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The Federal Trade Commission (FTC) said February 3 that Colorado physicians’ group Roaring Fork Valley Physicians I.P.A., Inc. has agreed to settle price-fixing charges that it entered into anticompetitive agreements to set higher prices for medical services and refused to deal with insurers that did not meet its demands.

FTC alleged the group, representing about 80% of the physicians in Garfield County, CO, used the agreements to demand a number of concessions from insurers, including automatic cost-of-living adjustments and a ban on commonly used cost-lowering provisions that link reimbursement rates to Medicare rates.

In addition, the group also allegedly discouraged its members from contracting with insurers directly and would accept contracts only if at least 80% of its primary care physicians and 50% of its specialty physicians accepted the proposed contracts, FTC contended.

Under the settlement, Roaring Fork, among other things, may not engage in collective price negotiations or collectively refuse to deal with insurers.

View more information.

The Eleventh Circuit affirmed January 27 in an unpublished decision a healthcare fraud defendant’s 72-month prison sentence.

According to the appeals court, the sentence was both procedurally and substantively reasonable and the lower court did not err in its calculation of the loss amount or in applying various sentence enhancements.

Alexis Carrazana was a former medical assistant for Midway Medical, Inc., a medical clinic that provided injection and infusion treatments to patients with HIV.

Carrazana was charged with conspiracy to commit healthcare fraud in an indictment alleging he administered medically unnecessary injection and infusion treatments and fabricated and signed medical records to reflect that Midway patients had received injections or infusions when, in fact, they had not.

Carrazana pled guilty. The presentence investigation report set Carrazana’s base offense level at 6, pursuant to U.S.S.G. § 2B1.1(a)(2). Carrazana’s offense level was increased by 20 levels, pursuant to § 2B1.1(b)(1)(K), because the offense involved a loss of more than $7,000,000, but not more than $20,000,000.

Carrazana also received a two-level enhancement under § 2B1.1(b)(9)(C), because the offense involved sophisticated means; a two-level enhancement under § 2B1.1(b)(13)(A), because the offense “involved the conscious reckless risk of death or bodily injury”; and a two-level enhancement under § 3B1.3, for use of a special skill in connection with the offense.

Carrazana then received a three-level reduction resulting in an offense level of 29. At the sentencing hearing, the court sustained Carrazana’s objection to the enhancement for conscious or reckless disregard of the risk of death or serious injury, which resulted in an offense level of 27.

The court then sentenced Carrazana to 72 months’ imprisonment, followed by three years of supervised release and ordered Carrazana to pay $3,687,893 in restitution.

On appeal, the Eleventh Circuit turned first to the calculation of the loss amount. Carrazana argued the entire amount of the loss from the conspiracy should not be attributed to him because he withdrew from the conspiracy by leaving Midway’s employment.

However, the appeals court noted, “there is no evidence that Carrazana took any action to thwart or disrupt the objectives of the conspiracy.”

Accordingly, the appeals court held, “the district court did not clearly err in finding that Carrazana was responsible for losses that accrued after March 2004 because he did not withdraw from the conspiracy by terminating his employment with Midway.”

The appeals court next turned to Carrazana’s objection to the two-level sentence enhancement for use of sophisticated means.

The plain language of § 2B1.1(b)(9)(C) provides that the enhancement applies if “the offense involved sophisticated means,” the appeals court explained.

Because the relevant offense is the conspiracy, the district court was permitted to consider the reasonably foreseeable actions of Carrazana’s co-conspirators when determining whether the enhancement applied.

Thus, the lower court did not err in finding that manipulation of blood samples was “especially complex” and that this behavior could be attributed to Carrazana because he admitted he knew about it.

The appeals court next found no merit in Carranza’s argument that the lower court erred in refusing to grant him a two-level reduction for playing a minor role in the conspiracy.

“Although Carrazana may have been less culpable than the Midway doctors who supervised the conspiracy and were engaged in fraudulent billing . . . Carrazana’s relevant conduct involved actions that were instrumental in avoiding detection of the conspiracy,” the appeals court held.

Finally, in reviewing the sentence imposed by the district court for reasonableness, the appeals court found the 72-month sentence to be procedurally reasonable as well as substantively reasonable.

United States v. Carrazana, No. 09-13124 (11th Cir. Jan. 27, 2010).

The Fifth Circuit in a January 8 opinion rejected a generic drug manufacturer’s bid to dismiss a state tort action against it on federal preemption grounds. 

The Fifth Circuit joined the Eighth Circuit in ruling that the federal regulatory regime for generic drugs does not preempt state law failure-to-warn claims, relying heavily on the U.S. Supreme Court’s recent decision in Wyeth v. Levine, 129 S. Ct. 1187 (2009), which found no preemption in an action that involved brand-name drugs. 

Although Actavis, Inc., which manufacturers metoclopramide, the generic version of the anti-reflux drug Reglan, sought to distinguish federal regulation of generics from brand-name drugs, the appeals court rejected its arguments, finding instead that generic drug manufacturers had similar avenues for strengthening warnings and that this served the underlying purpose of advancing safety and effectiveness in the nation's drug supply.  

Plaintiff Julie Demahy sued Actavis under the Louisiana Products Liability Act for failure to warn of the risks of neurological disorder associated with the long term use of metoclopramide.  

Actavis moved to dismiss based on conflict preemption—i.e., that it was impossible to comply with both federal law, which requires generic manufacturers to maintain a label that is the “same as” the name brand’s, and state law requirements to strengthen warnings. 

At the outset, the Fifth Circuit distinguished between the Hatch Waxman labeling requirements pre- and post- approval of a generic manufacturer’s Abbreviated New Drug Application (ANDA).

Here, Demahy sought to hold Actavis liable under state law for its failure to warn adequately of the risks associated with long term use of metoclopramide after the Food and Drug Administration (FDA) had approved its application.  

“While Congress plainly intended for a generic drug manufacturer to submit labeling identical to—or the ‘same as’—the brand named drug when seeking ANDA approval, the statutory scheme ‘is silent as to the manufacturer’s obligations after the ANDA is granted,’” the appeals court said.  

Likewise, the appeals court found the applicable regulations did not bar generic labeling modifications after initial approval. Rather, generic manufacturers are subject to the requirement that their labeling “be revised . . . as soon as there is reasonable evidence of an association of a serious hazard with a drug,” the appeals court said.  

The Fifth Circuit went so far as to find generic drug makers could use the “changes being effected” (CBE) process to modify a drug label and thereby comply with FDA regulations and state law.

Actavis argued the CBE process, which allows changes to a drug label upon a filing of a supplemental application with the FDA without waiting for the agency’s approval, was only available to brand-name drug manufacturers. 

But the appeals court found no express prohibition on a generic manufacturer using the CBE process to unilaterally change a label.  

While the FDA previously may have taken the position that the CBE process was not available to generic drug makers, the agency changed course following the Court’s decision in Levine, the Fifth Circuit observed.  

In any event, the appeals court said, generic manufacturers had other ways to pursue labeling changes, including through the prior approval process for “major changes” and by seeking approval of the FDA to communicate directly with physicians through “Dear Doctors” letters. 

Nothing in the statute or regulations prevented a generic from initiating label changes through these channels, the appeals court said. 

“The federal interest is in maintaining safe and effective labeling that is consistent across name brand and generic bioequivalent versions of the same drug. Who prompts the FDA to consider necessary changes to that shared label is immaterial,” the appeals court observed.  

The appeals court also emphasized that ultimately it is the drug manufacturer, not the FDA, that bears the primary responsibility for drug labeling.  

Finally, the appeals court rejected a result that would allow consumers of brand-name drugs to pursue failure-to-warn claims while leaving those injured by generics without a remedy. 

Demahy v. Actavis, Inc., No. 08-31204 (5th Cir. Jan. 8, 2010). 

In an unpublished opinion dated January 29, the Fourth Circuit upheld the imposition of civil monetary penalties (CMPs) on Universal Healthcare, a North Carolina skilled nursing facility, for non-compliance with several Medicare regulations related to residents’ well being and safety. 

The appeals court said substantial evidence supported the Department of Health and Human Services (HHS) Secretary’s findings and held the monetary penalties were not excessive.  

At issue were citations the nursing home received in November and December 2005 regarding its treatment of two patients—“G.J.” and “S.W.” 

Following a state survey in November 2005, the Centers for Medicare and Medicaid Services (CMS) notified Universal that its treatment of G.J violated regulations requiring the facility to provide pharmaceutical services adequate to meet the needs of each resident and to provide high quality care in accordance with the patient’s comprehensive assessment. 

According to the opinion, a nurse discovered that Universal was out of the drug given to G.J. every morning to treat his headaches. The nurse administered an alternative, but less effective, medication, and, although the nursing home could have obtained the drug in question on an emergency basis, it failed to do so until late in the afternoon. 

With respect to A.W., following a December 2005 survey, CMS cited Universal with violating three Medicare regulations requiring a facility to immediately consult with a resident’s physician and contact family members in the event of a “significant change” in the resident’s status; “develop and implement written policies and procedures that prohibit mistreatment and neglect”; and provide quality care. 

Following A.W.’s death, a survey team faulted Universal for failing to monitor his vital signs throughout the day despite changes in his condition that warranted closer oversight, the appeals court said. 

CMS found the violations involving G.J. rose to the level of “actual harm,” while those related to A.W. amounted to “immediate jeopardy.” CMS imposed various CMPs on the nursing home, including $4,000 per day for a period of just over a month.  

An administrative law judge (ALJ) affirmed CMS’ findings and penalties, as did the HHS Departmental Appeals Board. 

The Fourth Circuit found no reason to disturb the HHS Secretary’s final decision. 

In so holding, the appeals court held substantial evidence supported the ALJ’s conclusions that the drugs administered to G.J. were not an adequate substitute for the one he normally took and that Universal could have acted more quickly to obtain the needed medication. 

Moreover, the appeals court declined to hold the “actual harm” finding clearly erroneous, noting that G.J. complained of pain all morning until he received his regular medication. 

The appeals court also found sufficient evidence that the nursing home was put on notice that A.W.’s condition was deteriorating and should have monitored his vital signs accordingly.  

Finally, the appeals court upheld the CMPs imposed on the facility, finding they were not unreasonable under the circumstances. 

Universal Healthcare/King v. Department of Health and Human Servs., No. 09-1093 (4th Cir. Jan. 29, 2010).

Four provider associations sent a letter January 27 to the Federal Trade Commission (FTC) urging the agency to make clear that the Red Flags Rule will not be applied to licensed healthcare professionals (LHCPs), at least until 90 days after final resolution of recent litigation brought by the American Bar Association (ABA).

The ABA filed a complaint in August 2009 seeking a declaration that the FTC’s application of the Rule to lawyers was unlawful and exceeded the agency’s statutory authority.

On November 30, 2009, the U.S. District Court for the District of Columbia enjoined application of the Rule to attorneys, finding the FTC had overstepped its regulatory authority. American Bar Ass’n v. FTC, No. 09-1636 (D.D.C).

In their letter to FTC Chairman Jon Leibowitz, the American Medical Association, the American Dental Association, the American Osteopathic Association, and the American Veterinary Medical Association also sought the Commission’s pledge that if the final resolution of the ABA litigation is that the Rule will not be applied to attorneys, the FTC will not apply the Rule to LHCPs either.

While the FTC has postponed the effective date of the Rule, most recently until June 1, 2010, “the Commission has never disavowed the position that the Rule will be applied to LHCPs.”

The groups acknowledged some “minor differences” between lawyers and LHCPs for purposes of the Rule’s application, but said “the dispositive considerations underlying [the ABA decision] apply equally to LHCPs.”

“Indeed, implementation of the Rule with respect to LHCPs but not to lawyers would be manifestly unfair and anomalous,” the letter said.

The groups also said their members continue to incur costs in preparing to comply with the Rule despite the numerous delays in its enforcement. For that reason, the groups called on the FTC to make a definite commitment not to apply the Rule to LHCPs if it is not applied to lawyers.

The Rule imposes new obligations on “creditors” to detect, prevent, and mitigate identity theft. The deadline to comply with the identify theft program requirement was initially set for November 1, 2008, but has so far been extended four times. 

The Illinois Supreme Court held February 4 that the state’s statutory limit on noneconomic damages in medical malpractice actions is unconstitutional on its face.

The high court agreed with an earlier ruling by a state court that the cap violated the separation of powers clause of the Illinois Constitution.

In a statement, American Medical Association (AMA) President J. James Rohack, MD said the high court’s decision “threatens to undo all that Illinois patients and physicians have gained under the cap, including greater access to health care, lower medical liability rates and increased competition among medical liability insurers.”

The decision this week marks the second time the high court has rejected the legislature’s attempt to restrict noneconomic damages in medical liability cases. The high court struck down the previous cap in 1997.

“Patients and physicians should not have to worry about revisiting the crisis that occurred in Illinois after the court overruled the state’s previous cap on noneconomic damages in 1997,” Rohack said.

“Without a cap on noneconomic damages from 1997 to 2005, Chicago physicians saw their liability premiums increase an average of 10 to 12 percent each year. When the cap was reinstated in 2005, premiums for Chicago physicians stabilized and even began to shrink,” according to Rohack.

The case at issue was initially brought by plaintiffs Abigaile Lebron, a minor, and her mother, Frances Lebron, who sued Gottlieb Memorial Hospital, a physician, and a nurse for medical malpractice.

Plaintiffs sought a judicial determination and declaration that the statutory caps ($500,000 for actions against physicians and $1 million for actions against hospitals) were unconstitutional.

Relying on the Illinois Supreme Court’s opinion in Best v. Taylor Machine Works, 179 Ill.2d 367 (1997), the circuit court found the cap unconstitutional, holding it “operates as a legislative remittitur in violation of the separation of powers clause.”

After reviewing its decision in Best, the high court agreed that the statutory caps were facially invalid.

While acknowledging that the statute at issue in Best was much broader than the one at issue in the current litigation, the high court nonetheless found “the encroachment upon the inherent power of the judiciary the same.”

Lebron v. Gottlieb Mem’l Hosp., Nos. 10575-41, 105745 (Ill. Feb. 4, 2010).

Four-and-a-half years after Congress enacted the Patient Safety and Quality Improvement Act of 2005, the effectiveness of the law in encouraging voluntary reporting of medical errors and developing strategies to improve patient safety is uncertain as efforts to implement the statute are still ongoing, the Government Accountability Office (GAO) noted in a report issued January 29.

The Act required GAO to submit a report on the law’s effectiveness by February 1, 2010. But GAO reported that it was unable to do such an evaluation at this time because the Agency for Healthcare Research and Quality (AHRQ), within the Department of Health and Human Services, is still in the “early stages” of listing new Patient Safety Organizations (PSOs) and developing plans for implementing a network of patient safety databases (NPSD) to collect and aggregate data.

HHS issued final regulations implementing the Act in January of last year. The final rule, which was effective January 19, 2009, details the framework for confidential error reporting and specifies the requirements and procedures for entities to become PSOs. 

According to GAO, AHRQ has made progress listing 65 PSOs, whose job is to collect, aggregate, and analyze patient safety data to identify ways to prevent medical errors, since July 2009. But, at the time of GAO’s review, few of the 17 PSOs randomly selected for interviews had entered into contracts to work with providers or had begun to receive patient safety data.

With respect to the NPSD, which is supposed to collect and aggregate non-identifiable data regarding patient safety events voluntarily submitted by PSOs and providers to help identify underlying patterns and trends, AHRQ officials said they expect the database to be operational for hospitals by February 2011, although they did not provide a timeframe for other providers, GAO said.

In addition, GAO noted, even after AHRQ completes its implementation, accomplishing the Act’s goals remains uncertain because ultimately its success also hinges on whether providers in fact decide to work with the PSOs and report patient safety data to them and the NPSD.   

“Whether the process results in specific recommendations for improving patient safety will depend on the volume and quality of the data submitted and on the quality of the analyses conducted by both the PSOs and by AHRQ,” GAO observed.  

“Finally, if these recommendations are to lead to patient safety improvements, providers must recognize their value and take actions to implement them,” the report concluded. 

Read the report, Patient Safety Act: HHS Is in the Process of Implementing the Act, So Its Effectiveness Cannot Yet Be Evaluated (GAO-10-281).

A recent study published by the Kaiser Family Foundation found a wide variation in cost-sharing and benefits across Medicare Advantage (MA) plans, which underscores the importance for beneficiaries to look carefully at premiums, benefits, and cost-sharing requirements when choosing between traditional Medicare and MA plans, or among MA plans, the study concluded.

According to Kaiser, more than 10 million people, or one in four individuals on Medicare, are enrolled in an MA plan. The study looked at 2,864 MA plans in 2010, 79% of which are Medicare Advantage Prescription Drug (MA-PD) plans.

The study found that 47% of all MA plans have a limit on out-of-pocket spending of $3,400 or less in 2010, 32% have a limit that exceeds the $3,400 threshold, and 21% have no limit.

The Centers for Medicare and Medicaid Services (CMS) has encouraged all plans to limit enrollees’ out-of-pocket spending for Medicare-covered services to $3,400 during the 2010 calendar year, the report noted.

Cost-sharing for inpatient hospital care under MA plans not only differs from the requirements of traditional Medicare, but varies widely across plans, the report found.

According to the report, 81% of plans impose copayments, 2% impose coinsurance, 11% use both, and 6% of all MA plans have no cost-sharing requirements.

“Because Medicare Advantage plans can reconfigure the design of Medicare cost-sharing, some beneficiaries, particularly those with significant medical problems could face higher out-of-pocket costs in some Medicare Advantage plans than in traditional Medicare," the study’s authors wrote.

Looking at trends since 2008, the report observed that the share of plans with limits on out-of-pocket spending has increased, while cost-sharing for primary care and specialist office visits has remained virtually unchanged.

“On the other hand, average cost-sharing for certain services (inpatient hospital stays and skilled nursing facility stays) has increased since 2008 (36 percent and 18 percent, respectively), appearing to shift greater costs to the subset of beneficiaries with the greatest medical needs,” the study concluded.

Read the report.

With current healthcare reform legislation stalled in Congress, freshman Representatives Tom Perriello (D-VA) and Betsy Markey (D-CO) announced they are introducing a stand-alone bill to repeal the antitrust exemption for health and medical malpractice insurance companies.

“This measure would end special treatment for the insurance industry that allows them to fix prices, collude with each other, and set their own markets without fear of being investigated,” according to the lawmakers’ press release.

“It’s time for a simple, clean bill—no carve-outs or special deals—that forces insurance companies to compete. It’s time to put patients and cost relief first,” said Perriello.

Markey said support for removing the exemption has bipartisan support and “is a major piece of common ground that I’ve been working toward in our country’s health care debate.”

According to the lawmakers, in the last 14 years, 95% of the health insurance markets have become “highly concentrated,” with 400 mergers among healthcare insurers.

The House-passed reform bill contains a repeal provision. The House Judiciary Committee also approved in October 2009 a similar measure.

Read the lawmakers’ press release.

A New Hampshire law requiring a $110 million transfer in supposedly surplus funds from the New Hampshire Medical Malpractice Joint Underwriting Association (JUA) to the state’s general fund is unconstitutional, the New Hampshire Supreme Court ruled January 28.

The decision upholds a state trial court ruling in July 2009 that blocked an initial $65 million transfer from the JUA, which was scheduled for July 31, 2009. The lawsuit was brought by present and past policyholders of the JUA, a state-created, but privately funded association intended to ensure physicians have access to medical malpractice insurance.

The high court found the law substantially interfered with the current policyholders’ contracts with the JUA and was not reasonable and necessary to accomplish the legislature’s stated public purpose of promoting healthcare for underserved populations.

Thus, the high court held, the statute “constitutes a retrospective law that results in an impairment of contract in violation of the New Hampshire Constitution.”

New Hampshire Governor John Lynch called the ruling “very disappointing” and said the dissenting judges in the case “correctly highlight the majority’s misapplication of the law.”

In a statement issued after the trial court’s decision in June, Lynch said the JUA “was established—and given tax-free status as a state entity—in order to provide a service, not a windfall, to doctors.” 

State regulations require all insurers in the state to be members of the JUA. The JUA’s operating plan calls for an additional surcharge if the JUA lacks sufficient assets to cover claims. 

For example, in 1985 a 15% surcharge was assessed on all medical malpractice liability insurance policies issued in the state to cover a $45 million deficit. The JUA reserves at issue are funded by policy premiums and the interest earned on them.

The JUA also provides for distributions of dividends of surplus funds, or reductions of future assessments, as approved by the JUA’s seven-member board. 

On June 24, 2009, the legislature passed an Act finding “the purpose of promoting access to needed health care would be better served through a transfer of excess surplus [in the JUA] to the general fund.” The Act called for transferring the funds over three years starting in July 2009.

The policyholders sought court intervention, arguing the proposed transfer was unconstitutional. 

The New Hampshire Belknap Superior Court agreed, finding the Act constituted a taking of property belonging to the JUA, its members, and policyholders and an impairment of their contract obligations in violation of the New Hampshire and U.S. Constitutions.

On appeal, the New Hampshire Supreme Court held the Act was unenforceable because it constituted a retrospective law that resulted in impairment of contract rights in violation of the state constitution.

According to the high court, current policyholders had a clear contractual relationship with the JUA and the proposed transfer would amount to a “substantial impairment” of those contracts.

The high court noted the contracts at issue are both “assessable and participating” in that policyholders must pay premium assessments in the event an underwriting deficit exists and, conversely, are entitled to participate in the earnings of the JUA.

The high court acknowledged the policyholders’ participation in JUA earnings is qualified “to such extent and upon such conditions as shall be determined by the board of directors of the [JUA] in accordance with law and as made applicable to this policy.”

But the high court said the applicable regulations at the time the JUA was formed gave the board only two options in handling surpluses—using them to reduce future assessments or distributing them to healthcare providers.

Thus, the high court found the current policyholders had a vested right in the use of the surplus funds to their benefit, either in the form of a reinvestment for application against future assessments or in the receipt of a dividend.

The high court rejected the state’s argument that the policies did not create vested rights because they were subject to “applicable law,” which could be changed. The JUA policies and applicable regulations made no reference to any governmental reservation of power to alter or amend the obligations or rights established by the plan.

Next, the high court concluded the Act substantially impaired the policyholders’ contract rights because it effectively eliminated the “participating” character of the policies and divested the board of its obligation to treat any excess surplus for the policyholders’ benefit, including protecting against insolvency.

Finally, the high court said while the Act’s purpose to use the funds to support programs that promote access to needed healthcare for underserved persons was a legitimate public interest, it “is not appropriately tailored to serve that purpose.”

Specifically, the high court noted questions as to whether all of the $110 million was in fact “excess surplus”; that the Act was intended to address any emergency or that funds would be reimbursed to the JUA at a later time; and that other avenues of funding were exhausted or considered.

A dissenting opinion argued that under new Hampshire law, a beneficial right is not a vested right entitled to constitutional protection. In addition, even assuming the Act impaired the policyholders’ insurance contracts, “we believe that any impairment was insubstantial as a matter of law,” the dissent said.

By Sarah Giesting and Wendy Goldstein, Epstein Becker & Green PC 

On January 19, 2010, New York Governor David Paterson introduced Senate Bill 6608[1] as part of the 2010 – 2011 New York State Executive Budget. Included in Senate Bill 6608 is a provision to add Section 279, “Interactions Between Pharmaceutical Companies and Health Care Professionals,” to the Public Health Law (Section 279). Similar bills are pending in the New York Senate and General Assembly.[2]  

If enacted, Section 279, like other current state marketing laws[3] and industry codes,[4] provides a code of conduct applicable to “all companies that sell or market prescription drugs, biologics or medical devices in the state” (Pharmaceutical Company).[5] Notably, Section 279 would be the first state law also to provide a code of conduct applicable to healthcare professionals (HCPs) practicing in the state to whom such drugs, biologics, or medical devices are sold or marketed. 

Significantly, Section 279 includes provisions that differ from other current state marketing laws and industry codes, such as provisions related to continuing medical education (CME). Unlike voluntary[6] industry codes, compliance with Section 279 will be mandatory. Violations may subject Pharmaceutical Companies to civil penalties and HCPs to civil penalties and other disciplinary action.[7] 

This article provides an overview of Section 279 and discusses some key considerations for Pharmaceutical Companies and HCPs to monitor as this bill progresses through the state legislative process. 

Overview of Section 279 

Key Definitions

“Health care professional” is defined in Section 279 broadly to include persons licensed, registered, or certified by the state and authorized to prescribe drugs or medical devices, including physicians, dentists, physician assistants, specialist's assistants, nurse practitioners, midwives, and optometrists. 

“Pharmaceutical Company” is defined in Section 279 to include entities that engage in the “production, preparation, propagation, compounding, conversion, or processing of prescription drugs, biologics, or medical devices, either directly or indirectly . . .” It also is defined to include entities that package, repackage, label, relabel, and distribute drugs, as well as persons who engage in marketing to HCPs on behalf of a Pharmaceutical Company.  

Penalties

A Pharmaceutical Company that violates Section 279 is subject to a civil penalty of $15,000 to $250,000 per violation. For HCPs, violation of Section 279 will constitute “professional misconduct.”[8] HCPs will be subject to a civil penalty of $5,000 to $10,000 per violation and other penalties, including censure and reprimand and suspension of license.[9] 

Code of Conduct Provisions  

Independence

Section 279 prohibits a Pharmaceutical Company from offering, and HCPs from accepting, any financial support as a reward for prescribing or to induce a HCP to prescribe or continue to prescribe a Pharmaceutical Company’s product. A Pharmaceutical Company also may not offer, and HCPs may not accept, a good or service that interferes with the HCP’s independence and any payment, directly or indirectly, except as compensation for bona fide services. 

Promotional Materials

A Pharmaceutical Company may not provide any promotional materials to HCPs that are inaccurate or misleading, make unsubstantiated claims, fail to provide a fair balance between the benefits and risks, fail to satisfy all U.S. Food and Drug Administration (FDA) requirements, or that violate the state consumer protection law.[10] 

Meals

Occasional, modest meals may be provided by a Pharmaceutical Company to HCPs and staff if the meals are provided in a manner and in a location conducive to a “structured, oral informational presentation” that provides scientific or educational value. If the meal is provided by a Pharmaceutical Company’s field representative or his/her manager, the meal must be provided in the HCP’s office or hospital setting, except meals provided in connection with a bona fide consulting or speaking agreement. 

Entertainment and Recreation

Section 279 prohibits a Pharmaceutical Company from offering or providing, and HCPs from accepting, entertainment or recreational items, including sporting event tickets and leisure trips.  

Continuing Medical Education

Section 279 prohibits a Pharmaceutical Company from being a CME provider in the state. Further, Section 279 requires a Pharmaceutical Company that sponsors a CME program in the state to adopt policies and to be in compliance with such policies. Specifically, the CME policies must include the following: (1) CME grant-making functions separate from sales and marketing; (2) objective criteria for CME grant decisions; and (3) the requirement to respect the CME provider’s independent judgment and follow all standards for commercial support established by the Accreditation Council for Continuing Medical Education (ACCME)[11] or an equivalent national accreditation body. 

Section 279 also prohibits a Pharmaceutical Company from providing to a CME provider any advice or guidance related to program faculty or content, even if requested by the CME provider. A Pharmaceutical Company may provide certain information to a HCP presenter if the criteria for Promotional Materials, discussed above, is met.  

Significantly, Pharmaceutical Company support may not be offered or provided to compensate a HCP for attending or presenting at a CME event or as reimbursement for travel, lodging, and other personal expenses. A HCP may not accept such support. Additionally, a Pharmaceutical Company may not provide meals directly at a CME event. A CME provider may, at its own discretion, use support from a Pharmaceutical Company to reduce overall expenses for all attendees or provide meals for all participants.  

A HCP may not attend or present at a CME event in New York that is sponsored by a Pharmaceutical Company unless the CME provider advises the HCP that the Pharmaceutical Company sponsor has provided assurances that it has the required policies in place and is in compliance with such policies. A HCP presenter must make a “reasonable inquiry” into all materials presented or made available by the HCP at a CME event in New York regarding compliance with the requirements set forth above for Promotional Materials. A HCP presenter may not represent that he/she authored any materials discussed, distributed, or presented by the HCP unless he/she made “substantial contributions to the intellectual content” of the materials. 

In addition, a HCP is obligated to disclose the existence and nature of any financial support that the HCP received or expects to receive from a Pharmaceutical Company that sponsors the CME event or a Pharmaceutical Company that manufacturers, distributes, or markets any drug, biologic, or medical device discussed in the presentation or commonly prescribed for a disease, injury, or condition discussed in the presentation. 

Professional Conferences and Meetings

Significantly, Section 279 also prohibits a Pharmaceutical Company from offering or providing support to compensate a HCP for attending or participating in a professional conference or meeting or as reimbursement for travel, lodging, and other personal expenses. A conference or meeting planner may, at its own discretion, use support from a Pharmaceutical Company to reduce the overall registration fee for all attendees. 

Except for company-sponsored meetings, a Pharmaceutical Company may not provide support for a professional conference or meeting in which the Pharmaceutical Company has responsibility for or control over the selection of content, faculty, educational methods, materials, or venue.  

Consulting and Speaking Agreements

A Pharmaceutical Company may enter into a bona fide consulting agreement[12] with a HCP if the compensation is reasonable and based on fair market value. Reasonable travel, lodging, and meal expenses incurred in connection with the consulting services also may be reimbursed.  

Similarly, a Pharmaceutical Company may enter into a speaking agreement with a HCP if the requirements for a bona fide consulting agreement are satisfied and if the compensation paid to the speaker is reasonable and based on fair market value. The HCP must possess general medical expertise, reputation, knowledge, and experience regarding a particular therapeutic area and communication skills reasonably expected from a speaker in the relevant field.  

Section 279 requires each Pharmaceutical Company to set a cap for the total amount of annual compensation that it will pay to a HCP in connection with all speaking agreements. Each Pharmaceutical Company must periodically monitor speaker programs for compliance with FDA requirements and provide to HCPs “extensive training on the company’s drug products or other specific topic to be presented and on compliance with [FDA] regulatory requirements for communications.” Speaker training must be held in a venue conducive to the training and a Pharmaceutical Company must reasonably believe that the training will result in the HCP providing a valuable service to the company.  

Promotional Speaker Programs

A Pharmaceutical Company may provide modest meals at a speaker program if the meal is offered to all attendees and the venue is conducive to an information presentation. Each speaker and his/her materials must clearly identify the company sponsoring the speaker program and the fact that the speaker is presenting on behalf of the company. The speaker also must present information consistent with FDA requirements. 

Members of Formulary or Clinical Guidelines Committees

A Pharmaceutical Company that retains a HCP as a speaker or consultant that also serves as a member of a committee that sets formularies or develops clinical guidelines must require the HCP to disclose to the committee the existence and nature of his/her relationship with the company for the term of the relationship and at least two years after the termination of such relationship. Applicable HCPs must make appropriate disclosures to the committee and follow all relevant procedures set by the committee. 

Scholarships and Other Financial Support

Section 279 permits a Pharmaceutical Company to provide scholarships or other financial support for medical students, residents, fellows, and other HCPs in training to attend major educational, scientific, or policy-making meetings or conferences held by national, regional, or specialty medical associations if the recipient is chosen by the academic or training institution. 

Prescriber Data

A Pharmaceutical Company that obtains prescriber data from HCPs must comply with all applicable laws and regulations to maintain the confidential nature of the data. The Pharmaceutical Company must develop written policies regarding the use of the prescriber data and train its employees on such policies. Further, the Pharmaceutical Company must designate an internal person to handle inquiries regarding the data and identify appropriate disciplinary action for misuse of the data. If a HCP requests that his/her prescriber data not be available for sales and marketing purposes, the Pharmaceutical Company must abide by the request.  

Gifts and Educational Items

Section 279 prohibits a Pharmaceutical Company from offering or providing to a HCP and staff any item or service intended for personal benefit, cash or cash equivalents (except as compensation for bona fide services), and any other tangible item except certain permissible educational items. For example, this includes items of de minimis value, such as pens and mugs.  

A Pharmaceutical Company may provide to a HCP, on an occasional basis, items designed primarily for the education or benefit of patients or HCPs if the items are not of “substantial value” and do not have value to the HCP outside of his/her professional responsibilities. “Substantial value” is defined in Section 279 as “the value of an item or service which reasonably appears to an objective person to be one hundred dollars or more.” 

Representative Training

Pharmaceutical Company representatives that visit HCPs must be trained on applicable laws and regulations, general science, and product-specific information “sufficient to allow the representatives to provide accurate, up-to-date information, consistent with” FDA requirements. A Pharmaceutical Company must assess periodically its representatives to ensure compliance with applicable laws, regulations, and company policies and to take appropriate action if a representative fails to do so. 

Key Considerations

Section 279 must progress through the legislative process and may change as a result. Some key considerations for individuals and entities that may be impacted by Section 279 are listed below.  

• Historically, HCPs have not been subject directly through state marketing laws to obligations associated with their interactions with Pharmaceutical Companies. Recently, however, many institutions and academic medical centers have adopted policies related to these interactions. HCPs must ensure their own compliance with obligations directly applicable to HCPs. Institutions and academic medical centers also should ensure that all HCPs are knowledgeable regarding applicable institutional policies and, if enacted, Section 279 requirements.  
• The definition of "Pharmaceutical Company" in Section 279 appears to recognize that Pharmaceutical Company employees other than field sales employees may engage in “pharmaceutical detailing,” promotion, or marketing activities. 
• As drafted, Section 279 appears to prohibit support from pharmaceutical companies to be used to compensate HCP faculty or reimburse HCPs for expenses incurred in connection with serving as faculty for a CME event or professional meeting or conference. Pharmaceutical Companies, CME providers, meeting planners, and HCPs should be aware of this restriction as it is more restrictive than current industry practices. 
• Section 279 imposes several compliance obligations on CME providers including, by way of example, obtaining assurances from a Pharmaceutical Company sponsor that it has the required policies and is in compliance with those policies. CME providers should carefully evaluate their obligations under Section 279.  

Sarah K. Giesting is an Associate in the Health Care and Life Sciences Practice in the firm's New York office. Ms. Giesting's practice focuses on compliance and regulatory issues within the pharmaceutical, medical device, and biotechnology industries. Ms. Giesting frequently writes and speaks on topics impacting pharmaceutical, medical device, and biotechnology companies. Prior to joining EpsteinBeckerGreen, Ms. Giesting was a Compliance Specialist, Senior Consultant at a New York-based consulting firm, where she offered compliance guidance to pharmaceutical, medical device, and biotechnology companies. Her experiences include serving as a member of the Independent Review Organization (IRO) for a major pharmaceutical company.

Wendy C. Goldstein is a Member of the Firm in the Health Care and Life Sciences Practice in the firm’s New York office and chairs the Pharmaceutical Industry Health Regulatory Practice Group. Ms. Goldstein concentrates in healthcare fraud and abuse and government healthcare program matters relevant to manufacturers and to managed care payors. Ms. Goldstein speaks and writes extensively on issues relating to fraud and abuse, government program pricing, corporate compliance, government enforcement activity relevant to the pharmaceutical and managed care industries, and healthcare reform. She is a contributing author to the ABA Health Law Section Pharmaceutical Law treatise. Ms. Goldstein has served as an adjunct professor of healthcare fraud and abuse at Pace University School of Law.

President Obama unveiled February 1 the administration’s fiscal year (FY)2011 budget request, which includes $81 billion in discretionary budget authority for the Department of Health and Human Services (HHS), a $2.3 billion increase over FY 2010.

The budget blueprint seeks funding increases for, among other things, the Food and Drug Administration (FDA), the National Institutes of Health (NIH), the Centers for Medicare and Medicaid Services (CMS), health information technology, and efforts to reduce fraud, waste, and abuse in federal healthcare programs.

“Under this budget, we will provide the health and human services that Americans depend on more effectively, slashing waste and focusing programs on results. And we’ll make many of the necessary investments our country has been putting off for years, including investments in fighting health care fraud, strengthening our public health infrastructure, and getting serious about health and wellness,” HHS Secretary Kathleen Sebelius said in a statement.

According to Sebelius, the “budget helps build the foundation for health insurance reform,” $286 million for comparative effectiveness research; $2.5 billion for health centers to provide care to underserved populations; and new Medicare demonstrations to test ways for improving quality, reducing costs, and better aligning provider payments with performance.

Senate Finance Committee Chairman Max Baucus (D-MT) said long term deficit projections only underscore the need to enact comprehensive healthcare reform legislation and emphasized that rising healthcare costs are dragging down the overall economy.

“I am pleased to see that health reform is assumed to be part of the President’s FY 2011 budget. Health reform helps fulfill the promise to get our economy back on track and makes critical investments in our health care system,” Baucus said in a February 1 statement. “Health reform is a critical component in our effort to combat a decade of ballooning federal deficits that will cut our debt by as much as $150 billion in the ten years following enactment and hundreds of billions more in the decade that follows.” 

But Senate Budget Committee Ranking Member Judd Gregg (R-NH) said the budget proposal’s “placeholder” for healthcare reform legislation fails to take into account how Medicare and Medicaid spending would change if the bill is enacted.

“The President has sent us more of the same—a budget that claims to be fiscally responsible, but just below the surface contains more spending, more borrowing and more taxes,” Gregg said in a statement.

The budget request covers the period of October 1, 2010 through September 30, 2011.

Medicare

The President’s budget does not call for further reductions in Medicare spending beyond those contemplated under pending healthcare reform legislation.

The budget does factor in $371 billion over ten years for fixing the Medicare physician payment formula “[t]o promote more honest and transparent budgeting.”

According to budget documents, “this adjustment does not signal a specific Administration policy.”

Physicians are facing a 21% cut in payment rates if Congress fails to act by March 1, when a temporary measure that blocked the reduction from taking effect at the beginning of the year expires.

Medicaid

The President’s budget proposes to extend by an additional six months, to June 2011, the temporary increase in the Federal Medical Assistance Percentage originally called for under the American Recovery and Reinvestment Act (ARRA).

The budget sets the cost of the extension at $25.5 billion.

Efforts to Reduce Fraud, Waste, and Abuse

The President’s budget seeks a $250 million increase in discretionary resources, for a total of $561 million, to strengthen Medicare and Medicaid program integrity efforts for fighting fraud, increasing Medicaid audits, and improving oversight.

According to administration estimates, the additional investment in antifraud and abuse measures will save $9.9 billion over 10 years.

Sebelius said the budget also includes new program integrity proposals that will save an additional $14.7 billion over the next decade by ramping up scrutiny of provider enrollment, increasing claims oversight, improving data analysis, and reducing overutilization of Medicaid prescription drugs.

Health Information Technology

The budget proposal includes $78 million, an increase of $17 million, for the Office of the National Coordinator for Health Information Technology to help spur the adoption of electronic health records.

Budget documents noted that in FY 2011, health information technology incentive programs for Medicare and Medicaid providers will begin. ARRA includes an estimated $20.6 billion over 10 years mandated for providers that are “meaningful users” of electronic health records.

Centers for Medicare and Medicaid Services

The President’s budget allocates $3.6 billion, an increase of $186 million, to CMS, including $110 million for a new, comprehensive Health Care Data Improvement Initiative for cutting-edge data analysis and information sharing.

HHS said the initiative will help CMS be a leader in value-based purchasing, improving systems security, and increasing analytical capabilities.

According to administration documents, the budget also includes an increase of $28 million to support increased CMS staffing levels to handle expanding workloads.

Food and Drug Administration

The blueprint includes a 23% increase, or $748 million, in the FDA’s budget over FY 2010 levels. Specifically, the budget allocates $4.03 billion to the FDA, of which $1.4 billion is designated for medical product safety, a $101 million bump over FY 2010.

The increase includes $40 million to the generic drugs program, at least $10 million for post-market drug safety surveillance, and $4 million to establish a device registry.

The FDA’s budget increase stems from both new appropriations ($146 million) and additional industry user fees ($601 million), including a new generic drug user fee ($38 million) and a reinspection user fee that requires manufacturers to pay the full costs of reinspections that arise when they fail to meet federal health and safety standards.

The budget contemplates an additional $311 million in existing user fees.

Other Provisions

• An increase of $1 billion to $32.2 billion for NIH.
• An increase of $33 million to $995 million to address the shortage of healthcare providers in underserved areas.
• An additional $261 million for comparative effectiveness research at the Agency for Healthcare Research and Quality.

View more information on HHS’ budget.

President Obama again urged lawmakers to “finish the job on health care” during remarks February 3 at the Senate Democratic Policy Committee Issues Conference, although he did not outline a specific approach for accomplishing this aim. 

“All that’s changed in the last two weeks is that our party has gone from having the largest Senate majority in a generation to the second largest Senate majority in a generation. . . . We still have to lead,” Obama said. 

Healthcare reform legislation has stalled since the election in Massachusetts of Scott Brown (R) to fill the Senate seat of the late Edward Kennedy (D). Brown’s election means Senate Democrats no longer have a 60-vote filibuster-proof majority. 

While Democratic leaders have had ongoing discussions about how to move ahead with comprehensive healthcare reform, no clear path to doing so has emerged.  

Among the options under consideration are using the reconciliation process, which would allow passage in the Senate by 51 votes but would entail a number of other obstacles, or taking a more piecemeal approach and enacting portions of the legislation with more popular support. 

A sign of some movement toward the latter approach came with the announcement that freshman Representatives Tom Perriello (D-VA) and Betsy Markey (D-CO) are introducing legislation to repeal the antitrust exemption for health and medical malpractice insurance companies. Such a provision was included in the House-passed healthcare reform bill, H.R. 3962. See related item in this issue.

Obama told the Senators that “if anybody is searching for a lesson from Massachusetts . . . the answer is not to do nothing.”  

One day earlier at a town hall meeting in New Hampshire, Obama emphasized that healthcare reform is key to shoring up the nation’s long term fiscal health.  

Obama noted that many of the reforms proposed in the bill would be difficult to accomplish in isolation. “[T]he cost control aspects of it, the coverage aspects of it, and the insurance reform aspects of it all fit together,” Obama said. 

“Here’s the problem, though, is when you’ve got all those things fitting together it ends up being a big, complicated bill and it’s very easy to scare the daylights out of people. And that’s basically what happened during the course of this year’s debate. But here’s the good news: We’re essentially on the five-yard line . . . . We’re in the red zone. We’ve got to punch it through,” he added.

National health expenditures are projected to reach $2.5 trillion (5.7% growth) in 2009, according to a report prepared by the Centers for Medicare and Medicaid Services (CMS) Office of the Actuary and published online by the journal Health Affairs.

The projected acceleration in growth for 2009 was due in part to faster spending growth for the Medicaid program, CMS said in a fact sheet.

According to the report, the health share of Gross Domestic Product (GDP) is expected to have increased from 16.2% in 2008 to 17.3% in 2009, which would represent the largest one-year increase in history.

Largely because of the effects of the recession, GDP is anticipated to have declined 1.1% in 2009, the report said.

In 2010, according to the report, health expenditure growth is expected to decelerate to 3.9% while GDP is anticipated to rebound to 4.0% growth.

However, much of that slow down is attributed to a 21.3% reduction in Medicare physician payment rates called for under current law’s Sustainable Growth Rate (SGR) provisions, the fact sheet explained.

If the SGR is revised and physician payment rates are held at 2009 levels, total health spending is projected to grow 4.7%, the fact sheet said.

Looking down the road, the report predicted that by 2019, national health spending would reach $4.5 trillion and make up 19.3% of GDP.

In addition, as a result of more rapid growth in public spending, the public share of total healthcare spending is expected to rise from 47% in 2008, exceed 50% by 2012, and then reach 52% by 2019, the fact sheet said.

Medicare, Medicaid Spending

The report projected that Medicare spending would increase 8.1% in 2009, down from 8.6% in 2008, partly due to slower growth in hospital spending.

Medicaid spending, however, is projected to have increased 9.9% in 2009, up from 4.7% in 2008, due largely to rapidly increasing Medicaid enrollment during the recession, the report said.

By 2012, Medicaid spending growth is projected to slow to 7.0% as the economy is expected to improve and as enrollment growth decelerates. Medicaid growth is then projected to average 7.5% per year for 2013–2019, the report said.

Health spending by public payors ($1.2 trillion) is projected to grow 8.7% in 2009 as opposed to spending by private payers ($1.3 trillion), which is only expected to grow 3.0%.

“A leading driver of the acceleration among public payers, up from 6.5 percent in 2008, is the expected growth in Medicaid enrollment (6.5 percent) and spending (9.9 percent) as a result of rising unemployment related to the recession,” the report said.

Factors Leading To Growth

The report explained that there are two primary drivers of growth in aggregate personal healthcare spending, medical prices and utilization.

Steady growth is projected in medical prices in 2009 at 3.2%. “Coupled with low economywide price inflation during the recession, this growth results in a spike in relative medical price inflation in 2009 to 1.9 percent (from 0.9 percent in 2008),” the report said.

Utilization, which includes both the volume and the intensity (or complexity) of services, is projected to have grown 1.5% in 2009, compared to 0.3% in 2008.

The expected increases were due in part to the use of services associated with treatments for the H1N1 virus, the report said.

Private Health Insurance Premiums

Growth in private health insurance premiums is projected to have increased slightly, from 3.1% in 2008 to 3.3% in 2009.

By 2015, premium growth is projected to reach 7.1%, the report said, attributing the more rapid rate of growth to an improving economy and increasing private health insurance enrollment beginning in 2012.

In addition, according to the report, out-of-pocket spending is projected to have grown 2.1% in 2009, down from 2.8% in 2008.

Prescription Drugs

Prescription drug spending is expected to have grown 5.2% in 2009, due mainly to an increase in the use of antiviral drugs related to the H1N1 virus and higher price growth for brand-name drugs, the report said.

In 2012 and 2013, accelerating drug spending growth is expected to exhibit a temporary pause as many top-selling brand-name drugs lose patent protection, the report noted.

“Because of the expected shift to the less expensive versions of these drugs when their patents expire, prescription drug price growth is expected to decelerate from 3.0 percent in 2011 to 1.9 percent in 2012,” the report predicted.

Lastly, the paper noted that should healthcare reform be enacted, another paper presenting projections based on the new law would be issued.

View the report.

• U.S. Attorney for the Southern District of Florida Jeffrey H. Sloman announced February 4 that Yasmanny Benavides, the former owner of two Miami-area durable medical equipment (DME) companies, was found guilty by a jury of defrauding the Medicare program out of millions of dollars. According to the evidence presented at trial, through one company Benavides caused, over a six-month period, the submission of nearly $4.9 million in false claims to Medicare for DME items and services that were never prescribed by physicians or provided as claimed. Then, in the following six months, Benavides and a co-conspirator caused the submission of false claims to Medicare in the amount of $14.5 million through a second DME company. Again, the claims were for DME items and services that were not prescribed by a physician or provided as claimed. Read Sloman’s press release.

• In another case involving the owner and operators of a Miami-area DME company, U.S. Attorney Sloman announced February 2 the conviction of Maria A. Aloise. According to evidence presented at trial, the DME company owned by Aloise, over a one-year period, submitted approximately $1.4 million in fraudulent claims to Medicare seeking reimbursement for various types of DME, including items such as oxygen concentrators, urinary leg bags, and equipment used to treat other chronic illnesses. The DME was not prescribed by a physician and/or was never provided as claimed. Evidence also showed that Aloise executed her fraud scheme by using forged prescriptions, certificates of medical necessity, and delivery receipts. Read Sloman’s press release.

• The U.S. Department of Justice (DOJ), along with the U.S. Attorney for the Eastern District of Michigan Barbara L. McQuade, announced February 4 that Dulce Briceño was sentenced to 63 months’ imprisonment for her role in a $2.3 million Medicare fraud scheme. Briceño pled guilty, admitting that in 2006 she agreed with the owners of a Detroit-area clinic to be the clinic’s manager in exchange for a percentage of the clinic’s profits. During the time that the clinic was open, Briceño admitted that the clinic routinely billed the Medicare program for services that were medically unnecessary or were never provided. In addition, Briceño admitted that she and her co-conspirators at the clinic had purchased only a small fraction of the drugs for which the clinic submitted claims to Medicare. Of the $2.3 million in false claims that the clinic submitted to Medicare, approximately $1.8 million was paid out to the clinic. The sentencing judge also ordered Briceño to pay that amount in restitution to the Medicare program.  Read DOJ’s press release.

• Atricure Inc. (Atricure), a medical device manufacturer, agreed to pay the federal government $3.76 million to resolve civil claims in connection with the alleged promotion of its surgical ablation devices, DOJ announced February 2 in conjunction with the U.S. Attorney for the Southern District of Texas Tim Johnson. In the case, which was initiated in Texas by a whistleblower, the federal government alleged that the Ohio-based company marketed its medical devices to treat atrial fibrillation, a use not approved by the U.S. Food and Drug Administration (FDA). In addition, Atricure allegedly promoted expensive heart surgery using the company’s devices when less invasive alternatives would have been more appropriate for the purpose of obtaining higher Medicare reimbursement, and allegedly paid kickbacks to healthcare providers to use its devices. Read DOJ’s press release. 

• Joanne Radulski, a resident of Fallston, Maryland, was charged for causing the submission of false claims to the state Medicaid program for psychotherapy services that she was not licensed to perform, announced Maryland Attorney General Douglas F. Gansler on January 25. The indictment charges Radulski with causing her employer, a mental health clinic, to bill Medicaid for services Radulski provided as a licensed clinical professional counselor (LCPC) over nearly a one-year period. However, Radulski never held such a license, and therefore these billings constitute false claims, the indictment alleges. Radulski faces a maximum sentence of five years’ imprisonment and a $100,000 fine if convicted. Read Gansler’s press release.

• Acting New Jersey Attorney General Paula T. Dow announced January 27 that Osvaldo Morales, Sr., the co-owner of a now-defunct mental health clinic in Trenton, NJ, pled guilty for his role in a conspiracy to fraudulently overbill the state Medicaid program by more than $160,000. Morales and co-conspirators admitted that, over nearly a two-year period, they billed Medicaid for longer counseling sessions that those that were actually provided, and for counseling services that were not provided by a psychiatrist. Co-defendants include two other co-owners of the clinic, who previously pled guilty, and the clinic’s medical director, whose case is still pending. Read Dow’s press release.

• Mark Darby, a resident of Bronx, NY, was sentenced to three years’ imprisonment on charges of billing the state Medicaid program for services that he never provided, announced Acting New Jersey Attorney General Paula T. Dow on January 27. Darby formerly worked as a behavioral services counselor for a clinic in New Jersey. According to plea documents, Darby admitted that, over a six-month period, he submitted false timesheets claiming over $4,000 in services to four Medicaid recipients, when, in fact he had not provided such services. The sentencing judge also ordered Darby to pay over $7,000 in fines and restitution, and barred him from participating in the Medicaid program for a five-year period. Read Dow’s press release.

The U.S. District Court for the Eastern District of Oklahoma dismissed recently a patient’s claims under the Emergency Medical Treatment and Labor Act (EMTALA), finding the patient failed to allege all the required elements under the statute.

According to the court, the patient's claims would be best addressed under state medical malpractice laws.

After being involved in a motor vehicle accident, Dawn Zinn, who was pregnant, was transported to Valley View Regional Hospital.

About two hours after her arrival in the emergency room, an emergency  C-section was performed and Zinn’s baby was delivered and pronounced dead.

Plaintiffs, Dawn and William Zinn, sued Valley View and several physicians under EMTALA, alleging defendants failed to provide “an appropriate medical screening” of Dawn and her unborn child to determine if an emergency medical condition existed. Plaintiffs also alleged defendants failed to stabilize Zinn’s medical condition and failed to transfer her to another healthcare facility.

The court turned first to plaintiffs’ claims that Zinn did not receive an appropriate medical screening at Valley View. In evaluating such a claim, the court explained, it must consider whether the hospital adhered to its own procedures and treated like patients in an equal manner.

However, the court noted that plaintiffs’ complaint “contains no allegations concerning Valley View’s emergency room screening procedures or a recitation of how Valley View supposedly violated those procedures with respect to their treatment and evaluation of Dawn Zinn.”

Absent such allegations, plaintiffs’ EMTALA inadequate screening claim must fail, the court held.

Even if the court drew an inference from plaintiffs’ stated allegations that a fetal monitor was not applied to Zinn within a reasonable amount of time, such claims “do not fall under the coverage of EMTALA.”

“Whether further screening could have been performed, or whether the requested fetal monitor should have been delivered to the emergency room and applied to Dawn Zinn, are issues to be addressed in the context of state malpractice law,” the court explained.

Moreover, the court found, even assuming there was an adequately pled medical screening claim, “the undisputed fact that Dawn Zinn was moved to the obstetrical department where an emergency cesarean section was performed, precludes recovery.”

Lastly, the court agreed with defendants that plaintiffs’ stabilization claims under EMTALA must be dismissed because no discharge or transfer occurred in this case

Zinn v. Valley View Hosp., No. CIV-09-425-FHS (E.D. Okla. Jan. 19, 2010).

The U.S. District Court for the District of Rhode Island granted January 21 a union’s motion for summary judgment confirming an arbitration decision in its favor.

In this case, the arbitrator’s interpretation of the collective bargaining agreement between the union and the hospital was entirely reasonable and thus must be upheld, the court found.

Rhode Island Hospital and United Nurses and Allied Professionals, Local 5098 (union) are parties to a collective bargaining agreement (CBA). After the hospital changed the eight-hour shift of incumbent employees to eight and one half hours with a thirty-minute unpaid meal period, the union filed a grievance alleging the hospital violated the CBA.

The dispute went to arbitration where the arbitrator determined that the hospital violated the CBA and thus ordered the hospital to modify the schedules of the aggrieved employees to comply with the CBA.

The hospital filed a motion to vacate the arbitration award and the union filed a motion to confirm it.

Article 2 of the CBA grants to the hospital the "right to manage the operations of the Hospital" and to determine the "number of shifts," the "hours of work," the "methods and schedules of all services" and "to determine what work should be performed as well as when, where, how and by whom . . . ."

Article 2 also provides that "[e]xcept as expressly limited by specific provisions of this [CBA], the Hospital retains all rights which pre-existed this [CBA]."

Article 14 Section 9 of the CBA states that during the term of the CBA it "may be necessary for the [Hospital] to permanently change the regular shifts . . . units or shifts and/or hours of shifts as they existed at the time" the CBA was executed.

However, the CBA also provides that employees "scheduled to work six to eight hours shall receive [only] one twenty-minute paid break" while employees "scheduled to work more than eight hours but less than ten hours" are entitled to an "unpaid meal period of one-half hour and a paid break of fifteen minutes."

According to the hospital, Article 2 and Article 14 Section 9 grant it the right to modify shifts and/or hours of shifts and confer upon the hospital the express right to determine an employee's hours of work. Thus, the hospital argued, the arbitrator ignored the plain language of the CBA.

The court found the arbitrator did not ignore the plain language of the CBA; instead, “the arbitrator interpreted the plain language of the CBA by identifying competing provisions within the CBA and interpreting the CBA in light of those competing provisions.”

“The arbitrator's interpretation of the CBA is certainly plausible given that the CBA provides that the Hospital's rights are ‘limited by specific provisions’ of the CBA,” the court found.

In this CBA, the parties mutually agreed that eight-hour shift employees would receive just the one twenty-minute paid break, the court noted.

Finally, the court found the hospital’s reliance on a prior arbitration award misplaced.

Rhode Island Hosp. v. United Nurses and Allied Professionals, Local 5098, No. 09-226-ML (D.R.I. Jan. 21, 2010).

The U.S. District Court for the District of South Carolina held January 29 that a state agency does not have an obligation under the Medicaid Act to provide specific services that an individual requests.

Instead, the court held, the statute requires only that Medicaid funding be approved with reasonable promptness.

The South Carolina Department of Health and Human Services is responsible for the administration and oversight of all Medicaid programs in South Carolina.

Plaintiff Sue Doe applied in July 2002 for a Mental Retardation/Related Disabilities (MR/RD) Medicaid waiver, which would enable her to receive services outside of the institutional setting.

A “plan of care” that included in-home services and residence with plaintiff’s mother was developed on March 17, 2003 for implementation on April 3, 2003. However, On May 27, 2003 and May 29, 2003, plaintiff made a demand for services in a CTH I or CTH II facility of her choice, based upon the declining mental health of her mother.

Residential habilitation services for plaintiff in a CTH I facility was subsequently approved, but plaintiff rejected the chosen provider because of reports of abuse and neglect of the residents.

In July 2003, plaintiff was placed in a CTH II home where she received respite, or temporary, services.

Plaintiff then sued asserting, among other things, that she had been denied her rights under the Medicaid Act, 42 U.S.C. § 1396a et seq. The court determined this claim was moot because she had been placed in a facility, and plaintiff appealed.

The Fourth Circuit then held that plaintiff could proceed under 42 U.S.C. § 1983 to address any failure by defendants to comply with the reasonable promptness provision in the Medicaid Act.

On remand, both parties moved for summary judgment.

The issue on remand, the court explained, is whether defendants violated Section 1396a of the Medicaid Act by providing plaintiff with temporary respite services instead of providing her, with reasonable promptness, the residential habilitation services approved in her 2003 plan of care.

Under the Medicaid Act, “[a] State plan for medical assistance must . . . provide that all individuals wishing to make application for medical assistance under the plan shall have opportunity to do so, and that such assistance shall be furnished with reasonable promptness to all eligible individuals,” the court explained. See 42 U.S.C. § 1396a(a)(8).

The court concluded that Section 1396a(a)(8) of the Medicaid Act “does not require Defendants to provide specific services that an individual requests” instead, defendants’ only obligation is to “pay for medical services promptly when presented with the bill.”

Plaintiff’s challenge to the state agency’s level of care and placement decisions “must be made through the administrative procedures available to her in state court,” the court noted.

Doe v. Kidd, No. 3:03-1918-MBS (D.S.C. Jan. 29, 2010)

The U.S. District Court for the Northern District of Texas denied January 28 a hospital’s motion to compel arbitration and granted the defendant insurance company’s motion to dismiss the hospital’s claims, finding no privity of contract between the two parties.

Plaintiffs Baylor University Medical Center, Baylor Heart and Vascular Hospital, and Baylor Medical Center at Garland entered into a Hospital Services Agreement contract (HSA) with nonparty Private Healthcare Systems (PHCS).

According to plaintiffs, defendant Nippon Life Insurance Company of America is a third-party administrator for managed healthcare plans operating under the HSA, evidenced by a signed Payor Acknowledgment indicating that PHCS would contract with certain preferred providers and containing an agreement by defendant to pay in accordance with PHCS’ agreements with those preferred providers.

Plaintiffs contended that they are owed money by defendant and demanded arbitration pursuant to the HSA.

Defendant declined plaintiffs’ request to arbitrate, on the grounds that it never agreed to arbitrate disputes with plaintiffs, and moved to dismiss the claims pursuant to Fed. R. Civ. P. 12(b)(6).

Defendant argued the clause contained in the HSA was inapplicable because defendant was not a party to that agreement.

Plaintiffs asserted defendant was bound by arbitration agreement because it agreed to be a party to the HSA upon its execution of the Payor Acknowledgment. According to plaintiffs, the defendant was contractually bound to the arbitration agreement because of the well-settled principle in Texas contract law that multiple instruments pertaining to the same transaction may be read together to ascertain the parties’ intent

However, the court found that under New York law, which governed the dispute, “reading multiple instruments together to ascertain the intent of the parties is something employed with greater restriction than in Texas.”

Because defendant established that its original agreement with PHCS was drafted specifically to remove privity of contract between defendant and PHCS Participating Providers, the court “will not read these instruments together to form a single, unified contract with respect to every term,” the opinion said.

Accordingly, the court agreed with defendant that it never agreed to arbitrate with plaintiffs and therefore they failed to state a claim under Rule 12(b)(6).

Plaintiffs next argued that even if defendant was not contractually bound to the arbitration agreement, the doctrine of equitable estoppel applied because defendant received the benefits of the HSA.

The court found this argument unpersuasive pointing to a provision of the HSA stating that it was an agreement entered into by only plaintiffs and PHCS, and that “no such third party shall have any right to enforce or enjoy any benefit created or established under this Agreement.”

“In light of this provision, the court cannot see how Defendant has enforced—let alone had a right to enforce—any benefit created by the HSA.” 

Finding any benefit derived by defendant came from its own agreement with PHCS and not from the HSA, the court held that “equitable estoppel does not apply and Defendant is not bound to the arbitration agreement contained in the HSA.”

The court also denied plaintiffs leave to amend their complaint, finding such amendment would be futile.

Baylor Univ. Med. Ctr. v. Nippon Life Ins. Co. of America, No. 3:09-CV-1496-L (N.D. Tex. Jan. 28, 2010).