportunities and Challenges of Medical Tourism."

The webinar explores medical tourism from four critical perspectives—financial, clinical, regulatory and consumer readiness. You will:

  • Gain insights into the trends in the United States that are making medical tourism an appealing alternative for payers, employers and patients seeking to lower healthcare costs.
  • Hear the results of new research on consumer attitudes toward medical tourism—and find out how ready Americans are to receive care beyond their own borders.
  • Understand the facts around medical tourism growth, capacity, savings and quality—and look at some of the current approaches in place at major employers and insurers.
  • Discover why Mexico is an increasingly attractive destination for patients and insurers—and get a firsthand perspective from the medical director of a major private Mexican hospital on changes under way in Mexican health systems to meet the needs of American consumers.
  • Examine the legal challenges around medical tourism on a full range of issues—from marketing restrictions to HIPAA to liability—and learn how to mitigate risks in structuring and executing programs.

Click here to register free—and earn CLE. Even if you can't make the original airing on March 3 at 1:00 p.m. ET, sign up now and receive a link to view the session on demand.


Jon Glaudemans, Managing Director, Manatt Health

Alfonso Vargas Rodriguez, Medical Director, Hospitals H+

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California Court of Appeal Reminds Medical Groups That Certain Risk-Sharing Arrangements May Require a Knox-Keene License

Author: Steve Chiu, Associate, Healthcare

Since its publication last summer, the California Court of Appeal's decision in Hambrick v. Healthcare Partners Medical Group, Inc., 238 Cal. App. 4th 124 (Cal. App. 2d Dist. 2015), has been cited numerous times as clarifying the scope of the judicial abstention doctrine. Less discussed, but just as timely and important, is the Court's acknowledgment that medical groups engaging in certain risk-sharing arrangements with Knox-Keene healthcare service plans may themselves need to obtain Knox-Keene licensure.


Hambrick was a putative class action alleging that a physician group was a de facto health plan operating without a proper license under the Knox-Keene Act. According to plaintiffs, the defendant constituted a health plan due to the level of risk it allegedly had assumed. The trial court dismissed the case on demurrer, invoking permissive judicial abstention. The Court of Appeal affirmed, holding that because neither the Knox-Keene Act nor its implementing regulations defined what level of risk is associated with a health plan, "having the court decide the level of acceptable risk that a medical group may bear without becoming a healthcare service plan would cause the court to wade into the complex economic policy and regulatory framework that are better left to the DMHC [Department of Managed Health Care]." 238 Cal. App. 4th at 143. On that basis, the Court declined to decide whether the medical group was actually a de facto health plan.

However, despite the Court's decision to abstain, the Court engaged in extensive discussion of the issue and took judicial notice of a 2002 California Financial Solvency Standards Board memorandum (FSSB memo) that established a framework for examining the issue. 238 Cal. App. 4th at 144.

Framework for Medical Group Versus Health Plan Analysis

The FSSB memo noted that risk arrangements usually fall within one of three basic structures, the third of which is prohibited unless the contracting medical group has obtained Knox-Keene licensure as a health plan:

1. Full Risk Contracting: A health plan enters into capitation agreements to shift the risk for the provision of non-institutional healthcare services to a physician network (e.g., medical groups, IPAs, or some combination of these) and also enters into a capitation agreement with a hospital for the provision of institutional healthcare services.

2. Shared Risk Contracting: A health plan enters into a capitation agreement with a medical group, but retains institutional risk. In these arrangements, the health plan may require the medical group to participate in limited risk arrangements relating to the provision of institutional healthcare services (i.e., risk pooling).

3. Global Risk Contracting: A health plan enters into a capitation agreement with only one healthcare provider (e.g., a medical group) to shift the entire risk for the provision of both institutional and non-institutional healthcare services to that single healthcare provider.

Open Issues: Definition of "Institutional Healthcare Services" and the Level of Risk-Shifting That Would Necessitate Health Plan Licensure

The Hambrick Court and FSSB memo noted that it was not clear (a) what types of services were "institutional healthcare services," or (b) exactly when the use of risk arrangements rises to a level constituting a prohibited shifting of institutional healthcare service risk to a medical group. 238 Cal. App. 4th at 145-46.

1. Definition of "Institutional Healthcare Services"

The Hambrick Court and FSSB memo both noted that preventive care and physician services listed on a physician license were non-institutional, whereas direct facility charges were indicative of institutional healthcare services, but acknowledged that "a large gray area" existed between the two ends of the spectrum. 238 Cal. App. 4th at 146.

  • Note that the facility charge test for institutional healthcare services may be less useful given the increasing trend of providing ambulatory physician services in hospital-owned buildings, resulting in both physician charges and facility fees. See Nolte v. Cedars-Sinai Medical Center, 236 Cal. App. 4th 1401 (Cal. App. 2d Dist. 2015) (patient signing a hospital condition of admission form held liable for "facility fee" that the hospital charged to enroll new patients into the hospital billing system, despite the fact that the patient received only ambulatory physician services and was not advised of facility fee in advance).

2. Prohibited Risk-Sharing Arrangements and Level of Risk-Shifting

The FSSB memo noted that using risk pooling mechanisms that combined the losses associated with institutional healthcare services against gains from non-institutional services, other forms of cross-service offsetting of losses, or accounting and collection practices that carry forward deficits (particularly institutional service deficits) from one year to another could potentially be viewed as a form of global capitation that would trigger Knox-Keene health plan licensure requirements.

Limitations and Applicability

The FSSB memo, as discussed in the Hambrick opinion, is somewhat limited not only by its lack of clarity, but also by the fact that the Hambrick Court ultimately abstained from making any substantive decision and, in doing so, expressly noted that the memo was designed only for discussion purposes by the FSSB and was not officially adopted by DMHC. 238 Cal. App. 4th at 144. Despite these limitations, the Hambrick Court's discussion did include some potentially helpful guidance and also shows that the FSSB memo's framework for analyzing global risk may still be useful.

Given the increase in numbers of medical groups engaged in risk-sharing arrangements with health plans and institutional providers in response to the proliferation of numerous reforms and initiatives incentivizing coordination, collaboration, and innovative payment models (e.g., certain commercial ACOs) that followed the passage of the Affordable Care Act, this guidance may serve as at least a helpful starting point for the Knox-Keene health plan licensure analysis.

Those medical groups that fail to conduct any such analysis may find themselves faced with not only the administrative burden associated with obtaining a Knox-Keene license (or potential exposure for operating an unlicensed health plan), but also with numerous, more stringent Knox-Keene health plan regulatory requirements relating to topics ranging from network adequacy to the review and processing of claims.

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New Webinar: "ACA-Driven Litigation: Cases to Watch (and What's Next)"

Join Us on March 30 from 1:00 – 2:30 p.m. ET to Discover What's Fueling ACA Litigation—And Which Cases Could Be Game Changers.

On March 23, 2010, President Obama signed the Affordable Care Act (ACA) into law. Since its inception, scores of cases have been filed challenging various aspects of the law. Which areas of the ACA are fueling the surge in litigation? What are the implications of decisions already handed down—and what are the potentially game-changing cases to watch in 2016? Learn the answers in a new Manatt webinar for Bloomberg BNA, "ACA-Driven Litigation: Cases to Watch (and What's Next)."

The webinar takes a detailed look at ACA implementation and the lawsuits that it's driving. You will:

  • Get an update on the ACA today, with a progress report on key facets of the law.
  • Identify the issues arising out of ACA implementation that are driving litigation.
  • Gain insights into rulings, cases and implications in four ACA-related litigation areas:

    1. Exchanges, including cases related to network adequacy and access, rate and quality transparency, premium costs, mental health parity, False Claims Act (FCA) exposure, regulatory compliance, and risk corridors and adjustments.

    2. Employer/employee challenges, including actions against employers for dropping coverage in favor of exchanges, shifting employees from full- to part-time status, and pre-ACA reductions in force (RIF) planning.

    3. Medicaid, including reimbursement and expansion-related issues, as well as compliance with essential health benefits, access to care and network adequacy.

    4. Privacy and security, examining the increased vulnerability to large-scale theft and data loss, as providers and plans depend increasingly on electronic data.


Joel Ario, Managing Director, Manatt Health

Andrew Struve, Partner, Co-Chair, Healthcare Litigation, Manatt, Phelps & Phillips, LLP

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Better Late Than Never: CMS Provides Much-Needed Clarity on the 60-Day Overpayment Refund Requirements

Authors: Robert Belfort, Partner, Healthcare | Randi Seigel, Counsel, Healthcare

On February 12, 2016, the Centers for Medicare & Medicaid Services (CMS) issued the long-awaited final rule (Final Rule) implementing the Patient Protection and Affordable Care Act (ACA) provision that obligates healthcare providers and suppliers to return overpayments made by federal healthcare programs within 60 days of identification.1 This Final Rule was promulgated almost exactly four years from CMS's issuance of the proposed rule. Fortunately, CMS seems to have used the last four years to listen to providers' concerns and reduce some of the complexities, as well as clarify certain ambiguities of this requirement, specifically around the meaning of identification, the start of the 60-day clock and the lookback period.

The new regulations can be found at 42 C.F.R. §§ 401.301, 401.303, and 401.305.

Background of the Refund Obligations Under the ACA

Most healthcare organizations are familiar with the fact that the ACA added a new Section 1128J(d) to the Social Security Act which provides that "[i]f a person has received an overpayment, the person shall . . . report and return the overpayment" to "the Secretary [of Health and Human Services], the State, an intermediary, a carrier, or a contractor, as appropriate," and "notify the Secretary, State, intermediary, carrier or contractor to whom the overpayment was returned in writing of the reason for the overpayment."2

Section 1128J(d) further requires that an overpayment be reported and returned by the later of (1) 60 days after the date on which the overpayment was identified; or (2) the date any corresponding cost report is due, if applicable. An "overpayment" is "any funds that a person receives or retains under title XVIII [the Medicare statute] or XIX [the Medicaid statute] to which the person, after applicable reconciliation, is not entitled."3

Section 1128J(d) provides that any overpayment that is "retained" by a person after the deadline for reporting and returning the overpayment is an "obligation" for purposes of the reverse false claims provision of the federal False Claims Act (the FCA). The FCA imposes liability on any person who "knowingly conceals" or "knowingly and improperly avoids or decreases" an "obligation to pay or transmit money or property to the Government."4 Thus the knowing and improper failure to return "identified" overpayments by the applicable time frame may result in treble damages and monetary penalties under the FCA. The ACA also amended the Civil Monetary Penalties Laws to authorize the imposition of civil monetary penalties (and potential exclusion from federal healthcare programs) on any person who "knows of an overpayment and does not report and return the overpayment in accordance with [Section 1128J(d)]."5

Final Regulation

1. When Is an Overpayment Identified?

Under the Final Rule, an overpayment has been identified "when the person has or should have, through the exercise of reasonable diligence, determined that the person has received an overpayment and quantified the amount of the overpayment"6 (emphasis added). Here, CMS recognized that providers and suppliers often need to conduct an investigation before they can even determine whether they received an overpayment.

CMS expects that providers and suppliers perform "reasonable diligence" when they receive potentially credible evidence of an overpayment. "Reasonable diligence" includes "both proactive compliance activities conducted in good faith by qualified individuals to monitor the receipt of overpayments and investigations conducted in good faith and in a timely manner by qualified individuals in response to obtaining credible information of a potential overpayment."7

CMS expects a provider to promptly commence an investigation into any potential receipt of an overpayment if it has potentially credible evidence that it received an overpayment. A provider may not stick its head in the sand to avoid repayment obligations. Accordingly, a person is deemed to have identified an overpayment "if the person fails to exercise reasonable diligence and the person in fact received an overpayment."8

2. When Does the 60-Day Clock Start to Run?

The Final Rule allows providers and suppliers to complete their investigation and quantify the amount of the overpayment before the 60-day clock starts, so long as the provider or supplier is not dragging out the process. In general, CMS expects that reasonable diligence should take a provider no more than six months from receipt of the credible information. This is because CMS believes that providers and suppliers should prioritize investigating their receipt of overpayments and ". . . should devote appropriate attention to resolving these matters. A total of 8 months (6 months for timely investigation and 2 months for reporting and returning) is a reasonable amount of time, absent extraordinary circumstances affecting the provider, supplier, or their community."9

While extraordinary circumstances are fact-specific inquiries, CMS notes that they "include unusually complex investigations . . . such as physician self-referral law violations that are referred to the CMS Voluntary Self-Referral Disclosure Protocol. Specific examples of other types of extraordinary circumstances include natural disasters or a state of emergency."10

3. What Is the Relevant Lookback Period?

In the Final Rule, CMS has defined the lookback period to be six years from the date the overpayment was received. For providers, this is a welcome revision to the proposed rule in which CMS proposed a 10-year lookback period.

4. How Should Overpayments Be Reported and Returned?

CMS will allow providers and suppliers to use existing processes to report and return overpayments, including, without limitation, claims adjustments, credit balances, existing cost-report reconciliations, and self-reported processes (such as the voluntary refund process). Providers and suppliers may continue to request a voluntary offset as a method of returning the overpayment; however, in discussing the definition of overpayment, CMS refused to opine on whether identified underpayments may be offset against overpayments when determining the repayment amounts. CMS intends to develop a standardized reporting form.

In addition, CMS will "allow[] for suspending of the deadline for returning overpayments when a person requests an . . . [Extended Repayment Schedule]" due to true financial hardship.11

5. Other Notable Points:

  • CMS noted that "[w]hile . . . [it] will not recover an overpayment twice," CMS will not exempt claims that formed the basis of a self-disclosure from subsequent audits.12
  • CMS declined to adopt a minimum monetary threshold for refund subject to this Final Rule, as it believed any threshold would be susceptible to abuse.
  • CMS expects providers to retain documentation which demonstrates that the providers engaged in reasonable diligence to investigate the overpayment.

1 In the Final Rule, CMS makes clear that these regulations apply only to Medicare providers and suppliers and do not apply to Medicare Advantage ("MA") Plans and Medicare Prescription Drug ("PDP") Plans or to Medicaid. MA Plans' and PDP Plans' overpayment refund obligations are set forth in 79 FR 29844, and CMS has not yet issued any proposed regulations regarding Medicaid.

2ACA § 6402(a); codified at 42 U.S.C. § 1320a-7k(d).

3Id. "Applicable reconciliation" is not defined in the ACA.

431 U.S.C. § 3729(a)(1)(G).

542 U.S.C. § 1320a-7a(a)(10).

642 C.F.R. § 401.305(a)(2).

781 Fed. Reg. 7654, 7661.

842 C.F.R. § 401.305(a)(2).

981 Fed. Reg. at 7662.


11Id. at 7679.

12Id. at 7667.

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