By Michelle Capezza

Employers with fifty or more full-time employees (including full-time equivalent employees) are subject to the employer mandate penalties under the Patient Protection and Affordable Care Act of 2010, as amended  (the “ACA”) which become effective in 2014.  These penalties can be triggered if such employers fail to offer a health plan to their full-time employees and their dependents and have at least one full time employee who receives a premium tax credit or cost share reduction in connection with their enrollment in a qualified health plan through an Exchange.  These penalties can also be triggered if such employers offer coverage to 95% or more of their full-time employees and their dependents that either fails to offer minimum value (i.e., the plan’s share of the total allowed costs of benefits provided under the plan is less than 60% of the costs)  or offers coverage that is unaffordable (i.e., an employee’s cost of self-only coverage exceeds 9.5% of the taxpayer’s household income) and at least one full time employee receives a premium tax credit or cost share reduction in connection with their enrollment in a qualified health plan through an Exchange.

On May 3, 2013, the Department of the Treasury (“Treasury”) and the Internal Revenue Service (“IRS”) issued proposed regulations to provide assistance in determining whether health coverage under an employer-sponsored plan provides minimum value, as well as other rules regarding the health insurance premium tax credit (the “Proposed Regulations”).  Individuals generally may not receive a premium tax credit in connection with the enrollment in a qualified health plan through an Exchange if they are eligible for affordable coverage under an employer-sponsored plan that provides minimum value.  Under regulations issued by the Department of Health and Human Services (“HHS”) on February 25, 2013, there are several options for determining minimum value which include: (i) use of a Minimum Value Calculator; (ii) use of a safe harbor established by HHS and IRS; (iii) for plans with nonstandard features that are incompatible with the MV Calculator or a safe harbor, minimum value can be determined through an actuarial certification from a member of the American Academy of Actuaries; and (iv) a plan in the small group market can satisfy minimum value if it meets the requirements of any of the levels of metal coverage for a qualified health plan in an Exchange (i.e., bronze, silver, gold or platinum). The Proposed Regulations provide that employers must use the Minimum Value Calculator to measure standard plan features (unless a safe harbor applies) but the percentage may be adjusted based on an actuarial analysis of plan features that are outside the parameters of the calculator.  Plan designs meeting certain specifications were also proposed as safe harbors for determining minimum value.

In addition, the Proposed Regulations clarify that with regard to the health benefits considered in determining the minimum value, minimum value is based on the anticipated spending for a standard population and that the plan’s anticipated spending for benefits provided under any particular essential health benefits benchmark plan for any State counts towards minimum value.  Further, under the Proposed Regulations, all amounts contributed by an employer for the current plan year to a health savings account (“HSA”) are taken into account in determining the plan’s share of costs for purposes of minimum value and are treated as amounts available for first dollar coverage.  Amounts newly made available under a health reimbursement arrangement (“HRA”) that is integrated with an eligible employer plan for the current plan year count for purposes of minimum value in the same manner if the amounts may be used only for cost-sharing and may not be used to pay insurance premiums.  Importantly, the Proposed Regulations provide that a plan’s share of costs for minimum value purposes is determined without regard to reduced cost-sharing available under a nondiscriminatory wellness program; however, for programs designed to prevent or reduce tobacco use, the minimum value may be calculated assuming that every eligible individual satisfies the terms of the tobacco prevention/reduction program.   With respect to affordability, for plans that charge a higher premium for tobacco users, the affordability will also be determined based on the premium that is charged to non-tobacco users or tobacco users who complete the related wellness program such as attending smoking cessation classes.  Under a transition rule for plan years commencing before January 1, 2015, if an employee is eligible for a wellness program and incentives as in effect as of May 3, 2013,  then an employer offering health coverage will not be subject to an employer mandate penalty with respect to an employee who received a premium tax credit in connection with coverage in an Exchange because the employer’s offer of coverage was not affordable or did not satisfy minimum value if such coverage would have been affordable or satisfied minimum value based on the total required employee premium and cost-sharing for that group health plan that would have applied to the employee if  he or she met the requirements of the wellness program.

These Proposed Regulations are proposed to apply for taxable years ending after December 31, 2013 and may be applied for taxable years ending before January 1, 2015.  Treasury and the IRS request comments on all aspects of the proposed rules by July 2, 2013.

On May 16, 2012, the Centers for Medicare and Medicaid Services of the Department of Health and Human Services (“CMS”) published regulations announcing various changes to the Medicare Conditions of Participation (“CoP”) applicable to hospitals.  According to the regulatory preamble, these revisions responded directly to the President’s “Executive Order 13563, by reducing outmoded or unnecessarily burdensome rules, and thereby increasing the ability of hospitals and [critical access hospitals] to devote resources to providing high quality patient care.”  77 Fed. Reg. 29034, May 16, 2012


Among the changes are provisions addressing hospital governance, including a new provision allowing a single governing body to oversee multiple hospitals in a multi-hospital system.  Although not contained in the proposed rule, included within this change to the Governing Body CoP is the requirement that a hospital’s board include at least one member of its medical staff, and a statement in the preamble to the effect that each hospital within a multi-hospital system is required to have a separate, independent medical staff. [1]This reflects CMS’s view that “strong coordination between a hospital’s governing body and medical staff is paramount to the delivery of quality care.”  77 Fed. Reg. 29034, at 29038.  CMS noted that as far back as 1986 it had discontinued a requirement for a joint committee to formalize the connection between the medical staff and hospital administration, concluding at that time that decisions about such liaison activities were best left to internal hospital management.  51 Fed. Reg. 22010, 22017, June 7, 1986.  While CMS recognized that a formalized link between the medical staff and administration is in place at many institutions, it stated that this is not the norm, and so made it a requirement, thus addressing what it called a “widely voiced concern” regarding hospital-medical staff communications. 77 Fed. Reg. 29034, at 29038.


CMS perhaps did not anticipate the firestorm it was about to unleash.  The American Hospital Association (“AHA”) immediately called upon CMS to rescind both of these rules. The AHA said in a letter to the agency that neither of these extremely significant changes were included in the proposed rule, depriving stakeholders of the opportunity to comment on them.  The AHA further advised that many public, university affiliated, and investor owned hospitals have selection mechanisms that may not result in a physician being elected or appointed to the governing body.  In Iowa, members of the medical staff or their spouses are prohibited by law from serving on the board of a public hospital.  The AHA also commented that although it agrees that the communication promoted by the rule is a critical element of hospital organization, there are many other effective strategies to accomplish the goal.  Conflicts of interest that arise from employment by the hospital and membership on the medical staffs of competing hospitals deserve careful consideration as well.  The AHA also addressed CMS’s “about face” on the single medical staff issue, indicating that unified medical staffs can “effectively and efficiently review, credential and privilege” their medical staffs, and “more reliably and completely standardiz[e] high-quality, safe care across their systems . . .”


The American Medical Association (“AMA”), representing physicians and medical students, quickly replied, and strongly urged CMS to resist such calls to eliminate the governing body and medical staff provisions in the final rule.  The AMA agreed with CMS that the inclusion of a medical staff member on the governing body is “absolutely essential to the delivery of quality care” and reflects the entity”s “mutual responsibility for the provision of quality care and a safe environment .. .” As CMS has concluded, requiring medical staff membership will bring relevant expertise to the management of the hospital, promote greater coordination between the board and medical staff, and further inform patient care and safety initiatives.  Concerning the separate medical staff issue, the AMA pointed to the medical staff’s role in leading innovation in patient-centered and coordinated care, and the importance of real-time clinical feedback from the medical staff, all of which are facilitated by a locally organized medical staff.


CMS decided that it could not easily resolve these strongly held, and diametrically opposed, views of the standards, and on June 15 it issued an instruction to State Survey Agency Directors that the requirement to include members of the medical staff on the hospital’s governing body should not be applied until CMS has addressed the issue “completely.”   Due to the concerns that had been raised, the complexity of the issues involved, and the rule’s interaction with other laws, CMS advised that the requirement would be reconsidered in future rulemaking. Interestingly, the June 15 memo is silent on the unified medical staff issue.  However, CMS did signal in the June 15 memo that detailed interpretive guidelines under development for the May 16 changes may not be fully complete by the July 16 effective date of the regulations.  Indeed, the guidelines have not been issued as yet, and there is no projected date for that to occur.  We have been advised that in the interim neither aspect of the amended CoP will be implemented.  We suspect that it will be quite some time before these issues will resurface.


[1] This Blog post will address only the substantive issues raised, and will not touch on the procedural arguments made under the Administrative Procedure Act during this debate.

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