April 17, 2009 Vol. VII Issue 15

The Centers for Medicare and Medicaid Services (CMS) announced April 13 the 14 sites that will participate in the agency’s Care Transitions Project, a pilot aimed at reducing unnecessary hospital readmissions. 

“By promoting seamless transitions from the hospital to home, skilled nursing care, or home health care, this community-wide approach seeks, not only to reduce hospital readmissions but to yield sustainable and replicable strategies that achieve high-value health care for Medicare beneficiaries,” CMS said in a press release.  

Each Care Transitions community will be led by a state Quality Improvement Organization (QIO), which will implement: hospital and community system-wide interventions; interventions that target specific diseases or conditions; and interventions that target specific reasons for admission. 

The 14 participating communities are: Providence, RI; Upper Capitol Region, NY; Western Pennsylvania; Southwestern New Jersey; Metro Atlanta East, GA; Miami, FL; Tuscaloosa, AL; Evansville, IN; Greater Lansing Area, MI; Omaha, NE; Baton Rouge, LA; North West Denver, CO; Harlingen, TX; and Whatcom County, WA. 

Read CMS’ press release.  

The Centers for Medicare and Medicaid Services (CMS) announced April 17 that it will not further delay the Medicare competitive bidding rule for durable medical equipment, prosthetics, orthotics and supplies (DMEPOS).

CMS issued an interim final rule with comment period on January 16, 2009 to incorporate into existing regulations specific statutory requirements contained in the Medicare Improvements for Patients and Providers Act of 2008 (MIPAA) related to the competitive bidding program.

CMS delayed the effective date for the interim final rule to allow more time to review the rule. Based on this review and on "the need to ensure that CMS is able to meet the statutory deadlines contained in MIPPA, the Administration has concluded that the effective date should not be further delayed." 

Thus, the rule is effective as of April 18. CMS said it plans to issue further guidelines on the timeline for bidding requirements in the upcoming weeks.  

Earlier in the week, the American Association for Homecare and 27 other DME providers sent a letter April 13 urging the withdrawal of the competitive bidding rule.  

The letter, addressed to Charles Johnson, Acting Secretary of the Department of Health and Human Services, Charlene Frizzera, Acting Administrator of the Centers for Medicare and Medicaid Services (CMS), and Nancy-Ann DeParle, Director of the new White House Office of Health Reform, warned that the rule if implemented “would reduce access to care and put thousands of DME providers out of business.” 

The letter argued that fundamental flaws remained in the program even after Round One of competitive bidding was delayed as part of MIPPA.

“[T]houghtful and deliberate rulemaking by CMS was clearly expected by Congress, given the overwhelming level of congressional and stakeholder concern during initial implementation,” the letter said; however, “[t]his process did not take place and the flaws in the bidding program remain.”  

According to the letter, the program would actually reduce competition and lower quality.

While proponents of the competitive bidding program argue that it will reduce Medicare spending, “the inevitable cutbacks in services will result in increased length and cost of hospital stays,” the letter said. 

“Home medical equipment and care is already the most cost-effective, slowest-growing portion of Medicare spending,” the letter argued. 

The American Association for Homecare’s 13-point antifraud plan would do more to stop waste, fraud, and abuse in Medicare’s DME sector than the competitive bidding program, the letter concluded.  

Read the letter.

The U.S. District Court for the District of New Jersey dismissed a surgical center’s claims under the Employee Retirement Income Security Act (ERISA), finding it failed to exhaust its administrative remedies before filing suit.  

The claims against a healthcare management company should first have been lodged at the administrative level, the court found, rejecting the plaintiff’s argument that such administrative review would be futile.  

Plaintiff Wayne Surgical Center provides ambulatory surgical care including out-of-network services to subscribers in a number of health insurance plans on a non-contractual basis.

Under the plans' terms, the health insurance carriers were obligated to reimburse Wayne for services rendered to the insured patients based on usual, customary, and reasonable charges.

Defendant Concentra Preferred Systems, Inc. provides healthcare management services, including the repricing of claims submitted to health insurance carriers by medical service providers.  

Wayne sued Concentra alleging that its repricing practice had systematically reduced payments to medical service providers using flawed and inaccurate computer software and data and asserting claims under ERISA Section 502(A). 

Concentra moved to dismiss arguing that Wayne failed to exhaust administrative remedies.  

Under ERISA, the court first noted, a plaintiff generally must exhaust administrative remedies before bringing suit unless it would be futile to do so.  

The court rejected Wayne’s futility argument in this case. The court highlighted that while Wayne pursued administrative remedies for some claims, it ignored the administrative process for other claims. 

Wayne also provided no evidence of a fixed policy of denying benefits or that Concentra failed to comply with their own internal procedures, the court noted.  

While acknowledging the appeal of resorting to the courts, the court disagreed with Wayne's assertion that “the administrative procedures upon which Concentra relies are wholly ineffective.” 

The court declined to follow a Sixth Circuit case finding that when “an ERISA beneficiary challenges a fiduciary’s systematic application of a biased methodology of benefits calculation to numerous claims, the futility exception will excuse the requirement to exhaust administrative remedies.” Fallick v. Nationwide Mut. Ins. Co., 162 F.3d 410 (1998). 

Instead, the court endorsed a case criticizing Fallick. See American Med. Ass'n v. United Healthcare Corp., No. 00-2800, 2007 WL 1771498 (S.D.N.Y. June 18, 2007). 

The court noted that Wayne had been successful up to 20% of the time in past administrative appeals to Concentra and thus could not establish futility of the process.  

Accordingly, the court granted Concentra summary judgment, but warned that it “expects Concentra to address the concerns raised by Wayne with fairness and alacrity—virtues that, thus far, it has questionably displayed.”

Wayne Surgical Ctr., LLC v. Concentra Preferred Sys., Inc., No. 06-928 (HAA) (D.N.J. Apr. 7, 2009).

The Food and Drug Administration (FDA) obtained a permanent injunction April 10 barring Neilgen Pharmaceuticals Inc., its parent company, Advent Pharmaceuticals, Inc., and two of their officers, Bharat Patel and Pragna Patel, from manufacturing and distributing any unapproved, adulterated, or misbranded drugs. 

The agency’s action comes after the companies ignored previous warnings and continued to manufacture drugs in violation of federal law, the FDA said.   

Both Neilgen, which does business as Unigen Pharmaceuticals Inc., and Amgen failed to respond to FDA inspections that found the companies were manufacturing unapproved new drugs and revealed numerous and recurring violations of current Good Manufacturing Practice (cGMP) requirements.

The companies are contract manufacturers and distributors of more than 25 different unapproved drug products each, primarily prescription cough and cold products, FDA said.  

The companies signed a consent decree entered by Chief Judge Benson E. Legg in a federal district court in Maryland that orders them to destroy their existing drug supply and prohibits them from commercially manufacturing and distributing any new drugs without FDA's approval, the agency said.  

The consent decree also requires the companies to retain outside experts who will advise them on appropriate compliance standards with cGMP requirements for drugs, and obtain written authorization from FDA to resume operations.  

In addition, under the agreement, FDA may order the defendants to cease operations or take other corrective action in the event of future violations and may assess liquidated damages of $1,000 for each violation.  

An additional $5,000 per day, up to $1 million per year, can be levied for each violation if the defendants fail to comply with any of the provisions of the consent decree, according to FDA.  

Read FDA’s press release.

A qui tam relator can plead fraud with sufficient particularity to satisfy the False Claims Act’s (FCA’s) presentment requirement without showing the specific contents of actually submitted claims, the Fifth Circuit held April 8. 

Accordingly, an FCA claim may survive by alleging particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted, the appeals court held.

Soon after Dr. James Grubbs was hired at Memorial Hermann Baptist Beaumont Hospital as a psychiatrist, two other physicians allegedly informed him of an ongoing billing scheme where the doctors would only respond during on-call hours as needed, but would bill for face-to-face visit that did not occur.

Grubbs reported the scheme to an administrator and then eventually filed suit as a qui tam relator against several individual physicians and the hospital alleging violations of the FCA. The United States did not intervene in the suit.  

Defendants filed multiple motions to dismiss for failure to meet the pleading requirements of FED. R. CIV. P. 9(b). The trial court granted the motions to dismiss and Grubbs appealed.  

Grubbs’ complaint first alleged violations of 31 U.S.C. § 3729(a)(1).

The appeals court noted that in United States ex rel. Clausen v. Laboratory Corp. of Am., Inc. 290 F.3d 1301 (11th Cir. 2002), the Eleventh Circuit held that to plead a presentment claim, the minimum indicia of reliability required to satisfy the particularity standard are the specific contents of actually submitted claims, such as billing numbers, dates, and amounts. 

While the First and Tenth Circuits have relied on Clausen, the Eleventh Circuit itself has moved away from Clausen’s most exacting language, the Fifth Circuit said, accepting less billing detail in a case where particular allegations of a scheme offered indicia of reliability that bills were presented.

In articulating its own flexible pleading standard for such cases, the appeals court held “that to plead with particularity the circumstances constituting fraud for a False Claims Act § 3729(a)(1) claim, a relator’s complaint, if it cannot allege the details of an actually submitted false claim, may nevertheless survive by alleging particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.”  

Here, the appeals court found Grubbs’ complaint satisfied Rule 9(b) on his Section 3729(a)(1) claim as to the individual doctors.

The complaint “describes in detail, including the date, place, and participants, the dinner meeting at which two doctors in his section attempted to bring him into the fold of their on-going fraudulent plot,” the appeals court explained.  

The appeals court noted the complaint also alleged specific dates that each doctor falsely claimed to have provided services to patients and often the type of medical service or its Current Procedural Terminology code that would have been used in the bill.

“That fraudulent bills were presented to the Government is the logical conclusion of the particular allegations in Grubbs’ complaint even though it does not include exact billing numbers or amounts,” the appeals court held. 

The appeals court found, however, that the complaint fails to plead allegations against the hospital with sufficient particularity “because there is no indication that the Hospital itself acted with the requisite intent.” 

Nonetheless, the appeals court granted Grubbs leave to amend his complaint against the hospital.  

The appeals court next turned to Grubbs’ claims under 31 U.S.C. § 3729(a)(2), which imposes civil liability on any person who “knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government.” 

Under this section, “the recording of a false record, when it is made with the requisite intent, is enough to satisfy the statute,” the appeals court said, finding Grubbs made such a showing here.  

The appeals court also held the lower court erred in dismissing Grubbs’ Section 3729(a)(3) conspiracy claims, finding “presentment of a false claim need not be proven nor pled to prevail on a False Claims Act conspiracy charge.” 

The appeals court further disagreed with the lower court on its ruling that the claim also lacked proof of agreement as to the two original doctors who explained the fraud scheme to Grubbs, but concurred with the lower court’s finding as to the lack of agreement among the other defendant doctors and the hospital.  

Thus, the appeals court reversed the lower court’s dismissal of the conspiracy claims against the two physicians who told Grubbs of the scheme.  

United States ex rel. Grubbs v. Kanneganti, No. 07-40963 (5th Cir. Apr. 8, 2009).

A lower court erred in dismissing an equitable subrogation case between a nursing home and a hospital for failure to comply with a statutory notice provision, the Florida District Court of Appeal held April 8.  

Because it was still possible for the nursing home to give the statutory notice prior to the case being barred by the statute of limitations, the lower court should have dismissed the case without prejudice and allowed the nursing home to cure the notice defect, the appeals court held.  

The issues underlying the suit arose when Villa Maria Nursing and Rehabilitation Center discharged Betty Sanders with a sacral wound. Sanders was admitted three times thereafter as a patient to a hospital operated by South Broward Hospital District. 

As a result of injuries arising from the wound, Sanders sued the nursing home. The nursing home settled with Sanders for $325,000 and then sued the hospital seeking equitable subrogation.  

According to the nursing home, Sanders’ compensable injuries were primarily caused by the hospital's negligence. The hospital moved for summary judgment and the circuit court granted the motion.  

The appeals court found no merit in the hospital’s argument that the statute of limitations for a medical malpractice action against the hospital had run.  

According to the appeals court, because this was an equitable subrogation action, the limitations period did not begin to run until the nursing home made payment to Sanders.

The appeals court also rejected the hospital’s contention that the nursing home failed to establish all of the required elements of equitable subrogation. 

The appeals court next turned to the hospital’s argument that the nursing home failed to comply with Fla. Stat. § 768.28(6)(a) by failing to present its claim in writing to the Department of Financial Services within three years after the claim arose. 

Compliance with the notice requirement of Section 768.28 was a condition precedent to the lawsuit against the hospital, the appeals court noted.

However, when the circuit court granted the hospital’s motion for summary judgment and entered a final judgment against the nursing home, the home was within the three-year period to file its Section 768.28(6)(a) notice and the four-year statute of limitations for filing its equitable subrogation action. 

Accordingly, the lower court should have dismissed the case without prejudice, as is the preferred remedy where the applicable statute of limitations has not run at the time of dismissal and it was still possible to give the statutory notice prior to the case being barred by the statute of limitations, the appeals court explained. 

Villa Maria Nursing and Rehab. Ctr., Inc. v. South Broward Hosp. Dist., No. 4D07-4433 (Fla. Dist. Ct. App. Apr. 8, 2009).

A hospital was entitled to qualified immunity under the Health Care Quality Improvement Act (HCQIA) even though it did not hold a formal hearing before suspending a physician's privileges because it provided “other procedures” that were “fair and reasonable . . . under the circumstances,” the Fourth Circuit held April 10.

Affirming a district court decision granting the hospital’s motion to dismiss the action, the Fourth Circuit said the hospital’s path to immunity was “not a recommended model," but the failures in its process, “when viewed in the totality of circumstances against a measuring stick of objective reasonableness,” did not rebut the presumption of immunity under the HCQIA.

The appeals court also affirmed the district court’s dismissal of the physician’s contract and civil rights claims, to which immunity under HCQIA did not apply, finding no contract existed between the parties and that the hospital did not become a state actor by reporting him to the National Practitioner Data Bank (NPDB).

The appeals court said the physician was not entitled to a injunction requiring the hospital to provide him a hearing and remove his name from the NPDB because he did not present a viable claim that the hospital committed a wrong.

Rakesh Wahi, M.D. is a licensed physician in West Virginia who specializes in cardiovascular, thoracic, and general surgical procedures. Wahi joined the staff of Charleston Area Medical Center (CAMC) where he started his own practice.

According to Wahi, around the time he began exploring associating himself with another practice, CAMC initiated steps to restrict his ability to practice medicine and compete with CAMC.

CAMC eventually suspended Wahi and made several reports about him to the NPDB pursuant to the HCQIA. The reports to the NPDB prompted an investigation and charges against Wahi by the West Virginia Board of Medicine (Board). The Board eventually dismissed the allegations without ruling on the merits.

Wahi sued CAMC and several other healthcare providers (defendants) alleging, among other things, antitrust conspiracy and antitrust monopolization under the Sherman Act, breach of contract, violation of his constitutional due process rights, invasion of privacy and disclosure of confidential information, and violation of his civil rights. Defendants moved to dismiss the complaint.

The U.S. District Court for the Southern District of West Virginia granted the motion and dismissed the complaint with prejudice.

Affirming, the Fourth Circuit rejected Wahi’s argument that CAMC was not entitled to HCQIA immunity because it failed to provide him notice and a hearing.

The appeals court noted nothing in the statute mandated a formal hearing, as Wahi argued, but rather offered two avenues for HCQIA immunity—“after adequate notice and hearing procedures” or “after such other procedures as are fair to the physician under the circumstances.” 42 U.S.C.A. § 11112(a).

Examining the totality of the circumstances in an objectively reasonable manner, the appeals court held Wahi failed to rebut the presumption that CAMC afforded him “other procedures as are fair to the physician under the circumstances.”

Specifically, the appeals court noted that CAMC had repeatedly asked Wahi to select dates for a hearing, which he refused to do unless the hospital met his preconditions.

“Had Wahi proceeded to a hearing, any complaint about the inadequacy of notice, defective witness list or discovery, the composition of the hearing panel, the conduct of the hearing or other relevant issues could have been addressed and subjected to judicial review,” the appeals court wrote.

Instead, Wahi “seemed more intent on forestalling a hearing than having one.”

The appeals court also affirmed the dismissal of Wahi’s remaining claims.

The appeals court agreed with the district court's conclusion that CAMC was not a state actor, rejecting Wahi’s contention that by reporting him to the NPDB, CAMC “essentially decredentialed” him, a power that is “reserved exclusively to state government.”

The HCQIA “does not confer to CAMC powers traditionally reserved to the state, and it does not turn CAMC’s actions into state actions for a § 1983 claim,” the appeals court said.

The appeals court also rejected his breach of contract claims, finding CAMC’s bylaws did not constitute a contract between CAMC and Wahi under West Virginia law. A hospital may be required to follow its bylaws as a due process component, but there is no contractual relationship unless the bylaws specifically so provide.

Wahi v. Charleston Area Med. Ctr., Inc., No. 06-2162 (4th Cir. Apr. 10, 2009).

* AHLA will host a session on so-called "disruptive physicians" at the Annual Meeting. Click here for more information.

The Federal Trade Commission (FTC) said April 14 that it did not plan at this time to raise an antitrust challenge to a clinical integration program proposed by physician-hospital organization (PHO) TriState Health Partners, Inc. (TriState).

FTC said it determined the clinical integration program, which would include joint contracting by its members with health plans and self-insured employers, had the potential to lower healthcare costs and improve quality of care.  

The Maryland-based PHO asked for the FTC advisory opinion on its proposal to integrate and coordinate the provision of medical care services to patients by its 200-plus physicians and Washington County Hospital.  

The April 13 staff opinion letter, signed by Assistant Director of the Health Care Division of the FTC’s Bureau of Competition Markus H. Meier, found the program, if implemented as proposed “would be a bona fide effort to create a legitimate joint venture among its physician and hospital participants that has the potential to achieve significant efficiencies in the provision of medical and other health care services that could benefit consumers.” 

The program, among other things, would subject physicians to a variety of performance standards, involve the extensive use of a web-based health information technology system, and be non-exclusive so purchasers and payors could contract directly with TriState’s individual participants if they wanted to.  

FTC said it would evaluate the price agreements and joint contracting in the program under the rule of reason, rather than as per se illegal price fixing, because the activities appeared to be “subordinate and reasonably related” to integration and achieving potential efficiencies. 

In addition, the program if operated as proposed “is unlikely to be able to attain, increase, or exercise market power for itself or its participants as a result of implementing the proposed program,” the FTC opinion said.  

FTC warned, however, that any evidence of exercise of market power or other anticompetitive activities by TriState would raise antitrust concerns and could result in the revocation of the opinion.  

Read the FTC advisory opinion.

*The FTC will be represented on Red Flag Rules, and Jeff Miles will present on Healthcare Antitrust at AHLA's Annual Meeting. Click here for more information.

The Federal Trade Commission (FTC) issued April 16 a notice seeking comments on a proposed rule requiring vendors of personal health records (PHRs) and related entities to notify consumers and the FTC when the security of their individually identifiable health information is breached. 

FTC issued the notice to comply with the economic stimulus bill, the American Recovery and Reinvestment Act of 2009 (ARRA), which was signed into law on February 17, 2009.  

Under ARRA, FTC must promulgate, within 180 days of enactment, interim regulations on breach of security notification requirements included in the statute for entities not subject to the Health Insurance Portability and Accountability Act (HIPAA).  

ARRA also requires the Department of Health and Human Services (HHS) and the FTC to study potential privacy, security, and breach notification requirements and submit a report to Congress by February 2010.  

Until Congress enacts legislation implementing any recommendations contained in the joint report, the ARRA contains temporary requirements to be enforced by the FTC that such entities notify customers in the event of a security breach. The proposed rule implements these requirements.   

In the FTC’s notice of proposed rulemaking, which is expected to be published soon in the Federal Register, the agency notes HHS, under the ARRA, also must promulgate interim final regulations related to breach notification requirements for HIPAA-covered entities and their business associates. 

“To the extent that FTC-regulated entities engage in activities as business associates of HIPAA-covered entities, such entities will be subject only to HHS’ rule requirements and not the FTC’s rule requirements,” the proposed rule says.  

According to FTC estimates, roughly 900 entities will be subject to the proposed rule’s breach notification requirements. 

The FTC’s breach notification rule, proposed 16 C.F.R. pt. 318, describes and clarifies ARRA requirements and indicates what triggers the notice requirement, and the timing, method, and content of the notice. among other things. 

Application and Scope 

The proposed rule applies the breach notification requirements to vendors of personal health records, PHR related entities, and third-party service providers (who must notify vendors or related entities of a breach so that they can, in turn, notify individual consumers and the FTC).  

FTC also notes that the proposed rule applies to entities outside its normal jurisdiction such as nonprofits that offer PHRs or related products and services, as well as nonprofit third-party service providers. 

FTC cites a number of examples of PHR related entities, including web-based applications that help consumers manage medications, websites offering online personalized health checklists, and companies advertising dietary supplements online. 

PHR related entities also include non-HIPAA covered entities “that access information in a personal health record or send information to a personal health record.” 

Under the proposed rule, third-party service providers, which was not defined by ARRA, include entities that provide billing or data storage services to vendors of PHRs or PHR related entities. 

Notice Requirement Triggers 

Tracking the statutory language, the proposed rule defines “breach of security” as the acquisition of unsecured PHR identifiable health information of an individual in a PHR without the individual’s authorization. 

In the proposed rule, FTC emphasizes that the key requirement triggering the notification requirement is whether the data has been acquired, not merely whether there was unauthorized access.  

For example, FTC says breach notification would not be required in a scenario where an employee inadvertently accessed a database, realized his or her mistake, and logged off without reading, using, or disclosing anything. 

“[T]he Commission believes that the entity that experienced the breach is in the best position to determine whether unauthorized acquisition has taken place,” the proposed rule says.  

Thus, the proposed rule would create a presumption that unauthorized persons have acquired information if they have access to it, which can be rebutted “with reliable evidence showing that the information was not or could not reasonably have been acquired.” 

With respect to what constitutes “PHR identifiable health information,” the proposed rule includes in the definition information relating to past, present, or future payment, which would include a database containing names and credit card information. 

The definition also includes information that an individual has an account with a PHR vendor or related entity regarding particular health conditions; for example, a customer list directed to AIDS patients or people with mental illnesses. 

De-identified information as defined under HIPAA rules would not be considered “PHR identifiable health information” and therefore would not trigger the breach notification requirement. 

Breach Detection 

The notification requirement is triggered where the PHR vendor or related entities “reasonably” should have known of the breach through security measures aimed at detecting breaches in a timely manner. 

“The Commission recognizes, that certain breaches may be very difficult to detect, and that an entity with strong breach detection measures may nevertheless fail to discover a breach. In such circumstances, the failure to discover the breach would not constitute a violation of the proposed rule,” FTC says.  

Timing 

In accordance with ARRA, the proposed rule requires breach notifications to individuals and the media “without unreasonable delay” and in no case later than 60 calendar days after discovery of the breach.  

The FTC emphasizes that the 60-day period serves as an “outer limit,” meaning in some cases it may constitute unreasonable delay to wait 60 days before providing notification.  

Under the proposed rule, vendors of PHR and related entities must provide notice to the FTC “as soon as possible” and in no case later than five business days if the breach involves the unsecured PHR identifiable health information of 500 or more individuals.  

Breaches involving less than 500 individuals may be accounted for in a breach log and submitted to the Commission on an annual basis from the date of the entity’s first breach.  

In the proposed rule, FTC says it plans to develop a form that entities can use to provide both the immediate and the annual required notice to the Commission.  

Comments are due June 1.

HHS Guidance

Meanwhile, the Department of Health and Human Services (HHS) issued guidance April 17 on "technologies and methodologies to secure health information and prevent harm by rendering health information unusable, unreadable, or indecipherable to unauthorized individuals."

ARRA required HHS to publish the guidance, which the agency said builds on existing HIPAA requirements. 

According to HHS, the guidance "provides steps entities can take to secure personal health information and establishes the trigger for when entities must notify that patient data has been compromised."

HHS said the guidance is related to the breach notification regulations it will publish for HIPAA-covered entities as required under ARRA.  

View the notice of proposed rulemaking.

View the HHS guidance.

By Shirley P. Morrigan and Nathaniel M. Lacktman, Foley & Lardner LLP*

In Mileikowsky v. West Hills Hospital & Medical Center, No. S-156986 (Cal. April 6, 2009), the California Supreme Court affirmed an appellate decision that a hearing officer may not terminate a medical staff peer review hearing based on the physician’s failure to produce documents even where discovery was mandated by statute and medical staff bylaws. Specifically, only the trier of fact (in California, either an arbitrator acceptable to both sides or a panel of physicians) may terminate a hearing. Although a hearing officer has the statutory authority to impose certain discovery safeguards, he lacks the authority to terminate the hearing, even if the physician refuses to cooperate and repeatedly fails to produce documents. To find otherwise, reasoned the supreme court, would instill the hearing officer with the power to singlehandedly uphold the adverse action against a physician, concluding the hearing process without a substantive adjudication on the merits of the charges.

This California case provides important national guidance for peer review bodies, hearing officers, and the medical staff peer review process in cases where a physician facing corrective action refuses to participate and/or intentionally delays the hearing process. Proponents of the ruling contend it further safeguards a physician’s right to have his peer review issues adjudicated on the merits by a qualified review panel. However, critics point out the ruling may weaken the integrity of the peer review process by stripping the hearing officer of tools designed to prevent delays, promote full disclosure of documents and information, and control obstructive behavior by physicians.

The primary implication of Mileikowsky is that medical staffs need to enforce their bylaws and legal requirements for discovery. In California, this enforcement must be conducted by the trier of fact (usually the hearing panel). Hearing officers should not unilaterally terminate a medical staff peer review hearing, either before it begins or during the hearing process.

Factual Background and Peer Review Ruling

In May 2001, Gil Mileikowsky, M.D., applied for medical staff membership and privileges at West Hills Hospital Medical Center (Hospital).[1] The Medical Staff recommended the Hospital’s Board deny Mileikowsky’s application because he: (1) failed to disclose his privileges had been terminated at a nearby hospital; (2) claimed he voluntarily resigned at a second hospital (though records indicated he had been summarily suspended); and (3) failed to meet the Medical Staff’s professional and ethical standards. On May 23, 2002, Mileikowsky requested a hearing under California’s peer review statute (California Business and Professions Code Section 809 et seq.) and the Hospital’s Medical Staff Bylaws (Bylaws). A Judicial Review Committee (JRC) composed of physicians and a hearing officer was appointed.

The Bylaws required both parties exchange documents and specified that hearings were to be held, if possible, no later than 45 days from the date a request for a hearing was received. In Mileikowsky’s case, however, “month after month went by without a hearing, largely because Dr. Mileikowsky refused to produce documents requested by the Hospital, challenged the hearing officer’s authority, and refused to comply with the officer’s directions or orders.”

Despite multiple requests and extensions, Mileikowsky refused to produce the documents in his possession, including documents the Medical Staff originally requested two years before when evaluating his application for appointment. After eight months of delay and multiple warnings, the hearing officer granted the Medical Staff’s request for sanctions based on Mileikowsky’s failure to produce the requested documents.

On March 27, 2003, the hearing officer issued an order dismissing Mileikowsky’s request for a hearing, concluding that his continued failure to produce documents equated to a refusal to participate in the hearing process and, therefore, constituted voluntary acceptance of the Medical Staff’s recommendation to deny his application. The order effectively terminated the hearing before presentation of evidence commenced and Mileikowsky appealed the order to the Hospital’s Governing Board (Board). The Board found the hearing officer’s ruling was reasonable and warranted, and that Mileikowsky had been afforded an opportunity to a fair hearing. The Board accepted the order as the Hospital’s final decision.

Mileikowsky Challenges The Hearing Officer’s Decision in Trial Court

Mileikowsky petitioned the trial court for a writ of administrative mandate and sought judicial review of the Hospital’s decision on the ground the hearing officer was not empowered to issue an order terminating the hearing as a sanction for Mileikowsky’s failure to produce the documents. The trial court denied his petition for four reasons.

First, the trial court found the hearing officer’s decision was authorized by the Bylaws, which provided that the hearing officer “shall consider and rule upon any request for access to information, and may impose any safeguards the protection of the peer review process and justice requires.” Second, the trial court found Mileikowsky’s failure to produce documents prevented the JRC from properly performing its function of evaluating his fitness to practice medicine. Third, the trial court referred to the fact that Mileikowsky himself had demanded sanctions because the Medical Staff refused to turn over documents. Fourth, the trial court held that the interests of justice warranted termination of the hearing, because termination ensured Mileikowsky would not benefit from his refusal to furnish the documents. Mileikowsky challenged the ruling in the court of appeal.

Court of Appeal Reverses Trial Court Decision

The court of appeal reversed the trial court’s decision and held the hearing officer did not have the power to “prematurely” terminate the hearing. The appeals court reasoned that, under California’s peer review statutes, procedural matters should be consigned to the hearing officer, but all decisions affecting the merits must be made by the trier of fact (in this case the JRC). The appeals court held that a hearing officer’s decision to terminate a hearing before a final decision by the trier of fact on the merits, with the attendant effect of allowing the final proposed action to stand, is not merely a procedural decision; it is, effectively, a decision on the merits.

According to the court of appeal, whether peer review could be adequately performed without the requested documents was a matter of medical judgment, requiring the expertise of the trained medical professionals on the JRC. The hearing officer’s discretion to control the proceedings does not extend so far as to become a “surrogate decision maker” in lieu of the JRC, reasoned the court of appeal. The problem, according to the appeals court, was that the hearing officer’s decision to terminate the hearing allowed the Hospital to deny Mileikowsky’s application without affording him any hearing or a decision by the trier of fact.

Although the appeals court agreed that a physician may forfeit, through his conduct, his right to a hearing, it distinguished prior cases where a medical staff hearing was terminated based on a physician’s refusal to participate or cooperate. In those cases, the hearing already had commenced, so the physician was not entirely denied his statutory right to a hearing (i.e., it was not a “premature termination”). Also in those cases, noted the court of appeal, the JRC (not the hearing officer) issued the decision to terminate the hearing.

The court of appeal flatly rejected the Hospital’s contention that peer review bodies simply make recommendations and only the Board makes the actual decision. The appeals court found there was no support in the statutes for the proposition that only the Board can make a decision regarding privileges. Instead, according to the court of appeal, it is only when the peer review body has failed to take action that the Board has a statutory mandate to intervene. That distinction, stated the court of appeal, is “no mere technicality.”

The fact that the Hospital’s Board approved the hearing officer’s decision is no substitute for a full hearing and plenary discussion by the JRC of the issue posed by the missing documents, the court of appeal reasoned. Thus, “the trial court’s conclusion that withholding the documents prevented the JRC from performing its function of evaluating [Dr. Mileikowsky’s] fitness to practice medicine is not based on facts found by the body that is charged with the responsibility of determining this issue in the first instance.” The court of appeal characterized the Hospital’s action as “reflect[ing] only the decision of a single person [the hearing officer], a lawyer by training and profession, that [Dr. Mileikowsky] has not complied with ‘discovery orders’ and that, for this reason, ‘terminating sanctions’ were warranted.” Further, the court of appeal wrote, “It does not help the situation that this hearing officer had no authority to issue ‘discovery orders’ under the Civil Discovery Act and/or to award ‘terminating sanctions.’”

The appeals court reversed and remanded the decision and instructed the trial court to enter a judgment directing the Hospital to: (1) set aside the decision upholding the hearing officer’s termination of the hearing; (2) convene a hearing pursuant to Business & Professions Code Section 809.1(c); and (3) conduct the hearing and further proceedings in accordance with Business & Professions Code Sections 809.2 et seq. The trial court also was directed to hear and determine whether Mileikowsky was entitled to injunctive relief with regard to his privileges. On October 5, 2007, the Hospital sought review by the Supreme Court of California.

Supreme Court Ruling Affirms Court of Appeal Decision

On April 6, 2009, the California Supreme Court affirmed and expanded on the discussion originally set forth by the court of appeal. The supreme court concluded that a peer review hearing officer not only “lacks authority to prevent the [JRC] from reviewing a case by dismissing it on his own initiative before the hearing has been convened,” but furthermore, the hearing officer “lacks authority to terminate the hearing after it has been convened without first securing the approval of the [JRC].”

The supreme court’s principal addition to the court of appeal’s written opinion consists of its discussion of California’s peer review statutes, in particular the Section 809.2 provisions that address a hearing officer’s authority. A hearing officer, the supreme court found, has authority “to maintain decorum at the hearing and ensure that all parties have a reasonable opportunity to be heard and to present oral and documentary evidence.” However, a hearing officer may not “act as a prosecuting officer or advocate” and “shall not be entitled to vote.” The JRC—not the hearing officer—“resolves any conflict in the evidence, determines its sufficiency, and determines the reasonableness of the recommended disciplinary action.” Thus, reasoned the supreme court, a hearing officer lacks the authority to determine sufficiency of the evidence, and by dismissing the proceedings before an evidentiary hearing is convened, the hearing officer improperly eliminates the JRC’s role in the decision making process.

The Hospital argued that a hearing officer’s statutory power to “impose any safeguards the protection of the peer review process and justice requires” under Section 809.2(d) “embraced the authority to issue terminating sanctions for a party’s failure to comply with requests for information.” The supreme court rejected the Hospital’s argument and instead found the authority to impose safeguards is narrowly directed at situations regarding the need to protect confidential information while simultaneously providing the parties with access to the documents (e.g., authorizing the hearing officer to redact or otherwise limit information to protect confidentiality). To grant a hearing officer the power to issue terminating sanctions, the supreme court stated, is inconsistent with the goals of the statutory review process and strips the JRC of its duty to review the MEC’s recommendation. The supreme court reasoned as follows:

“The purpose for providing a physician with a review of the peer review committee’s recommendation is to secure for the physician an independent review of that recommendation by a qualified person or entity, here the reviewing panel. That purpose is defeated if the matter is dismissed before the reviewing panel becomes involved. Further, irrespective of a hearing officer’s authority at the hearing or over the evidence adduced there, the officer, who “shall not be entitled to vote,” has no part in the decision making process and no authority to prevent the reviewing panel from reviewing the recommendation. Yet, in effect, a hearing officer who prevents the reviewing panel from conducting its review “votes” by ensuring that the peer review committee’s recommendation will be the final decision.”

The Hospital also argued that any error by the hearing officer was cured when the Hospital’s Board subsequently voted to affirm the hearing officer’s order that dismissed the hearing. The Supreme Court rejected the Hospital’s argument, finding although the Board makes the ultimate decision to grant or deny privileges, it must do so based on the recommendation of the MEC and JRC with “great weight to the actions of peer review bodies.” In this case, the Hospital’s Board affirmed the order of the hearing officer (not the JRC), a procedure the supreme court found “violated both the letter and underlying principles of the statutory peer review process” because “decisions relating to clinical privileges are the province of a hospital’s peer review bodies and not its governing body.”

Noteworthy Supreme Court Dicta And Existing Medical Staff Law

Although the heart of the Mileikowsky decision centers on the scope of a hearing officer’s authority, the supreme court included a number of statements worthy of discussion. Although dicta, some statements do not precisely square with current peer review processes and medical staff case law. Other statements indicate potential approaches for medical staffs in the wake of the decision. Either way, the Mileikowsky decision is ripe with material likely to be cited by legal counsel for hospitals and physicians in subsequent peer review matters. Some of the highlights are addressed below.

1. When discussing the far-reaching impact on a physician who is the subject of an adverse action, the supreme court noted that the California Medical Board “must maintain a historical record that includes any reports of disciplinary information.” While true, the Medical Board of California expunges adverse action reports after three years, a fact that serves to mitigate the lasting negative impact on physicians.

2. Because adverse actions are reported to the Medical Board and the National Practitioner Data Bank, the supreme court reasoned that “a hospital’s decision to deny staff privileges […] may have the effect of ending [a] physician’s career.” A physician with a demonstrated history of severe violations or significant quality failures might, understandably, find it difficult to obtain staff privileges. But in a great number of other cases, physicians are able to obtain privileges at a new hospital after an adverse action elsewhere. During the application process, the physician may explain or cure the deficit that led to the adverse action at the other hospital. Furthermore, if the applicant is denied medical staff membership and privileges, he has an opportunity to present his side of the story, challenging the decision in a medical staff hearing.

3. The supreme court’s technical argument regarding when a hearing officer may impose safeguards ultimately concludes that safeguards are limited to protect information and confidentiality. But, as the supreme court dissent illuminates, the full language of the statute states that a hearing officer may impose “any safeguards the protection of the peer review process and justice require.” (emphasis added). A right to discovery from the physician is part of the peer review process and serves the interests of justice. It is easy to draw parallels to state court litigation or information disclosure requirements under the federal rules of civil procedure. But, unlike the many tools courts have to curtail discovery abuses, in the medical staff peer review context the supreme court views a hearing continuance as the primary remedy for most discovery abuses.

4. The supreme court does not appear to view delay of peer review proceedings as a significant or likely problem, writing “Even when there is no summary suspension, a physician generally would wish to have the hearing held as soon as possible, if only to resolve uncertainty about his or her status at the hospital.” However, delay is a common occurrence, particularly when the physician is already a medical staff member, against whom corrective action is recommended but not yet imposed. The supreme court suggested that a physician would be damaged economically during a long hearing. But if the physician is already on the medical staff, he will continue to work and faces little to no economic pressure to move the hearing forward. Such dicta could trigger a more aggressive desire on the part of medical staffs to summarily suspend their members (rather than simply recommend termination) to protect patients from potential harm and avoid protracted hearing delays. Before doing so, medical staffs are advised to exercise significant caution, particularly in light of the higher standard of proof required in a summary suspension (i.e., “imminent danger”).

5. The supreme court, in dicta, reaffirmed two cases regarding the standard for termination of a physician on the basis of his argumentativeness and disruptive behavior (i.e., there must be a nexus between the physician’s disruptive behavior and substandard quality of patient care).[2] In light of that standard, the supreme court opened the possibility that “a physician’s obstructiveness in connection with the reviewing process might, but will not necessarily, support a conclusion the physician is unable to function in a hospital setting.” However, the supreme court cautions, it is the JRC—not the hearing officer—that determines whether the MEC’s recommendation is reasonable and warranted, and therefore the JRC should decide whether or not the physician’s refusal to participate in the peer review hearing process justifies termination of the hearing.

6. The supreme court suggests that protections against obstructive behavior and a mechanism for a hearing officer’s recommendation to a JRC can be placed in what the supreme court generally refers to as “hospital bylaws.” The point is well-taken and presents an opportunity for medical staffs to obtain a greater degree of control over peer review hearings. However, it is important to remember that hospital bylaws and medical staff bylaws are separate documents. The medical staff bylaws (not the hospital bylaws) govern medical staff peer review hearings. Additionally, the medical staff must first recommend to the hospital’s board any revisions in medical staff bylaws; a hospital cannot unilaterally change medical staff bylaws.

7. The supreme court suggests an existing medical staff member’s appointment can expire during a lengthy corrective action hearing. In a footnote, the supreme court extends this idea to contemplate a medical staff allowing a physician’s appointment to expire during the hearing “when the proceedings are delayed by the physician’s obstructive conduct.” However, the supreme court does not mention Sahlolbei v. Providence Healthcare, Inc., which states that if a medical staff member’s appointment expires during a corrective action, that action is converted to a summary action.[3] Once that happens, the medical staff will need to prove the higher standard of “imminent danger.” If the supreme court sought to carve a narrow exception to Sahlolbei, it did not do so explicitly, nor did it offer any suggestion to define the term ‘obstructive.’

8. When discussing whether or not the Hospital could have proceeded with the hearing without Mileikowsky’s documents, the supreme court opines on the sufficiency of evidence regarding adverse action reports from other hospitals (known in California as “805 reports”). For example, the supreme court stated that an 805 report, by itself, is adequate evidence of an action taken at a hospital. While it may be true that an 805 report evidences the mere existence of an adverse action, the substantive content of such a report often contains little detail as to what actually happened in the matter. Another problem of relying solely on an 805 report from another hospital is that such evidence is hearsay. In order to use it as proof in support of the MEC’s recommendation, the evidence must meet the Bylaws’ definition of admissible hearsay (typically defined as that information on which reasonable people are accustomed to rely in the conduct of serious affairs). Even then, it is best to introduce other supporting documentation.

9. The decision concludes with the surprising phrase, “As decisions relating to clinical privileges are the province of a hospital’s peer review bodies and not its governing body …” Although likely to have little (if any) precedential impact, the statement seems to disregard federal requirements under the Medicare Conditions of Participation and accreditation standards (e.g., The Joint Commission) that privileges are granted by a hospital’s governing board, not the peer review body.

Practical Advice for Peer Review Bodies

1. Do not allow a hearing officer to issue terminating sanctions before or during a peer review hearing. Any such order ought to be made, if at all, by the hearing panel.

2. Appoint a hearing panel early and utilize it, whether or not the physician cooperates with voir dire of hearing panel members.

3. Instruct the hearing panel that it is responsible for issues beyond making medical decisions and might, for example, need to enforce Bylaw provisions concerning the hearing rights of the parties.

4. Strictly adhere to and enforce deadlines in the Bylaws and, if necessary, ask the hearing panel to make definitive decisions as to whether deadlines are not met and what remedial action, if any, should be implemented.

5. Define, in the Bylaws, the term “obstructive” and apply it to a situation of lack of cooperation in a peer review hearing.

6. Work to develop and implement medical staff bylaws provisions that empower the hearing officer to, at the least, make recommendations to the hearing panel on procedural and other non-medical matters. That way, the hearing panel can more easily decide to order or deny the recommendation. 

Coast IRB, LLC voluntarily agreed April 14 to suspend new clinical trial oversight activities after the Food and Drug Administration (FDA) raised “serious concerns” about the institutional review board’s (IRB’s) ability to protect human subjects.

According to an FDA announcement, the Colorado Springs, CO-based IRB will continue oversight of ongoing clinical trials, but will halt review of any new medical studies involving drugs and devices. Coast also will not allow any new subjects to be added to the ongoing studies it currently is monitoring.

FDA sent a warning letter to the company April 14 indicating the IRB had violated regulations intended to protect the rights and welfare of human research subjects in clinical trials.

Coast IRB currently is monitoring about 300 active human research studies conducted by some 3,000 clinical investigators.

FDA said its actions with respect to Coast IRB were “precautionary” and that it decided not to ask the company to halt ongoing studies at this time because of the “potential risk to enrolled subjects” and “disruption to research.”

The suspension of new activities follows a recent Government Accountability Office (GAO) undercover investigation involving a bogus medical company that approached several IRBs, including Coast, for approval of a fictitious medical device.

Coast was the only one of the three IRBs to approve the device for human testing.

GAO’s Gregory D. Kutz presented the results of the investigation at a March 26 hearing before the House Energy and Commerce Subcommittee on Oversight and Investigations. The panel asked GAO to conduct the investigation based on concerns that commercial review boards may not always exercise effective due diligence in reviewing research protocols. 

Kutz said the phony device, a post-surgical healing device for women, had fake specifications and matched several examples of “significant risk” devices from FDA guidance.

In its warning letter to Coast IRB’s Chief Executive Officer Daniel Dueber, FDA identified a number of “serious violations” of federal requirements, including failing to determine that risks to subjects are minimized, failing to determine that risks to subjects are reasonable in relation to anticipated benefits, and failing to ensure basic elements of informed consent are included in the IRB-approved consent form.

FDA noted the research protocol for the phony medical device that Coast IRB approved for testing did not include a complete device description or results from pre-clinical testing. Without this information, FDA said, Coast IRB could not have approved the device for human subject testing in compliance with federal regulations.

FDA gave Coast IRB 15 working days to notify the agency of specific corrective actions to bring the company into compliance with federal regulations. Failure to do so, FDA said, could result in continued restrictions, termination of ongoing studies, and regulatory proceedings to disqualify the IRB.

On its website, Coast IRB indicated a comprehensive overhaul of its policies and procedures was underway and that it had hired a nationally recognized consulting firm to help “reinvent” the company.

View FDA’s warning letter.

White House Office of Health Reform Director Nancy Ann DeParle during an April 15 briefing with reporters cited uniform agreement about the need to change the status quo and a willingness among lawmakers to work constructively toward that end as positive signs that healthcare reform legislation will be enacted this year. 

During the briefing, part of a series on healthcare reform sponsored by the Kaiser Family Foundation, Families USA, and the National Federation of Independent Business, DeParle said she has spent a significant amount of her time since taking office a month ago speaking with lawmakers about healthcare reform. 

Unlike the effort 15 years ago under the Clinton Administration, DeParle said this time around there has been significant engagement from relevant committee chairs to make healthcare reform a priority. 

DeParle said committee staffers already are working on drafting specifications and even in some cases bill language, and that the White House is providing “active technical assistance” to those efforts. 

DeParle responded to questions from reporters on a number of healthcare reform issues, but none took center stage more than the controversial question of a public plan option. 

While Democrats view a public plan option as key to lowering costs and expanding consumer choice, Republicans have argued a public plan will lead to crowd out and eventually the demise of private health plans. 

Senate Finance Committee Ranking Member Charles Grassley (R-IA) has said he does not see a ready compromise on the issue and that it is likely a deal breaker for both parties. 

But DeParle emphasized that policy options exist to address many of the concerns raised about a public plan, although she conceded that underlying philosophical objections would make bridging the divide much more challenging.  

Asked to define a public plan, DeParle explained that it would be sponsored by the government, would have low or non-existent administrative costs, and would not require brokers for selling.  

DeParle said it could be operated under the same rules that apply to other plans, could have similar payment rates, or could have payment rates that are tied to Medicare.  

DeParle also noted as one potential model state employee health plans that are sponsored by the government but operated by private plans.  

DeParle said the President included a public plan option as part of his healthcare reform proposal as a mechanism to lower costs and keep private plans “honest” by increasing choice and competition.  

Responding to a question about whether President Obama would sign healthcare reform legislation that did not include a public plan option, DeParle noted that the President was focused on achieving lower costs and increased competition, but remained open to considering other avenues that are suggested to reach those goals.  

DeParle also fielded questions about how to finance healthcare reform, including proposals to eliminate current tax exclusions. 

According to DeParle, this approach prompts “serious concerns” within the Administration about undermining the current system of employer-based coverage, which Obama pledged during his campaign should remain intact. DeParle added, however, that the White House is open to working with Congress on the financing issue.  

DeParle also faced questions about whether the Administration supported using the budget reconciliation process to pass healthcare reform legislation.

DeParle said the administration wanted to see a bipartisan bill and that reconciliation would not be its “preferred method” of moving forward. At the same time, DeParle reiterated the administration’s commitment to enacting healthcare reform this year.

View the webcast of the briefing.

*Jim Roosevelt will host two breakout sessions at the Annual Meeting outlining the Administration's plan regarding health reform. Click here for more information.

The majority of hospitals have not fully implemented standards known to improve quality and protect patient safety, according to a recent survey report issued by the Leapfrog Group. 

“Progress on patient safety is moving too slowly,” said Leapfrog Chief Executive Officer Leah Binder. “The safety goals Leapfrog promotes are achievable.”  

The Leapfrog Hospital Survey, released annually since 2001, found that in 2008 only 7% of hospitals fully met Leapfrog medication error prevention (CPOE) standards. 

CPOE systems are electronic prescribing systems that intercept errors at the time medications are ordered, the survey report said. Physician orders are integrated with patient information, including laboratory and prescription data, and then automatically checked for potential errors or problems. 

The voluntary survey, which includes 1,276 hospitals in 37 major U.S. metropolitan areas, also found low percentages of hospitals fully meeting Leapfrog efficiency standards (defined as highest quality and lowest resource use).

Specifically, 24% of hospitals met efficiency standards for heart bypass surgery; 21% for heart angioplasty; 14% for heart attack; and 14% for pneumonia care. 

Leapfrog also reported relatively low percentages of surveyed hospitals were fully meeting volume and risk-adjusted mortality standards or adhering to nationally endorsed process measures for eight high-risk procedures.  

Sixty-five percent of reporting hospitals did not have all recommended policies in place to prevent common hospital-acquired infections, while 75% failed to fully meet the standards for 13 evidence-based safety practices, ranging from hand washing to competency of the nursing staff. 

The survey did reveal some notable improvements, including an increase in the percentage of hospitals now meeting Leapfrog’s ICU standard from 10% in 2002 to 31% in 2008. 

In addition, the group said 60% of hospitals have agreed to implement Leapfrog’s “Never Events” policy when a serious reportable event occurs within their facility. 

“In spite of huge opportunities for improvement, many hospitals are, in fact, demonstrating quality excellence and serving as role models,” said Binder. “We need to take the lessons learned from the best hospitals and use these to move the status quo forward so all Americans have access to safe, cost-effective care.” 

According to the survey report, research indicates that if three of Leapfrog’s standards were implemented in all urban hospitals in the U.S. (ICU staffing, medication ordering systems, and use of higher-performing hospitals for high-risk procedures), the nation could save up to 57,000 lives, avoid as many as three million adverse drug events, and save up to $12 billion in healthcare costs each year. 

View the survey report.

Skilled Healthcare Group, Inc. and other affiliated companies have agreed to pay up to $450,000 to settle a lawsuit filed by the Equal Employment Opportunity Commission (EEOC) alleging national origin discrimination against Hispanic employees at the group’s nursing homes and assisted living facilities.  

In an April 14 announcement, the EEOC said it filed the suit in 2005 in the U.S. District Court for the Central District of California after discovering Hispanic employees were subject to harassment, different terms and conditions of employment, and an English-only rule that was only enforced against Hispanics. 

As part of the court-approved, three-year consent decree, Skilled Healthcare also must offer claimants English language classes, require employees to receive annual training regarding national origin discrimination, and designate a monitor so that future discrimination complaints are closely scrutinized. 

In addition, the companies must report annually to the EEOC about their employment practices. 

The lawsuit, brought under Title VII of the Civil Rights Act, arose from a charge of discrimination by a monolingual janitor who was fired from defendants’ Royal Wood Care Center in Torrance, CA for violating the company’s English-only policy.  

The EEOC identified a total of 53 current and former Hispanic employees at defendants’ facilities in California and Texas who also were subjected to disparate treatment and harassment based on their national origin, the agency’s announcement said.  

“The EEOC commends Skilled Healthcare for cooperating with us to establish meaningful mechanisms to advance equal employment opportunities for all workers,” said EEOC Los Angeles Regional Attorney Anna park.  

Read the EEOC’s announcement.

The Department of Health and Human Services Office of Inspector General (OIG) found in a recent report that state Medicaid programs may be improperly paying for outpatient clinical diagnostic laboratory services for dual eligible beneficiaries. 

In a review of 11 state Medicaid programs, the OIG found that eight spent a total of $1.3 million for these services in fiscal years 2005 and 2006. 

For a dual eligible, services that are covered by both Medicare and Medicaid will be paid first by Medicare.  

Generally, Medicare payment for outpatient clinical laboratory tests may be made only on an assignment-related basis (i.e., the Medicare-paid amount is the payment in full), the OIG explained. 

Thus, when Medicare Part B is liable for payment of 100% of a dual eligible’s clinical laboratory services, no payment should be made by a state Medicaid program, the OIG said.  

According to the OIG, in its review, 55% of the potentially improper Medicaid payments corresponded to five Current Procedural Terminology (CPT) codes.  

“These results demonstrate that opportunities exist to educate State Medicaid programs that they should not pay for any portion of these services,” the OIG concluded. 

Read the report, Potential Improper Medicaid Payments for Outpatient Clinical Diagnostic Laboratory Services for Dual-Eligible Beneficiaries (OEI-04-07-00340).

By Ritu Kaur Singh, Frank E. Sheeder III, and Gerald M. Griffith, Jones Day* 

On March 24, 2009, the Office of Inspector General (OIG) of the Department of Health and Human Services released an “Open Letter” to healthcare providers containing what the agency has described as refinements to the OIG’s Self-Disclosure Protocol (SDP).[1] In the 2009 Open Letter, the OIG announced two policy changes that serve to (1) clarify when the SDP should be used to address potential physician self-referral (Stark Law) violations; and (2) narrow the applicability of the OIG’s April 24, 2006 Open Letter. In that guidance, the OIG encouraged providers to utilize the SDP to voluntarily disclose potential violations under both the physician self-referral law (Stark Law) and the anti-kickback statute (AKS). The 2009 Open Letter, on the other hand, encourages providers to resort to the SDP for potential Stark Law violations only if there are also potential AKS violations. In the 2009 Open Letter, the OIG also announced that it will impose a minimum civil monetary penalty (CMP) of $50,000 for non-compliance with the Stark Law and AKS reported under the SDP.

The 2009 Open Letter is the OIG’s latest step aimed at providers’ voluntary compliance in the healthcare sector. It comes at a time when other developments, along with political and economic conditions, have made the stakes higher than ever for providers’ compliance programs. On the federal level, both relators and the government are becoming more aggressive and expansive in their interpretation of the scope of the Stark Law and AKS and how they can be predicates to False Claims Act violations. More state agencies are also increasing their Medicaid fraud enforcement activities. For example, there are now Medicaid voluntary disclosure protocols in Texas[2] and New York.[3]

Operation Restore Trust

The Clinton Administration initiated Operation Restore Trust (ORT) in May 1995 as a two-year demonstration project. ORT was concentrated in five states: California, Florida, Illinois, New York, and Texas, which had 40% of the country’s Medicare beneficiaries. ORT included an invitation to providers to voluntarily disclose potential non-compliance. Because there were barriers to entry and not many assurances that providers would obtain tangible benefits from voluntarily disclosing under ORT, providers did not accept the invitation.

Refining the Scope of the SDP

Following the limited success of the voluntary disclosure aspect of ORT, the OIG released the SDP in October 1998.[4] The OIG intended that the SDP would be a more open-ended process that did not set limitations on the conditions under which a healthcare provider could disclose potential non-compliance to the OIG. Thereafter, the OIG has issued three Open Letters addressing voluntary disclosures, each of which has provided further guidance on the OIG’s aims and policies relating to the SDP.

As of March 31, 2006, the OIG reported that it had received 295 voluntary disclosures under the SDP. As of that same date, the OIG further reported that there were 60 recoveries and 63 settlements, totaling $104.2 million collectively in receivables.[5] Although some of the reported disclosures under the SDP have involved Stark Law violations, prior to 2006 they tended to be coupled with potential AKS violations. Although the OIG would waive a damages assessment on occasion, more recently the OIG insisted on a full review and report of potential exposures as provided for in the SDP (i.e., the volume and reimbursement value of potentially tainted claims) before moving forward with settlement discussions on a Stark Law voluntary disclosure.[6] The cost of such a review, together with potentially substantial settlement payments, the risk of disclosing without any guarantees as to the outcome, and the possibility of a Corporate Integrity Agreement (CIA) or Certificate of Compliance Agreement (CCA)[7] likely dissuaded many providers from attempting to avail themselves of the SDP for what were exclusively or primarily Stark Law issues, particularly if they involved relatively small dollar amounts of remuneration or were perceived as “technical” violations (even where the law did not distinguish in the potential penalties based on such “technicalities”).

In its 2006 Open Letter, the OIG encouraged providers to use the SDP to disclose Stark Law violations.[8] As part of this initiative, the OIG announced two attractive incentives to encourage providers to disclose potential non-compliance through the SDP: (i) a general pledge of leniency by the agency towards healthcare providers who disclosed using the SDP (e.g., in some cases shortly before the 2006 Open Letter, OIG was amenable to penalties roughly equivalent to the amount of the problematic remuneration paid to physicians in appropriate cases—similar to the approach in the 2006 Open Letter); and (ii) a representation that the agency could view use of the SDP as a positive mitigating factor in determining whether to impose a CIA or CCA in connection with a voluntary disclosure.

In its 2008 Open Letter, the OIG clarified the second incentive from the 2006 Open Letter and indicated that providers using the SDP to disclose potential non-compliance would not automatically be required to sign either a CIA or a CCA.[9] The 2008 Open Letter also clarified that the SDP is only intended to facilitate resolution of matters that potentially violate laws for which exclusion or civil monetary penalties are authorized. According to the 2008 Open Letter, the SDP is not intended to be a mechanism for reporting billing errors or overpayments, which should instead be resolved through a repayment to the Medicare contractor.

In the 2009 Open Letter, the OIG has narrowed the instances in which providers may use SDP by announcing that it will no longer accept self-disclosures of circumstances that might give rise to CMP liability without any evidence of an AKS violation. In a transition to its pre-2006 position, the OIG’s 2009 Open Letter also indicates that the OIG will no longer accept self-disclosures involving only potential liability under the Stark Law without any AKS implications. The OIG will, however, continue to accept disclosures of matters that only involve “colorable violations” of the AKS or involve situations where “colorable violations” of both the Stark Law and the AKS are present. The 2009 Open Letter emphasizes that despite the sharper focus of the SDP in relation to Stark Law violations, the Government remains committed to enforcing the Stark Law, and the continued string of Stark-related False Claims Act cases bears out that point. As discussed below, the 2009 Open Letter may have many implications, but a decrease in enforcement activity is not one of them.

In addition, the 2009 Open Letter establishes a minimum settlement amount. Effective March 24, 2009, the OIG will require a minimum of $50,000 to settle any kickback-related submissions that it accepts through the SDP. The OIG has indicated that the minimum settlement amount is consistent with the OIG’s statutory authority to impose a penalty of up to $50,000 for each kickback violation (in addition to treble damages).[10] On the positive side from the provider’s perspective, however, the OIG also noted in the 2009 Open Letter that it will continue to look at the facts and circumstances of each disclosure “to determine the appropriate settlement amount consistent with our practice, stated in the 2006 Open Letter, of generally resolving the matter near the lower end of the damages continuum, i.e., a multiplier of the value of the financial benefit conferred.”[11]

OIG Commentary on the 2009 Open Letter

Speaking to the American Health Lawyers Association (AHLA) Medicare & Medicaid Institute on March 24, 2009, Tony R. Maida, Deputy Chief of the Administrative and Civil Remedies Branch of the Office of Counsel to the OIG, stated that the decision to exclude Stark Law-only matters from the SDP was based on the difficulty inherent in determining the value of such infractions. Deputy Chief Maida noted that in Stark Law-only situations there often is not a quantifiable value paid to a physician, making Stark Law-only violations more difficult to value than AKS violations.[12]

Deputy Chief Maida explained the imposition of a minimum settlement amount on the basis that it would allow the OIG to efficiently and effectively utilize its resources to resolve matters entailing potential kickbacks that pose serious risk to the integrity of the healthcare system, rather than using its limited resources to handle minor AKS infractions. The minimum penalty, however, may dissuade providers from disclosing matters that they may have otherwise brought to the OIG’s attention through the SDP. Deputy Chief Maida concluded his address to the AHLA conference attendees by stating that the OIG does not believe, and the release of the 2009 Open Letter should not be read to suggest, that:

1. Kickbacks involving under $50,000 are safe;
2. Stark Law enforcement is not important; or
3. The Department of Justice is bound by the OIG’s positions.

A violation of the Stark Law can result in civil penalties and exclusion from Medicare, Medicaid, and other federally-funded healthcare programs. Sanctions for violation of the Stark Law include denial of payment for the services provided in violation of the prohibition; refunds of amounts collected in violation; a civil penalty of up to $15,000 for each service arising out of the prohibited referral; exclusion from participation in the federal healthcare programs; and a civil penalty of up to $100,000 against parties that enter into a scheme to circumvent the Stark Law’s prohibition. Under a currently expanding legal theory, knowing violations of the Stark Law may also serve as the basis for liability under the False Claims Act.

Options for Voluntary Disclosure After the Open Letter

Even though the OIG has narrowed the scope of potential Stark Law violations that can be disclosed under the SDP, enforcement activity continues unabated. Providers discovering potential Stark Law violations now have a more limited menu of options for how to address them. In addition to enacting effective measures to remedy past noncompliance and to prevent similar occurrences in the future, the options for additional corrective action are, in effect, the same options that providers had prior to the 2006 Open Letter:

1. Use the SDP to file a voluntary disclosure with the OIG and cast the conduct in question as a potential violation of both the Stark Law and the AKS. As in the past, providers will be walking a fine line between making the threshold statements necessary to show that there was a potential AKS violation without necessarily admitting that there was definitely an AKS violation. As noted above, the 2009 Open Letter refers to “colorable violations” of the Stark Law and AKS as the threshold for accepting a voluntary disclosure under the SDP. In that regard, it is important to note that if the provider is not accepted into the program, the disclosures it makes could be used against the provider and other parties in any ensuing investigation or litigation. Moreover, with the $50,000 minimum penalty, it will be hard to argue that there was a technical violation for which the provider should not pay any penalty at all.

2. Make an informal voluntary disclosure to the local U.S. Attorney’s Office. If the conduct is arguably only a potential Stark Law violation, disclosing to the Assistant U.S. Attorney (AUSA) in charge of healthcare matters in the Civil Division in the provider’s district may provide some comfort that the government would not intervene in a later qui tam case under the False Claims Act, even if the disclosure was somehow not viewed as a public disclosure denying relator status. Such comfort, however, can come with a steep price and may involve substantial settlement payments. There is also a risk that the AUSA may view the conduct as potentially criminal and involve the Criminal Division in the matter.

3. If the potential violation is discovered in the context of due diligence for an acquisition, merger, or joint venture, a provider might consider filing advisory opinion requests with the OIG (for AKS issues),[13] and with the Centers for Medicare and Medicaid Services (CMS) (for Stark Law issues).[14] This approach may be appealing where there are reasonable arguments to support a position that there has been no violation or where there is the potential for abuse on the AKS side, but also safeguards in place to minimize those risks. If the advisory opinion request is rejected, or either CMS or OIG are unwilling to issue a favorable advisory opinion, the deal may be derailed at least until another disclosure avenue can be followed to completion. Of course, the OIG cannot issue advisory opinions on questions of intent, and neither the OIG nor CMS will opine on fair market value.

Conclusion

The 2009 Open Letter reflects a significant change in the scope and intended purpose of the SDP. By eliminating Stark Law-only violations from the scope of conduct that can be reported through the SDP, the OIG has narrowed the options available to providers who discover such violations. Aside from the SDP and the Open Letters, providers still do not have clear guidance from the OIG on the appropriate remedial steps to take upon discovery of such a violation, yet potential liability still persists. The 2009 Open Letter will reduce the burden on the OIG of administering the SDP, but it also may have the unintended consequence of leaving providers with limited options for dealing with comparatively minor Stark violations or with Stark violations that involve physicians who make significant referrals where the provider does not also face a “colorable” AKS risk. In light of the continuing and potentially severe consequences of Stark Law-only violations, providers should carefully consider the other disclosure and advisory opinion options discussed above, as well as any potential state disclosure programs. Although one option may now be off the table, that does not necessarily diminish the potential exposures. Rather, it places a higher premium on effective compliance programs so providers can avoid what is now a more difficult decision of whether to disclose potential Stark Law violations and, if so, how and to whom.

The views set forth herein are the personal views of the authors and do not necessarily reflect those of the law firm with which they are associated. 

Partners HealthCare, an integrated health system founded by Brigham and Women’s Hospital and Massachusetts General Hospital, announced April 10 that it will begin implementing new recommendations intended to strengthen restrictions and oversight of interactions with pharmaceutical and device companies. 

The recommendations were developed by the physician-led Partners Commission on Interactions with Industry to tighten current policies, introduce new policies, and help ensure a “rigorous institutional commitment to education, oversight, and enforcement,” according to Partners’ press release. 

The Commission was tasked with developing recommendations in four areas: formulating principles to guide Partners' approach to industry interactions; reviewing Partners' current range of relationships with industry; considering the potential need for changes in policies and practices; and examining potential modifications to policies, the need for new policies and practices, and the infrastructure required to better support and enforce all activity in this area.  

The Commission’s key recommendations include a ban on all gifts and meals provided directly to staff by industry; allowing distribution of free drug samples only through the hospital pharmacy; establishing a process to identify and manage significant financial interests held by physicians in companies that make products they prescribe or use in their practices; and accepting industry funding for educational programs and fellowships only if provided through a centrally pooled institutional fund.  

Partners said it will implement the recommendations in phases but hopes to have most of them in place by the start of its new fiscal year on October 1, 2009. 

President and CEO of the Association of American Medical Colleges Darrell G. Kirch, M.D. called the Commission’s recommendations “a serious and comprehensive step forward in the rapidly evolving arena of medicine and its relationship with industry.” 

Read Partners’ press release.

The U.S. Department of Justice (DOJ) announced April 15 that Quest Diagnostics Incorporated (Quest) and its subsidiary, Nichols Institute Diagnostics (NID), have entered into a $302 million global settlement with the federal government to resolve criminal and civil claims that NID knowingly manufactured, marketed, and sold various test kits that produced materially inaccurate and unreliable results.

“In order to safeguard public health, and when appropriate, to recover taxpayer dollars, the government will vigorously investigate allegations that a manufacturer knowingly sold medical devices, such as test kits, that were materially unreliable or provided significantly inaccurate results,” commented U.S. Attorney for the Eastern District of New York Benton J. Campbell.

As part of the settlement, NID pled guilty to a felony misbranding charge in violation of the Food, Drug, and Cosmetic Act, 21 U.S.C. §§ 301 et seq. The charge relates to NID’s Nichols Advantage Chemiluminescence Intact Parathyroid Hormone Immunoassay (Advantage Intact PTH Assay), a test used to measure parathyroid hormone (PTH) levels in patients.

In its guilty plea, NID admitted that, over approximately a six-year period commencing in May 2000, it knowingly caused the introduction into interstate commerce the Advantage Intact PTH Assay, which was misbranded within the meaning of 21 U.S.C. § 352(a).

NID further agreed to pay a criminal fine of $40 million and enter into a non-prosecution agreement with the federal government, according to DOJ’s press release.

Quest and NID also entered into a civil settlement agreement with the federal government under which Quest will pay $262 million to resolve federal False Claims Act (FCA) allegations relating to the Advantage Intact PTH assay, as well as other assays manufactured by NID that allegedly provided inaccurate and unreliable results, the release said.

Federal and state governments undertook civil and criminal investigations in the case after a whistleblower filed a qui tam complaint in the Eastern District of New York, alleging that the Advantage Intact PTH Assay and another widely used PTH assay manufactured by NID, the Bio-Intact PTH Assay, provided elevated results. According to the release, the whistleblower will share in the FCA recovery and receive approximately $45 million.

The civil settlement resolves allegations that, over the same six-year period, NID manufactured, marketed, and sold the Intact PTH, the Bio-Intact PTH test kits, and certain other test kits despite knowing these kits produced results that were inaccurate and unreliable. As a result, the civil settlement alleges, clinical laboratories that purchased and used the test kits at issue submitted false claims for reimbursement to federal health programs.

In addition, Quest agreed to pay various state Medicaid programs approximately $6.2 million to resolve similar civil claims, and to enter into a Corporate Integrity Agreement with the U.S. Department of Health and Human Services Office of Inspector General.

In a statement, Quest said "[w]hile the company disagrees with and does not admit to the government's civil allegations, it agreed to the settlement to put the matter behind it."

Read DOJ’s press release.

Kathleen Sebelius, the nominee to head the Department of Health and Human Services (HHS), told the Senate Finance Committee in response to a series of detailed questions that a public plan option would “challenge private insurers to compete on cost and quality, not cream-skimming and risk selection.” 

At the same time, Sebelius said, the administration “recognizes the importance of a level playing field between plans and ensuring that private insurance plans are not disadvantaged.” 

The Senate is expected to vote on her confirmation for the HHS Secretary post when it returns from its April recess.   

While a vote was expected soon after her April 2 confirmation hearing before the Committee, Senate Republicans asked for additional time to review her nomination. 

Committee Chairman Max Baucus (D-MT) and Ranking Member Charles Grassley (R-IA), along with other Committee members, posed a series of questions to Sebelius covering a host of topics including healthcare reform, food and drug issues, abortion, and comparative effectiveness research. 

In her responses, Sebelius assured the Committee that HHS was ready to help Congress craft healthcare reform legislation by June, including using the CMS Office of the Actuary along with other analysts to assist in estimating the cost of congressional proposals. 

Tax Issues 

Sebelius' answers include further details about her recently filed amended returns reporting $7,040 in additional taxes. 

According to Sebelius, in preparing for her confirmation process, she and her husband hired a certified public accountant to review their tax returns for 2005, 2006, and 2007.  

That evaluation revealed “unintentional errors,” relating to a mortgage interest deduction they continued to take after selling a home for less than the outstanding balance on the mortgage; business expense deductions that should have been classified as gifts and that lacked appropriate documentation; and certain charitable deductions that were not accompanied by required acknowledgement letters, Sebelius explained. 

Medicare Advantage 

Sebelius also faced questions about another hot-button area—the Medicare Advantage (MA) program. 

In particular, Grassley asked Sebelius about the payment rates announced recently by the Centers for Medicare and Medicaid Services (CMS) for the MA program in 2010 that take into account an estimated 21% reduction in the Medicare physician fee schedule under the Sustainable Growth Rate (SGR) formula.

“We all know that’s not going to happen,” Grassley said referring to the Medicare physician rate reduction anticipated under the SGR. 

Sebelius said CMS was required to include the current-law 21% cut in physician fees in the annual update to MA payment rates.

“This spillover effect of the projected physician cuts on 2010 Medicare Advantage rates underscores the need for a long-term solution to the Medicare physician payment system,” Sebelius added. 

Grassley also asked Sebelius about the administration’s budget proposal to trim more than $170 billion from payments to MA plan and its potential impact on rural areas.  

Sebelius, the Kansas Governor, said she understood “the importance of ensuring access to high quality care for individuals living in rural areas of the country” and “the critical need to improve rural health care services.” 

At the same time, Sebelius added, “I am also very concerned about the 14 percent overpayments currently paid to Medicare Advantage plans under the existing payment methodology.” 

Sebelius said she believed a number of ways existed to level the playing field between the two programs while ensuring beneficiaries retain access to critical Medicare benefits.  

Medicare Part D

Grassley also queried Sebelius about whether HHS should have the power to negotiate drug prices under Medicare Part D and to create formularies or limit access to pharmacies.  

“Giving the Secretary the flexibility to negotiate with drug manufacturers would allow us to see what works best to save money both for Medicare beneficiaries and the taxpayer,” Sebelius said. 

Sebelius pointed to state Medicaid programs that have this authority where the prices paid for the same drugs under the state Medicaid program for dual-eligible beneficiaries were lower than what Medicare paid.  

“Repealing the non-interference clause is intended to grant the HHS Secretary greater flexibility in ensuring affordable drug prices. It does not mean creating a one-size-fits-all Medicare drug plan for all Medicare beneficiaries.” 

Comparative Effectiveness Research 

Grassley asked Sebelius whether comparative effectiveness research should take into account the cost of a treatment or procedure, or focus solely on clinical effectiveness. 

“Congress did not limit this research when authorizing it in both the Medicare Modernization Act and the American Recovery and Reinvestment Act. If confirmed, I will work to ensure that the research is high-quality and is used to enhance decision making and inform choices by patients and providers,” Sebelius said. 

Read the questions and answers posted by the Finance Committee.

The Texas Court of Appeals, Fourth District, issued a writ of mandamus April 8 providing relief from a trial court’s order that peer review records of nonparties be turned over during discovery in a workers’ compensation dispute. 

In so holding, the appeals court found the peer review records of nonparties were privileged under both Texas law and the U.S. Constitution.

Ignacio Zaragosa filed a workers' compensation claim alleging he was in the course and scope of his employment when he was injured in an automobile accident. The adjuster reviewing Zaragosa's claim initially denied it, finding no compensable injury.

A doctor gave Zaragosa an impairment rating of 19%, but Netherlands Insurance Co. and America First Insurance Co. (relators) disputed the impairment rating and assessed Zaragosa at 0% impairment.

Relators then sought the advice of Dr. Mark Parker and Dr. Radie Perry, both of whom provided peer review reports regarding the 19% impairment rating. Based on the reports of Parker and Perry, relators left the impairment rating at 0%. 

Zaragosa sued, asserting claims for breach of common law and statutory duties of good faith and fair dealing in connection with the handling of his workers' compensation claim.  

In the trial court, Zaragosa sought the production of all peer review reports prepared by Parker and Perry at the request of Netherlands Insurance Co. for workers' compensation disputes in the past three years. 

Relators objected to the request, but the trial court granted the motion. Realtors then submitted a petition for writ of mandamus.

Before the appeals court, the relators argued the medical peer review reports of the nonparties created by Parker and Perry were privileged under Texas Rule of Evidence 509, the Medical Practice Act (Texas Occupation Code § 159.001 et seq.), and the U.S. Constitution. 

The appeals court agreed, noting the reports in question were written by a physician, included a summary of the original medical records, and indicated the identity, diagnosis, evaluation, and treatment of the patient. 

Accordingly, “the peer review reports of the nonparties fall squarely within the protections afforded by Texas Rule of Evidence 509 and the Medical Practice Act and are privileged,” the appeals court held. 

The appeals court also concluded that peer review reports “are within the zone of privacy protected by the United States Constitution because they contain a summary of the nonparties' medical records.”

Accordingly, the appeals court held the trial court abused its discretion in compelling the production of the peer review reports of the nonparties. 

The appeals court also rejected Zaragosa’s argument that the redaction of personal information from the peer review reports was sufficient to protect any privileged medical information of the nonparties.  

“The redaction of the nonparties' identifying information does not address the privilege as it applies to the diagnosis, evaluation, or treatment of the patient,” the appeals court said. 

In Re Netherlands Insurance Co., No. 04-08-00815-CV (Tex. Ct. App. Apr. 8, 2009).

Blue Cross and Blue Shield of Texas (BCBS) has agreed not to use a rating system that relies on cost-based indicators to rank physicians, Texas Attorney General Greg Abbott announced April 10.  

According to court documents filed by the state, BCBS’ Risk Adjusted Cost Index ratings were based on inaccurate information, could mislead patients about their doctors, and unfairly penalized physicians whose patients suffered from costly medical conditions.  

The agreement also resolves a probe initiated by state investigators concerning BCBS’ handling of out-of-network referrals. According to state investigators, BCBS threatened to terminate physicians solely on the basis of referring patients for medical necessary treatments to out-of-network specialists.  

Under the agreement, BCBS agreed not to terminate or threaten to terminate physicians on this basis. 

BCBS cooperated with state investigators but did not admit any wrongdoing, Abbott said. 

Read Abbott’s press release.

• Interstate Rehabilitation LLC, a  California physical therapy company that contracts hospitals in southern California to operate hospital therapy departments, along with the company’s  owners and operators—James Pietsch, Sandra Pietsch, and Beth Celo—paid the government $233,345 to resolve allegations in a False Claims Act qui tam suit that they caused the submission of false claims to Medicare, announced U.S. Attorney for the Central District of California Thomas P. O’Brien on April 17. According to the complaint, over a four-and-a-half-year period, Interstate Rehabilitation violated Medicare rules by using clerical employees and other non-professional staff to provide physical therapy services without the presence of a licensed physical therapist. These services were provided to patients at skilled nursing facilities at area hospitals, which then allegedly submitted false claims for payment to Medicare. Interstate Rehabilitation and the other defendants agreed to pay the settlement without admitting any wrongdoing. Read O’Brien’s press release.

• Acting U.S. Attorney for the District of Connecticut Nora R. Dannehy announced April 13 that Eugene Bolognese, a licensed chiropractor who owned and operated his own practice, was sentenced to six weeks’ imprisonment followed by 27 months’ supervised release for submitting fraudulent claims to the private insurance company, Anthem Blue Cross Blue Shield (Anthem BCBS). Bolognese admitted that he repeatedly submitted claims for services and procedures purportedly rendered by the physicians employed at his clinic on days when the physicians were not present and/or did not treat any patients. Bolognese also admitted to receiving $573,036 as a result of this scheme and must pay restitution in this amount to Anthem BCBS. Read Dannehy’s press release.

• U.S. Attorney General for the District of Rhode Island Robert Clark Corrente announced April 10 that Robert A. Urciuoli, the former president of Roger Williams Medical Center, was sentenced to three years’ imprisonment followed by two years’ supervised release for corruptly employing former Rhode Island Senator John Celona to advance the medical center’s interests in the state legislature. At trial, evidence was presented showing that Urciuoli hired Celona in 1998, ostensibly to work for an assisted living center affiliated with the medical center. However, evidence also showed that, over a six-year period, the medical center paid Celona approximately $260,000 in consultant fees and, in return, Celona took steps to advance Urciuoli’s political agenda in relation to the medical center. In addition to his legislative actions, Celona helped Urciuoli pressure medical insurance companies to increase their reimbursements for healthcare services provided by the medical center. The sentencing judge also ordered Urciuoli to pay a $30,000 fine. Read Corrente’s press release.   
  
  
• Massachusetts Attorney General Martha Coakley announced April 6 that the state filed a lawsuit against two New Jersey companies—National Alliance of Associations and Professional Benefit Consultants—as well as three individuals—Thomas Sullivan, James Doyle, and Christopher Ashiotes—alleging they marketed and sold fraudulent health insurance products to hundreds of state residents. According to the complaint, defendants deceived consumers, who received unsolicited faxes promoting discounted healthcare insurance, into believing that they were buying health insurance. Instead, the product that defendants were actually selling was an association membership that provided a limited plan for discounts on certain medical services. Consumers were charged a non-refundable $125 enrollment fee and membership fees based on the type of membership a consumer purchased. Read Coakley’s press release.  

• Paul Allen Jamison pled guilty of defrauding the Medicaid program by submitting false claims for in-home care services for his elderly in-laws that were never provided, announced Washington Attorney General Rob McKenna on April 14. State investigators alleged Jamison received excess Medicaid funds over a seven-month period, resulting in theft of more than $5,000 from the program. Although Jamison billed Medicaid for nearly 200 work hours per month, state investigators learned from Jamison’s mother-in-law that she rarely saw Jamison and that the only service he provided was taking out the trash on weekends. Read McKenna’s press release.

The U.S. District Court for the District of Columbia dismissed for lack of mandamus jurisdiction Baptist Memorial Hospital’s suit seeking to require the Department of Health and Human Services Secretary to recalculate its disproportionate share hospital (DSH) adjustment for fiscal year 1991. 

The court found the cost report at issue was outside the three-year window for reopening as dictated by 42 C.F.R. § 405.1885(b) where an intermediary has notice that a decision was “inconsistent with the applicable law.” 

The instant case is related to an issue previously litigated before the federal district court and D.C. Circuit in Monmouth Med. Ctr. v. Thompson, 257 F.3d 807 (D.C. Cir. 2001), and In re Medicare Reimbursement Litig., 414 F.3d 7 (D.C. Cir. 2005). 

Those cases found intermediaries had a clear duty enforceable through mandamus to reopen NPRs issued for the three years prior to the Secretary’s issuance of HCFAR 97-2. 

The Health Care Financing Administration, the predecessor of the Centers for Medicare and Medicaid Services, issued HCFAR 97-2 in 1997 after several court rulings found interpretative regulations for calculating hospitals’ DSH adjustment was inconsistent with the Medicare Act.  

HCFA intended HCFAR 97-2 to be prospective only, but the courts held that because the ruling amounted to “notice under Section 405.1885(b), it created a nondiscretionary duty to reopen NPRs decided under the rescinded regulation within the three years prior to its issuance.  

The court found in the instant case, however, that Baptist Memorial was not entitled to reopening of its 1991 cost report, which was issued on September 1993, because it fell outside the three-year window under Section 405.1885(b). 

“Indeed, to find that defendant had such a duty to act would suggest that defendant is obliged to reopen every payment decision made prior to the issuance of HCFAR 97-2, no matter how old those decisions are,” the court observed. 

Baptist Memorial failed to show a clear right to relief or that the Secretary had a clear duty to act and, therefore, the court lacked mandamus jurisdiction. 

The court also refused Baptist Memorial’s request to conduct limited discovery, finding no evidence that doing so would change the jurisdictional ruling.  

Baptist Mem’l Hosp. v. Johnson, No. 02-1919 (PLF) (D.D.C. Mar. 25, 2009).

The Department of Health and Human Services Secretary’s decision to deny 120-bed nursing facility Summer Hill Nursing Home LLC (Summer Hill) Medicare reimbursement of “bad debt” it incurred for certain dual-eligible patients was arbitrary and capricious, the U.S. District Court for the District of Columbia ruled March 25. 

The Secretary based the decision on the agency’s “must bill” policy, which requires providers to submit evidence that they have billed state Medicaid programs for uncollectable deductible and co-insurance obligations and received a refusal to pay. 

But the court found the Secretary had ignored an undisputed fact—Summer Hill had billed and received “remittance advices” from the New Jersey Medicaid program refusing to pay the debts associated with certain “dual eligible” patients.  

Although Summer Hill received the remittance advices after it initially filed a claim with Medicare for bad debt reimbursement, the court found no rationale for disallowing the claim on that basis. 

Thus, the Secretary’s decision was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law” in violation of the Administrative Procedure Act.  

At issue was $170,537 in “bad debts” New Jersey nursing facility Summer Hill submitted to its fiscal intermediary for the fiscal year ending December 31, 2004. The intermediary disallowed most of this amount because Summer Hill wrote off the dual-eligible bad debt before billing New Jersey’s Medicaid program. 

Before filing an appeal of the disallowance, Summer Hill billed New Jersey Medicaid and received the required remittance advices refusing to pay the debts.  

The Provider Reimbursement Review Board (PRRB) reversed the intermediary’s disallowance but not on the basis of the subsequent receipt of the remittance advices. Instead, the PRRB found the agency had insufficient authority to enforce the “must bill” policy. 

The Secretary reversed the PRRB, however, finding “[t]he bad debts claimed by the Provider were not worthless when written off” because Summer Hill failed to bill the state Medicaid program and obtain the necessary remittance advices.

The court found the Secretary had no basis for disregarding the undisputed fact that Summer Hill now had the appropriate remittance advices in hand. The court declined to rule on the validity of the “must bill” policy.  

Summer Hill Nursing Home LLC v. Johnson, No. 08-268 (D.D.C. Mar. 25, 2009).

A physician whose clinical privileges at a hospital were suspended without notice or an opportunity to be heard was deprived of constitutional due process, a federal court in Nevada held April 8. 

The U.S. District Court for the District of Nevada also found the hospital and various medical staff defendants involved in the physician’s suspension were not entitled to immunity under the Health Care Quality Improvement Act (HCQIA), saying the “lack of pre-deprivation hearing was fundamentally unfair” in this case. 

The court refused, however, to grant the physician’s request for an injunction requiring the hospital to remove its adverse report about the suspension of his privileges from the National Practitioners Data Bank (NPDB). The court said ordering an injunction would be premature because administrative proceedings were still ongoing. 

Plaintiff Dr. Richard Chudacoff, who specializes in obstetrics/ gynecology, had medical privileges at the University Medical Center of Southern Nevada (UMC). In April 2008, plaintiff emailed the chair of his department expressing concerns about the quality of care provided by the residents.  

About a month later, he received a letter from the chief of staff that the medical executive committee (MEC) had suspended his privileges. According to plaintiff, before the letter he had no knowledge that the MEC was considering any adverse action against him.  

UMC shortly thereafter filed a report with the NPDB stating plaintiff’s privileges were suspended indefinitely for substandard or inadequate care and/or skill level. 

A fair hearing was held in September 2008 in which new allegations that he previously was not aware of were leveled against him concerning a discrepancy in his original medical staff application.  

The fair hearing committee disagreed with the suspension but recommended peer review of plaintiff’s practice, as well as several other measures.

The MEC adopted the fair hearing committee’s recommendations in part, but also issued a second letter suspending plaintiff’s privileges for “material misstatements of fact” on his original application. The Board of Trustees subsequently required the MEC to reconsider its initial decision to report plaintiff to the NPDB. 

While these proceedings were ongoing, plaintiff filed an action in court alleging violation of his due process rights under the Fourteenth Amendment and seeking declaratory and injunctive relief as well as money damages. 

The court granted plaintiff’s motion for partial summary judgment on his due process claims.  

The court found plaintiff had a protected interest in his medical staff privileges and that defendants failed to provide constitutionally sufficient procedures because it suspended him before giving him any type of notice or opportunity to be heard. 

Plaintiff argued because he was not “summarily suspended” defendants had to follow the process for “routine administrative” actions under the hospital's bylaws and fair hearing plan.  

The court weighed a number of factors—the consequences of a report to the NPDB for a physician, the need to ensure the NPDB has accurate information, and the state’s interest in controlling the quality of care provided by physicians—in determining the amount of process due in this context. 

Given these important interests, “it simply cannot be that, in a typical administrative action situation, a physician may have his privileges revoked without ever having a chance to refute or challenge the accusations leveled against him.”  

Plaintiff’s due process rights “were violated by the timing of the MEC’s actions,” the court said. 

The court also held defendants were not entitled to HCQIA immunity. Citing the presumption in favor of immunity, the court acknowledged that defendants likely had a reasonable belief that their actions were taken in furtherance of quality healthcare. 

But the court found defendants failed to show they provided plaintiff with reasonable notice and hearing procedures as required under 42 U.S.C. § 11112(a)(3), and did not qualify for the safe harbor under 42 U.S.C. § 11112(b) for notice and hearing requirements.  

For purposes of the safe harbor, “[i]t is not sufficient for the physician to be told, after the fact, that a review action has been taken against him already,” the court noted. 

Thus, the court granted him summary judgment on his due process claim. It did, however, refuse to order an injunction requiring UMC to pull the adverse report with the NPDB. 

This issue, the court said, already is before the MEC and therefore ordering an injunction at this point would be premature.  

“While Dr. Chudacoff’s procedural rights have been violated, it is too early to hazard a guess as to whether his substantive rights have been so affected.”