The Broadest Impact:  2018-19 NYS Managed Care Budget Highlights

This, the last of our posts on the 2018-19 New York State Health Budget (the “Enacted Budget”), focuses on an area of healthcare that has perhaps the broadest impact of the sector as a whole — managed care.  A prior post in the series (here) discussed the central role that hospitals have traditionally played in healthcare reform efforts, but even they have less influence (at least, as a matter of policy) than managed care, which controls the funding that fuels virtually every other parts of the healthcare system.  For purposes of this article, “managed care” really means Medicaid managed care in all its various guises, since that is the funding most directly controlled by the State – while the various forms of Medicare managed care (Medicare Advantage, Medicare Part D, etc.) and commercial managed care are important, and even critical, to the healthcare system in New York, they are generally not a focus of State budgeting (at least directly).  So this post will focus on the various forms of Medicaid managed care, including managed long term care (MLTC) that provide long term care services, fiscal intermediaries for consumer-directed consumer assistance, mainstream managed care plans that provide acute and primary care services, health homes that coordinate care for people with chronic illnesses, and others.  Note that one species of Medicaid managed care, Development Disabilities Individual Support and Care Coordination Organizations, are not addressed in this post, but were addressed in a prior one (here).

Just a quick word before examining the key provisions impacting managed care:  this series has not pretended to be a comprehensive analysis of all the healthcare provisions in the 2018-19 New York State Health Budget.  It has merely provided a survey of the highlights of certain key areas in the healthcare space.  Inevitably, some areas have not been directly addressed; particular ones that come to mind include primary care, professional practice, life science research and others.  In part, this was due to the lack of significant reforms in those areas; however, it was also true that the sectors we did address often included references to those other sectors.  Nowhere is this truer than in regard to managed care, which, as noted, touches on every other area of healthcare.  Key provisions in the managed care space are summarized below.

Managed Long Term Care & Fiscal Intermediaries

Managed Long Term Care (MLTC) Eligibility.  Since 2012, adults have been eligible for MLTC enrollment if they require community-based care for more than 120 days.  The Enacted Budget provides that, effective April 1, such individuals are only eligible if that 120 days is a continuous, not aggregate, period.

Changing MLTC Plans.  Effective October 1, 2018, the Enacted Budget allows MLTC enrollees to switch plans without cause anytime within 90 days of notification or the effective date of enrollment (whichever is later), but thereafter, the Department of Health (DOH) is authorized to prohibit changing plans more than once every 12 months, except for good cause.  “Good cause” includes poor quality of care, lack of access to covered services, and lack of access to providers “experienced in dealing with the enrollee’s care needs,” and may include other categories identified by the Commissioner of Health.

Nursing Home Resident Eligibility.  Effective April 1, 2018, the Enacted Budget provides that individuals who are permanently placed in a nursing home for a consecutive period of three months or more will not be eligible for MLTC, but instead will receive services on a fee-for-service basis.  In a side letter, DOH has promised to provide guidance highlighting information about an individual’s rights as a nursing home resident, nursing home and MLTC plan responsibilities, and supports for individuals who wish to return to the community.

Plan Mergers.  Effective April 1, 2018, surviving plans in a plan merger, acquisition or similar arrangement must submit a report to DOH within 12 months providing information about the enrollees transferred, a summary of which DOH will make available to the public.

Licensed Home Care Services Agency (LHCSA) Contracting.  As discussed in a prior post (here), beginning October 1, 2018, the Commissioner of Health may limit the number of LHCSAs with which an MLTC plan may contract, according to a formula tied to region, number of enrollees and timing (before or after October 1, 2019), with some exceptions.  In a side letter, DOH has indicated that it will issue guidance to assist both MLTC programs and LHCSAs in minimizing the disruption of care for Medicaid members and the impacted workforce from this initiative.

Fiscal Intermediary Advertising.  The Enacted Budget includes provisions that limit the advertising practices of fiscal intermediaries under the Consumer Directed Personal Assistance Program (CDPAP).  CDPAP provides chronically ill and/or physically disabled Medicaid enrollees receiving home care services with more flexibility and freedom of choice to obtain such services.  Fiscal intermediaries help consumers facilitate their role as employers by: providing wage and benefit processing for consumer directed personal assistants; processing income tax and other required wage withholdings; complying with workers’ compensation, disability and unemployment requirements; maintaining personnel records; ensuring health status of assistants prior to service delivery; maintaining records of service authorizations or reauthorizations; and monitoring the consumer’s/designated representative’s ability to fulfill the consumer’s responsibilities under the program (in this regard, they are not truly managed care, although there are some similarities).  The Enacted Budget prohibits false or misleading advertisements by fiscal intermediaries.  Furthermore, fiscal intermediaries are now required to submit proposed advertisements to DOH for review prior to distribution, and are not permitted to disseminate advisements without DOH approval.  The DOH is required to render its decision on proposed advertisements within 30 days.  In the event DOH has determined the fiscal intermediary has disseminated a false or misleading advertisement, or if an advertisement has been distributed without DOH approval, the fiscal intermediary has 30 days to discontinue use and/or remove such advertisement.  If DOH determines a fiscal intermediary has distributed two or more advertisements that are false or misleading or not previously approved by DOH, the entity will be prohibited from providing fiscal intermediary services and its authorization will be revoked, suspended or limited.  Additionally, DOH will maintain a list of these entities and will make this list available to local departments of social service, health maintenance organizations, accountable care organizations and performing provider systems.  These limitations apply to marketing contracts entered into after April 1, 2018.

Fiscal Intermediary Reporting.  The Enacted Budget allows the Commissioner of Health to require fiscal intermediaries to provide additional information regarding the direct care and administrative costs of personal assistance services.  DOH may determine the type and amount of information that will be required, as well as the regularity and design of the reports.  These cost reports must be certified by the owner, administrator, chief administrative officer or public official responsible for the operation of the provider.  The DOH must provide at least 90 days’ notice of this report deadline.  If DOH determines the cost report is not complete or inaccurate, it must notify the provider in writing and specify the correction needed or information required.  The provider will have 30 days to respond to DOH’s request for supplementary information.  In the event a provider cannot meet this filing deadline, DOH may provide an additional 30 day extension if the provider sends written notice prior to the report due date which details acceptable reasons beyond their control which justify their failure to meet the filing deadline.

Mainstream Managed Care and Health Homes

Quarterly Meetings on Medicaid Managed Care Rates.  In a side letter, the Executive has committed to providing quarterly updates to the Legislature regarding Medicaid managed care rates, including the actuarial memorandum which, pursuant to statute, is provided to managed care organizations 30 days in advance of submission to the federal Centers for Medicare and Medicaid Services (CMS).  This is intended to increase the transparency of Medicaid managed care rates.

Separate Rate Cells or Risk Adjustments for Specific Populations.  In a side letter, DOH has committed to exploring separate rate cells or risk adjustments for the nursing home, high cost/high need home and personal care, and Health and Recovery Plan (HARP) populations.  DOH will re-engage CMS regarding this reimbursement methodology with the assistance of health care industry stakeholders impacted by these changes (e.g. advocates, providers and managed care organizations).  This will hopefully lead to a fairer rate structure for plans serving higher-risk patients.

Health Homes Targets.  The Enacted Budget requires the Commissioner of Health to establish reasonable targets for health home participation by enrollees of special needs plans and other high risk enrollees of managed care plans to encourage plans and health homes to work collaboratively to achieve such targets.  The DOH was also empowered to assess penalties for failure to meet such participation targets where they believe such failure is due to absence of good faith and reasonable efforts.

Health Home Criminal History Checks.  The Enacted Budget requires criminal history checks for employees and subcontractors of health homes and any entity that provides community-based services to individuals with developmental disabilities or to individuals under 21 years old.

Health Home Reporting.  Similar to fiscal intermediaries (above) and LHCSAs (here), the Enacted Budget allows the Commissioner of Health to require health homes to report on the costs incurred to deliver health care services to Medicaid beneficiaries.

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So that concludes our series on the 2018-19 New York State Healthcare Budget.  If you have any questions or would like additional information on any of the above referenced issues, or any of the other items covered (or not covered) in the series, please do not hesitate to contact Farrell Fritz’s Regulatory & Government Relations Practice Group at 518.313.1450 or NYSRGR@FarrellFritz.com.

 

 

Small Issues with Big Impacts:  2018-19 NYS Hospital Budget Highlights

There are probably few in the healthcare community in New York State who would disagree that, among provider types, hospitals have typically received the most attention from policymakers.  The hospitals themselves might argue the point, or point out that having the attention of policymakers is not always a good thing (e.g., the attention on pharmaceutical manufacturers in this year’s budget, discussed here).  Payors might argue that they are more frequently the focus of policy efforts.  And of course, patient advocates would be quick to point out that the real focus of healthcare policy should be on patients (a principle with which no one disagrees, at least in theory).  But it is hard to argue against the contention that, more than any other provider, hospitals have been the focus of policy reform efforts since there was such a thing as healthcare policy.

With that in mind, one of the more interesting aspects of the 2018-19 New York State Enacted Budget is the relative lack of hospital-focused reform efforts.  To be sure, hospitals were, as always, a significant part of the debate, and several hospital reform initiatives were discussed that did not make it into the final budget agreement.  And, of course, the hospitals were a major force behind, and are expected to be major beneficiaries of, two huge funding pools established in the final agreement:  the third iteration of the Statewide Health Care Facility Transformation Program (discussed here) and the Health Care Transformation Fund being funded in connection with the acquisition of a New York-based payor (discussed here).  But beyond that, there are no huge system-wide reforms in the Enacted Budget that directly impact hospitals.

However, there are two relatively small items that are likely to have significant long-term impacts:  a series of provisions related to indigent care funding, and a new requirement regarding sexual assault kits.  Both are discussed below.

Indigent Care Funding:  DSH and ICP

2018 began with a great deal of uncertainty regarding the fate of New York’s safety net hospitals.  This uncertainty was fueled in part by wariness over potential cuts to Medicaid Disproportionate Share Hospital (DSH) subsidies at the federal level, as well as sustained pressure from advocacy groups demanding changes in the state’s Indigent Care Pool (ICP) reimbursement methodology, which opponents claim inequitably favors large financially stable providers serving predominantly insured patients over hospitals that provide the greatest amount of charitable care to the neediest populations.  Thanks in part to a last-minute decision by the Federal Government not to cut DSH payments this year, the Enacted Budget largely maintains the status quo with respect to DSH payments and the ICP methodology – however, the Department of Health has agreed in a side letter with Senate Health Committee leadership to convene a working group on DSH reform.  The Enacted Budget also provides $100 million dollars in enhanced Medicaid payments to a specific subset of safety net hospitals.

Critics claim that the current ICP reimbursement methodology, which reimburses hospitals for charitable health spending through a combination of state surcharges on health insurance and a portion of federally funded Medicaid DSH dollars, has consistently failed to adequately reimburse the institutions which actually provide the most free care to the poorest populations.  Part of the reason for this imbalance is the formula used to calculate ICP distributions.  The ICP, and its prior iteration, the Hospital Bad Debt and Charity Care Pool, traditionally allowed hospitals to seek reimbursement for both “charity care” (free medical services provided to the poor) and “bad debt” (including unpaid copayments and deductibles of commercially insured patients).   Challengers of the current system claim that this results in some of the largest reimbursement payments going to the least charitable hospitals.

In 2013, and in response to provisions in the federal Affordable Care Act penalizing states that allowed DSH dollars to be used for the reimbursement of bad debt, the Legislature amended the ICP’s reimbursement formula to a “needs based calculation.”  However, the 2013 amendment also included a “transition adjustment”, which severely limited the amount each hospital’s grant could be increased or decreased from its pre-2013 levels – in its current version payments may not decrease by more than 2.5% year over year.   As noted in a September 2017 Report by the Empire Center, the transition adjustment has stymied the intended redistributive effect of the needs based formula, and “[t]here [remains] a negative correlation between the overall poverty of a hospital’s patients and the relative size of its indigent care grant.”

The Enacted Budget does not alter the current ICP or DSH frameworks, but rather extends the existing framework through March 31, 2020, and maintains previous funding rates through 2019 of: (a) $139,400,000 as Medicaid DSH payments to major public general hospitals; and, (b) $994,900,000 as Medicaid DSH payments to eligible general hospitals other than major public general hospitals.  Additionally, the Enacted Budget increases the cap on reductions in ICP payments for the calendar year beginning January 1, 2019 from the prior rate of 15% to 17.5%.  In a side letter agreement with Senate Health Committee Leaders, the Department of Health has agreed to establish a temporary workgroup on hospital indigent care methodology which will make recommendations regarding DSH and ICP funding.  The workgroup will convene no later than June 1, 2018 and create a report on its findings no later than December 1, 2018.

While the Enacted Budget does not tackle the larger issues plaguing the ICP methodology, it does provide for $100 million in enhanced Medicaid rate payments – which are administered outside of the ICP and DSH – to a newly-designated class of Enhanced Safety Net Hospitals (“ESNH”).  A hospital will qualify as ESNH if it falls into any of the following categories:

  1. It serves a high percentage of Medicaid and uninsured patients (specifically, in any of the last three years: (a) not less than 50% of the patients treated receive Medicaid or are medically uninsured; (b) not less than 40% of its inpatient discharges are covered by Medicaid; (c) 25% or less of its discharged patients are commercially insured; (d) not less than 3% of the patients it provides services to are attributed to the care of uninsured patients; and, (e) it provides care to uninsured patients in its emergency room, hospital based clinics and community based clinics including the provision of important community services such as dental care and prenatal care).
  2. It is a public hospital (operated by a county, municipality, public benefit corporation or the State University of New York).
  3. It is a federally-designated Critical Access Hospital (CAH).
  4. It is a federally-designated Sole Community Hospital (SCH).

Payments made under the ESNH program may be added to rates of payment or made as aggregate payments to eligible general hospitals.  The 2018-19 Enacted Budget appropriated $50 million under the ESNH program for high Medicaid/uninsured and public hospitals, and another $50 million for CAHs and SCHs.

It remains to be seen how the current ICP framework will hold up in the event that Federal DSH payments are cut at the federal level, whether the $100 million ESNH program will provide sufficient funds to shore up the state’s most vulnerable facilities, and what the indigent care workgroup will recommend for a more permanent solution.  But these various elements could ultimately result in a fundamental change in the way indigent care is reimbursed in New York State

Sexual Assault Kits

The Enacted Budget includes significant amendments surrounding the responsibilities of hospitals with respect to the collection and storage of sexual assault evidence.  Most significantly, beginning April 1, 2018, hospitals are responsible for ensuring that sexual offense evidence is kept locked and secure – refrigerated where necessary – until April 1, 2021.  After April 1, 2021 (or earlier if deemed feasible by the Director of the Budget), the evidence will be turned over to a state appointed custodian.  The state appointed custodian will be responsible for storing the evidence until twenty years from the date of its collection. The new provisions also spell out specific chain of custody requirements (marking and identification of evidence). Hospitals will have the option of entering into third-party contracts for the storage of sexual assault evidence off site between now and the appointment of a state custodian.  After April 2, 2021, new sexual assault evidence must be transferred to the state appointed custodian within ten days of collection.

The Enacted Budget further mandates that hospitals are responsible for ensuring sexual assault survivors are not billed for sexual assault forensic exams and are notified orally and in writing of the option to decline to provide private health insurance information and have the office of victim services reimburse the hospital for the exam. Nonetheless, a sexual assault survivor may voluntarily assign any private insurance benefits to the hospital, in which case the hospital may not charge the office of victim services for the exam, provided, however, that such health insurance coverage shall not be subject to annual deductibles or coinsurance or balance billing by the hospital.  Additional provisions in the Health Insurance Law clarify that such treatments shall not be subject to annual deductibles or coinsurance.

Alone, these changes in the manner in which hospitals handle and are paid for work with sexual assault victims do not seem to have the same kind of systemic impact as changes in the way indigent care is funded.  However, they represent the latest addition to the panoply of standards governing hospital record-keeping – and in an area that can have extremely significant consequences if a hospital fails to meet the applicable standard.  It is not hard to envision litigation resulting from the mishandling of evidence under the new statute, and the agreed upon need for a more permanent solution in 2021 promises additional regulation in this space in the future.

So in short, while both reforms are relatively small in the short term, they may have significant impacts in the long term.  Hospitals are faced with the choice of waiting to see what those impacts might be, working to adjust operations to anticipate those impacts, or actively engaging with the State to try to affect the outcome.  If you have any questions concerning either of those issues, or are interested in engaging with the State to impact them, please do not hesitate to contact Farrell Fritz’s Regulatory & Government Relations Practice Group at 518.313.1450 or NYSRGR@FarrellFritz.com.

 

 

A Renewed Focus: 2018-19 NYS Intellectual and Developmental Disabilities Budget Highlights

Since the beginning of the administration of Governor Andrew Cuomo, there has been a strong emphasis on reform of the acute, primary, and long term care systems, and, particularly with the recent focus on the opioid crisis, that attention has extended to the behavioral care system, as well.  In contrast, reforms in the developmental disabilities system have been slower in coming, attributable to a variety of factors, including historical issues surrounding service mix and reimbursement, and legitimate concerns about client safety and quality of life. In some ways, the developmental disabilities provisions in the 2018-19 Enacted Budget represent a return of focus on the developmental disabilities sector, with several provisions concentrating on how larger reform efforts – including the movement toward managed care, health homes, and telehealth – intersect with the developmental disabilities community. Highlights of key provisions follow.

Managed Care. The Enacted Budget includes language updating existing provisions related to the movement of developmental disabilities clients and services into managed care. First, it expands the list of individuals who may be required to enroll in managed care and revises provisions regarding eligibility to include individuals with developmental or physical disabilities who receive services via a federal 1115 waiver, and authorizes the Commissioner of Health, in consultation with the Commissioner of Developmental Disabilities, to submit an application for such waiver. The Enacted Budget also extends authority of the Office for People with Developmental Disabilities (OPWDD) to require enrollment in managed care from 2019 to 2023, and makes technical corrections to that authority. The OPWDD Commissioner will also assess the quality, outcomes, experience and satisfaction of managed care for individuals with developmental disabilities, and report to the Legislature by December 31, 2022.

Health Homes. The Enacted Budget amends the Public Health Law to require criminal history checks for employees and subcontractors of health homes and any entity that provides community based services to individuals with developmental disabilities or to individuals under 21 years old.

Telehealth. The Enacted Budget amends the Public Health Law to allow the use of telehealth by certified and non-certified day or residential health care facilities operated by OPWDD, residential health care facilities serving special needs populations, credentialed alcoholism and substance abuse counselors, and early intervention providers. Further, the Commissioner of the Department of Health, in consultation with the Commissioners of Office of Mental Health, OPWDD and the Office of Alcoholism and Substance Abuse Services may identify other providers that should be permitted to provide telehealth services. Additionally, DOH, OMH, OPWDD and OASAS will coordinate on a single guidance document that will identify the discrepancies in regulations and policies by state agencies, and assist consumers, providers and health plans to better understand and facilitate the use of telehealth to address barriers to care.

First Responder Training. The Enacted Budget agreement includes language to require the Commissioner of Mental Health, in consultation with the Department of Health, Office of Fire Prevention and Control, Municipal Police Training Council, and the Superintendent of the State Police, to develop a training program and educational materials to provide instruction and information to firefighters, police officers, and emergency medical personnel on appropriate recognition and techniques for handling emergency situations involving individuals with autism spectrum disorder and other developmental disabilities.

Care at Home Waivers. The Enacted Budget extends the Care at Home I and II waivers until March 31, 2023. These waivers provide community-based services to physically disabled children who require hospital or skilled nursing home level of care.

Extension of OMH Inpatient Psychiatry Demonstration. The Enacted Budget extends this demonstration program, which allows for three or more time-limited demonstration programs to test and evaluate new methods or arrangements for organizing, financing, staffing and providing services for individuals with intellectual or developmental disabilities, through March 31, 2021.

Independent Practitioner Services. The Enacted Budget amends Section 367-a of the Social Services Law to include independent practitioner services for individuals with developmental disabilities as covered services for insurance reimbursement.

Residents Use of Funds for Care and Treatment. The Enacted Budget extends Chapter 111 of the Laws of 2010 and Chapter 58 of the Laws of 2015 to extend the authority of state facility directors that act as federally appointed representative payees to use funds for the cost of a resident’s care and treatment in facilities through June 30, 2018.

For additional information on any of the above-referenced issues, please do not hesitate to contact Farrell Fritz’s Regulatory & Government Relations Practice Group at 518.313.1450 or NYSRGR@FarrellFritz.com.

Responding to the Opioid Crisis and More:  2018-19 NYS Behavioral Health Budget Highlights

Several provisions in the recently adopted 2018-19 New York State Budget (the “Enacted Budget”) are intended to address the ongoing opioid crisis.  As discussed in a prior post (here), some were focused on pharmaceutical manufacturers.  Some of the most significant provisions, however, relate to the behavioral health services available to patients, including both mental health and substance use disorder (SUD) services.  Other provisions will affect behavioral health services more generally. Key provisions are summarized below.

Substance Use Disorder and Mental Health Ombudsman.  The Enacted Budget establishes the Office of the Independent Substance Use Disorder and Mental Health Ombudsman, which will be operated or selected by the Office of Alcoholism and Substance Abuse Services (OASAS), in conjunction with the Office of Mental Health (OMH).  The Ombudsman will assist individuals with SUD and/or mental illness to ensure they receive appropriate health insurance coverage.  The Ombudsman will identify, investigate, refer and resolve complaints that are made by or on behalf of consumers and treatment providers regarding health insurance coverage and network adequacy for substance use disorder and mental health care services.  The Enacted Budget appropriated $1.5 million for this program.

Prohibit Prior Authorization for Outpatient Substance Abuse Treatment.  The Enacted Budget amends several provisions of the Insurance Law to prohibit prior authorization for outpatient, intensive outpatient, outpatient rehabilitation and opioid treatment provided by OASAS-certified facilities that are within the insurer’s provider network.  The coverage provided cannot be subject to concurrent review for the first two weeks of treatment if the facility notifies the insurer of the patient’s initial start date of treatment and the treatment plan within 48 hours.  The facility is also required to perform a patient clinical assessment at each visit and consult with the insurer to ensure the facility is using the appropriate evidence-based/peer reviewed clinical tool utilized by the insurer and designated by OASAS to ensure treatment is medically necessary.  Insurers may deny coverage for any portion of the initial two weeks of treatment if the treatment was deemed not medically necessary and contrary to the insurer-designated, OASAS-approved, evidence-based/peer reviewed tool.  If such coverage is denied by the insurer, the patient is liable for the copayment, coinsurance, or deductible required pursuant to the insurance contract.

Children and Recovering Mothers Program.  The Enacted Budget authorizes the Department of Health (DOH), in consultation with OASAS, to establish the Children and Recovering Mothers Program to provide health care providers, hospitals, and midwifery birth centers with guidance, education and assistance when providing care to expectant mothers with SUD.  The program will provide information to health care providers and expectant mothers on medication-assisted treatment, a referral list of SUD providers in the area, and information on other benefits and services they may be eligible for while expecting or after birth.  The program will develop a statewide system for rapid consultation and referral linkage services for obstetricians and primary care providers who treat expectant mothers.  Additionally, the DOH, in consultation with OASAS, will convene a workgroup of stakeholders, including hospitals, local health departments, obstetricians, midwives, pediatricians and substance use disorder providers, to study and evaluate the obstacles in identifying and treating expectant mothers, newborns and new parents with SUD.  The workgroup is required to submit a report of its findings to DOH, OASAS and the Legislature by April 2019.   The Enacted Budget appropriated $1 million for this initiative and $350,000 to establish an infant recovery pilot program to support up to four recovery centers in NYS.

Peer Recovery Advocate Services.  The Enacted Budget establishes the Certified Peer Recovery Advocate Services Program which builds upon the existing NYS Peer Recovery program.

The program provides patient-centered services that emphasize knowledge and wisdom obtained through life experience, where peers share their own personal journey with SUD to support the recovery goals of others.  The program standards, training and certification process will be developed and administered by OMH.  Certified peer recovery advocate services may include: developing recovery plans; raising awareness and linking participants to existing social and formal recovery support services; working with individuals to model coping skills and develop individual strengths; assisting individuals applying for benefits; attending medical appointments and court appearances; educating program individuals about the various modes of recovery; providing non-crisis support; and working with hospital emergency services, law enforcement departments, fire departments and other first responders to assist patients that have been administered an opioid antagonist establish connections to treatment and other support services.   

Opioid Stewardship Act.  As previously discussed, the Enacted Budget establishes an “Opioid Stewardship Fund” which imposes a “stewardship payment” (essentially a tax) on manufacturers and distributors that sell or distribute opioids in New York.  More detail can be found here.

Opioid Treatment Plans. The final budget includes language which prohibits prescribing opioids beyond three months, unless the patient’s medical record contains a written treatment plan that follows generally accepted national professional or governmental guidelines.  Exceptions are provided for patients being treated for cancer or palliative care.  More detail can be found here.

Social Work, Psychology and Mental Health Practitioners Scope of Practice.  The Enacted Budget includes provisions to clarify the activities and services that may be performed by licensed practitioners and those that do not require licensing.  These provisions eliminate the need to continue the licensure exemption which has been in place for persons employed by programs regulated or operated by OMH, OPWDD, OASAS, DOH, the State Office for Aging, the Office of Children and Family Services, the Office of Temporary and Disability Assistance, the Department of Corrections and Community Supervision, and local government or social services districts since 2002.

Behavioral Health/Primary Care Integration.  The Enacted Budget includes provisions building on the State’s prior efforts to integrate the licensure of behavioral health and primary care services. Prior state regulations established standards to determine how a facility offering integrated mental health, SUD and/or primary care services must be licensed.  Unfortunately, the ability to streamline such licensure was restricted in part by applicable statutes.  The Enacted Budget revises those statutes to clarify that primary care services providers licensed by Article 28 of the Public Health Law, mental health service providers licensed by Article 31 of the Mental Hygiene Law, and SUD providers licensed by Article 32 of the Mental Hygiene Law can each provide the other types of services so long as they are authorized to provide integrated services in accordance with DOH, OMH and OASAS regulations, without obtaining additional operating certificates.

Significant Appropriations

School Mental Health Resource and Training Center.  The Enacted Budget includes $1 million to create a Resource Center to help schools provide mental health education as part of their kindergarten through 12th grade curriculum, as required by Chapter 390 of 2016.

Children’s Mental Health.  The Enacted Budget includes $10 million for services and expenses of not-for-profit agencies licensed, certified or approved by OMH to support the preservation, restructuring or expansion of children’s behavioral health services.

Jail-Based SUD Treatment and Transition.  The enacted budget includes $3.75 million for jail-based SUD and transition services.  The Commissioner of Mental Health, in consultation with local government units, county sheriffs and other stakeholders, will implement a jail-based program that supports the initiation, operation and enhancement of SUD services for individuals incarcerated in county jails.

Mental Health Facilities Capital Improvement Fund.  The enacted budget includes $50 million for the acquisition of property, construction, and rehabilitation of new facilities, to develop   residential crisis programs.  Funds may be used for the renovation of existing community mental health facilities under the auspice of municipalities, and other public or not-for-profit agencies, as approved by the Commissioner of Mental Health.

OASAS Treatment Funding.  The enacted budget includes $30 million for the development, expansion, and operation of treatment, recovery, and/or prevention services for persons with heroin and opiate use and addiction disorders. This funding will be distributed by the Commissioner of Office of Substance Abuse Services, subject to the approval of the Budget Director.

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If you have any questions or would like additional information on any of the above referenced issues, please do not hesitate to contact Farrell Fritz’s Regulatory & Government Relations Practice Group at 518.313.1450 or NYSRGR@FarrellFritz.com.

New York increases Assisted Living Beds in 2018-19 Enacted Budget

While much of the public attention this year on healthcare budget negotiations in New York State was drawn to the pharmaceutical and managed care sectors, the Enacted Budget for 2018-19 also includes some very significant reforms in the long term care space. Continuing its ongoing efforts to rationalize what even the most ardent supporters of New York’s long term care system acknowledge to be an unnecessarily complicated structure, provisions in the Enacted Budget related to Licensed Home Care Service Agencies, Assisted Living Programs, Residential Health Care Facilities and Hospice reflect New York State’s continued efforts to combat fragmentation, inconsistent quality of services and waste across the continuum of care. This year, that has yielded policy outcomes that to the untrained eye can appear inconsistent, or even contradictory – but there is a method to the madness. The following is a list of some the key long term care reforms included in the 2018-19 Enacted Budget.

HOME CARE

Licensed Home Care Services Agencies (LHCSAs) appear to be on the frontline of the battle for consolidation of the community based long term care marketplace in New York. The 2018-19 Enacted Budget clearly articulates a policy in favor of encouraging fewer, larger LHCSAs instead of the current, heavily fragmented LHCSA market, via measures such as:

Limitations on MLTCP Contracting

Beginning October 1, 2018, the Commissioner of Health may limit the number of LHCSAs with which a Managed Long Term Care Plan (MLTCP) may contract, according to a formula tied to (1) MLTCP region, (2) number of MLTCP enrollees,  and (3) timing (the number changes on October 1, 2019).  Exceptions are allowed if necessary to (a) maintain network adequacy, (b) maintain access to special needs services, (c) maintain access to culturally competent services, (d) avoid disruption in services, or (e) accede to an enrollee’s request to continue to receive services from a particular LHCSA employee or employees for no longer than three months.

For more about MLTCPs, look for our upcoming blog analysis of the overall Managed Care provisions in the 2018-19 Enacted Budget.

Moratorium on New LHCSAs

Effective April 1, 2018, there is a new statutory moratorium on the awarding of new LHCSA licenses until March 31, 2020.  This will not apply to:  (i) LHCSA applications submitted as part of an Assisted Living Program application; (ii) application for transfers of LHCSAs licensed for at least five years for the purposes of consolidating one or more LHCSAs; or (iii) applications that address a serious concern reflecting that same considerations that would justify an exception to the new MLTCP contract rule.

Expanded Certificate of Need for LHCSAs

The Public Health and Health Planning Council (PHHPC) must now consider public need, financial feasibility and other factors in addition to character and competence when evaluating a LHCSA application (previously, LHCSAs were technically exempt from those considerations).

Registration Requirements for Existing LHCSAs

Existing LHCSAs must register with the Department of Health, and presumably meet those new CON requirements, by January 1, 2019, and any failing to register for two years may have their licenses revoked.

The question remains whether these regulations will produce the desired effect, i.e., a consolidation of the LHCSA marketplace, and whether that consolidation will occur through large providers formally acquiring smaller providers, or the gradual disappearance of smaller providers altogether as they struggle to maintain market share.

Cost Reporting Requirements for Existing LHCSAs

Under the new provision, the Commissioner is authorized to require LHCSAs to report on costs incurred by the LHCSA in rendering health care services to Medicaid beneficiaries. The commissioner must give the LHCSA 90 days’ notice of the need for the report, and an additional 30 days to correct any perceived inaccuracies. LHCSAs must certify the accuracy and completeness of the reports.

ASSISTED LIVING PROGRAMS

Assisted Living Programs (“ALP”) appear to be the biggest winner among long term care providers in the Enacted Budget. In contrast to the state’s efforts to consolidate and centralize the LHCSA providers, the Enacted Budget authorizes a general expansion of existing ALP providers and encourages the establishment of new beds. Key provisions include:

New ALP Beds at Existing ALP Providers

Each existing ALP provider may apply to DOH for approval of up to nine additional ALP beds. To be eligible, the existing ALP provider must: (a) be in good standing with the DOH; (b) be in compliance with applicable state and local requirements; (c) not require any major renovation or construction to accommodate the new beds; and (d) agree to dedicate new beds to serve only individuals receiving Medicaid.

The number of new ALP beds approved under this program will be based on the total number of previously awarded beds either withdrawn by applicants or which were previously denied. The commissioner is obligated to approve applications under this section on an expedited basis – specifically, within 90 days of the receipt of a satisfactory application.

ALP providers licensed on or before April 1, 2018 will be eligible to apply during a time period to begin no later than June 30, 2018 and ALP providers licensed on or after April 1, 2018 will be eligible to apply during a time period to begin no later than June 30, 2020.

New ALP Beds in Counties with Few ALP Providers or High Utilization

The Commissioner of Health is authorized to create up to 500 new ALP beds in counties where there are one or fewer existing ALP Providers based on criteria to be determined by the Commissioner. The Commissioner is also authorized to solicit and award applications for an additional 500 ALP beds in counties where utilization of existing ALP beds exceeds 85%. To be eligible, the applicant must commit to: (a) dedicate the beds to serve only individuals receiving medical assistance; (b) develop and execute collaborative agreements with at least one of each of the following entities: an adult care facility; a residential health care facility; or a general hospital, within 24 months of applying to DOH; and (c) enter into an agreement with an existing managed care entity. ALP beds sought by, but not awarded to, providers in counties with one or fewer ALP providers may be issued to ALP providers in counties where utilization exceeds 85%.

New ALP Beds Based On Public Need

After April 1, 2023, the Commissioner of Health is authorized to approve additional new beds on a case by case basis wherever a public need exists. In determining whether a public need exists, the Commissioner may consider, but is not limited to, regional occupancy rates for adult care facilities and ALP occupancy rates and the extent to which the project will serve individuals receiving Medicaid. Existing ALP Providers will be eligible for up to 9 additional beds under this provision.

ALP for Individuals with Alzheimer’s or Dementia

The Commissioner is authorized to issue up to two hundred vouchers for Medicaid ineligible people living with Alzheimer’s or dementia covering up to 75% of the cost of ALP based on the average private pay rate in the respective region.

RESIDENTIAL HEALTH CARE FACILITIES

The Enacted Budget includes a mix of quality control and increased support measures directed at Residential Health Care Facilities (RHCFs):

Medicaid Reduction for Underperforming Facilities

The Enacted Budget includes a provision directing the Commissioner to reduce Medicaid revenue to any RHCF in a given payment year by 2%, where that RHCF performed in the lowest two quintiles of facilities based on its nursing home quality initiative data in each of the two most recent payment years for which data is available, and was ranked in the lowest quintile in the most recent payment year. The Commissioner has the authority to waive this provision in the event the Commissioner deems the facility to be in “financial distress”.

Funding For Capital Projects

As discussed in greater detail in our earlier post regarding the Statewide Health Care Facility Transformation Program (SHCFTP), $45 million is dedicated to RHCFs to increase the quality of resident care or experience, or to improve their health information technology infrastructure, including telehealth, to strengthen the acute, post-acute and long-term care continuum, but not for general operating expenses.

Telehealth

The Enacted Budget also expands the definition of an “originating site” for purposes of telehealth to include RHCFs treating populations with special needs.

HOSPICE

The Enacted Budget requires the Commissioner to establish a methodology as of July 1, 2018, subject to federal financial participation, that will ensure a 10% increase in the Medicaid reimbursement rates for hospice providers for services provided on or after April 1, 2018. Furthermore, the Enacted budget carves hospice providers out of the Opioid Drug provisions requiring a care plan for pain lasting more than three months (discussed here).

Hospice facilities shall be eligible for up to $60 million in funding dedicated to community-based providers through SHCFTP (discussed here).

If you have any questions or would like additional information on any of the above referenced issues, please do not hesitate to contact Farrell Fritz’s Regulatory & Government Relations Practice Group at 518.313.1450 or NYSRGR@FarrellFritz.com

Pharmaceutical provisions in the 2018-2019 Enacted New York State Budget

Notwithstanding the enactment of a first-in-the-nation drug spending cap last year, in light of the $4.4 billion deficit and ongoing concerns about the opioid crisis it was inevitable that this year New York State would once again seek to enact substantial reforms impacting the pharmaceutical industry. The recently adopted 2018-19 New York State (“NYS”) Budget included several provisions that relate to access to pharmaceutical treatments, insurance coverage, cost sharing, and reimbursement. Below please find an overview of these key provisions.

Medicaid Drug Spending Cap.  The final budget extends the Medicaid drug cap enacted last year through the 2019-20 fiscal year, at the same amount as the 2018-19 fiscal year (CPI + 4%, less an $85 million savings target). The provisions clarify that the Medicaid drug expenditure growth target shall be calculated and projected on a cash basis and requires the Department of Health (DOH) and Division of Budget to report quarterly to the Drug Utilization Review Board (DURB) the projected (state funds) Medicaid drug expenditures. These reports shall include the aggregate amounts attributable to the net cost of changes in utilization, changes in the number of Medicaid recipients, and changes in the cost of brand and generic drugs. This information cannot be publically released in a manner that will allow for identification of individual drugs or manufacturers. DOH will also be required to provide an annual report (by February 1) to the DURB which details how savings were achieved, calculated and implemented in the last year. Additionally, language was included to clarify the authority the DOH has to require prior approval of drugs and to remove such drugs from managed care formularies when they have not reached a supplemental agreement with a manufacturer.

Opioid Stewardship Act. The final budget establishes an “Opioid Stewardship Fund” which imposes a “stewardship payment” (essentially a tax) on manufacturers and distributors that sell or distribute opioids in New York. The total opioid stewardship payment is $100 million annually, and each manufacturer and distributor that sells or distributes opioids in New York will pay a portion of the total opioid payment amount based on that manufacturer’s or distributor’s ratable share. The ratable share will be calculated based on the total milligram of morphine equivalents (MMEs) sold or distributed during the preceding year, as reported by the manufacturer and distributor, and shall be divided by the total amount of MMEs sold in New York by all manufacturers and distributors. The payment percentage will be multiplied by the total opioid stewardship payment to determine the ratable share. The calculation of total MME’s shall not include opioids sold or distributed to entities certified to operate as hospices and chemical dependence services. Opioid stewardship funds will be used to support programs operated by OASAS for opioid treatment, recovery, prevention, education and the I-STOP program, pursuant to approval of NYS Budget Director. 

Opioid Treatment Plans. The final budget includes language which prohibits prescribing opioids beyond three months, unless the patient’s medical record contains a written treatment plan that follows generally accepted national professional or governmental guidelines. Exceptions are provided for patients being treated for cancer or palliative care.

Direct Negotiations for Supplemental Rebates in Medicaid Managed Care. The enacted budget extends authority through March 31, 2020 to allow DOH to negotiate directly with drug manufacturers to obtain supplemental rebates for pharmaceutical utilization of anti-retrovirals and Hepatitis C treatments for Medicaid managed care recipients. The manufacturer is not required to pay supplemental rebates to a managed care provider, or any of a managed care provider’s agents when NYS is collecting such supplemental rebates. This statute was originally enacted in 2015.

Rebates for Generics.  The final budget agreement extends DOH authority through March 31, 2020 to require additional rebates/penalties for drugs that have a state maximum acquisition cost (SMAC) of more than 75% over a one year period under the Medicaid program. This statute was first enacted in 2016.

Pharmacy Benefit Manager Clawbacks and Pharmacy Gag Prohibition. The final budget includes language to prohibit pharmacy benefit managers (PBMs) and their contracting agents from penalizing a pharmacist or a pharmacy from disclosing pricing information, the availability of therapeutic equivalents, and alternative payment methods that may be less expensive for patients. PBMs are further prohibited from imposing a co-payment that exceeds the total cost of the drug. Moreover, if an individual pays a co-payment, the pharmacy is entitled to retain the adjudicated costs and the PBM is prohibited from recouping the additional funds.

Pharmacy Dispensing Fees.  The final budget increases the professional pharmacy dispensing fee from $10.00 to $10.08 per prescription.

Prescriber Prevails.  The final budget agreement continues prescriber prevails consumer protections in both Medicaid fee-for-service and Medicaid managed care. Under current law, a prescriber’s determination can prevail over prior authorization limitations for any drug in fee-for-services, and for eight protected classes of drugs in managed care.

 

If you have any questions or would like additional information on any of the above referenced issues, please do not hesitate to contact Farrell Fritz’s Regulatory & Government Relations Practice Group at 518.313.1450 or NYSRGR@FarrellFritz.com.

Periodically over the years, and consistently since 2005, the New York State Department of Health (DOH) has received funding through the New York State budget process to provide capital support for infrastructure improvements at institutional providers.  The rationale for this state funding has varied – at times, it has ostensibly been intended to incentivize certain actions (e.g., facility consolidation, development of information technology infrastructure, participation in value-based payment arrangements, etc.), but at other times, it has clearly represented a recognition of the fact that the depressed margins of healthcare providers often prevent them from making necessary investments in aging infrastructure.

These programs, including the original Healthcare Efficiency and Affordability Law for New Yorkers (HEAL-NY) Program, the Capital Facility Restructuring Program (CFRP), and the Essential Health Care Provider Support Program, among others, have usually focused on hospitals, but have included other Article 28 providers (nursing homes, clinics, etc.) as well as other types of providers more recently.  They have invariably included limitations on permissible uses of the funds, and have usually required some form of qualifying activity on behalf of applicants that may or may not relate directly to the use of the funds (e.g., bed closures or consolidations in the form of active parent relationships or full asset mergers).  They have also frequently included some form of non-capital support, either via non-capital appropriations supporting the program directly, or via allied programs offering some temporary relief from operating expenses.

Over time, DOH has refined its approach to such programs and the Request for Applications (RFA) language used to define that approach.  For a long time, the trend was toward limiting the pool of potential applicants to facilities facing some form of economic hardship.  More recently, however, DOH seems to have broadened the pool of potential applicants, and appears to be more comfortable using its capital programs as a general support for the New York State health care system as a whole.

The latest iteration, the Statewide Health Care Facility Transformation Program (“SHCFTP”) reflects this trend.  SHCFTP was first authorized in 2016, and has seen two iterations so far, with a third just having been approved as part of the 2018-19 New York State Budget.  All three iterations share some basic characteristics.  First, in all cases eligibility includes at minimum the following types of entities:

1.       General hospitals;

2.       Residential health care facilities;

3.       Diagnostic and treatment centers and clinics licensed pursuant  to  Article 28; and

4.       Clinics licensed pursuant to the Mental Hygiene Law.

Second, in making awards, in all cases the State was required to consider criteria including, but not limited to:

(a)                The extent to which the proposed capital project will contribute to the integration of health care services and long term sustainability of the applicant or preservation of essential health services in the community or communities served by the applicant;

(b)                The extent to which the proposed project or purpose is aligned with delivery system reform incentive payment (DSRIP) program goals and objectives;

(c)                 Consideration of geographic distribution of funds;

(d)                The relationship between the proposed capital project and identified community need;

(e)                The extent to which the applicant has access to alternative financing;

(f)                  The extent that the proposed capital project furthers the development of primary care and other outpatient services;

(g)                The extent to which the proposed capital project benefits Medicaid enrollees and uninsured individuals;

(h)                The extent to which the applicant has engaged the community affected by the proposed capital project and the manner in which community engagement has shaped such capital project; and

(i)                  The extent to which the proposed capital project addresses potential risk to patient safety and welfare.

Third, in all cases awards have been permitted to be made without a formal competitive bid, although in practice they were awarded competitively pursuant to Request for Applications (RFA) processes.

Beyond that, there have been some differences among the three iterations.  One difference is in the stated purpose of each.  The first iteration, which was authorized by Public Health Law § 2825-d, enacted in 2016 (“SHCFTP I”), provided that “[t]he program shall provide capital funding in support of projects that replace inefficient and outdated facilities as part of a merger, consolidation, acquisition or other significant corporate restructuring activity that is part of an overall transformation plan intended to create a financially sustainable system of care,” thus focusing very strongly on consolidation and sustainability.

In contrast, the second iteration, authorized by Public Health Law § 2825-e and enacted in 2017 (“SHCFTP II”), provides that funding is “in support of capital projects, debt retirement, working capital or other non-capital projects that facilitate health care transformation activities including, but not limited to, merger, consolidation, acquisition or other activities intended to create financially sustainable systems of care or preserve or expand essential health care services.”  In short, SHCFTP II has a broader scope than SHCFTP I, insofar as its purpose include “preserving or expanding essential health services” and it is not tied solely to restructuring or supporting failing systems.  It is also significant that SHCFTP II can be used for some non-capital expenses; while SHCFTP I was solely “for capital non-operational works or purposes,” the only analogous limitation on SHCFTP II is that it may not support “general operating expenses.”

The third iteration (“SHCFTP III”), just approved in the 2018-19 New York State Budget, expands that purpose even more.  It allows the program to provide funding in support of “capital projects, debt retirement, working capital or other non-capital projects that facilitate health care transformation activities including, but not limited to, merger, consolidation, acquisition or other activities intended  to:  (a) create financially sustainable systems of care; (b) preserve or expand essential health care services; (c) modernize obsolete facility physical plants and infrastructure; (d) foster participation in value based payments arrangements including, but not limited to, contracts with managed care plans and accountable care organizations; (e) for residential health care facilities, increase the quality of resident care or experience; or (f) improve health information technology infrastructure, including telehealth, to strengthen the acute, post-acute and long-term care continuum.”  Once again, grants are not available to support general operating expenses, but otherwise, this a far broader set of purposes than the prior iterations.

The second difference is that SHCFTP III adds some categories of eligibility.  In addition to general hospitals, residential health care facilities, diagnostic and treatment centers and clinics licensed pursuant to Article 28, and clinics licensed pursuant to the Mental Hygiene Law, SHCFTP III is available to adult care facilities, children’s residential treatment facilities, and assisted living programs.

The third difference is in the amount of funds in the program each year.  SHCFTP I allowed $200 million to be appropriated without a formal competitive bid, and required at least $30 million of those funds to be awarded to community-based health care providers.  SHCFTP II allows $500 million to be appropriated without a formal competitive bid, and requires at least $75 million of those funds to be awarded to community-based health care providers.  SHCFTP III allows $525 million to be appropriated without a formal competitive bid, and requires at least $60 million of those funds to be awarded to community-based health care providers.  It also provides that $45 million of those funds must be awarded to residential health care facilities and $20 million to new assisted living programs.

Significantly, the definition of “community-based health care provider” varies between the iterations:  SHCFTP I defines the term as Article 28 diagnostic and treatment centers, mental health clinics, alcohol and substance abuse treatment clinics, primary care providers, or home care providers.  SHCFTP II includes that list, but also includes “other purposes and community-based providers designated by the commissioner.”  SHCFTP III is the same as SHCFTP I, except that it also includes clinics serving people with developmental disabilities and hospices.

Taken together, the variations between SHCFTP III and the prior iterations reflects a continued movement away from using capital funding as a means of incentivizing desired behavior and toward simply providing necessary funding in the absence of private capital.  Perhaps more importantly, it reflects a stronger focus on long term care providers, and more generally, on smaller providers instead of the large hospital systems that have traditionally benefited from DOH’s capital programs.  It remains to be seen how this change in focus will be implemented in practice, and, on a practical basis, how many long term care providers (or smaller providers more generally) will be able to take advantage of the funding, insofar as the burdensome requirements of the grant process are often challenging for smaller providers.  Any such providers interested in pursuing the funding would be well-advised to seek assistance from counsel familiar with DOH’s grant requirements.

The creation of SHCFTP III represents a significant dedication of capital to healthcare providers during the 2018-19 fiscal year.  It is also important to remember that this program is separate from the $2 billion “Health Care Transformation Fund” previously discussed, which the State can dedicate to similar purposes.  These funds together present a significant opportunity for healthcare providers.

If you are interested in pursuing a grant under SHCFTP, the Heath Care Transformation Fund, or another state program, please feel free to contact Farrell Fritz’s Regulatory & Government Relations Practice Group at (518) 313-1450, or email the Practice Group at NYSRGR@FarrellFritz.com.

Governor Cuomo's 2018-19 Healthcare Budget
New York State Healthcare Budget 2018-19

In the wee hours of the morning on March 30, almost two days ahead of the April 1 deadline, the Legislature passed and the Governor signed a $168.3 billion State Budget for the 2018-19 fiscal year. The Enacted Budget maintains a self-imposed cap of 2% on spending increases, and averts a predicted $4.4 billion spending gap.  As in prior years, a significant portion of this year’s spending has been devoted to healthcare, and particularly Medicaid.

One of the key issues faced by the healthcare sector in New York State during budget negotiations this year was whether and how to address potential future cuts in federal financial support. The Enacted Budget addresses that general concern in two ways.  First, at the prompting of the Greater New York Hospital Association and 1199SEIU (the health care workers union), the Enacted Budget creates a new “Health Care Transformation Fund.”  The fund will be supported in part by a portion of the proceeds of the sale of Fidelis, a not-for-profit Medicaid managed care plan acquired by Centene, a national for-profit insurer, as well as a portion of Fidelis’ excess reserves, for a total expected amount of around $2 billion.  Moneys in the fund will be available for transfer to any other fund in the State to “support health care delivery, including for capital investment, debt retirement or restructuring, housing or other social determinants of health, or transitional operating support to health care providers.”  This amounts to a very significant source of funds which can be deployed by the State in a very flexible manner.

Second, the Enacted Budget includes language providing that, where federal legislation, regulation or other executive or judicial action in federal fiscal year 2019 is expected to reduce federal financial participation in Medicaid or other federal financial participation by $850 million or more in state fiscal years 2018-19 or 2019-20, the Director of the Division of the Budget must submit a plan to the Legislature identifying the resulting cuts to be made in State spending. The Legislature will then have 90 days to adopt an alternative plan; if it does not, then the Division of the Budget’s plan will go into effect immediately.  In short, this language could, in effect, completely undo the budget just adopted by the Legislature, with minimal legislative input.

The 2018-19 Enacted Budget includes a plethora of other financial and policy reforms affecting virtually every segment of the healthcare sector. Some highlights include:

  • Health Care Facility Capital Funds: The Enacted Budget includes $525 million for the latest iteration of the Statewide Health Care Facility Transformation Program, which provides capital grants to healthcare providers.
  • Pharmacy: The Enacted Budget makes a variety of changes to address the opioid crisis, including establishing a $100 million “Opioid Stewardship Fund” to be supported by manufacturers and distributors of opioids, which will be used to support a variety of opioid-related programs.
  • Mental Hygiene: The Enacted Budget expands and clarifies the ability of mental health, substance use disorder and developmental disabilities services providers to offer integrated services, and provides $1.5 million for the creation of a new Independent Substance Use Disorder and Mental Health Ombudsman to assist individuals in receiving appropriate health insurance coverage.  It also includes a variety of provisions related to the transition of developmental disabilities services to managed care.
  • Long Term Care: The Enacted Budget sets out a plan for limiting the number of licensed home care services agencies that a managed long term care plan may contract with, effectively forcing consolidations in that sector.  It also allows the Commissioner of Health to reduce reimbursement to poor-performing nursing homes.  At the same time, it makes a significant number of additional assisted living program beds available at the discretion of the Commissioner.
  • Hospitals: The Enacted Budget establishes a new category of “Enhanced Safety Net Hospitals” that would be eligible for additional reimbursement.
  • Managed Care: The Enacted Budget includes a variety of reforms related to health homes, and makes a variety of changes to the rules governing managed long term care eligibility and enrollment.

These highlights are just the tip of the iceberg. Over the next several days, we will provide additional detail on each of the areas outlined above.  In the meantime, any questions about the 2018-19 New York State Healthcare Budget can be addressed to Farrell Fritz’s Regulatory & Government Relations Practice Group at (518) 313-1450 or NYSRGR@FarrellFritz.com.

A hospital victimized by the sale of adulterated and mislabeled drug products successful obtained a Court order imposing restitution of over $825,000 earlier this month. EDNY Judge I. Leo Glasser’s decision in United States v. Tighe provides a helpful summary of restitution standards, and applies them to the response efforts of Yale-New Haven Hospital (“YNHH”) to protect patients from potential harm from mold-contaminated IV bags.

Defendants Pled Guilty To Selling Mold-Contaminated IV Bags

In Tighe, the two defendants were the owner and the director of pharmacy at Med Prep Consulting, Inc., a medical drug repackager. They pled guilty to wire fraud for failing to comply with professional standards for drug sterility and by introducing adulterated and misbranded drugs into the marketplace. YNHH sought restitution as one of the healthcare provider victims to whom Med Prep sold drug products.

The allegations of the superseding information were alarming. YNHH discovered visible floating particles in four IV bags of magnesium sulphate that were sold and labeled as sterile by Med Prep. The four IV bags were found to be contaminated with mold. Med Prep had sent YNHH four shipments of contaminated magnesium sulphate drug product. The defendants and Med Prep failed to meet acceptable industry standards in handling sterile drugs, including:

  • Air filters in Med Prep’s cleanroom repeatedly failed inspections over five years.
  • A cart was regularly pushed from Med Prep’s unsanitary warehouse (which contained mold) into the purportedly sterile cleanroom without being sterilized.
  • Med Prep continued to clean surfaces with non-sterile isopropyl alcohol, which is inadequate to kill mold spores.
  • Med Prep replaced expiration dates set by manufacturers with unsupported dates.

Mandatory Restitution for Health Care and Other Fraud

The Mandatory Victim Restitution Act (“MVRA”), 18 USC § 3663A, provides that, for all offenses against property, including fraud, the Court shall order that the defendant make restitution to the victim. Restitution under the MVRA is only available to a statutorily defined victim of the offense, and only for losses that were directly and proximately caused by the offense for which the defendant has been convicted.

Also, where the victim has not suffered injury or death, the MVRA only allows restitution for (1) “damage to or loss or destruction of property,” and (2) “necessary … expenses incurred during participation in the investigation or prosecution of the offense or attendance at proceedings related to the offense.” Although the necessary expenses category lacks definition, Judge Glasser quoted the Second Circuit admonition in United States v. Maynard that it “takes a broad view of what expenses are ‘necessary.’”

Yale-New Haven Hospital’s Restitution Claim

In addressing YNHH’s restitution claim, the Court first recognized that the MVRA applied to the fraud claim and that YNHH was a statutory victim entitled to restitution. While defendants asserted that YNHH’s losses were not proximately caused by the offense, the Court rejected this argument because it was made after the 14-day time period to object to the presentence report. The presentence report had found that the defendants’ conduct directly and proximately caused the contamination at YNHH and the financial losses YNHH incurred. The Court also determined that the defendants’ failure to timely object was strategic, because a timely objection could have undercut their arguments that they were remorseful and accepted responsibility.

The Court next addressed whether YNHH’s losses were (i) “damages to or loss or destruction of property” and (ii) “necessary … expenses incurred during participation in the investigation or prosecution of the offense or attendance at proceedings related to the offense.”

Damages to Property

The Court first determined that YNHH’s “straightforward” losses to property were recoverable, including:

  • The cost of drug products returned to Med Prep; and
  • The cost of terminating all consigned medication housed at Med Prep.

The Court accepted YNHH’s undisputed assertions as to the value of the recalled drug products and the consigned products that were terminated.

Legal Fees and Costs

YNHH also sought recovery of legal fees and costs associated with the collection, review and preservation of documents requested by the government. The Second Circuit has held that “necessary expenses” for restitution can include attorney fees and accounting costs. Here, the Court found these expenses were recoverable because they related to YNHH’s responses to various subpoenas issued by the Department of Justice in connection with the case.

Responses to the Discovery of Contaminated Drug Products

The most interesting question addressed by the Court was whether expenses incurred as a result of YNHH’s responses to the discovery of the contaminated drug products were subject to restitution. These included:

  • Patient and physician notification
  • Purchase of anti-fungal prophylactic medication
  • Patient disease surveillance
  • Hospital administrative time responding to the contamination
  • Pharmacy in-house admixture services and additional staffing
  • Pharmacy response to the contamination

The District Court first noted the Second Circuit’s “broad view” of necessary expenses for restitution, and held that these were necessary expenses for restitution. YNHH needed to sequester and inventory the contaminated drug product from Med Prep, examine the sequestered drug product for mold, and notify patients potentially affected by the contamination. The expenses were necessary to protect YNHH’s ongoing, legitimate interest in the health of its patients and its duty to protect that interest. In addition, YNHH had a need to purchase anti-fungal medication and an obligation to monitor potentially exposed patients. YNHH’s interest in its patients’ health also required it to participate in various regulatory responses, and it needed to replace the drugs that had been contaminated. 

Fraud Victims Should Take the “Broad View” in Seeking Restitution for Losses and Expenses Due to Fraud

Judge Glasser’s decision in United States v. Tighe provides a strong basis for victims of fraud to seek restitution for a broad array of monetary losses arising out of fraud and their involvement in addressing the consequences of the fraud and assisting in the government’s prosecution.

As we’ve discussed in previous blog posts, marijuana, whether used for medicinal or recreational purposes, is classified as a Schedule 1 drug under the Controlled Substances Act (CSA). The CSA prohibits the manufacturing, distributing, dispensing or possession of certain controlled substances, including marijuana and marijuana-based products and services. In addition, the CSA makes it unlawful to sell, offer for sale or use any facility of interstate commerce to transport illegal substances, including marijuana.

In August 2017, U.S. Senator Cory Booker (D-NJ) and Representative Barbara Lee (D-CA) introduced bills to both chambers of Congress – the Marijuana Justice Act of 2017 – that seek to remove marijuana completely from the list of controlled substances, making it legal at the federal level.

Last year U.S. Senator Ron Wyden (D-CA) was the first senator to co-sponsor the Marijuana Justice Act. On Wednesday, February 14, 2018, New York Senator Kirsten Gillibrand announced that she is also co-sponsoring the Marijuana Justice Act to end the federal prohibition on marijuana.

“Legalizing marijuana is a social justice issue and a moral issue that Congress needs to address, and I’m proud to work with Sen. Booker on this legislation to help fix decades of injustice caused by our nation’s failed drug policies,” Gillibrand said in a statement.

The Marijuana Justice Act aims to implement a number of reforms relating to marijuana. The most significant reform would be the removal of marijuana from the list of controlled substances in the CSA. Such a reform would effectively end the federal criminalization of marijuana.

Other reforms proposed by the Marijuana Justice Act include: (1) providing incentives to states to reduce racial disparities in connection with arrests made for marijuana; (2) expunging federal convictions relating to marijuana possession; (3) allowing individuals serving time in federal prison for marijuana-related offenses to petition the court for resentencing; and (4) developing a community reinvestment fund to invest in communities most impacted by the failed War on Drugs, such as by providing in-job training programs, educational opportunities, public libraries and community centers.

There is growing support for removal of marijuana as a Schedule I drug under the CSA, especially as courts have recently held that only the Drug Enforcement Agency (“DEA”) can make such a change.

Most recently, on February 26, 2018, U.S. District Judge Alvin Hellerstein in Manhattan ruled dismissed a lawsuit seeking to overturn the United States’ prohibition of marijuana on the grounds that the ban was unconstitutional. Judge Hellerstein ruled that the lawsuit must be dismissed because the plaintiffs had failed to use administrative procedures within the DEA to challenge the ban. Judge Hellerstein said his decision “should not be understood as a factual finding that marijuana lacks any medical use in the United States,” but, rather, that the authority to make that decision lies with the DEA, not with the court.

As of now the Marijuana Justice Act has not seen much movement in Congress. Since its introduction it has been read twice and then referred to the Committee on the Judiciary. It will be interesting to see if additional senators act to support the Marijuana Justice Act as the debate over the decriminalization of marijuana continues.