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MSP Class Action Rejected in Court of Appeals

MSP Recovery LLC, a law firm out of Miami, Florida has been initiating class action litigation country-wide as assignees on behalf of Medicare Advantage Plans (MAPs) alleging that various primary payers have failed to reimburse MAP conditional payments allegedly giving rise to a Private Cause of Action under the Medicare Secondary Payer Act (MSP), specifically located at 42 USC §1395y(b)(3)(A).

In a decision just issued out of the Third Circuit Court of Appeals, Ocean Harbor Cas. Ins. v. Claims, 2018 Fla. App. LEXIS 13569 (September 26, 2018), the Court found that the trial court erred in certifying the class of Florida MAPs. Because MSP Recovery asserts that Ocean Harbor was responsible as a primary plan not due to pre-existing settlements, but simply due to the entry of no-fault insurance contracts under Florida’s no-fault statutes, this would involve a series of mini-trials which would need to be assessed on a case by case basis, and accordingly class certification was not appropriate.

Franco Signor LLC notes that there are a few interesting discussions in this 3rd Circuit decision which primary plans should take away, particularly if the primary plan is currently subject to litigation by MSP Recovery involving no-fault claims:

–  MSP Recovery (or Medicare Advantage Plans) recovery rights are not automatic without “demonstrated responsibility.” The MSP does not eliminate the terms and conditions of an underlying state No-Fault law or supersede an existing state insurance policy. Here, MSP Recovery has attempted to show “demonstrated responsibility” under the MSP by “the other means” language of the MSP (since there is no settlement, judgment or award). Demonstrated responsibility by other means must be demonstrated under the state’s no-fault laws and the actual no-fault policy and must be proven on a case-by-case basis.

–  What is also interesting about this decision is the discussion of whether Ocean Harbor failed to exhaust administrative remedies. MSP Recovery claims that it made an “organization determination” that Ocean Harbor owed the conditional payments and it could have challenged these payments pursuant to 42 CFR § 422.566. The court noted that there is nothing in the regulations that provides a federal administrative remedy for a primary plan like Ocean Harbor to challenge such an “organization determination.” The regulation cited by MSP Recovery only applies to claims by an enrollee (MAP beneficiary) against the MAP. While the SMART Act did finally afford primary plans with formal appeal rights, this appeals process only applies to conditional payments made under traditional Medicare Parts A and B. Accordingly, there is no method for primary plans to administratively contest an allegation by MSP Recovery/MAPs that it was responsible to make a particular payment.

This decision reinforces the current conundrum facing primary plans in MAP private cause of action double damages litigation. Medicare Advantage Plans desire the benefits of acting like traditional Medicare in seeking the ability to sue and recover double damages for unreimbursed conditional payments.

But, MAPs cannot have the benefits of acting like Medicare without carrying the burdens and providing due process to primary plans. MAPs need to afford primary plans with a formal appeal process if they want to act like Medicare.

And even more importantly, primary plans need a reliable source to determine whether their claimants are enrolled in a MAP. Currently, Medicare only returns traditional Medicare enrollment to primary plans.

New Injection Stops Knee and Spine Osteoarthritis

Scientists at the Krembil Research Institute have developed a novel therapeutic treatment that has the potential to stop knee and spine osteoarthritis in its tracks.

A team led by Principal Investigator Dr. Mohit Kapoor, Arthritis Research Director at UHN, published the results in Annals of the Rheumatic Diseases in a paper titled “microRNA-181a-5p antisense oligonucleotides attenuate osteoarthritis in facet and knee joints.”

“This is important because there are currently no drugs or treatments available to patients that can stop osteoarthritis,” says Dr. Kapoor, a Krembil Senior Scientist.

Osteoarthritis is the most common form of arthritis. It affects about five million Canadians and is characterized by a breakdown of the protective cartilage found in the body’s spine, hand, knee and hip joints.

Current treatments for osteoarthritis address the symptoms, such as pain, but are unable to stop the progression of the disease,” says Dr. Kapoor. “The blocker we’ve tested is disease modifying. It has the ability to prevent further joint destruction in both knee and spine.”

Utilizing a variety of experimental models, including animal models and human tissue samples, the Krembil team zeroed in on a biomarker, or molecule, called microRNA-181a-5p, which is believed to also cause the inflammation, cartilage destruction and collagen depletion.

Using a blocker consisting of Locked Nucleic Acid-Antisense Oligonucleotides (LNA-ASO), the team was able to stop destruction and protect the cartilage.

“The blocker is based on antisense technology. When you inject this blocker into the joints, it blocks the destructive activity caused by microRNA-181-5p and stops cartilage degeneration,” said Dr. Akihiro Nakamura, first author of the paper and a post-doctoral research fellow in the Kapoor Lab.

In addition to testing with animal models, the research team applied this approach using cells and tissues from Toronto Western Hospital patients who have knee and/or spine osteoarthritis.

“The technology in osteoarthritis is in its infancy, but the research has now taken a big step forward. If we are able to develop a safe and effective injection for patients, this discovery could be a game changer,” said Dr. Raja Rampersaud, an orthopedic spine surgeon and clinician scientist at Toronto Western who collaborated with the Kapoor team.

Next steps for the research team include commencement of safety studies, determining proper dosage and developing a method for injecting the blocker directly into the knee and spine joints.

Funding for this study was provided by the Krembil Foundation, The Toronto General & Western Hospital Foundation and The Canadian Institutes of Health Research (CIHR).

Congress Passes $8.5B Opioid Addiction Package

On Wednesday, the United States Senate accomplished a rare feat – passing a bipartisan bill with a vote of 98-1. The bill now heads to President Donald Trump’s desk, following the vote in the Senate and a prior vote in the House of Representatives of 393-8.  This legislation adds multiple resources to the opioid epidemic as well as restrictions intended to aid in the fight against the spread of the epidemic. The bill is a combination of dozens of smaller proposals sponsored by hundreds of lawmakers. Here are some of the 41 key components of the Opioid Package (H.R. 6):

Law Enforcement

  • Reauthorization of Key Law Enforcement Programs (Section 8205-8212) – Reauthorizes law enforcement programs through the Office of National Drug Control Policy, such as programs such as the High Intensity Drug Trafficking Area programs, drug courts, COPS Anti-Meth Program, and COPS anti-heroin task force program;
  • First Responder Training (Section 7002) – Expands first responder training, authorized through the Comprehensive Addiction and Recovery Act, to include training on safety around fentanyl and other synthetic and dangerous substances;
  • Public Health Laboratories Detecting Fentanyl and Other Synthetic Opioids (Section 7011) – Improves coordination between public health laboratories and laboratories operated by law enforcement to improve detection of fentanyl and other synthetic opioids;
  • Synthetics Trafficking and Overdose Prevention (Section 8006, 8007) – Improves Federal agencies ability to detect synthetic opioids and other substances from entering the United States through the mail;
  • Opioid Addiction Recovery Fraud Prevention (Sections 8021-8023) – Subjects those who engage in unfair or deceptive acts with respect to substance use disorder treatment services or substance use disorder treatment products to civil penalties for first time violations by the FTC; includes a savings clause for existing FTC and FDA authorities.
  • Reauthorization of the comprehensive opioid abuse grant program (Section 8092) – Reauthorize the comprehensive opioid abuse grant program at the Department of Justice;

Ending Illegal Patient Brokering

  • Criminal penalties (Section 8122) – This provision makes it illegal to pay or receive kickbacks in return for referring a patient to recovery homes or clinical treatment facilities;

Healthcare Integration

  • Treatment, Education, and Community Help To Combat Addiction (Section 7101) – Expands medical education and training resources for healthcare providers to better address addiction, pain, and the opioid crisis;
  • Preventing Overdoses While in Emergency Rooms (Section 7081) – Improves emergency departments ability to effectively screen, treat, and connect substance use disorder patients with care;
  • Alternatives to Opioids in the Emergency Department (Section 7091) – Explores alternative pain management protocols in order to limit the use of opioid medications in emergency departments;
  • Inclusion of opioid addiction history in patient records (Section 7051) – Requires HHS to develop best practices for prominently displaying substance use disorder treatment information in electronic health records, when requested by the patient;

Treatment Capacity Expansion

  • IMD CARE Act (Section 5052) – Expands Medicaid coverage up to 30 days for individuals between 21 and 65 years old receiving care in a treatment facility for all substance use disorders, lifting the 16 bed restriction;  
  • Expansion of Telehealth Services (Section 1009, 2001, 3232) – Expands access to substance use disorder treatment and other services through the use of telehealth;
  • Comprehensive Opioid Recovery Centers (Section 7121) – Establishes model comprehensive treatment and recovery centers to ensure individuals have access to quality treatment and recovery services;
  • Supporting family-focused residential treatment (Section 8081, 8083) – Enhanced family-focused residential treatment; $20 million in funding for HHS to award to states to develop, enhance, or evaluate family-focused treatment programs to increase the number of evidence-based programs;

Medication Assisted Treatment

  • More Flexibility for Prescribing Medication Assisted Treatment (Section 3201, 3202) – Increases the number of waivered health care providers that can prescribe or dispense treatment for substance use disorders, such as certified nurses and accredited physicians;
  • Grants to enhance access to substance use disorder treatment (Section 3203) – authorizes grants to support the development of curriculum that will help health care practitioners obtain a waiver to prescribe MAT;
  • Delivery of a Controlled Substance by a Pharmacy to be Administered by Injection or Implantation (Section 3204) – Allows pharmacies to deliver implantable or injectable medications to treat substance use disorders directly to health care providers;
  • Expanding Access to Medication in In-Patient Facilities (Section 5052) – Expanded Medicaid coverage up to 30 days for inpatient facilities applies to providers who provide a minimum of two types of medicines to treat opioid use disorder;

Prescription Medication Safety and Disposal

  • Empowering Pharmacists in the Fight Against Opioid Abuse (Section 3212) – Develops and disseminates training resources to help pharmacists better detect fraudulent attempts to fill prescription medications;
  • Safe Disposal of Unused Medication (Section 3222) – Allows hospice workers to dispose of unused medications on site or in patients homes;
  • Access to Increased Drug Disposal (Section 3251-3260) – Awards grants to states to enhances access of prescription drug disposal programs;    
  • Safety-enhancing Packaging and Disposal Features (Section 3032) – Requires certain opioids to be packaged into 3 or 7 day supplies and requires safe prescription drug disposal options to be given to patients upon receiving medications;

“We have an urgent, bipartisan consensus, a virtually unanimous agreement, to deal with the most urgent public health epidemic facing our country today in virtually every community,” said Senator Lamar Alexander, chairman of the Senate health committee and lead sponsor of the bill.

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So. Cal. Restaurant Workers Recover $1M for Wage Theft

The Labor Commissioner’s Office has cited three restaurants in Southern California $1,065,646 for wage theft violations owed to 22 workers. Most of the workers were paid less than $5 an hour and regularly worked more than 10 hours a day with no meal or rest breaks.

–  Sanamluang Cafe in North Hollywood was cited $833,707, with $708,457 payable to nine workers and $125,250 in civil penalties. Money due to the workers includes minimum and overtime wages, liquidated damages, waiting time penalties and meal and rest period premiums.

–  Orchid Thai Cuisine in Arcadia was cited $407,883, with $307,133 payable to 11 workers and $100,750 in civil penalties. Money due to the workers includes minimum and overtime wages, split shift premiums, liquidated damages, waiting time penalties and meal and rest period premiums.

–  Orchid Thai in Baldwin Park was cited $85,856, with $50,056 payable to two workers and $35,800 in civil penalties. Money due to workers includes minimum and overtime wages, split shift premiums, liquidated damages, waiting time penalties and rest period premiums.

The Labor Commissioner’s Office launched the investigation at Sanamluang Cafe in August 2017. Workers were represented by the Thai Community Development Center and Bet Tzedek Legal Services. Investigators determined that owners Surapong and Viriya Chinotaikul paid their workers a flat rate of $50 for a 10 to 11.5 hour shift each day with no meal or rest breaks.

Even after investigators met with the owners to address the violations, the employer failed to comply with labor laws. As a result, additional penalties were assessed to recover the underpayments through April 2018. Snamluang Thaifood, Inc. DBA Sanamluang Cafe and its owners Viriya Chinotaikul and Surapong Chinotaikul are jointly and severally liable for the citations levied.

The Labor Commissioner’s Office launched an investigation last July into Orchid Thai and Orchid Thai Cuisine after receiving complaints from workers who had reported underpayment of wages to civil rights group Asian Americans Advancing Justice – Los Angeles.

Investigators discovered that both restaurants paid their workers a flat rate of $45 to $50 a day for shifts of up to 10 hours, ordered workers to prepare for the day and clean up afterwards off the clock and did not pay them split shift premiums as required by law.

Orchid Thai Cuisine and Orchid Thai restaurant are both owned by Chakri, Revedee, Chavin, Charlene and Chanica Veranunt, who formed separate corporations for each of the restaurants, CTV Food, Inc. for Orchid Thai Cuisine, and C.LO Foods, Inc. for Orchid Thai. The corporations and each individual owner are jointly and severally liable for the citations at the respective restaurants.

Enforcement investigations typically include a payroll audit of the previous three years to determine minimum wage, overtime and other labor law violations, and calculate payments owed and penalties due. Civil penalties collected are transferred to the State’s General Fund as required by law.

Most workers in California must receive a paid 10-minute rest period for every four hours worked. If workers do not receive rest breaks as required by Industrial Welfare Commission orders for their occupation, the employer must pay one hour of pay at the worker’s regular pay rate for each workday that the break is not provided, and civil penalties of $50 per worker per pay period for the initial violation, which increases to $100 each for subsequent violations.

MRI Operator Sam Solakyan Indicted for $284M Fraud

Sam Sarkis Solakyan operated diagnostic imaging facilities throughout California, including in Richmond, Hayward, San Jose, Garden Grove, Anaheim, Burbank, and San Diego.

His companies allegedly included Vital Imaging, San Diego MRI Institute, Global Holdings LLC, Empire Radiology LLC, Access Integrated Healthcare LLC, d.b.a  AIH Imaging, Access Imaging LLC, Paramount Management Services LLC, and Capital Edge Holdings, LLC.

Solakyan was indicted by an April 2018 federal grand jury which was unsealed on September 27.

The indictment alleges that Solakyan intentionally conspired with Dr. Steven Rigler, Fermin Iglesias, Providence Medex Solutions, Carlos Arguello, Alexander Martinez, and others to commit Honest Services Mail Fraud, that is, to knowingly and with the intent to defraud, devise and participate in a material scheme to defraud and to deprive patients of the intangible right to their physicians’ honest services,

And that the “defendant and his conspirators offered to pay, and paid, compensation to physicians (and those acting on their behalf) to refer Workers’ Compensation patients to Solakyan’s Companies for MRI and other services.”

And they allege that he entered into various sham agreements such as contracts for “marketing,” “administrative services,” and “scheduling,” when in reality the money paid by defendant amounted to volume-based, per-scan bribes and kickbacks to induce physicians to refer patients to Solakyan’ s Companies.

It was a further part of the alleged conspiracy that, over the course of their scheme, defendant, using bank accounts in the names of Global Holdings and Empire Radiology, paid Iglesias and Arguello, through their company MedEx, over $8.8 million to obtain MRI referrals from physicians compensated by Iglesias and Arguello.

It was a further part of the conspiracy that defendant allegedly submitted and caused to be submitted over $284 million in claims for ancillary medical services procured through the payment of bribes and kickbacks.

Solakyan was arrested, and his defense counsel’s requested a “Nebbia Hearing” which was set for 10/3/2018 04:00 PM in Courtroom 2B before Magistrate Judge Stanley A. Boone.

Many federal courts add a bail sufficiency requirement to the bond, also known as a “Nebbia, Nebia Hearing, bail source hearing or 1275 bail sufficiency hearing.”

The defendant must show that the source of the bail premium and collateral are from a legitimate source and were not acquired through illegal activities, or from the profits of a crime such as drug trafficking, money laundering, theft or fraud. Testimony, accounting documents, tax returns, banking records, and business records are a few things a court may consider in determining the sources of the finances are legitimate.

DWC Adds New Chapters to MTUS

The Division of Workers’ Compensation has posted an order adopting regulations to update the evidence-based treatment guidelines of the Medical Treatment Utilization Schedule (MTUS). The adoption follows a public hearing on the proposed adoption which occurred on July 18. According to the transcript of that hearing, there were no public comments made at that time.

The updates, effective for medical treatment services rendered on or after October 31, 2018, incorporate by reference the American College of Occupational and Environmental Medicine’s (ACOEM’s) most recent treatment guidelines to the General Approaches and Special Topics sections of the MTUS.

“We are publishing this Administrative Order one month before its effective date to give the public, especially treating physicians and utilization review physicians, 30 days to prepare before these evidence-based updates become effective,” said DWC Administrative Director George Parisotto.

The ACOEM guidelines that are incorporated by reference into the MTUS are:

“DWC has incorporated the most recent guidelines to ensure the MTUS contain the most recent, state-of-the-art current evidence-based recommendations,” said DWC Executive Medical Director Dr. Raymond Meister.

The administrative order consists of the order and two addendum:

  • Addendum one shows the regulatory amendments directly related to the evidence-based updates to the MTUS.
  • Addendum two contains hyperlinks to the updated ACOEM guidelines adopted and incorporated into the MTUS by reference.

Since the ACOEM guidelines contain proprietary content, a commercial license from ReedGroup, the publisher of the ACOEM guidelines, is required when physicians and entities use the MTUS for commercial purposes.

AmerisourceBergen Settles Fraud Case for $625M

AmerisourceBergen Corporation (ABC), one of the nation’s largest wholesale drug companies, and some of its subsidiaries entered into a settlement with the United States in which it agreed to pay $625 million to resolve civil liability under the False Claims Act. The claims against ABC arise from its repackaging and distributing of Pre-Filled Syringes (PFS) that were not approved for sale or use by the U.S. Food and Drug Administration (FDA).

The term “overfill” is a frequently used term in the pharmaceutical industry generally meaning the amount of extra drug above and beyond the labeled dose that is contained in an FDA-approved vial of drug. The overfill is not listed on the FDA-approved drug label. The reason manufacturers put overfill in each vial of drug is to ensure that the health care provider administering the drug will be able to extract the full labeled dose from the vial to give to the patient.

ABC admitted its subsidiaries operated a program that created, packed and shipped millions of PFS to oncology practices after the drug product was removed from the original glass vials and multiple vials of the product were pooled in untested plastic containers. Then the drug, including the overfill, was extracted and repackaged into syringes.

By harvesting the overfill, ABC was able to create more doses than it bought from the original vial manufacturers and avoid opening some of the vials. ABC retained the unopened vials and sold them to other customers and to its subsidiary for resale. These syringes were sold throughout the United States.The profit from the PFS Program was between $2.3 and $14.4 million annually for a total profit of at least $99.6 million.

ABC’s scheme enabled it to bill multiple health care providers for the same vial of drug, causing some of those providers to bill the Federal Health Care Programs for the same vial more than once. The scheme also enabled ABC to increase its market share by offering various product discounts, which it leveraged to obtain new customers and to keep existing customers who purchased its entire portfolio of oncology drugs.

This civil settlement brings to $885 million the total penalties that ABC has paid to resolve liability resulting from the PFS Program.

The settlement also resolves allegations that ABC gave kickbacks to physicians to induce them to purchase drugs through the PFS program. The alleged kickbacks were in the form of general pharmacy credits provided to the customer.

AmerisourceBergen said in a statement that the settlement reflects its acknowledgment that some practices at the now-closed Medical Initiatives unit “were not consistent with AmerisourceBergen’s approach to corporate compliance.”

Four whistleblowers including Michael Mullen, the former chief operating officer of a subsidiary of AmerisourceBergen Corporation, played an instrumental role in the civil settlement. His amended qui tam complaint filed in the United States District Court for the Eastern District of New York, details AmerisourceBergen’s overfill laundering scheme and the executives who knew about the oncology business model and regulatory issues, including the former and current AmerisourceBergen CEOs.

The whistleblowers will share $99 million from the settlement.

Employer Has Only 30 Days to Appeal DOSH Citation

On June 23, 2014, an inspector from Division of Occupational Safety and Health (DOSH) conducted an inspection of a job site in Oakland at which Raam Construction, Inc. served as general building contractor. Following this inspection, DOSH cited Raam as a “controlling employer” for a safety violation.

Raam thereafter contested this citation before an administrative law judge (ALJ) of the Appeals Board. (§ 6319.)

After the ALJ issued a decision upholding the citation, Raam filed a timely petition for reconsideration with the Appeals Board. On March 4, 2016, the Appeals Board issued a decision denying Raam’s petition for reconsideration. On the same day (March 4), the Appeals Board filed this decision and served a copy on Raam via first class mail.

On April 8, 2016, 35 days after the Appeals Board’s denial was issued, filed and served, Raam filed a petition for writ of mandate with the Alameda County Superior Court. Both the Appeals Board and DOSH, as real party in interest, challenged Raam’s petition for writ of mandate on untimeliness grounds, the former by motion to dismiss and the latter by demurrer. After a contested hearing presided over by Commissioner Thomas Rasch, the demurrer was sustained and the motion to dismiss granted, without leave to amend. The Court of Appeal affirmed the dismissal in the unpublished case of Raam Construction v. Occupational Safety and Health Appeals Board.

Section 6627 states in relevant part: “Any person affected by an order or decision of the appeals board may, within the time limit specified in this section, apply to the superior court of the county in which he resides, for a writ of mandate, for the purpose of inquiring into and determining the lawfulness of the original order or decision or of the order or decision following reconsideration. The application for writ of mandate must be made within 30 days after a petition for reconsideration is denied, or, if a petition is granted or reconsideration is had on the appeals board’s own motion, within 30 days after the filing of the order or decision following reconsideration.” (Italics added.)

“The California Supreme Court has interpreted another Labor Code provision that is in all significant respects identical to section 6627. In Camper v. Workers’ Comp. Appeals Bd. (1992) 3 Cal.4th 679 (Camper), the high court was asked to interpret section 5950, the statute governing the time limits for an aggrieved party to file a petition for review of a Workers’ Compensation Appeals Board decision before the Supreme Court or an appellate court. It concluding section 5950 is clear on its face that the filing of the Appeals Board’s decision is what triggers the running of the limitations period:  “The 45-day time period specified in section 5950 runs from the time ‘a petition for review is denied’ or from the ‘filing of [a]n order, decision, or award following reconsideration.’  (Lab. Code, § 5950, italics added.)  There is no reference in this statute to service.  The operative trigger of the time period set forth in section 5950 is the filing of the order.  

DWC Amends Pharmaceutical Fee Schedule

The DWC has posted proposed amendments to the Pharmaceutical Fee Schedule to its online forum where members of the public may review and comment on the proposal.

Under the California Labor Code, the fee schedule for pharmaceuticals is based primarily upon the Medi-Cal pharmacy payment system. Medi-Cal is now implementing a revised payment methodology approved by the Centers for Medicare and Medicaid Services (CMS). Background information on the Medi-Cal changes can be reviewed on the Department of Health Care Services (DHCS) Pharmacy Reimbursement Project web page.

Due to requirements of federal law, the DHCS will implement Medi-Cal pharmacy fee schedule changes retroactively to April 1, 2017. For workers’ compensation, fee schedule changes will not be retroactive; the draft regulations propose that the new methodology become effective for pharmaceuticals dispensed on or after January 1, 2019.

The following regulation changes are proposed to implement Labor Code section 5307.1 and to align the fee schedule with the new Medi-Cal system:

  • Elimination of the Average Wholesale Price (AWP) minus 17 percent as a benchmark for the drug ingredient;
  • Revised methodology for payment of the drug ingredient, which sets the maximum at the lower of the following:
    • National Drug Acquisition Cost (NADAC) or Wholesale Acquisition Cost (WAC) for drugs lacking a NADAC price;
    • Federal Upper Limit;
    • Maximum Allowable Ingredient Cost (MAIC);
    • Usual and Customary Charge;
  • Adoption of the revised two-tier Medi-Cal dispensing fee structure for pharmacies (which increases the dispensing fee from the current $7.25 to $10.05, or to $13.20 for those pharmacies listed by Medi-Cal as eligible for the higher fee);
  • Rules addressing fees for compounded drugs and repackaged drugs


The forum can be found on the DWC forums web page under “current forums.” Comments will be accepted on the forum until Monday, October 8.

DWC Adopts Geographic Practice Cost Index

The Division of Workers’ Compensation has adopted amendments to the Official Medical Fee Schedule (OMFS) for Physician and Non-Physician Practitioner Services (California Code of Regulations, title 8, section 9789.12.1 through 9789.19.1) to replace the average statewide geographic adjustment factor with local geographic adjustment factors as of January 1.

The locality-specific geographic adjustment factors, known as the Geographic Practice Cost Index (GPCI), was implemented by Medicare in January 2017 as part of its Metropolitan Statistical Area (MSA) program. Geographic Practice Cost Index is used along with Relative Value Units by Medicare to determine allowable payment amounts for medical procedures.

Fee-for-service Medicare payments to physicians and certain other licensed clinical practitioners (including nurse practitioners, physician assistants, clinical nurse specialists, and occupational and physical therapists) are adjusted for geographic differences in market conditions and business costs. These geographic adjustments are intended to ensure that payment to providers reflects the local costs of providing care, so that the Medicare program does not overpay in certain areas and underpay in others.

Each of the three components of the Medicare Physician Fee Schedule (PFS) – physician work, practice expense (PE), and malpractice (MP) insurance – is adjusted for differences across geographic areas in the input prices related to each component. When they are combined, these three components are known as the geographic adjustment factor (GAF).1

The GPCI payment adjustments are made for 89 different geographic areas in the United States, also known as payment areas (or localities). Some are defined according to metropolitan areas, but there are 34 statewide payment areas that include both metropolitan and nonmetropolitan areas.

By federal statute, any changes to the GPCIs that do not explicitly receive additional funding must be budget neutral. In practice, budget neutrality requires that the total amount of payment be unaffected by new adjustments, so that any adjustment upward for one payment area must be paid for by a downward adjustment for other areas. This requirement creates significant tensions among providers in high-versus low-cost areas.

Another major source of disagreement is whether the geographic adjusters should be used as policy levers to help influence provider supply, particularly in nonmetropolitan areas. Some rural health policy experts and practitioners argue that because earning potential influences physicians’ decisions on where to practice, and because many private payers use Medicare prices as a basis for setting their own rates, the geographic adjustments should be used as policy tools to encourage physicians to practice in nonmetropolitan areas.

The DWC says that adoption of the Medicare MSA-based locality GPCIs will improve payment allowance accuracy by reflecting the resources required to provide a service according to specific regions.

The amendments also make minor clarifying revisions to the regulations.

DWC submitted a request to the California Office of Administrative Law to file the amended regulations with the Secretary of State and have them published in the California Code of Regulations. The regulations can be found on the DWC website.