May 08, 2009 Vol. VII Issue 18

Healthcare quality in the U.S. continues to be suboptimal, according to the Agency for Healthcare Research and Quality’s (AHRQ’s) sixth annual National Healthcare Quality Report (NHQR), issued May 6. 

At the same time, AHRQ issued its National Healthcare Disparities Report (NHDR).

Across the core report measures tracked in the NHQR, the median level of receipt of needed care was 59%, AHRQ reported.

In addition, only 40% of diabetic patients received three recommended diabetic preventive exams in the past year, and this rate has not improved over time, AHRQ said in a press release.

The report also found that one in seven hospitalized Medicare patients experience one or more adverse event.

Patient safety measures have worsened by nearly 1% each year for the past six years, the report said.

Patient safety has declined in part because of a rise in healthcare associated infections (HAIs), the report concluded. HAIs are among the top ten leading causes of death in the United States, and drive up the cost of healthcare by up to $20 billion per year, AHRQ said.

In addition, the NHDR found that disparities in healthcare persist. Minority patients receive disproportionately poor care compared to Caucasian patients, AHRQ said. In addition, at least 60% of quality measures have not improved for minorities compared to Caucasians in the past six years. 

"Today's reports show why we can't wait to enact comprehensive health reform," Department of Health and Human Services Secretary Kathleen Sebelius said in a speech before the United Nurses of America's 12th National Nurses Congress in referencing the reports. "The status quo is unsustainable and we cannot allow millions of Americans to continue to go without the care they need and deserve."

Sebelius also announced that HHS will make available $50 million in grants funded by the American Recovery and Reinvestment Act for states to help fight HAIs. 

View the reports.

Senators Mel Martinez (R-FL) and John Cornyn (R-TX) introduced two bills May 5 aimed at preventing Medicare and Medicaid waste, fraud, and abuse.

The Seniors and Taxpayers Obligation Protection Act (STOP Act) would create fraud prevention and detection systems by requiring the Secretary of the Department of Health and Human Services (HHS) to implement changes to the current system of using Social Security Numbers as the Medicare Beneficiary Identifier (MBI) on Medicare cards, thus reducing fraud and identity theft among seniors.

The Medicaid Accountability through Transparency Act (MAT Act) would require HHS to publicly disclose the Medicaid payment data it already collects, Martinez said in a press release.

The information must be provided in a format that is easily accessible, useable, and understandable to the public must and be updated at least once per calendar quarter, the release said.

To ensure compliance, the bill imposes a penalty of $25,000 per day for any period in which the Secretary of HHS has found a state to have not fully and properly complied with the requirements for data collection associated with the Medicaid Statistical Information System, according to the release.

The next day, the Senate Special Committee on Aging, of which Martinez is the Ranking Member, held a hearing on ways to stop Medicare and Medicaid fraud.

At the hearing, Martinez noted that Medicare and Medicaid fraud costs taxpayers an estimated $60 billion each year.

"Criminals posing as medical equipment suppliers drain more than 60 billion dollars a year from Medicare and Medicaid, dollars that are stolen before they can be used to aid millions of American seniors and the disabled with their health care needs,” Martinez said. “Wise spending and keeping a current account of every dollar will directly meet the health care needs of our nation, end the current practice of ‘pay and chase,' and become the first step in greater health care reform."

"We need to make sure that every dollar spent by a public or private health plan goes to quality health care, not to line the pockets of a scam artist or criminal," Committee Chairman Herb Kohl (D-WI) added.

View more information on the hearing.  

View Martinez’s press release on the bills.

The California Court of Appeal found April 30 in an unpublished opinion that an insurer’s anti-assignment policy for out-of-network providers did not violate the state’s unfair competition law.  

The appeals court also affirmed the lower court’s holding that the insurer did not aid and abet its members’ conversion of funds meant to reimburse out-of-network providers.  

Richard B. Fox, M.D. is an out-of-network provider for California Physicians’ Service, doing business as Blue Shield of California (Blue Shield). 

Fox sued Blue Shield alleging violation of the Unfair Competition Law (UCL) (Cal. Bus. & Prof. Code, § 17200) through the insurer’s indirect payment system.  

According to Fox, Blue Shield indirectly compensates out-of-network providers by sending the payments to its plan members, who are then supposed to forward the money to the providers.

Fox alleged that plan members routinely fail to remit the checks and convert the insurance money by keeping it for themselves. He asserted Blue Shield aids and abets in this conversion by its practice of sending payment directly to its members. 

The industry practice is to disburse payment to the nonparticipating provider under an assignment of benefits, Fox alleged. Blue Shield, however, refused to honor assignments of benefits to out-of-network doctors, which Fox said is designed to force nonparticipating doctors to join its network. 

The trial court dismissed Fox’s claims and Fox appealed.

A civil cause of action for aiding and abetting “necessarily requires a defendant to reach a conscious decision to participate in tortious activity for the purpose of assisting another in performing a wrongful act,” the appeals court explained.  

In addition, liability for aiding and abetting an intentional tort arises only if the defendant “substantially assists” or encourages another party to act, with the knowledge that the other party’s conduct constitutes a breach of duty, the appeals court said. 

Although Fox alleged Blue Shield actually knew of the conversion by its members, he did not assert “facts that Blue Shield actually knew [three of Fox’s patients] would keep the money for themselves,” the appeals court found.  

“Dr. Fox has failed to allege that Blue Shield knew that its members would convert the insurance payment and that Blue Shield knowingly assisted them in converting this money,” the appeals court held.  

The appeals court also found inapposite Fox’s reliance on federal cases he argued supported his contention that Blue Shield’s “atypical business procedures” provided an inference of actual knowledge of its aiding and abetting in its members’ conversions. 

The appeals court disagreed with Fox’s contention that anti-assignment clauses lacked business justification, pointing to various authorities explaining such clauses serve important public policy objectives within the realm of managed healthcare. 

The appeals court also rejected Fox’s argument that the allegations of Blue Shield’s purported financial gain adequately demonstrated knowledge and substantial assistance on the part of Blue Shield, finding financial gain was not an element of aiding and abetting. 

Lastly, the appeals court held “Fox’s generic challenge to Blue Shield’s anti-assignment policy fails to adequately state a cause of action in violation of” California’s UCL.  

Fox v. California Physicians’ Serv., No. A122803 (Cal. Ct. App. Apr. 30, 2009).

The Centers for Medicare and Medicaid Services (CMS) estimated that payments to acute care hospitals under a inpatient prospective payment system (IPPS) proposed rule issued May 1 would decrease a total of $979 million in fiscal year (FY) 2010. 

Under the proposed rule, long term care hospitals (LTCHs) would see their payments increase by $135 million in rate year (RY) 2010. 

CMS said both payment rates were subject to downward adjustments to account for changes in documentation and coding practices that do not reflect increases in a patient’s severity of illness. 

CMS projected Medicare payments to acute care hospitals for inpatient services in FY 2010 under the proposed rule at $117.4 billion, while the agency pegged payments to LTCHs in RY 2010 at $4.9 billion. 

The proposed rule will be published in the May 22 Federal Register. Comments are due June 30. The new payment rates will be effective October 1, 2009. 

IPPS Payment Changes  

CMS said the proposed update to the IPPS reflects a 2.1% inflationary increase and a documentation and coding adjustment of 1.9 percentage points. 

According to a CMS press release, the market basket update for inpatient acute care payment rates is lower that those in recent years as a result of the “slowing rate of inflation in the economy.”  

CMS said the downward adjustment stemming from changes in hospital coding practices that resulted when the IPPS switched to Medicare Severity Diagnosis-Related Groups could have been steeper for FY 2010, but the agency “believes it would be prudent to phase-in the adjustment carefully over time.”

“We understand hospitals will be concerned about lower than historical update amounts,” said Charlene Frizzera, CMS Acting Administrator. “However, we are proposing an adjustment that minimizes the effects of FY 2010 payments while still meeting the requirements of the law which may mean larger reductions in the next two years.” 

Based on current estimates, CMS said, the Medicare Actuary estimated that total adjustments of roughly 8.5% will have to be made to address changes in hospitals’ coding practices, which means adjustments of approximately 6.6 percentage points will be needed in FYs 2011 and 2012. 

CMS estimated in the proposed rule that the payment changes would result in a $586 million decrease in FY 2010 operating payments (a 0.5% decrease) for acute care hospitals, and a $493 million decrease in FY 2010 capital payments (a 4.8% decrease). 

The proposed rule would set the outlier threshold in FY 2010 to $24,240. CMS said this amount would keep outlier payments equal to 5.1% of total payments under the IPPS.  

CMS also noted hospitals that fail to participate in Medicare’s quality data reporting program would see their updates reduced by two percentage points. According to CMS, 97% of participating hospitals received the full update last year.  

The proposed rule would add four new measures to the reporting requirement—two of which are additions to the existing Surgical Care Improvement Project measure set, with the other two directed at promoting hospital participation in nursing sensitive care and stroke care registries.  

CMS did not propose changing the list of hospital-acquired conditions in FY 2010 for which Medicare will no longer pay when present as a secondary diagnosis not reported as present at admission.  

“Although CMS has not yet evaluated the impact of this policy, CMS has received anecdotal reports that hospitals across the country are stepping up their efforts to prevent HACs from occurring,” according to a CMS fact sheet.  

LTCHs Payment Changes 

The LTCH PPS update reflects a 2.4% inflationary increase less an adjustment of 1.8 percentage points to account for changes in documentation and coding practices resulting from the implementation of the Medicare Severity LTC-DRGs.  

“Because long-term care hospitals generally use a different mix of resources than acute care hospitals, their inflation update of 2.4 percent is determined using a different market basket than then the market basket used for acute care hospitals,” CMS explained.

The Centers for Medicare and Medicaid Services (CMS) proposed May 1 a 1.2% cut in payment rates to skilled nursing facilities (SNFs) for fiscal year (FY) 2010 compared to 2009.

According to CMS, the $390 million cut “is an effort to rebalance an earlier adjustment to the case-mix indexes (CMIs).” 

Medicare pays SNFs under the Skilled Nursing Facility Prospective Payment System (SNF PPS), which uses a resource classification system known as Resource Utilization Groups, version 3 (RUG-III) to assign a RUG payment group that is used to determine a daily payment rate. 

For FY 2006, CMS made refinements to RUG that resulted in an unintended increase in Medicare expenditures, because actual utilization under the refined case-mix system differed significantly from the projections on which the adjustment was based, the release said. 

Accordingly, CMS’ proposal to recalibrate the case-mix weights will restore overall payments to their intended levels on a prospective basis, the agency said.

“In this manner, payments beginning in 2010 would reflect the intent of the refinements, and payments to providers would more accurately reflect the service needs of Medicare beneficiaries,” according to the release.

The proposed rule also would revise the case-mix classification methodology (RUG-IV) and implementation schedule for FY 2011, reflecting updated staff time measurement data derived from the recently-completed Staff Time and Resource Intensity Verification (STRIVE) project.

In addition, the proposal asks for comments on a possible new requirement for the quarterly reporting of nursing home staffing data, among other things.

The rule is scheduled to be published in the May 12 Federal Register. Comments on the proposed rule are due by June 30.  

Read the rule.

The Centers for Medicare and Medicaid Services (CMS) issued a proposed rule in the May 6 Federal Register (74 Fed. Reg. 21230) that would further delay for one year portions of a Medicaid final rule on healthcare-related taxes. 

The final rule, issued on February 22, 2008 (73 Fed. Reg. 9685), amended provisions governing the determination of whether healthcare provider taxes or donations constitute “hold harmless” arrangements under which provider tax revenues are repaid, altered the indirect guarantee threshold test, revised the definition of the “class of managed care provider,” and deleted certain obsolete provisions.  

Congress twice imposed moratoria on enforcement of certain parts of the final rule.  

The Medicaid Act provides for a reduction of federal funding based on state healthcare-related taxes unless those taxes meet certain requirements.  

The proposed rule would delay enforcement of provisions related to the standard for determining the existence of a hold harmless arrangement from the scheduled expiration of the congressional moratorium on July 1, 2009 until June 30, 2010. 

“This additional time is necessary to determine whether additional clarification or guidance would be necessary or helpful to our State partners,” CMS said.  

Comments on the proposed rule are due June 1.  

The Centers for Medicare and Medicaid Services (CMS) issued a proposed rule that would rescind entirely two Medicaid rules and partially rescind a third.  

The two rules that would be completely rescinded involve school administration expenditures and costs related to transportation of school-age children between home and school and the definition of outpatient hospital facility services.

CMS noted the rules have been the subject of congressional moratoria and have not yet been implemented.  

The proposal would also rescind certain provisions of an interim final rule on optional state plan case management services.  

CMS said it is taking this action “[i]n light of concerns raised about the adverse effects that could result from these regulations, in particular the potential restrictions on services available to beneficiaries, potential deleterious effect on state partners in the economic downturn, and the lack of clear evidence demonstrating that the approaches taken in the regulations are warranted . . . .” 

Regarding the case management rule, CMS raised concerns that certain provisions of the interim final rule may unduly restrict beneficiary access to needed covered case management services, and limit State flexibility in determining efficient and effective delivery systems for case management services.” 

Specifically, the proposed rule would remove §§ 440.169(c) and 441.18(a)(8)(viii) of the interim final rule because these provisions “may be overly restrictive in defining ‘individuals transitioning to a community setting,’ for whom case management services may be covered.”  

The proposal also would remove provisions that may unduly limit states’ delivery systems for case management services and a provision on payment methodologies that may be administratively burdensome, among other provisions. 

Comments must be received by June 1, 2009.  

Read the proposed rule (74 Fed. Reg. 21232).

Insurers and business groups continued May 5 to argue against including a public plan option as part of upcoming healthcare reform legislation before the Senate Finance Committee, which anticipates marking up a bill by June.  

The Committee held the second of three planned roundtable discussions on healthcare reform to specifically discuss options for expanding healthcare coverage. The third roundtable discussion will take place May 12 and will cover financing issues. 

Business Roundtable President John J. Castellani offered support for “national rules to create a more competitive and affordable insurance marketplace for individuals and businesses,” but said the group was “very concerned” about a public plan that would compete in the private marketplace.  

“The marketplace has become inflexible, is overly prescriptive, creates market segmentation, and is afflicted with dueling mandates, rules and regulations,” Castellani said.  

America’s Health Insurance Plans (AHIP) President and CEO Karen Ignagni told the Committee that tighter insurance market restrictions and oversight could successfully achieve needed healthcare reforms without the addition of a public plan option. 

“[W]e believe it is important for policymakers to consider the unintended consequences that could result from establishing a public plan to compete against existing private health insurance plans under a reformed health care system,” Ignagni said. 

Ignagni said insurers in the private market have been successful in offering innovative care management programs, while government plans like Medicare have not “effectively coordinated care, addressed chronic illness, or encouraged high performance.” 

AHIP has indicated support for guarantee-issue coverage and a rating system that does not factor in age, pre-existing conditions, or gender coupled with an individual health insurance mandate and premium assistance to make coverage affordable.  

Senator John Kerry (D-MA) recently introduced a bill that would prohibit insurers from charging women more than men for coverage in the individual insurance market.  

“The disparity between women and men in the individual insurance market is just plain wrong and it has to change,” Kerry said. Most women aged 18 to 64 are covered through their employers and therefore are protected by federal and state laws that prevent insurers from charging employees different premiums or excluding maternity coverage. But the 5.7 million women that buy coverage in the individual insurance market lack equivalent protections.  

Len Nichols, with the New America Foundation, a Washington DC-based public policy research institute, argued in favor of a public plan, saying Americans distrust private health insurers and public alternative would serve as a valuable “benchmark” for consumers to compare different health plans.  

“And this benchmark role can be provided without inevitably leading to a government takeover of the health system, as some seem to fear,” Nichols observed.  

“[I]f the playing field is level, it is possible for public and private health insurance plans to compete and deliver value for consumers without distorting the insurance market,” Nichols noted, adding that “[t]his policy question should not create an impasse or stall reform efforts.”  

AARP President Jennie Chin Hansen said providing affordable coverage options, particularly to those aged 50-64 should be a key objective of health reform.  

Hansen said Americans in this age group who lose job-based coverage “often find it impossible to get affordable individual coverage” under existing insurance practices that consider age and pre-existing conditions when setting rates.  

Hansen said AARP would support individual mandates to obtain health insurance, coupled with eliminating age or pre-existing condition considerations, so long as subsidies are available to ensure coverage is affordable. 

Families USA Executive Director Ron Pollack argued healthcare reform should build on and strengthen Medicaid for people who have low incomes or severe disabilities. Pollack said Congress should establish a national eligibility floor for Medicaid for everyone and improve and streamline the enrollment process.  

For this to be successful, Pollack added, provider reimbursement rates must be increased to ensure adequate access to healthcare for Medicaid recipients.  

The federal government also would have to provide substantial funding assistance to the states so that a new nationwide eligibility floor is fiscally achievable, Pollack said.  

National Governors Association (NGA) Executive Director Raymond C. Scheppach, Ph.D, also emphasized that “imposing broad new unfunded mandates upon states could force them to reduce spending on optional [Medicaid] categories.”  

View more information about the roundtable discussion.

The Eleventh Circuit affirmed May 4 in an unpublished opinion a district court’s calculation of the loss amount attributed to a defendant convicted in connection with a scheme to defraud Medicare.   

According to the indictment, Rodolfo Aenlle conspired with the owners of Unimed Equipment & Supplies to submit false claims to Medicare for medically unnecessary medications. 

Under the scheme, Aenlle submitted false prescriptions to Unimed through his own company, Direct Nursing Associates Inc., in exchange for kickbacks.  

A jury convicted Aenlle of conspiracy to commit healthcare fraud and soliciting and receiving healthcare kickbacks.  

The district court sentenced Aenlle to 84 months’ imprisonment. In calculating his offense level, the court increased his base offense level by 16 based on the loss amount, which it set at $1,048,487. 

In determining this amount, the court found Direct Nursing was involved in a similar scheme with Prestige Pharmacy to the tune of $58,010 and that Direct Nursing directly submitted to Medicare false claims for durable medical equipment (DME) totaling $826,234. 

Aenlle challenged the attribution of the two loss amounts related to Prestige and Direct Nursing claims for DME. According to Aenlle, the district court erred in including these totals in the loss amount because they were speculative and went far beyond the facts that had been proven. 

The Eleventh Circuit held the district court did not clearly err by attributing the loss amounts to Aenlle related to DME claims from Direct Nursing and prescription claims from Prestige.  

Citing its previous decision in United States v. Valadares, 544 F.3d 1257 (11th Cir. 2008), the appeals court found, 

[B]oth the Direct Nursing evidence and the Prestige evidence constituted ‘relevant conduct’ to the claims for which Aenlle was convicted insofar as (1) they involved the same victim (Medicare); (2) they shared the same purpose of defrauding Medicare; (3) they involved the same modus operani of submitting fraudulent Medicare claims; and (4) they involved common patients. 

United States v. Aenlle, No. 08-10021 (11th Cir. May 4, 2009).

A Florida appeals court issued a writ quashing a lower court’s blanket denial of a patient’s motion to compel a hospital to produce documents critical to his defenses and counterclaims in the hospital's collection suit, saying the ruling was a departure from the essential requirements of the law.

The documents were critical to the patient's defense that the hospital’s pricing was unreasonable, the Florida District Court of Appeal, Second District, found May 1.

As such, the lower court erred in denying with no explanation the motion to compel the hospital to produce the documents at issue, the appeals court said.

Plaintiff Andrew Giacalone was admitted to Helen Ellis Memorial Hospital on an emergency basis and underwent surgery during which a pacemaker was implanted.

Giacalone was uninsured and requested that he be treated under the Hospital's charity program.

The day after he was released Giacalone paid the Hospital $1,000 on his account.

Subsequently, the Hospital determined that Giacalone was not eligible for the charity program. The Hospital's attorneys sent Giacalone a letter notifying him that he owed the Hospital $52,280.70.

The Hospital sued Giacalone seeking to recover the unpaid bills. Giacalone argued the Hospital's charges for its services were unreasonable and unconscionable.

During discovery, Giacalone requested production of certain documents and a set of interrogatories. The Hospital refused to produce the material and Giacalone filed a motion to compel discovery.

The trial court denied the motion and Giacalone asked the appeals court for a writ of certiorari to quash the circuit court's order denying his motion.

The information sought by Giacalone was broadly pertinent to the Hospital's charges, the discounts granted to the various categories of patients that it serves, and to the Hospital's internal cost structure, the appeals court first noted.

By preventing Giacalone from making any inquiry into such relevant information, “the circuit court's order denying the motion to compel departs from the essential requirements of the law,” the appeals court held.

The appeals court disagreed with the Hospital’s argument that Giacalone could have used comparative market pricing to establish the reasonableness of the Hospital’s charges.

Instead, the appeals court said case law has allowed for direct inquiry into a hospital’s usual and customary rates as well as comparative analysis.  

Noting also that the lower court’s order contained “no explanation of its decision to deny the motion,” the appeals court found “such a blanket denial of relevant discovery is insufficient.” 

Turning next to the Hospital’s argument that the documents contain trade secrets, the appeals court found “the circuit court made no finding either at the hearing on the motion to compel or in its written order that any of the requested information constitutes trade secrets.”

Accordingly, in reconsidering the motion to compel, the appeals court directed the lower court to consider the trade secrets issue.

Giacalone v. Helen Ellis Mem’l Hosp. Found., Inc., No. 2D08-4807 (Fla. Ct. App. May 1, 2009).

The House passed May 6 by a vote of 367 to 59 a broad antifraud bill that contains provisions amending the False Claims Act (FCA).

The Senate passed the bill April 28 and will now re-consider the bill as amended by the House.

The Fraud Enforcement and Recovery Act of 2009 or FERA (S. 386) would modify and expand provisions of the FCA relating to intervention by the federal government in civil actions for false claims, sharing of information by the Attorney General with a claimant, retaliatory relief, and service upon state or local authorities in sealed cases.

In addition, the bill would expand liability under the FCA for making false or fraudulent claims to the federal government.

The bill also would apply liability for presenting a false or fraudulent claim for payment or approval. Currently, liability is limited to such a claim presented to an officer or employee of the federal government.

In addition, the bill also would require persons who violate the FCA to reimburse the federal government for the costs of a civil action to recover penalties or damages.

View more information on the bill.

By Michael W. Peregrine, McDermott Will & Emery LLP and Daniel R. Roach, Catholic Healthcare West

In a noteworthy development, the New York State Office of Medicaid Inspector's (OMIG’s) new 2009-2010 Work Plan contains specific focus on the compliance oversight obligations of the governing board.[1] Indeed, the Work Plan indicates that in extreme situations, individual board members could be sanctioned for failure to satisfy their duties with respect to compliance programs oversight. As such, the Work Plan may presage similar positions being taken by regulators in other states, while simultaneously creating favorable organizational opportunities to increase the strength and vitality of compliance programs and related board oversight.

The Work Plan places a strong emphasis on the structure, operation, and board oversight of the corporate compliance program. This is reflective of new New York State statutory/regulatory requirements mandating the implementation and maintenance of such plans by Medicaid providers. The specific compliance plan references are contained in the “Executive Action” section of the Work Plan, under the heading “Compliance Guidance.” To that end, the Work Plan reflects a five-pronged focus on compliance plan oversight:

• Development of “best practices” for effective compliance programs
• Provision of ongoing compliance guidance for providers
• Review of provider compliance programs in the course of audits/investigations
• Emphasizing the importance and independence of the compliance officer
• Emphasizing the importance of the oversight role of the governing board

In this regard, the Work Plan underscores the important role of the corporate compliance officer within the organizational hierarchy of the Medicaid provider. The compliance officer is described as the “cornerstone of the organization's efforts in establishing, facilitating and coordinating effective compliance programs.”[2] Particularly noteworthy in this regard is the OMIG's expectation that:

compliance officers will be placed at senior management positions within organizations and fellow senior management, provided adequate resources (i.e., sufficient time, staff and budget) and granted access to relevant documents and other information necessary to effectively design, implement and monitor the compliance program.[3] 

Perhaps more notable is the attention provided to the compliance oversight role of the governing board. As a general matter, the Work Plan notes the board's responsibility to exercise “reasonable oversight” of the organization's compliance plan. In this regard, the Work Plan is consistent with the fiduciary perspectives reflected in the well-recognized Caremark decision, in which the board's compliance program oversight obligations were formally articulated.[4]

Of potentially greater significance, though, is the OMIG's approach to holding boards accountable for the quality of their oversight. Specifically, in the course of an audit or investigation, OMIG will evaluate the extent to which the board has complied with these duties (i.e., has “exercised reasonable oversight over information and reporting systems”).[5] In other words, during an investigation or audit the OMIG will inquire whether the provider's compliance weakness is attributable in any way to lax compliance oversight by the governing board. In “appropriate circumstances,” where the board has 'significantly failed' to satisfy its compliance and oversight duties, OMIG will consider sanctions against individual board members.[6] These sanctions could include censure and/or exclusion (presumably from serving in a fiduciary capacity with any New York State Medicaid provider).[7]

In doing so, the OMIG Work Plan is perhaps the first formal regulatory attempt to hold governing boards accountable for material compliance plan failures. Yet, the Work Plan position is not as audacious or aggressive as it first may appear. It is true that courts have historically applied a very high standard for assigning liability to board members for compliance plan liability: either (a) “utterly failing to implement any reporting or information system or controls”; or (b) “having implemented such a system or controls, consciously failed to monitor or oversee its operations thus disabling themselves from being informed of risks or problems requiring their attention.”[8]

However, OMIG's focus appears to be consistent with such standard; i.e., to apply sanctions only in the event of “significant failures to comply with [board members'] duties with respect to compliance and oversight.” Further, the power to sanction nonprofit board members for breach of their fiduciary duties (including the compliance plan oversight duties) is traditionally considered within the common law jurisdiction of the state attorney general and other charity regulators, who not infrequently seek equitable remedies in situations of material breach determined to have caused harm to the charity. In addition, the Work Plan is consistent with many of the themes regarding the compliance oversight role of the governing board expressed in the trio of compliance plan guidance monographs published jointly by Department of Health and Human Services Office of Inspector General and the American Health Lawyers Association in recent years.[9] Finally, the position seems to be consistent with federal Sentencing Guidelines requirements that an “organization’s governing authority shall be knowledgeable about the content and operation of the compliance and ethics program and shall exercise reasonable oversight with respect to the implementation and effectiveness of the compliance and ethics program.” In the current “climate of accountability,” there is an increasing boardroom awareness (if not acquiescence) that regulators may be more willing/compelled than in the past to scrutinize board conduct in the context of “preventable loss” (e.g., a corporate compliance loss or penalty) to the organization.[10] In other words, and for many reasons, the OMIG position to hold boards accountable in extraordinary situations of breach of duty is neither novel, inconsistent with applicable case law, nor unexpected.

Where the OMIG Work Plan truly breaks ground is as a possible “dam-breaker” event. Given the broad state-by-state emphasis on both reducing Medicaid fraud and preserving charitable assets, it is entirely conceivable that other states—both Medicaid and possibly charity regulators—could follow OMIG's lead in this regard. This is particularly the case given that the compliance plan discussions contained in the Work Plan are not the regulatory whim of an aggressive regulator. Rather, they are the thoughtful byproduct of a comprehensive review and analysis of Medicaid integrity activity in the state by both lawmakers and regulators. It should be of particular relevance to health lawyers that the development of the Work Plan's discussions on compliance plan oversight incorporates extensive discussions between the OMIG and an advisory panel that included representatives of professional and institutional organizations.

Accordingly, the release of the Work Plan should be viewed in a “glass half full” perspective. It provides general counsel and compliance officers with a timely opportunity to work more closely with board and executive leadership to take steps designed to assure an appropriate level of compliance program oversight. This might include particular focus on (i) compliance committee composition; (ii) regular compliance reports to the board; (iii) the organizational authority (and budget) of the compliance officer; (iv) cooperation between the compliance officer and the general counsel; and (v) enhanced compliance program education to the full board and executive leadership team. 

The Kentucky Supreme Court rejected April 23 a negligence per se rule in medical malpractice cases involving surgical items left in a patient’s body during surgery.  

The high court instead adopted a res ipsa loquitur standard in which juries may—but are not required—to infer negligence in retained foreign object cases.  

In so holding, the high court overruled a decision that had previously applied the negligence per se rule. See Laws v. Harter, 43 S.W. 2d 449 (1975). 

Thus, in the instant case, the high court found the trial court properly refused to hold surgeon Gregory B. Nazar negligent as a matter of law for failing to remove a “Durahook,” a small metallic object used to hold soft tissues apart, during brain surgery on Roe Branham. 

Branham sued Nazar and the hospital where the surgery to remove a tumor from his brain was performed. Branham had to undergo a second surgery to remove the Durahook from his scalp at additional expense. 

Branham settled with the hospital but proceeded to court against Nazar. 

Branham moved for summary judgment against Nazar, arguing he was negligent as a matter of law or, alternatively, was vicariously liable for the failure of the nursing staff to remove the hook. 

The trial court denied the motion. At trial, Nazar presented expert testimony that it was the nursing staff’s duty, not the surgeon’s, to ensure foreign objects were accounted for during surgery. A jury returned a verdict in Nazar’s favor finding he had not breached the standard of care. 

The appeals court reversed, however, saying it was bound by Laws to apply a negligence per se standard.  

The high court reversed the appeals court ruling, and Laws by extension, adopting the res ipsa loquitur approach, which leaves the jury to determine a healthcare professional’s liability in retained foreign object case. 

According to the high court, a negligence per se standard was inconsistent with Kentucky’s comparative fault system, which recognizes that a number of professionals besides the surgeon plays a role in the operating room and that no two surgical procedures are exactly alike. 

“A per se rule cannot account for these differences and would unfairly ascribe fault to surgeons, regardless of their responsibility for the plaintiff’s injury,” the high court said. 

Thus, the trial court in this case did not err in denying Branham’s motion for summary judgment, since Nazar’s expert testimony created a question of fact regarding his negligence for Branham’s injuries. 

The high court also rejected Branham’s claim that Nazar should be vicariously liable for the conduct of the hospital’s nursing staff, finding no evidence to support plaintiff’s agency theory. 

Branham argued nurses are dual agents of the hospital and the surgeon during surgery, but the high court found plaintiff failed to present any evidence to establish an agency relationship between Nazar and the nurses here.  

The fact that Nazar “supervised” the nurses during the operation and “admitted” he was in charge of placing and removing the Durahooks was not enough to show he had authority to control the details of the nurses’ work, their training, and the terms of their employment.  

Thus, the trial court correctly refused to grant Branham summary judgment on this issue or to allow him to submit a vicarious liability theory to the jury. 

A concurring opinion agreed with the majority’s adoption of the res ipsa loquitor approach but dissented with respect to the vicarious liability ruling, saying the issue at a minimum should have gone to the jury. 

Nazar v. Branham, No. 2004-SC-001015-DG (Ky. Apr. 23, 2009).

President Obama released May 7 the Administration's detailed budget plan for fiscal year (FY) 2010 that includes additional funding for antifraud efforts in federal healthcare programs. 

Specifically, the budget proposal provides a $1.7 billion multi-year funding boost for the Health Care Fraud and Abuse Control Program, with an additional $311 million set aside to combat fraud and abuse in FY 2010.  

“We estimate that for every $1 we spend to stop fraud in the system, we save $1.55,” said newly minted Department of Health and Human Services (HHS) Secretary Kathleen Sebelius in a press release following the budget’s release.  

According to Sebelius, the funding included in the President’s budget for antifraud efforts over the next five years could save an estimated $2.7 billion “by improving overall oversight and stopping fraud and abuse within the Medicare Advantage and Medicare prescription drug programs.” 

Overall, Sebelius said, the budget includes a total of $879 billion for HHS in FY 2010, an estimated $63 billion increase over FY 2009. 

The budget proposal includes $311.1 billion over 10 years "to reflect the Administration's best estimate of what Congress has done in recent years" regarding physician payments under Medicare.

The Administration cautions, however, "this adjustment does not suggest it should be future policy."

According to budget documents, "the Administration would support comprehensive, but fiscally responsible reforms to this payment formula" as part of comprehensive reform legislation.

The Food and Drug Administration (FDA) would see a substantial boost in its funding levels under the Administration's budget plan, which requests over $3.17 billion for FDA in FY 2010, a total program level increase of more than $510 million above the amount enacted into law for FY 2009.

The FY 2010 Administration budget for FDA would increase user fees by $215 million, including $141 million in proposed new user fees.

Sebelius also noted the President’s budget includes $584 million to help prepare for and combat pandemic flu. 

The budget blueprint released this week follows a broad plan issued by the Administration in February that included a $635 billion reserve fund over 10 years as a “down payment” on healthcare reform. 

The reserve fund is derived from tax increases on the country’s top earners, defined as individuals making more than $200,000 annually or families making more than $250,000 per year, and savings from Medicare and Medicaid.  

The House and Senate passed last week FY 2010 budget resolutions that include the reserve fund for healthcare reform. 

The more detailed budget plan would trim or eliminate 121 federal programs to achieve about $17 billion in overall savings next year. 

View more information about the Administration’s budget proposal.

View HHS’ press release on the budget.

Payments to Medicare Advantage (MA) plans in 2009 are projected to be 13% greater than the corresponding costs in traditional Medicare—an average of $1,138 per MA plan enrollee, for a total of $11.4 billion, according to a report issued May 4 by the Commonwealth Fund.  

According to the report, The Continuing Cost of Privatization: Extra Payments to Medicare Advantage Plans Jump to $11.4 Billion in 2009, total extra payments have increased because of growth in the amount of extra payments per MA plan enrollee and growth in the total number of enrollees. 

Since the Medicare Modernization Act of 2003 (MMA) increased payments to private health plans, extra payments to MA plans are estimated to total nearly $44 billion from 2004 to 2009, the report said.  

The extra payments received by MA plans varies widely by geographic area, the report noted, with 38% above average fee-for-service costs in Hawaii, compared to 2% above average fee-for-service costs in Nevada.  

According to the report, the initial rationale for paying MA plans more than costs in fee-for-service—to bring plans to rural areas and benefits to rural beneficiaries—has not been borne out.  

Counties where the rural floor applies contain 19% of total Medicare beneficiaries but receive only 11% of extra payments because 85% of beneficiaries remain in traditional Medicare, the report found.  

“If the goal of special policies for rural areas is to improve health services to the elderly and disabled who live in those areas, redirecting the $1.3 billion a year in extra payments away from rural MA plans to increase payments to rural physicians and hospitals would be a more effective—and far more equitable—approach,” the report concluded.  

View the report.

Senator John D. Rockefeller IV (D-WV), Senator Sheldon Whitehouse (D-RI), and Representative Diana DeGette (D-CO) introduced May 5 the National Health Care Quality Act, which would create a new infrastructure to guide healthcare quality improvement.

Rockefeller, Chairman of the Senate Finance Subcommittee on Heath Care, noted that Americans spend more money on healthcare than any other country in the world and yet, “we have some of the worst health outcomes.”

The legislation establishes a new Office of National Health Care Quality Improvement that will build on public-private partnerships to establish and routinely update healthcare quality priorities for the nation based on a number of mandatory considerations, including the needs of children and the void in pediatric quality measures, Rockefeller said in a press release.

The bill also creates a framework for implementing national healthcare quality priorities across all federal agencies involved in purchasing, providing, studying, or regulating healthcare services.

In addition, the bill expands the authority of the Agency for Healthcare Research and Quality to improve the public-private process for healthcare quality measure development and to streamline the implementation of quality improvement measures within federal health programs, the release said.

Also on May 5, Rockefeller announced four key principles he believes should guide the coverage debate as healthcare reform moves forward in the Senate Finance Committee. 

“The cornerstone of health care reform is providing coverage,” Rockefeller said. “We need to transform our system from one that not only treats sickness, but also promotes wellness.”

Rockefeller said reform should follow “the four A’s for health coverage”: availability, affordability, adequacy, and accountability.

Seeking to increase the availability of healthcare, Rockefeller said he plans to introduce several bills to eliminate gaps in coverage including: the MediKids Health Insurance Act, which provides universal coverage for children; the Medicaid Reform Act to expand and improve Medicaid for vulnerable populations; the Medicare Early Access Act to provide coverage for early retirees; the Advance Planning and Compassionate Care Act to improve end-of-life care; and legislation to provide coverage for long term care.

Rockefeller also said two bills, the National Health Care Quality Act, introduced May 5 and the forthcoming MedPAC Reform Act, both aim to increase affordability of healthcare by promoting quality, focusing on patient health outcomes, and reducing inefficiencies.

In addition, Rockefeller said he plans several bills to improve the adequacy of coverage including: legislation to provide a public plan option, the Pre-Existing Condition Patient Protection Act (S. 623/H.R. 1558), the Medicare Dual Eligible Individuals Benefit Protection and Improvement Act, and legislation to prohibit lifetime insurance limits.

Read Rockefeller’s press release on the National Health Care Quality Act.  

Read Rockefeller’s press release on health reform.  

• A federal judge has sentenced two women to 30 months in prison in relation to a fake invoice scheme they ran , acting U.S. Attorney for the Northern District of Texas James T. Jacks announced May 1. The women are also jointly and severally liable to pay $905,166.05 in restitution, Jacks said. Laura Cullers Minor was the Director of Physician Recruiting for a medical center when she agreed to the scheme with Sheri Lynn Mitchell, who owned her own physician recruiting business. The women agreed that Minor would tell Mitchell what items should be billed and in what amounts, and then Mitchell would create and send the invoices, which were then submitted to the medical center for payment. Both Minor and Mitchell knew that the work represented on the invoices had not been performed at all or had not been performed as represented, Jacks said. Read Jacks' press release.

• California Attorney General Edmund G. Brown filed criminal charges May 4 against six individuals alleging they paid healthy seniors to be admitted to a hospice for the terminally ill and then billed state and federal healthcare programs for "phantom procedures" never performed. Defendants, one of whom remains at large, were physicians and staff at "We Care" hospice in Sherman Oaks. In total, Brown alleged defendants bilked the public out of $9 million and used the funds to enrich themselves and pay for expensive homes and luxury cars.” Read Brown’s press release.

The U.S. District Court for the Northern District of California held April 30 that a hospital was due nothing more under its contract with an insurer, and in fact, had been overpaid with regard to two named patients. 

Children's Hospital and Research Center at Oakland (CHO) between May 1, 2006, and September 1, 2006, rendered medically necessary care, including bone marrow transplants, to a cancer patient enrolled in defendant Health Plan of Nevada’s (HPN's) Medicaid Managed Care Program (Patient A).  

The parties entered into a Letter of Agreement, according to which HPN was to pay CHO as follows:  

For Medically Necessary Covered Services rendered by PROVIDER [i.e. CHO] in association with the above reference number, COMPANY [i.e. HPN] shall reimburse PROVIDER one-hundred percent (100%) of the California Medi-Cal Contracted Maximum Allowable Reimbursement rate less applicable copayments, coinsurance, and/or deductibles. 

CHO billed HPN $2,008,550.40 for services provided to Patient A and HPN eventually paid the hospital $341,325.00, based on a per diem rate of $2,775.00 for the 123 days Patient A was admitted to the hospital.

The parties then entered into a virtually identical agreement regarding Patient B. 

The contract for hospital inpatient services between the State of California and CHO provides that, prior to May 12, 2006, the rate of reimbursement was $1,927 per day. (Medi-Cal Contract). The contract also provides that, commencing May 12, 2006, Medi-Cal would reimburse CHO at a rate of $ 2,000 per day.

Here, the parties disputed the meaning of the phrase "one-hundred percent (100%) of the California Medi-Cal Contracted Maximum Allowable Reimbursement rate."

CHO contended the phrase referred to the interim rate and HPN contended the phrase referred to the per diem rates stated in the Medi-Cal Contract, the court explained.  

During trial, portions of the Medi-Cal Contract between the state and CHO were submitted into evidence. This evidence showed the rates set in the Medi-Cal Contract were per diem rates, not the interim rate, the court said.  

Accordingly, based on this evidence and the testimony offered at trial, the court concluded the disputed phrase referred to the per diem rates stated in the Medi-Cal Contract. 

In support of its conclusion, the court also noted “the letters of agreement do not contain the words ‘interim rate.’" 

Turning to the calculation of the payments made by HPN, the court found HPN actually overpaid with regard to Patient A.

HPN paid $341,325.00 for the services and supplies provided by CHO to Patient A. Based on the rates set forth in the Medi-Cal Contract, HPN should have paid $262,697.00, the court noted. 

The court found HPN also overpaid with regard to Patient B.  

Thus, the court concluded HPN was entitled to a refund of $111,373.09. 

Children’s Hosp. and Research Ctr. at Oakland v. Health Plan of Nevada, Inc., No. 07-6069 SC (N.D. Cal. Apr. 30, 2009).

The Employee Retirement Income Security Act (ERISA) preempted a hospital’s state law claims against a health plan that it negligently misrepresented a subscriber’s coverage, a federal court in Ohio ruled May 1.  

Plaintiff Regency Hospital of Cincinnati (Regency), a long term care hospital, provided services on two separate occasions to Patricia Fogelson, who was insured under a health plan issued by Blue Cross Blue Shield of Tennessee (Blue Cross) to her employer. 

Before treating Fogelson, Regency called Blue Cross to verify her coverage and to pre-certify her treatment. According to Regency, Blue Cross confirmed Fogelson’s eligibility before both admissions. 

Regency submitted bills to Blue Cross totaling over $234,000. Blue Cross paid $5,856 toward the costs of the first admission and $19,143 toward costs of the second admission. 

Regency sued Blue Cross in state court for breach of an implied contract and estoppel under Ohio law. 

Blue Cross removed the action to federal court and filed a counterclaim for fees and costs alleging Regency knew or should have known that ERISA preempted its state law claims. Blue Cross moved for summary judgment. 

The U.S. District Court for the Southern District of Ohio granted Blue Cross summary judgment on all of Regency’s claims. 

Regency argued ERISA did not preempt its claims of equitable estoppel and breach of contract because they sought damages for detrimental reliance based on Blue Cross’ negligent misrepresentations.  

The court disagreed, however, pointing to Sixth Circuit precedent that ERISA preempted estoppel and breach of contract claims under similar circumstances.  

According to the court, the calls Regency made to Blue Cross were “related to” an ERISA plan, and therefore the ensuing estoppel and/or contract claims were preempted. 

The court also found that Regency had not pled an ERISA-based equitable estoppel claim.  

An ERISA equitable estoppel claim is not available to override the clear terms of plan documents, the court noted. Here, Regency failed to plead the threshold element of such a claim—i.e., that the plan language was ambiguous and required interpretation. 

Finally, the court held Blue Cross had properly paid Regency under the terms of the plan. During its conversation with Blue Cross, Regency agreed to accept the patient with payment for services based on out-of-network-rates, which Blue Cross told Regency would be 60% of its Maximum Allowed Charge, not the provider’s billed charges. 

The court relied on a tape recording of the conversation between the parties, which it said “entirely disproves Regency’s claims and affirms Blue Cross’s defense.” 

Regency Hosp. of Cincinnati v. Blue Cross Blue Shield of Tenn., No. 1:07-cv-800 (S.D. Ohio May 1, 2009).

WellCare Health Plans, Inc. has entered into a deferred prosecution agreement (DPA) with the Department of Justice and agreed to pay $80 million in restitution and civil forfeiture to avoid prosecution for defrauding the Florida Medicaid program, U.S. Attorney for the Middle District of Florida A. Brian Albritton announced May 5. 

Under the three-year DPA, WellCare agreed to accept and acknowledge full responsibility for the conduct that led to the government’s investigation, retain an independent monitor to review its business operations on an ongoing basis, and implement, within 60 days, updated policies and procedures designed to ensure the company completely and accurately reports all federal and state healthcare program information. 

Federal and state law enforcement officials raided WellCare’s Tampa, FL offices in October 2007 as part of an ongoing investigation into allegations that WellCare, through its executives and employees, falsely and fraudulently inflated expenditure information that it submitted to the Florida Medicaid and Healthy Kids programs from mid-2002 through 2006, according to Albritton’s press release. 

Under its contracts with the state, WellCare was supposed to return certain proceeds that it did not spend on providing healthcare services to the Florida healthcare programs. 

The Information filed in connection with the DPA alleged WellCare avoided refunding the unspent money primarily by funneling the proceeds to a wholly owned entity it established called Harmony Behavioral Health, Inc. and then claiming the funds were spent on healthcare services.  

The term of the DPA may be shortened to two years if WellCare continues remedial actions and satisfies all of its compliance obligations. 

Albritton said the government is continuing to pursue criminal charges against individuals involved in the scheme.  

View the Information and the DPA.