Applied Policy Insight May 2024

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APPLIED POLICY INSIGHT

May 2024

FDA’s Final Rule on LDTs:

Hospitals Face Major Adjustments

In a significant regulatory shift, the U.S. Food and Drug Administration (FDA) has finalized its rule regarding the oversight of Laboratory Developed Tests (LDTs). (Find Applied Policy's summary below.) This rule, which brings LDTs under the umbrella of medical device regulations, has immediate implications for hospitals and health systems nationwide. Hospitals will need to actively engage to navigate these changes in order to continue to deliver high-quality patient care.

For over three decades, the FDA has generally exercised enforcement discretion for LDTs, often foregoing premarket approval and quality system regulations. This flexibility fostered innovation and enabled laboratories to quickly address urgent clinical needs. It also proved essential during public health emergencies. Most recently, the ability to develop LDTs under relaxed FDA oversight was critical in responding to the COVID-19 pandemic.

Discretionary oversight of LDTs by the FDA has not meant no oversight. LDTs are subject to a set of strict standards known as the Clinical Laboratory Improvement Amendments (CLIA). CLIA requires laboratories that perform LDTs to obtain certification, ensuring they meet established standards for quality, accuracy, and reliability. The level of CLIA certification depends on the complexity of the tests performed, with high-complexity labs—where LDTs are commonly developed—requiring the most stringent certification. Under CLIA, laboratories must adhere to quality standards concerning personnel qualifications, quality control, and proficiency testing. However, it is important to note that CLIA does not assess the clinical validity or utility of the tests, focusing instead on operational and technical competency. LDTs will still be subject to regulation under CLIA, which assigns complexity to LDTs in a manner that is distinct from how the FDA assigns risk to medical devices.

The final rule explicitly classifies in vitro diagnostic products (IVDs), including those manufactured and used within single clinical laboratories, as medical devices under the Federal Food, Drug, and Cosmetic Act (FDCA). This amendment marks a departure from the FDA’s previous policy of general enforcement discretion for many LDTs, transitioning to a more structured oversight model over the next four years.

From the President's Desk:

An Opportunity to Advise CMS on Fixing

Prior Authorization Problems in Medicare Advantage

Over the last decade, seniors have been choosing Medicare Advantage (MA) plans for their healthcare insurance at an increasing rate. More than half of those eligible are now enrolled in MA plans, and participation is expected to grow to sixty percent by the end of this decade. A cursory look at the increasing popularity of these programs might appear to tell a story of patient, insurer, and physician satisfaction.

But, in fact, as enrollment in Medicare Advantage reaches new heights, so do the complaints about the care it provides and concerns about the management the Centers for Medicare & Medicaid Services (CMS) provides.

Given the cost of this behemoth health insurance program and the millions of people it impacts, it’s worth our time as taxpayers and health policy professionals to examine why this is happening and what CMS is doing about it.

Unlike traditional Medicare fee-for-service programs, “utilization management’ is one of the key features of managed care plans. As part of this management approach, varying coinsurance amounts are often designed to encourage the use of a contracted network of providers; patients are often required to see a primary care doctor before going to see a specialist, and tools like prior authorization are used to determine if a service is medically necessary. From a health plan perspective, these tools are designed to control costs, deliver high-value care, and avoid having to recoup funds from providers for services later found to be unnecessary.

However, reliable data reveals that Medicare spends more per Medicare Advantage enrollee that it would spend if the person had remained in the original Medicare fee-for-service program.

TEAM Model Offers Insight Into

Implementation of Value-based Care

In proposing a mandatory, episode-based payment model for certain hospitals, CMS has provided a window into how value-based care might be addressed under a possible second Biden Administration.

At issue is the Transforming Episode Accountability Model (TEAM), which was included within the fiscal year (FY) 2025 Hospital Inpatient Prospective Payment Systems (IPPS) for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System proposed rule released by CMS on April 10. (Applied Policy’s summary of this model, which covers participation selection, episode definitions, quality reporting, payment, and more, is available in the summary section below.)

TEAM will have serious financial implications for hospitals that are selected for participation. It will also offer insights into what to expect as the Administration moves towards the CMS Innovation Center’s goal of having all Medicare fee-for-service beneficiaries in a care relationship with accountability for quality and total cost of care by 2030. CMS will need more mandatory payment models to reach this goal and transition the heath care system to value.

TEAM is the first mandatory payment model proposed under the Administration, meaning that it is the first model on which stakeholders have been provided the opportunity to comment. CMS’s responses to these comments, as well as the finalized version of TEAM, will be telling.

NIST Explores Price as March-In Criterion

Under Bayh-Dole

Industries from healthcare and technology to agricultural and environmental sciences are awaiting final guidance from the National Institute of Standards and Technology after it issued a request for information on its “Draft Interagency Guidance Framework for Considering the Exercise of March-In Rights” in December 2023.

At issue is a proposal which seeks to clarify the federal government’s authority to intervene in the licensing of federally funded technologies under the Bayh-Dole Act. Part of the Biden Administration’s efforts to address healthcare costs, it could result in a policy shift with important implications for drug and medical device manufacturers.

AI HealthWatch:

HHS Continues to Clarify Expectations for Use of AI

On April 29, the Department of Health and Human Services (HHS) released a plan for Promoting Responsible Use of Artificial Intelligence in Automated and Algorithmic Systems by State, Local, Tribal, and Territorial Governments in the Administration of Public Benefits, continuing the rollout of actions mandated under the Biden Administrations’ Executive Order 14110 on the Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence.

The plan impacts Medicaid, the Children’s Health Insurance Program, and State Marketplace plans. Collectively, these programs covered over 102 million beneficiaries in 2023. Although the recommendations made under the plan are not mandatory, they indicate HHS’s views on a number of key issues regarding AI.

The plan provides examples of uses of AI in benefits administration presumed to impact the rights or safety of beneficiaries. Not only will these use cases be subject to minimum risk management practice requirements under the recently released OMB Memorandum M-24-10, they are also likely to face further regulations as the Administration moves towards establishing a regulatory framework for AI.

IRA Dominates Conversation at AMCP

Applied Policy joined more than 4,000 attendees at the Academy of Managed Care Pharmacy (AMCP) Annual Meeting from April 15-18 in New Orleans, Louisiana, to connect with fellow industry stakeholders (and to try beignets from the famous Café Du Monde).

A key event for managed care pharmacy professionals, AMCP’s Annual Meeting brings together pharmacists, payers, manufacturers, providers, and industry partners at the forefront of managed care pharmacy innovation.

Attendees could choose from a number of tracks at the conference, including drugs, diseases, and managed care impact; legislative and regulatory trends; and making the way for innovation tracks.

The Inflation Reduction Act remains at the forefront of discussion. As we move toward 2025, when significant changes under the Part D benefit redesign will go into effect, stakeholders continue to navigate the interplay between patient access, formularies, and manufacturer considerations.

Healthcare Leaders Pursue Key Issues

at AMGA Conference

Applied Policy was honored to participate in the American Medical Group Association's (AMGA's) 2024 Conference, held from April 9-12 at the Rosen Shingle Creek Hotel in Orlando, Florida.

AMGA represents more than 440 multispecialty medical groups and integrated delivery systems, with the mission of advancing these groups and systems as the preeminent model for delivering high-performance healthcare.

The organization offers its members benchmarking, educational programs, and targeted advocacy on Capitol Hill. AMGA's influence is wide-reaching and consequential, as the 175,000 physicians represented by its members are responsible for the care of approximately one-third of all Americans.

The conference's 1,200 attendees, including Applied Policy's President and CEO Jim Scott and Vice President of Healthcare Services Carl Mallory, comprised healthcare executives and clinicians from across the country. Unsurprisingly, the keynotes, breakout sessions, and side conversations reflected the top-of-mind issues for these healthcare leaders.

AHA Outlines Advocacy Priorities

at Annual Membership Meeting

Applied Policy’s CEO Jim Scott and Vice President for Healthcare Services Carl Mallory were among the approximately 1,000 attendees at the American Hospital Association’s (AHA’s) Annual Membership Meeting, held April 14-16 in Washington, D.C.

The event, which brought together hospital presidents, CEOs, administrators, and senior executives, afforded an opportunity for Applied Policy to speak with healthcare leaders from across the country and to further its appreciation of AHA’s advocacy and policy priorities.

Above: Applied President and CEO

Jim Scott with CMS Administrator

Chiquita Brooks-LaSure at AHA Annual Membership Meeting in Washington, D.C.

Applied Policy's Latest Summaries

FDA Releases Highly Anticipated Final Rule on the Regulation of Laboratory Developed Tests as Medical Devices

On April 29, the FDA released its highly anticipated final rule, Medical Devices; Laboratory Developed Tests.

This rule redefines in vitro diagnostic products (IVDs), including laboratory developed tests (LDTs), as medical devices under the Federal Food, Drug, and Cosmetic Act (FD&C Act). This change will bring IVDs manufactured by laboratories under the same regulatory oversight as other medical devices, which includes compliance with requirements such as premarket review and quality system regulations.

Read Applied Policy's summary

CMS Finalizes Rules to Improve Access Across Medicaid, CHIP, and Home and Community-Based Service Programs

On April 22, CMS released two final rules: Ensuring Access to Medicaid Services and Medicaid and Children's Health Insurance Program (CHIP) Managed Care Access, Finance, and Quality. These rules aim to improve care access, promote transparency and accountability, streamline data collection and monitoring, and increase opportunities to promote Medicaid and CHIP beneficiary engagement.

The rules align with President Biden’s executive orders directing federal agencies to take action to expand affordable, quality health coverage issued in January 2021 and April 2022. The rules will take effect July 9, 2024.

The final rules aim to improve care access and health outcomes and address health equity considerations for Medicaid and CHIP managed care enrollees and across Medicaid fee-for-service programs, managed care delivery systems, and home and community-based services.

Read Applied Policy's summary

CMS Finalizes Minimum Staffing Requirements for Long Term Care (LTC) Facilities

On April 22, CMS issued the Minimum Staffing Standards for Long-Term Care Facilities and Medicaid Institutional Payment Transparency Reporting final rule and fact sheet. As part of the Biden Administration’s Nursing Home Reform initiative, this rule establishes national minimum nurse staffing standards to ensure safe and high-quality care for residents living in nursing homes.

The rule finalizes the following requirements:

That facilities provide minimum of 3.48 total nurse staffing hours per resident day (HPRD)
That facilities provide minimum of 0.55 registered nurse HPRD and 2.45 nurse aid HPRD
A registered nurse to be on site 24 hours and 7 days per week
Enhanced facility staffing assessments
Hardship exemptions for certain facilities
States to report the percentage of Medicaid payments for certain Medicaid-covered institutional services that are spent on compensation for direct care workers and support staff.

CMS estimates that 79 percent of nursing facilities nationwide would need to increase staffing to meet these standards.

This final rule is scheduled to be published in the Federal Register on May 10, 2024. These provisions are effective on June 21, 2024.

Read Applied Policy's summary

CMS Proposes New Mandatory Payment Model: Transforming Episode Accountability Model (TEAM)

On April 10, CMS issued the fiscal year (FY) 2025 Hospital Inpatient Prospective Payment Systems (IPPS) for Acute Care Hospitals and the Long-Term Care Hospital (LTCH) Prospective Payment System proposed rule. The rule included a proposal for a mandatory payment model called the Transforming Episode Accountability Model (TEAM).

The TEAM model is a mandatory, episode-based payment model whose performance period would start January 1, 2026, and last for five years, ending on December 31, 2030.

Read Applied Policy's summary

MACPAC and MedPAC Updates

MedPAC Holds April Meeting

On April 11 and 12, the Medicare Payment Advisory Commission (MedPAC) held a virtual public meeting, which included the following sessions: Considering approaches for updating the Medicare physician fee schedule; Telehealth in Medicare: Status report; Alternative approaches to lowering Medicare payments for select conditions in inpatient rehabilitation facilities; Assessing consistency between plan-submitted data sources for Medicare Advantage enrollees; Generic drug pricing under Part D; and Initial findings from analysis of Medicare Part B payment rates and 340B ceiling prices.

Read Applied Policy's summary

MACPAC Holds April Meeting

On April 11 and 12, the Medicaid and CHIP Payment and Access Commission (MACPAC) held a virtual public meeting, which included the following sessions: Improving the Transparency of Medicaid and CHIP Financing, and Update on Hospital Supplemental Payment Analyses.

Read Applied Policy's summary

Join NVHPF and CMS Leadership

on May 22 for

The Progress of Value-Based Care

CMS is leading the charge toward a healthcare system that it says will reward the quality of care over the quantity of care. The agency’s goal marks a shift from the traditional fee-for-service model that pays based on the number of services given, and it instead aims to incentivize providers to deliver coordinated, patient-centered, high-quality care. The Center for Medicare and Medicaid Innovation (CMS Innovation Center) has launched over 50 models to test alternative approaches to paying for care since it was established in 2010. In 2021, the agency announced its goal of establishing accountable care relationships for all Medicare beneficiaries and most Medicaid beneficiaries by 2030 as part of a strategy refresh guiding the CMS Innovation Center’s goals and priorities moving forward.

On Wednesday, May 22, from Noon to 1 PM ET, two leaders of the CMS effort to integrate value-based programs into Medicare and Medicaid will join the Northern Virginia Health Policy Forum. Purva Rawal, PhD, Chief Strategy Officer at the CMS Innovation Center, and Dilipan Sundaramoorthy, Special Assistant to the Chief Strategy Officer, will discuss their perspective on the Innovation Center’s progress toward wide integration of value-based programs, efforts to advance health equity, and the future of accountable care.

Highlights from NVHPF's April Event:

What’s Next in Healthcare:

The Defining Trends to Follow

On April 24, the Northern Virginia Health Policy Forum hosted Jonah Comstock, editor-in-chief of pharmaphorum; Ben Leonard, healthcare reporter at POLITICO; and John Wilkerson, Washington correspondent at STAT News, in conversation about what is ahead in healthcare for Congress, providers, patients, and the industry in this critical election year.

A recording of the event is available above.

TCET Among Topics at MDMA's Annual Meeting

Applied Policy attended the Medical Device Manufacturer’s Association Annual Meeting in Washington, D.C., April 17-19. The event featured discussions with members of Congress and representatives from the FDA and the Center for Devices and Radiological Health (CDRH).

Dora Hughes, M.D., M.P.H., CMS’s Acting Chief Medical Officer and Acting Director of the Center for Clinical Standards & Quality (CCSQ) provided a CMS update on the conference’s first full day. As CMS's second-largest Center, CCSQ oversees clinical standards and manages 20 quality and payment programs. Within CCSQ, the Coverage and Analysis Group (CAG) is responsible for formulating and updating National Coverage Decisions (NCDs) for medical items and services, including devices.

Hughes's remarks on the Transitional Coverage of Emerging Technologies (TCET) rule, which falls under CAG's jurisdiction, were of particular interest. CMS issued the Notice with Comment, including the TCET proposal, on June 22, 2023. This has been a long time in the making, as TCET replaces the Medicare Coverage for Innovative Technology (MCIT) pathway, which was finalized and then repealed in November 2021 due to safety concerns.

Compliance, Value-Based Care, and Health Equity Among Topics at AAPC's HEALTHCON

Health Policy Associate Meghan Basler represented Applied Policy at this year's American Academy of Professional Coders (AAPC) HEALTHCON Conference, April 14-17. Although the event took place in Las Vegas, Nevada, Basler was able to participate virtually, live streaming the sessions via Zoom. This unique setup allowed her to engage fully with the speakers and content, without the logistical challenges of cross-country travel.

The conference opened with AAPC CEO Bevan Erickson, who extended a warm welcome to all participants and shared updates on new educational opportunities for medical coders available through AAPC. Basler observed that Erickson’s insights set a positive tone for the event, highlighting the academy's commitment to continuous learning and development.

Basler described the compliance panel, which included chief compliance officers and legal experts, as “one of the most impactful parts of the conference.”

Sabrina Luther Joins Intern Class

We are delighted to welcome Sabrina Luther as a health policy intern.

A graduate of the University of Delaware, Sabrina holds bachelor’s of arts in both biology and liberal studies. She was working towards her medical degree when, as foretold by her choices of academic minors in public health and public policy, she realized that she was more interested in the policy side of healthcare.

Asked about her onboarding to the busy Applied Policy team, Sabrina observed that she has appreciated the amount of intern education and support provided. “Everyone is willing to take the time to explain topics and answer questions.” Outside of work, Sabrina is an avid hiker who has had the opportunity to explore several national parks and hopes to visit more in the future.

On the Docket/Under Review

Applied Policy is following these rules under review at the Office of Management and Budget:

Occupational Exposure to COVID-19 in Healthcare Settings
Health Data, Technology, and Interoperability: Patient Engagement, Information Sharing, and Public Health Interoperability
Misclassification of Drugs, Program Administration and Program Integrity Updates Under the Medicaid Drug Rebate Program (CMS-2434)
CY 2025 Revisions to Payment Policies under the Physician Fee Schedule and Other Revisions to Medicare Part B (CMS-1807)
CY 2025 Changes to the End-Stage Renal Disease (ESRD) Prospective Payment System and Quality Incentive Program (CMS-1805)
CY 2025 Hospital Outpatient PPS Policy Changes and Payment Rates and Ambulatory Surgical Center Payment System Policy Changes and Payment Rates (CMS-1809)
CY 2025 Home Health Prospective Payment System Rate Update and Home Infusion Therapy Services Payment Update (CMS-1803)