CMS proposes policy changes to Medicare Advantage, Medicare prescription drug benefit

The Centers for Medicare and Medicaid Services (CMS) on Thursday, November 17, 2017, released a proposed rule outlining policy changes to Medicare Advantage (MA) and the Medicare Part D prescription drug benefit (Part D). The proposed rule is intended to provide an opportunity for stakeholders to provide feedback to CMS ahead of the annual call letter process, with the draft call letter historically released in February.

The proposed rule includes policies intended to further CMS’ recently announced Patients Over Paperwork initiative, which aims to reduce regulatory and administrative requirements for health care stakeholders. In addition, the proposed rule continues the Administration’s efforts to exercise regulatory authority to help reduce out-of-pocket spending on prescription drugs.

The policies outlined in the proposed rule would apply to contract year 2019.

The proposed rule is scheduled for publication in the Federal Register on November 28, 2017, and CMS will accept comments through January 16, 2018.

Key provisions of the proposed rule are highlighted below.

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CMS moves forward with implementation of MACRA, other policy changes in Physician Fee Schedule Update

The Centers for Medicare and Medicaid Services (CMS) on Thursday, November 2, 2017, released final rules on Medicare reimbursement for 2018 that will have significant implications for providers’ margins and drive many provider and payer organizations to revisit their strategic objectives. The final rules for the 2018 performance period under the Quality Payment Program (QPP) of the Medicare Access and CHIP Reauthorization Act (MACRA) and the 2018 Part B Physician Fee Schedule Update include critical details that will have implications for providers related to value-based care, coding compliance, health information technology investments and telehealth services, among other issues.

The final rule for the MACRA QPP 2018 performance period is scheduled for publication in the Federal Register on November 16, 2017, and the final rule on the Part B PFS update is scheduled for publication in the Federal Register on November 15, 2017. Provisions of both rules will take effect January 1, 2018.

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President Trump nominates FRB Governor Powell to be next Chair

Following President Trump’s nomination of FRB Governor Jay Powell to succeed Janet Yellen as the next Chair, many questions have arisen about the implications for regulatory policy.

Although Governor Powell’s views on specific financial regulatory policy issues will become clearer in the coming days and weeks—especially during his nomination hearing before the Senate Banking Committee—a look at his previous statements on key issues may provide important context for his outlook and approach.

Below is our take on Governor Powell’s “top ten” most significant recent statements covering the post-crisis regulatory framework (including possible amendments), capital planning and stress testing, the enhanced supplementary leverage ratio, resolution planning, the Volcker Rule, housing finance reform, and expectations for bank boards, among others.

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CMS finalizes changes to payment policy under the 340B drug discount program

The Centers for Medicare and Medicaid Services (CMS) on November 1, 2017, released the 2018 Hospital Outpatient Prospective Payment System (OPPS) final rule, moving forward with a significant change in payment policy under the 340B drug discount program that was included in the proposed rule earlier released in July.

Beginning January 1, 2018, CMS will no longer reimburse most 340B-purchased drugs at the standard Part B rate of Average Sales Price (ASP) plus 6 percent, and instead will pay a rate of ASP minus 22.5 percent. The change in payment policy has drawn sharp criticism from hospital organizations, including litigation by the American Hospital Association, the Association of American Medical Colleges, America’s Essential Hospitals and member hospitals to block the change in payment policy.

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Open enrollment period for ACA Exchanges begins under President Trump for first time amid ongoing debate over cost-sharing reduction subsidies, ACA waivers

The open enrollment period for coverage for 2018 through the health insurance Exchanges created under the Affordable Care Act (ACA) begins today, Wednesday, November 1, 2017. This is the fifth open enrollment period since the Exchanges opened in 2014 and the first open enrollment period of President Trump’s Administration. The open enrollment period for the 39 states using the HealthCare.gov platform for plan year 2018 will close December 15, 2017; the open enrollment period in previous years ran through January 31 of the plan year. A number of states running their own Exchanges for plan year 2018 will have longer open enrollment periods than states using the HealthCare.gov platform.

This year’s open enrollment period begins after nine months of debate in Congress over various proposals to repeal and replace select provisions of the ACA, President Trump’s October 12, 2017, decision to stop reimbursing health plans for cost-sharing reduction (CSR) subsidies without congressional authorization, and a number of other regulatory decisions reflecting the Trump Administration’s position on the ACA.

Highlights of the current status of select issues related to the ACA Exchanges are provided below.

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The future of fintechs

“We are not financial institutions” historically has been a core fintech mantra heard around the industry. Unconstrained by many regulatory requirements applicable to banks and other financial institutions, fintechs pride themselves on creating deep customer connections, navigating market trends agilely, and creating disruption for traditional competitors.

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Dealing with divergence

Despite the work that banks currently have underway from building regulatory infrastructure and processes to sustaining and streamlining them, one potential headwind is the threat of regulatory divergence in substance and timing across jurisdictions.  For banks with a global presence, divergence adds to uncertainty and complexity, fosters an unlevel playing field, and hampers the ability to plan and optimize resources.  Successfully navigating the many challenges of regulatory divergence requires a deliberate disciplined approach that recognizes the regional tailoring of regulatory and compliance initiatives, and that regulatory strategy and business strategy should converge.

The growing divergence in regulatory standards is a reversal of previous post-crisis trends.  For example, since 2009, banking regulators around the world have been committed to strengthening the capital, liquidity, and leverage standards for banks. Those efforts embedded an equally strong commitment to address the unevenness and complexity of the global capital framework for internationally-active banks. Regulatory convergence initiatives, such as Basel III and the Financial Stability Board’s (FSB) work on resolution regimes, set the tone for an increasingly consistent banking rulebook across most jurisdictions.

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Health care looms over final months of 2017 legislative, regulatory agenda; Latest executive order could kick off period of heavy regulatory activity

Repeal and replace of the Affordable Care Act (ACA) has dominated the headlines for much of 2017, but the expiration of the fiscal year 2017 budget resolution on September 30, 2017, has functionally moved that effort off the top-tier of near-term legislative priorities. That said, health care legislation remains on the congressional agenda this year, and a host of regulations are due to be released before December 31, 2017.

These legislative and regulatory developments will have a significant impact on the health care industry and should be taken into account by health care providers, health plans, health information technology firms, investors and other industry stakeholders as they evaluate their strategies and plan for 2018 and the years ahead.

Below are select highlights of the health care legislative and regulatory agenda for the remainder of 2017.

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Navigating “Year Two”: Regulatory landscape and challenges for foreign banks and their IHCs

After the July 1, 2016 compliance deadline for foreign banking organizations (FBOs) to establish US intermediate holding companies (IHCs) and implement the enhanced prudential standards,1 we noted that, although the effective date marked a key milestone on the journey toward effective compliance, the “long road to operationalizing run-the-bank (RtB) functions has just begun.”2 Heading into Year Two, FBOs with their US IHCs and broader combined US operations (CUSO) contend with the reality that there is a significant road yet to be traveled in a regulatory environment focused on local/jurisdictional implementation that challenges the global model.

Four key focus areas underpinning the supervisory strategy

Although FBOs have made notable progress leading up to and after last year’s “go-live” date under Regulation YY, they continue to face substantial challenges across aspects of the Federal Reserve Board’s (FRB) four key supervisory focus areas:

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FFIEC releases updates to HMDA examiner transaction testing guidelines

On August 22, 2017, the Federal Financial Institutions Examination Council (FFIEC) released updated guidelines for testing Home Mortgage Disclosure Act (HMDA) data collected in 2018.

Below are several key observations for covered institutions:

  1. Examiners have flexibility in selecting a sample from the Loan Application Register (LAR). It may be a single random sample or, in the case of multiple data collection/reporting systems, the sample may cover all systems, or focus on specific systems based on risk.
  2. Examiners may review all data fields in the sample, or prioritize and test a designated subset of fields.
  3. Testing will be divided into two stages:
    1. An initial sample (a subset of the total sample), and
    2. If any data field has an error rate above the established threshold for the initial sample, the total sample will be reviewed for that data field (Examiners may choose to review all fields in the full sample)
  4. For institutions with a LAR count greater than 100,000 the following thresholds apply:
Total Sample Size Initial Sample Size Initial Sample Threshold Resubmission Threshold
# %
159 61 2 4 2.5

 The resubmission threshold of 2.5% for specific data fields is more favorable for institutions than previous FFIEC guidelines, which had established a 2% resubmission threshold.

  1. Resubmission is based on data field error rates. If a specific field has an error rate that exceeds the resubmission threshold, the LAR will need to be resubmitted with corrections made to that field. The examiners may also judgmentally direct an institution to make corrections to fields if they believe errors in those fields would make analysis of HMDA data unreliable (even if the error does not reach the resubmission threshold). Notably, this differs from the previous FFIEC approach, where both data field specific (previously 2%) and total error rates (previously 4%) were taken into consideration for resubmission.
  2. An error in any field associated with Applicant Race, Co-applicant Race, Applicant Ethnicity, and Co-applicant Ethnicity will only be counted as one error for that grouping.

Navigating the scope of changes from the new HMDA rule can be challenging and time consuming. The addition of quarterly reporting may cause additional challenges for institutions’ compliance departments.

There are innovative solutions in the marketplace, such as robotics and automated testing that can mitigate the compliance challenge. Deloitte has a proven track record in helping our clients tackle changes in the regulatory landscape. For more information or questions on the final HMDA rule, please contact us.

Contacts

John Graetz
Principal | Deloitte Risk and Financial Advisory
Deloitte & Touche LLP

Maria Marquez
Senior Manager | Deloitte Risk and Financial Advisory
Deloitte & Touche LLP

Konstantine Loukos
Manager | Deloitte Risk and Financial Advisory
Deloitte & Touche LLP

This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor.

Deloitte shall not be responsible for any loss sustained by any person who relies on this publication.

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