Average monthly Medicare Part D premiums are estimated to be $30 in 2010, the Centers for Medicare and Medicaid Services (CMS) announced August 13, an increase of $2 over the 2009 average premium of $28.

CMS noted some Medicare beneficiaries may need to take steps to ensure they have the coverage they need when open enrollment begins later this year.

“Although most Part D plans should have relatively stable premiums, all beneficiaries should compare their current coverage with the plans that will be offered in 2010 when information becomes available in October,” Jonathan Blum, acting director of CMS’ Center for Health Plan Choices said.

In particular, CMS said in a press release announcing the new premiums, some beneficiaries who receive the low-income subsidy to pay for their premiums will need to move to a new plan to ensure that they remain in a zero-premium plan in 2010 because the plan’s premium will be higher than the 2010 subsidy amount.

CMS said it expects that about 800,000 beneficiaries will need to move to a plan below the benchmark amount or be automatically reassigned. The agency noted that it is working with its partners and will notify all individuals in this situation to make sure they are aware of their options.

In addition, CMS announced that the national average monthly bid amount for 2010 is $88.33.

The agency explained in a memo that the base beneficiary premium is equal to the product of the beneficiary premium percentage and the national average monthly bid amount.

Accordingly, CMS said in the memo that the Part D base beneficiary premium for 2010 is $31.94.

Read CMS’ press release.

View additional data released by CMS.

Insurers in California are required by statute to offer coverage of infertility treatment, but the legislature left the terms and conditions of that coverage to the parties’ mutual agreement, a state appeals court held recently. 

The California Court of Appeal, Second Appellate District, affirmed summary judgment Blue Cross of California's favor in a class action brought by Deborah Dunn Yeager alleging the insurer violated its statutory duty under Cal. Health & Safety Code § 1374.55 to offer coverage for treatment of infertility in the group health plan provided to her employer. 

Blue Cross’ renewal package with Yeager’s employer, Westmont College, offered to pay up to $2,000 a year for half the cost of each group member’s treatment for infertility. 

Westmont College declined to buy coverage for infertility treatment, citing, among other things, the high price tag. 

Yeager, who was able to afford only limited infertility treatments, sued Blue Cross for unfair competition and false advertising, arguing Section 1374.55 obligated the insurer to provide a certain amount of coverage at a particular premium. 

The trial court granted summary judgment in Blue Cross’ favor. 

Affirming, the appeals court found no ambiguity in Section 1374.55—i.e., it obligated Blue Cross only to offer coverage but did not dictate the amount of coverage or cost.  

“We may not make a silent statute speak by inserting language the Legislature did not put in the legislation,” the appeals court said.  

The appeals court pointed to other statutes that did mandate certain terms and conditions of coverage as evidence that the legislature knew how to establish more specific requirements when it chose to do so.  

Instead, the appeals court continued, the infertility statute “is similar to a number of health insurance mandates that leave the terms and conditions of coverage to the parties’ agreement.”  

The appeals court refused to consider Yeager’s alternative argument, raised for the first time on appeal, that $2,000 in benefits is too small an amount, offered by Blue Cross on a take-it-or-leave it basis, to be a good faith offer of coverage.  

“We leave for another day the question of how generous a benefit must be to satisfy section 1374.55’s mandate to offer coverage,” the appeals court said. 

Yeager v. Blue Cross of Cal., No. B207571 (Cal. Ct. App. July 15, 2009).

Expanding government support for preventative medical care and wellness services is likely to lead to higher, not lower, federal spending on healthcare, the Congressional Budget Office (CBO) said August 7. 

In a letter to Energy and Commerce Subcommittee on Health Ranking Member Nathan Deal (R-GA), CBO said expanding preventative care may help avert more costly illnesses in some cases, but the aggregate costs of treating a large number of patients preventively generally will exceed those savings.  

“To avert one case of acute illness, it is usually necessary to provide preventative care to many patients, most of whom would not have suffered that illness anyway,” said the letter, which was signed by CBO Director Douglas W. Elmendorf. 

At the same time, CBO noted that “just because a preventive service adds to total spending does not mean that it is a bad investment.”  

Specifically, experts have said the additional spending on most preventative care is still “cost-effective” because it provides clinical benefits that outweigh the costs. 

CBO also said the government could wind up paying for preventive care and wellness services that many individuals already are receiving through private insurers or their employers.  

While Congress works to enact comprehensive healthcare reform legislation this year, some lawmakers had hoped CBO would score longer-term savings from proposals to improve preventative care and wellness services to offset the overall cost of the bill.

But CBO said scorekeeping rules also constrain it from counting uncertain savings to offset near-term, certain spending increases or revenue decreases.  

View the CBO letter.

The Centers for Medicare and Medicaid Services (CMS) has issued final 2009 Medicare marketing guidelines effective August 7.

The guidelines reflect CMS’ “current interpretation of the marketing requirements and related provisions of the Medicare Advantage (MA) and Medicare Prescription Drug Plan (PDP) rules.”

The new guidelines are for use by MA organizations (MAOs), PDP sponsors, Section 1876 cost-based contractors, demonstration plans, and employer and union-sponsored group plans, including employer/union-only group waiver plans (EGWPs), CMS said.

“In keeping with our continuing efforts to update and clarify marketing requirements, the changes made to the final Medicare Marketing Guidelines are focused on consolidating recent statutory and regulatory changes, as well as other policy clarifications needed to enhance marketing operations under both the MA and Part D programs,” Teresa DeCaro, RN, M.S., Acting Director, Medicare Drug & Health Plan Contract Administration Group said in an August 10 memo.

DeCaro noted that CMS received a total of 1,730 comments from 94 entities on its draft marketing guidelines issued in May.

In response to comments, DeCaro explained that CMS made “a number of important revisions and clarifications” in the final guidelines.

View the guidelines and cover memo.

The Food and Drug Administration (FDA) announced August 7 that it has enhanced its procedures for debarment and disqualification to better protect participants in clinical studies and to ensure the safety and effectiveness of the medical products marketed to the public.

According to FDA, its new enhancements will help to prevent non-compliant investigators and others from participating in new product development.

“The FDA views any deviation from its high standards for developing or marketing drugs and devices as a potential threat to patient safety and public health,” Norris Alderson, FDA's associate commissioner for science, said in a press release.

Some members of Congress have expressed concern that the agency has not adequately used its debarment and disqualification authorities.

This prompted FDA to perform a review of its processes after which it concluded that it should enhance its procedures to ensure that it can act quickly to further safeguard clinical trial subjects and the drug and device development process.

According to the release, the revamped debarment and disqualification procedures—which include increased staffing and centralized coordination—ensure that more rapid, transparent, and consistent actions are taken.

“In the short time these measures have been in effect, the number of debarment actions has risen considerably and the times for resolving both disqualification and debarment actions have been reduced significantly,” the agency said.

View FDA’s press release.

The Food and Drug Administration (FDA) published two rules in the August 13 Federal Register clarifying the methods available to seriously ill patients interested in gaining access to investigational drugs and biologics.

According to FDA, one of the rules (74 Fed. Reg. 40900) makes investigational drugs more widely available to patients by clarifying procedures and standards.

Under the rule, expanded access to investigational drugs for treatment use will be available to: individual patients, including in emergencies; intermediate-size patient populations; and larger populations under a treatment protocol or treatment investigational new drug application (IND).

The other rule (74 Fed. Reg. 40872) clarifies the specific circumstances and the types of costs for which a manufacturer can charge patients for an investigational drug when used as part of a clinical trial or when used outside the scope of a clinical trial.

Specifically, the rule: clarifies the circumstances under which charging for an investigational drug in a clinical trial is appropriate; sets forth criteria for charging for an investigational drug for the different types of expanded access for treatment use; and clarifies what costs can be recovered.

FDA officials emphasized that the rules are not intended to diminish interest in participating in clinical trials.

“The final rules balance access to promising new therapies against the need to protect patient safety and seek to ensure that expanded access does not discourage participation in clinical trials or otherwise interfere with the drug development process,” Janet Woodcock, M.D., director of the FDA’s Center for Drug Evaluation and Research said.

“Clinical trials are the most important part of the drug development process in determining whether new drugs are safe and effective, and how to best use them,” Woodcock said.

Both rules are effective October 13, 2009.

FDA also announced on August 12 that it is launching a new website where patients and their healthcare professionals can learn about options for investigational drugs.

View 74 Fed. Reg. 40872.

View 74 Fed. Reg. 40900.

The First Circuit held August 5 Maine’s “free care laws,” which require hospitals to provide free services to patients eligible for charity care, do not amount to an unconstitutional taking.

Affirming a lower court ruling granting summary judgment in favor of the Maine Department of Health and Human Services Commissioner Brenda Harvey (defendant), the appeals court found while the state’s free care laws “adjust the benefits and burdens of economic life,” they essentially “leave the core rights of property ownership intact.”

According to the appeals court, Maine’s free care laws require hospitals to treat low-income patients, but they otherwise allow the hospitals to set the terms on which they provide access to their facilities and services.

The First Circuit also rejected the hospitals’ claim of an unconstitutional taking based on the state’s alleged failure to pay reasonable reimbursement rates under its Medicaid program, MaineCare.

Franklin Memorial Hospital (FMH), a nonprofit hospital that operates in one of Maine’s poorest counties, brought the action against defendant, in her official capacity, seeking a declaratory judgment that both Maine’s free care laws and the MaineCare program resulted in uncompensated takings of property.

According to the hospital, in the eleven months preceding May 31, 2008, it spent $890,212 to meet its free care obligations. The hospital also said that in 2007 FMH was reimbursed $2,646.95 per discharge for inpatient hospital services under MaineCare, while its historical actual cost per discharge was roughly $4,796.

Under Maine’s free care laws, hospital must provide free medically necessary inpatient and outpatient hospital services to state residents who earn incomes at or below 150% of the federal poverty level. The state enforces compliance through fines and suits brought by the Maine Attorney General. A hospital may avoid liability by showing that its “economic viability would be jeopardized by compliance.”

The district court granted summary judgment to defendant on both FMH’s takings challenge to the free care laws and to the MaineCare program.

Affirming, the First Circuit first found the free care laws were properly analyzed under the law of regulatory takings, not the law of physical takings.

The appeals court rejected FMH’s argument that Maine’s free care laws were per se takings because FMH had to admit and house certain patients for free.

“FMH is not required to serve low income patients; it may choose to stop using its property as a hospital, which is what makes it subject to Maine’s free care laws,” the appeals court observed.

Moreover, FMH did not allege the regulations removed all economically beneficial uses of its property.

Thus, the appeals court applied an ad hoc analysis using the three factors articulated in Penn Central Transp. Co. v. City of New York, 438 U.S. 104 (1978)—i.e., “[t]he economic impact of the regulation” on FMH; (2) “the extent to which the regulation has interfered with distinct investment-backed expectations”; and (3) “the character of the government’s action.”

Here, FMH did not allege that its economic viability was threatened by compliance with the free care laws. The appeals court also noted that FMH’s investment-backed expectations had to be viewed in the context of the highly regulated hospital industry in which it operates. Finally, the appeals court said the government’s action “strongly favors finding no taking here,” given that they did not involve a physical invasion of property.

Next, the appeals court also rejected FMH’s challenge to the MaineCare program.

According to FMH, it was compelled to participate in the MaineCare program because otherwise it would have to treat low-income patients without any compensation at all under the state’s free care laws.

Under state regulations, any individual that qualifies for free care shall not be billed for any amount not paid by an insurer or medical assistance program.

According to FMH, hospitals that did not participate in MaineCare must consider all services provided to MaineCare participants who otherwise meet income eligibility requirements as free care because the hospital would receive no compensation from the medical assistance program and could not bill the individual for the services rendered.

But defendant contended the regulations could be read as allowing the hospital to obtain compensation by billing the patient directly for up to the amount that would be covered by insurance or medical assistance.

Finding this interpretation reasonable, the appeals court found “no coercive financial incentive to participate in MaineCare.” 

Franklin Mem’l Hosp. v. Harvey, No. 08-2550 (1st Cir. Aug. 5, 2009).

The full Ninth Circuit affirmed August 7 in an unpublished memorandum opinion a preliminary injunction enjoining the California Department of Health Care Services (DHCS) from implementing a 10% reduction in Medi-Cal’s reimbursement rates for certain providers.

On July 9, a three-judge panel of the Ninth Circuit found the district court did not abuse its discretion in granting the preliminary injunction based on DHCS’ failure to “rely on responsible cost studies, its own and others,” in determining the effect of the rate cuts called for under state law (AB 5) on the statutory factors of efficiency, economy, quality, and access to care. See Independent Living Ctr. Of S. Cal., Inc. v. Maxwell-Jolly,  No. 08-56422 (9th Cir. July 9, 2009).

The lengthy litigation began after a special session of the California Legislature passed AB 5 in February 2008.

Independent Living Center of Southern California, the Gray Panthers of Sacramento and San Francisco, along with multiple pharmacies (collectively, plaintiffs) sued DHCS alleging AB 5 violated the federal Medicaid Act, specifically 42 U.S.C. § 1396a(a)(30)(A), and therefore was invalid under the Supremacy Clause of the U.S. Constitution.

Under Section 30(A), a state Medicaid plan must provide payments that “are sufficient to enlist enough providers so that care and services are available under the plan at least to the extent that such care and services are available to the general population in the geographic area.”

DHCS argued Section 30(A) did not confer a private right of action that plaintiffs could sue to enforce.

The U.S. District Court for the Central District of California initially denied plaintiffs' motion for a preliminary injunction, but the Ninth Circuit reversed that decision, finding plaintiffs could sue directly under the Supremacy Clause to enjoin a state law allegedly preempted by federal law. See Independent Living Ctr. v. Shewry, 543 F.3d 1050 (9th Cir. 2008).

On remand, the district court granted a preliminary injunction to most of the plaintiffs (physicians, dentists, pharmacists, adult day healthcare centers, clinics, health systems, and other providers) blocking the 10% cut in Medi-Cal rates for services provided on or after July 1, 2008.

The court refused to enjoin enforcement of the rate reductions for managed care plans and non-contract acute care hospitals, saying plaintiffs had not shown a risk of irreparable injury as to those services.

On the DHCS Director’s motion, the court subsequently modified its order to apply the injunction only to services furnished on or after August 18, 2008. DHCS had argued that requiring full reimbursement for services provided before the court’s order would violate the state’s Eleventh Amendment sovereign immunity.

The Ninth Circuit panel in July affirmed the grant of the preliminary injunction but found the injunction should be modified to cover payments for medical services provided on or after July 1, 2008 because the Director waived the state’s sovereign immunity in both state and federal court.

The appeals court found it clear the Director had violated Section 30(A) under the standards articulated in Orthopaedic Hosp. v. Belshe, 103 F.3d 1491 (9th Cir. 1997), when he implemented the rate reductions mandated by AB 5.

While the Director argued Orthopaedic Hospital was inapplicable and no longer good law, the Ninth Circuit disagreed.

“The State’s failure to evaluate the effect of the reduced payments in accordance with the standards set forth in Orthopaedic Hospital renders the cuts unlawful under § 1396(a)(30)(A),” the full court said.

The appeals court also agreed that plaintiffs had shown irreparable harm, even in light of the state’s looming financial crisis.

“[A]t least ten declarants stated that the rate reductions would force—or, in some cases, were already forcing—NEMT and home health-care agencies to reduce the geographic area served, decline to take new Medi-Cal patients, or stop treating Medi-Cal patients altogether,” the appeals court noted.

Independent Living Ctr. Of S. Cal., Inc. v. Maxwell-Jolly, No. 08-57016 (9th Cir. Aug. 7, 2009).

The Department of Health and Human Services (HHS) issued August 7 a series of state-by-state reports describing how healthcare reform will help Americans and their particular state.  

HHS Secretary Kathleen Sebelius and other top HHS officials released the reports as part of a webcast—“Health Insurance Reform: What’s In It For You?”  

“These reports show how health insurance reform will help Americans save money, get better care, strengthen their insurance if they already have it, and afford insurance if they don’t,” said Sebelius.  

The reports are the second in a series of state-by-state reports on healthcare across the country. The first group of reports focused on the current state of healthcare in the U.S.  

The Department of Health and Human Services (HHS) will make $13.4 million available for loan repayments to nurses who agree to practice in facilities with critical shortages and for schools of nursing to provide loans to students who will become nurse faculty, HHS Deputy Secretary Bill Corr announced August 12.

The funds were provided for by the American Recovery and Reinvestment Act (ARRA).

“The need for more nurses is great. Over the next decade, nurse retirements and an aging U.S. population, among other factors, will create the need for hundreds of thousands of new nurses,” Corr said.

“The awards from these two [] programs will help us meet projected demand” for nursing services, Corr added.

Read HHS’ press release.

Maryland law does not require a patient to show a battery or affirmative violation of the patient’s physical integrity to support a claim alleging lack of informed consent, the Maryland Court of Appeals held July 24. 

Reversing the lower courts’ decisions, the high court said a healthcare provider has a duty to inform a patient of material information.   According to the high court, this duty can be violated where a physician allegedly failed to inform an expectant mother of material changes in her condition during ongoing treatment that could have affected her decision making.  

“[T]he development of our jurisprudence has elucidated that a lack of informed consent claim is clearly predicated on negligence and the gravamen is the healthcare provider’s duty to provide information, rather than battery or the provider’s physical act,” the high court said.  

Moreover, “requiring a physical invasion to sustain an informed consent claim contravenes the very foundation of the informed consent-doctrine—to promote a patient’s choice,” the high court observed.  

Peggy McQuitty, mother and next friend of Dylan McQuitty, who was born with cerebral palsy, sued Dr. Donald Spangler, asserting medical malpractice and lack of informed consent claims. 

As to the informed consent claim, McQuitty alleged Spangler breached his duty by failing to inform her, after she consented to hospitalization and treatment for a partial-placental abruption, of risks and available alternative treatments related to material changes in her pregnancy—i.e., a second partial-placental abruption, low levels of amniotic fluid, and intrauterine growth restriction. 

A jury returned a verdict in Spangler's favor on the medical malpractice claim, but could not reach a verdict on the informed consent claim. Following a second trial on the informed consent issue, a jury awarded the McQuittys over $13 million in damages.  

Spangler moved for a judgment notwithstanding the verdict, which the trial judge granted, holding in Maryland the doctrine of informed consent applies only to affirmative violations of the patient’s physical integrity. The appeals court affirmed. 

The Maryland Court of Appeals reversed, finding informed consent in Maryland sounds in negligence, not battery.  

The high court acknowledged some confusion among state courts about the apparent introduction of a physical invasion requirement in an earlier decision, Reed v. Campagnolo, 630 A.2d 1145 (1993).  

But the high court said this reference, viewed with the benefit of hindsight, “deviated from our common law roots, as well as from cases in which we have explicitly stated that an allegation of lack of informed consent sounds in negligence, as opposed to battery or assault.” 

Thus, the high court held a physical invasion is not a requirement to sustain an informed consent claim and remanded the case to consider Spangler’s remittitur motion. 

State Medicaid Fraud Control Units (MFCUs) recovered more than $1.3 billion in court-ordered restitution, fines, civil settlements, and penalties in fiscal year (FY) 2008, the Department of Health and Human Services Office of Inspector General (OIG) said in its annual report on state MFCUs.

MFCUs also obtained 1,314 convictions and reported a total of 971 instances in which civil settlements and/or judgments were achieved, OIG said.

Also, of the total 3,129 practitioners OIG excluded from participation in Medicare, Medicaid, and other federal healthcare programs in FY 2008, 755 exclusions were based on referrals made to OIG by the MFCUs, according to the report.

In addition to highlighting noteworthy MFCU cases from 2008, the report noted that MFCUs: (1) presented proposals to state legislatures that will benefit the Medicaid program; (2) made recommendations to state Medicaid agencies to effect positive change to Medicaid policies and regulations; and (3) participated in joint case investigations/prosecutions involving both federal and state law enforcement agencies.

Read the report.

By Michael W. Peregrine, Steven F. Pflaum, William P. Schuman, McDermott, Will & Emery LLP 

State legal ethics rules are increasingly important given the renewed health industry enforcement/compliance climate. Accordingly, health lawyers should be aware of the national implications of influential new changes to the Illinois Rules of Professional Conduct (IRPC), including those that require heightened responsibilities for a lawyer upon learning of wrongful corporate conduct. These new rules were announced by the Illinois Supreme Court on July 1, 2009, and are effective January 1, 2010.[1] These changes emphasize how a lawyer's ethical obligations (specifically relating to internal communications and confidentiality) may be affected by representing corporate clients in a heavily regulated industry (e.g., healthcare).

1. Overview and Perspective

The new rules represent the first complete revision of the IRPC since 1990. They are based generally on Model Rules adopted by the American Bar Association in 2002/2003 and, together with Official Comments,[2] cover over 120 pages in length. Similar revisions have been made to the lawyer ethics rules of many other states.[3] Three of the new rules relate directly to compliance challenges that many health lawyers, in every state, may be called upon to address, given the heavily regulated nature of the healthcare industry. These three key provisions enhance the ability of lawyers to promote compliance with law and, more specifically, to facilitate communication between the lawyer and the corporate client in relation to legal compliance matters.

Accordingly, the new Illinois rules serve as a reminder to health lawyers to consider the status of similar rules in their own jurisdiction, and to review the application of those rules with their corporate clients.

2. The Three Key Rules

Key Rule No. 1: “Counseling client about legal consequences of proposed conduct without assisting criminal or fraudulent conduct.”

IRPC 1.2(d) provides that a lawyer “shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a client to make a good-faith effort to determine the validity, scope, meaning or application of the law.” This Rule addresses an area of acute concern to healthcare lawyers, given the vagaries of many federal and state healthcare laws and the rare but disconcerting situations where allegedly unlawful client conduct is attributed by “conspiracy” to its legal counsel.

Comments to IRPC 1.2(d) make clear that the lawyer (obviously) is prohibited from knowingly counseling or assisting a client to commit a crime or fraud. However, the lawyer is certainly entitled to provide the client with an honest opinion of the actual consequences the lawyer believes likely to result from the client’s conduct. More importantly, the fact that a client applies its lawyer’s advice in acting in a criminal or fraudulent manner does not, in and of itself, make the lawyer a party to the client’s course of action. In that way, IRPC 1.2(d) distinguishes between presenting an analysis of the legal aspects of questionable conduct (on the one hand) and recommending the means by which a crime or fraud might be committed (on the other hand).

The new IRPC changes to Rule 1.2(d) include a Comment referencing a lawyer’s discretion to make disclosures to prevent or rectify client fraud. Comment [10] deals with the circumstance in which the client’s course of action has already begun and is continuing. In such a situation, the lawyer’s role becomes delicate. Comment [10] serves to clarify that the lawyer must avoid assisting the client (for example) by drafting or delivering documents that the lawyer knows are fraudulent or by suggesting how the wrongdoing might be concealed. Along the same lines, the lawyer is prohibited from assisting a client in conduct the lawyer originally believed legally proper but subsequently discovers is criminal or fraudulent. In these and similar situations, withdrawal from the representation is required by the Rules [see IRPC 1.16(a)]. Indeed, the new Comment provides that in certain instances withdrawal alone may be insufficient; e.g., under the particular circumstances, compliance with the Rules may require the lawyer to give notice of the fact of the withdrawal and to disaffirm any opinion, document, affirmation, or similar manifestation of legal advice (see IRPC 4.1). Depending upon the circumstances, the lawyer is also to consider the appropriateness of disclosure of information relating to the representation (see IRPC 1.6(b), and below).

Key Rule No. 2: “Duty of Confidentiality.”

IRPC 1.6 governs the disclosure by a lawyer of information relating to the representation of a client during the lawyer’s representation of the client. In doing so, it speaks to the bedrock principle of confidentiality of client information; i.e., that the lawyer is prohibited from revealing information relating to the representation of a client, subject to specifically articulated exceptions. In this regard, it is important to note that Model Rule 1.6 was dramatically amended in the wake of Enron and related scandals to assure that principles of client confidentiality are not used by a client to prevent disclosure of a fraud or crime.[4]

The new IRPC provisions track the Model Rules and change the prior Illinois rules concerning client confidentiality in two major respects, including one which broadens the circumstances in which a lawyer is permitted to disclose the client’s intention to commit a crime. Changes to IRPC 1.6 essentially “reshuffle” the confidentiality principles along the Model Rules approach, with a few important distinctions.

For example, IRPC 1.6(b)(1) is a general exception to the rule of confidentiality, which permits the lawyer to reveal the intention of a client to commit any crime [including a financial crime], regardless of the nature of the crime or whether the crime might lead to substantial financial injury.[5] In this respect, the IRPC differs from the Model Rules, which permit disclosure only to prevent crime or fraud that would result in substantial financial injury.

Furthermore, new IRPC 1.6(b)(2) provides a separate exception to the rules of client confidentiality that permits the lawyer to reveal information necessary to enable affected persons or appropriate authorities to prevent the client from committing fraud[6] that is reasonably certain to result in substantial injury to the financial or property interests of another and in furtherance of which the client has used or is using the lawyer’s services.

Neither IRPC 1.6(b)(1) nor (b)(2) requires the lawyer to reveal the client’s misconduct, but the lawyer is prohibited from counseling or assisting the client in conduct known by the client to be criminal or fraudulent.[7] In this regard, reference should also be made to IRPC 1.16 (with respect to the lawyer’s obligation or right to withdraw from the representation of the client in certain circumstances), and Rule 1.13(c) (which permits the lawyer, when the client is an organization, to reveal information relating to the representation in limited circumstances) (see below).

In addition, a new Comment [15A] was added to IRPC 1.6 to remind lawyers that a “noisy withdrawal” (i.e., providing notice of the withdrawal) may still be undertaken in the case of client crime or fraud regardless of whether the lawyer decides to disclose confidential information as may be permitted by IRPC 1.6(b). If the client is an organization, the lawyer must also consider the provisions of IRPC 1.13 (see below).

Particularly noteworthy is Comment [9] to IRPC 1.6, which provides that a lawyer’s confidentiality obligations do not preclude the lawyer from obtaining confidential legal advice concerning the lawyer’s personal responsibility to comply with the IRPC. In most circumstances, disclosure of confidential information in connection with obtaining such advice will be impliedly authorized in order to allow the lawyer to proceed properly with the representation. IRPC 1.6(b)(4) permits this type of disclosure due to the importance attributed to a lawyer’s compliance with the IRPC. Because such compliance is ultimately beneficial to the client, it is reasonable that the client assume the cost of such outside advice.

Key Rule No. 3: “Organization as Client.”

IRPC 1.13 deals with the special responsibilities of a lawyer for a corporation or organization. The goal of this Rule is to enhance the effectiveness of lawyers to a corporation in their counseling role to encourage compliance with legal obligations. Of particular interest are three changes to the rules that govern the lawyer’s obligations to communicate internally within the organization—as well as outside—when the lawyer has knowledge of corporate misconduct, including but not limited to crime or fraud.[8]

The first material change is to IRPC 1.13(b), which now (like the Model Rules) mandates “reporting up” of corporate misconduct unless the lawyer reasonably believes it is not necessary. The new Rule 1.13(b) addresses two main issues:

• The circumstances that trigger the lawyer’s duty to take action within the organization: IRPC 1.13(b) requires a lawyer for an organizational client to act when the lawyer knows that a person within the organization is violating, or intends to violate the law and is likely to cause substantial injury to the organization. As defined in the IRPC, the terms “knowingly,” “known” or “knows” refer to actual knowledge and do not include knowledge that could merely be imputed to the lawyer. Actual knowledge can be inferred, however, from the circumstances.
• The circumstances in which the lawyer is required to communicate with a higher authority within the organization: IRPC 1.13(b) encourages “reporting up” within the organization by requiring the lawyer to refer the matter to higher authority in the organization including (if warranted) the organization’s highest authority (e.g., board of directors)—unless the lawyer reasonably believes that it is not necessary in the best interest of the organization to do so.

Comment [4] provides that when making “reporting up” decisions, the lawyer should take into consideration such factors as the seriousness of the misconduct and its consequences; the responsibility in the organization and the apparent motivation of the involved parties; related organizational policies; and any other relevant considerations. Thus, in some situations, the lawyer may first ask the individuals in issue to reconsider the matter (e.g., if there was an innocent misunderstanding of the law). If that communication is successful, “reporting up” may not be necessary. If that communication is not successful, reporting up may become necessary. Furthermore, if the circumstances are of sufficient seriousness and importance or urgency to the organization, “reporting up” may be necessary even if the lawyer has not asked the parties to reconsider the matter. As Comment [5] notes, the lawyer will be required to “report up” when doing so is reasonably necessary to position the organization to respond to the matter in a timely and appropriate manner.

The “reporting up” provisions of IRPC 1.13(b) are not intended as “best practice,” but rather as guidelines for responding to those truly extraordinarily circumstances in which a significant failure of governance puts (or threatens to put) the interests of the organization into serious legal jeopardy.[9]

The second material change, to IRPC 1.13(c), permits, but does not require, the organization’s lawyer to communicate client confidences with persons outside of the organization in certain circumstances. These include circumstances where: (a) the subject conduct involves a crime or fraud (as opposed to simply a “violation of law”); (b) the organization’s highest authority insists upon or fails to address in a timely and appropriate manner an action or refusal to act that is clearly a crime or fraud; and (c) the “reporting out” is determined by the lawyer to be reasonably necessary to prevent substantial injury to the corporation. Note that lawyers may still have a Rule 1.13(b) “reporting up” obligation in the event of client misconduct involving other than crime or fraud, even though they may be prohibited from “reporting out” pursuant to Rule 1.13(c).

The third material change, to IRPC 1.13(e), provides that a lawyer who reasonably believes that he or she has been discharged because of “reporting up” or “reporting out” as provided in either IRPC 1.13(b) or (c), or who withdraws under circumstances that would permit such reporting, must inform the organization’s board of the discharge or withdrawal and what the lawyer reasonably believes to be the basis for the discharge or withdrawal.

3. Policy and Practical Implications

These changes to the IRPC are consistent in most respects with changes adopted to the lawyer ethics rules in many other states. Indeed, the rules in most states have been revised in one form or another to address such “corporate responsibility”-related changes adopted in the Model Rules. They reflect a public policy that effective corporate governance and legal compliance are enhanced by increasing the flow of information on legal risks within the organization.[10] They also are consistent with the generally accepted perspective that lawyers are and should be important participants in corporate governance, key contributors to corporate responsibility, and promoters of corporate compliance with the law.[11]

The requirements of new Rules 1.2, 1.6, and 1.13 in particular are of such significance to organizational compliance activities that they should be shared with the compliance and audit committees, the full board, and executive leadership. It is vitally important that these internal constituents understand and respect these crucial compliance-based aspects of lawyers’ professional responsibility.

These compliance-based changes to the IRPC speak to difficult and sensitive issues that go to the core concept that the primary duties of a lawyer who represents a corporation are owed to the corporation, and not to the corporation’s officers, agents, or employees.[12] They highlight the pressures and challenges that all health lawyers face on a daily basis while advising internal and external clients on myriad rules and regulations, many of which involve criminal and/or anti-fraud prohibitions or significant financial penalties. It is therefore important for health lawyers to have a solid familiarity with these new rules, the public policy benefits they are intended to achieve, and the circumstances in which they are implicated. It is also useful for health lawyers to explain to their corporate clients the practical applications of these rules to the attorney-client relationship.

President Obama sought to regain momentum for healthcare reform during a town hall discussion held August 11 in Portsmouth, NH.  

With Congress in recess and healthcare reform legislation not as far along as initially hoped, Obama fielded questions about current proposals being considered to overhaul the system. 

Obama urged critics to “disagree over things that are real, not these wild misrepresentations that bear no resemblance to anything that’s actually been proposed.”

For example, Obama sought to dispel concerns that a provision of the House healthcare reform bill (H.R. 3200) would establish “death panels” that decide when to discontinue care.  

The House bill provision, Obama said, allows Medicare to reimburse providers for consultations about end-of-life-care and is intended “to give people more information so they could handle issues of end-of-life care when they’re ready.” 

Later in the week, however, Senate Finance Committee Ranking Member Charles Grassley (R-IA), said in a statement that the Committee “dropped end-of-life provisions from consideration entirely because of the way they could be misinterpreted and implemented incorrectly.”  

According to Grassley, one of the three Republican Committee members working to craft bipartisan healthcare legislation, the bill passed by the House committees “is so poorly cobbled together that it will have all kinds of unintended consequences.”

The President during the town hall exchange also sought to reassure seniors that current healthcare reform proposals would not cut Medicare benefits, noting that $500-$600 billion in Medicare savings over the next decade would come from eliminating subsidies to insurance companies through the Medicare Advantage program.  

“I just want to be clear, again: Seniors who are listening here, this does not affect your benefits. This is not money going to you to pay for your benefits; this is money that is subsidizing folks who don’t need it,” Obama said.  

“AARP would not be endorsing a bill if it was undermining Medicare,” Obama told the audience.  

AARP later issued a press release clarifying that while it does support healthcare reform, it has not endorsed any of the bills currently being considered in the House and Senate. 

“While the President was correct that AARP will not endorse a health care reform bill that would reduce Medicare benefits, indications that we have endorsed any of the major health care reform bills currently under consideration in Congress are inaccurate,” the statement said.  

Obama also responded to concerns that private plans would not be able to compete with a public plan option. 

If a public plan is self-sustaining—i.e., does not rely on taxpayer subsidies—“then I think private insurers should be able to compete,” Obama said, noting that private insurers already coexist with other public plans like Medicare and Medicaid.

Blue Cross Blue Shield Association (BCBSA) announced August 13 a new report finding administrative costs for private plans are much lower than previous estimates, representing only 9% of premiums for all policies sold.

High administrative costs are often cited as one of the reasons for introducing a public plan.

“Prior reports rely on outdated, decades-old estimates from when claims were paper-based and today's electronic processes were in their infancy," said Douglas B. Sherlock, president of the Sherlock Company, which produced the report. "This report demonstrates that health plan administrative costs have been vastly overstated." 

“Some elements of healthcare reform can help reduce administrative costs, if done right. For example, state-based health insurance exchanges can make it easier for people to purchase health insurance and simplify administrative functions,” said Scott P. Serota, BCBSA president and chief executive officer. 

View a transcript of the town hall discussion.

The Department of Health and Human Services Office of Inspector General (OIG) said in an advisory opinion posted August 10 that it would not impose civil monetary penalties in connection with a hospital’s provision of free blood pressure screenings to walk-in visitors, some of whom may be Medicare and Medicaid beneficiaries. 

The prohibition on inducements to beneficiaries contains an exception for incentives given to individuals to promote the delivery of preventive care, so long as the deliveries of those services is not tied, directly or indirectly, to the provision of other services reimbursed by Medicare or Medicaid. 

In addition, OIG has taken the position that incentives of nominal value (no more than $10 per item, or $50 in the aggregate on an annual basis) are not prohibited by the statute.  

OIG said the free checks were not nominal because the hospital imposed no annual limit on the number of screenings and therefore they could exceed $50 per year.  

But OIG also found the free blood pressure checks met the definition of preventative care in some circumstances and that they were unlikely to promote the provision of other, non-preventive care reimbursed by federal healthcare programs. 

Specifically, OIG noted the screenings would not be conditioned on the use of any other goods or services from the hospital, nor would any visitor be offered any special discounts on follow-up care. 

According to the requestor, a small, county-owned critical access hospital, staff would respond to abnormal readings by advising the visitor to see his or her own healthcare professional.

The hospital also certified that it did not advertise the free blood pressure check services to the public. 

The scenario presented by the hospital paralleled a hypothetical described in the preamble of a final rule on the CMP regarding the preventative care exception, OIG noted. See 65 Fed. Reg. 24400 (Apr. 26, 2000). 

“In sum, the Arrangement is appropriately crafted so as to avoid improper ties to the provision of other services," OIG said.

OIG also concluded that, it would not impose administrative sanctions under the Anti-Kickback Statute for similar reasons.

An excise tax on insurance companies that offer very high-cost health insurance plans would provide a significant source of funding for subsidies to make insurance more affordable for everyone and would slow the rate of growth of health insurance and healthcare costs, according to a report issued August 7 by the Center for Budget and Policy Priorities (CBPP).

The Senate Finance Committee currently is considering such a plan as part of comprehensive healthcare reform, the report noted.

The proposed excise tax would be levied on health insurance companies and third-party administrators that offer health insurance plans with premiums that exceed a specified amount, such as $8,000 to $10,000 for a single health insurance policy and $21,000 to $25,000 for a family policy, the report explained.

The tax would equal a percentage of the amount by which premiums exceeded these thresholds.

This would provide a significant source of funding for overall health reform, the report said, as an excise tax “would apparently raise about $90 billion to $180 billion in revenues over 10 years depending on where the thresholds are set, how they are indexed, and what tax rate is applied.”

The report also noted the vast majority of health insurance plans would be unaffected by the tax.

According to the report, the tax would not affect the cost of health insurance for most people because insurers “generally would pass on the cost of the excise tax to employers and workers in the form of higher premiums for the high-cost insurance plans that would be subject to the tax.”

In addition, the report argued the tax would not undermine employer-sponsored health insurance.

Read the report.

The Senate confirmed August 7 by a unanimous vote Dr. Francis Collins, M.D., Ph.D. as the next Director of the National Institutes of Health (NIH).

Collins was announced in July as President Obama’s pick for NIH Director and is a physician-geneticist best known for his landmark discoveries of disease genes and his leadership of the Human Genome Project.

Collins served as Director of the National Human Genome Research Institute (NHGRI) at NIH from 1993-2008.

“Dr. Collins is one of our generation's great scientific leaders,” Department of Health and Human Services Secretary Kathleen Sebelius said in announcing the confirmation. “Dr. Collins will be an outstanding leader. Today is an exciting day for NIH and for science in this country.”

The Seventh Circuit found July 24 that a physician could not maintain a claim for tortious interference against the hospital where he did his residency and several other physicians who worked there after another hospital denied his application for privileges. 

The appeals court found no evidence the hospital where the physician sought privileges relied on or was influenced by an information provided by defendants in making its credentialing decision. 

Therefore, the appeals court affirmed a district court ruling holding the plaintiff physician failed to create a genuine issue of material fact on his tortious interference claim. 

Plaintiff Bradley Botvinick completed his residency in anesthesiology at Rush University Medical Center (Rush).  

While at Rush, plaintiff was accused by a female physician of sending her “sexually explicit” items in the mail. Plaintiff contended he was framed and someone had stolen his credit card to make the purchases online. Rush did not take any formal disciplinary action against plaintiff in connection with the incident. 

Plaintiff later obtained employment with Anesthesiology Associates of Dunedin (AAD) in Florida. Plaintiff lost that job, however, after Morton Plant Mease Health Care (Morton) refused to grant him privileges at the two hospitals where AAD physicians practiced.  

During the credentialing process, Morton told plaintiff that it had received “negative evaluations” about him and asked to speak with his former supervisor at Rush, Dr. Anthony Ivankovich.  

Plaintiff executed a “release and immunity” extending “absolute immunity” to third parties like Ivankovich who provided information about plaintiff’s professional competence and character. Based on the release, Ivankovich communicated with Morton’s credentialing committee.  

After Morton denied his application for privileges, plaintiff sued Rush and several physicians, including Ivankovich, alleging they tortiously interfered with his AAD employment by supplying negative evaluations about him to Morton. 

The federal district court refused to dismiss the diversity action based on the Illinois Medical Studies Act (IMSA), which makes privileged information on a healthcare practitioner’s professional competence used by a credentialing committee for quality control.  

At the same time, the court ordered a protective order preventing plaintiff from discovering the oral and/or written communications between defendants and Morton.  

Four of defendant physicians signed affidavits that they did not provide any written or oral evaluations about plaintiff to Morton; thus, the court granted summary judgment to them, finding they could not have tortiously interfered with his application for privileges. 

As for Ivankovich, the court found plaintiff failed to produce evidence that Ivankovich’s communications influenced Morton’s decision and therefore granted him summary judgment as well. 

Affirming, the appeals court noted a major flaw in plaintiff’s case was his failure to take any discovery from Morton about what information it relied on in making its decision. 

“Without evidence of why Morton terminated his privileges, Botvinick cannot show that the communications of any particular defendant, including Ivankovich, influenced Morton’s decision,” the appeals court observed. 

The appeals court also upheld the lower court’s protective order. Plaintiff contended that had defendants told Morton about the alleged “sex-toy” scandal that information would not be privileged under the IMSA because it did not relate to his “professional competence.” 

But the appeals court said this interpretation was likely too narrow a reading of the IMSA, noting a hospital has a legitimate interest in information about how a prospective doctor may conduct himself.  

Finally, the appeals court noted plaintiff had signed a release and immunity form. “It is difficult to see how this broad, explicit language does not immunize the defendants from tort liability for anything they may have told Morton about Botvinick,” the appeals court commented. 

Discrimination based on pre-existing conditions affects a large proportion of Americans, the Department of Health and Human Services (HHS) said in a new report, “Coverage Denied: How the Current Health Insurance System Leaves Millions Behind.”

According to the report, 12.6 million non-elderly adults, or 36% of those who tried to buy insurance on the private market, were discriminated against because of a pre-existing condition in the past three years.

In addition, HHS said that a recent survey found one in 10 people with cancer said they could not get health coverage, and 6% said they lost their coverage because of their diagnosis.

HHS further found a pre-existing condition does not have to be a serious disease. “Even relatively minor conditions like hay fever, asthma, or previous sports injuries can trigger high premiums or denials of coverage,” the report said.

Another problematic practice tagged by the report is the practice of rescission.

“When a person is diagnosed with an expensive condition, such as cancer, some insurance companies review his/her initial health status questionnaire. . . [and in] most states’ individual insurance market, insurance companies can retroactively cancel the entire policy if any condition was missed—even if the medical condition is unrelated, and even if the person was not aware of the condition at the time,” the report said.

The report noted that a recent congressional investigation into insurance rescission found nearly 20,000 rescissions from three large insurers over five years, saving them $300 million in medical claims.

“Under health insurance reform, insurance companies will be prohibited from refusing coverage because of someone’s medical history or health risk,” the report said, noting also that “insurance companies will be prohibited from dropping or watering down insurance coverage for those who are or become ill.”

Read the report.

• U.S. Attorney for the Northern District of Alabama Joyce White Vance announced August 7 that the federal government reached a $1.4 million civil healthcare fraud settlement with William King Jr. and Marie King, a couple who jointly acted as managers and operators of two businesses that provided consulting and accounting services for skilled nursing facilities (SNFs) in Alabama. According to the release, investigators in the case discovered that, over a five-year period, the Kings caused false claims for utilization review (UR) services to be presented in annual cost reports submitted to the Medicare program. Specifically, the Kings and their businesses allegedly caused certain of their SNF clients to present claims that overstated the amount of work performed by physicians on staff. These claims ultimately resulted in losses of over $740,000 to Medicare. The investigation was launched after a whistleblower qui tam action was filed in federal district court. Read Vance’s press release. 
• Acting U.S. Attorney Jeffrey Sloman also announced August 10 that Yamil Ramos Perez, the owner of two healthcare clinics, was indicted on charges threatening to injure government officials engaged in a fraud investigation. The indictment also alleged Perez’s clinics had billed Medicare for approximately $20 million, and had been reimbursed for approximately $6 million. The two clinics were then placed on “pre-payment review” because of suspected fraud. This status then prevented the clinics from receiving further reimbursements, at which point Perez allegedly contacted Medicare several times requesting removal of “pre-payment review.” Perez then allegedly threatened a Medicare fraud investigator and a director at the federal Centers for Medicare and Medicaid Services (CMS) with bodily injury if that “pre-payment review” status remained unchanged. Read Sloman’s press release.  
• Ramon Santos, who was employed as a physician’s assistant at two Miami-area HIV-infusion therapy clinics, was convicted by a federal jury of conspiracy to commit healthcare fraud and obstruction of justice, announced Acting U.S. Attorney Jeffrey Sloman on August 10. According to evidence presented at trial, Santos was not a licensed physician’s assistant, but nonetheless practiced as one in two HIV-infusion therapy clinics. Evidence established that Santos examined patients, prepared treatment plans, and prepared false paperwork. This information was then used to submit more than $12 million in false claims to Medicare. Santos faces a maximum prison sentence of 10 years’ imprisonment. Read Sloman’s press release.  
• A Miami physician, Keith Russell, was sentenced to 97 months’ imprisonment, and two physician’s assistants, Jorge Luis Pacheco and Eda Marietta Milanes, received prison sentences of 97 months and 63 months, respectively, for their roles in a fraud scheme that resulted in billing the Medicare program nearly $11 million for unnecessary HIV infusion treatments, announced the U.S. Department of Justice (DOJ) on August 7. Evidence presented at trial established that Russell served as the medical director at two clinics that purported to specialize in the treatment of HIV. Witnesses at trial testified that Russell, with the assistance of Pacheco and Milanes, participated in a scheme in which unnecessary medicines were never actually administered to patients, who each received a cash kickback of $200 per visit. The three defendants were also ordered to pay more than $3.1 million in restitution to the Medicare program. Read DOJ’s press release. 
• U.S. Attorney for the District of Idaho Tom E. Moss announced August 10 that Candace Elmer, a resident of Spokane, Washington, was sentenced to 30 months’ imprisonment, followed by three years’ supervised release, for defrauding the state Medicaid program by managing a business that provided psychosocial rehabilitation services to children and adults that did not conform with Medicaid requirements. The services provided by the business that Elmer managed were purportedly administered by employees who were not qualified to provide such services. In addition, investigators found the business was billing Medicaid for services that were never actually provided to patients. In addition to her prison sentence, Elmer was ordered to by over $210,000 in restitution to the Medicare program. Read Moss’s press release.
• U.S. Attorney for the Middle District of Tennessee Edward M. Yarbrough announced August 13 that Candyce Jones, a Nashville resident, was indicted on charges of participating in a $1.1 million healthcare fraud scheme. According to the indictment, Jones owned and operated a “billing” business that submitted claims to the Medicare and state Medicaid programs for services purportedly provided to beneficiaries. Over a three-year period, Jones allegedly caused her business to submit fraudulent claims in excess of $1.1 million to these programs for psychotherapy and other services that either were never provided or were provided by unlicensed individuals. In addition, Jones allegedly fraudulently used a purported beneficiary’s social security number, as well as a physician’s identification number, when submitting fraudulent claims. Read Yarbrough’s press release.
• The state of Connecticut received $104,827 from Quest Diagnostics (Quest) to settle allegations that its subsidiary, Nichols Institute Diagnostics (NID), billed the Medicare program for defective and inaccurate tests, announced Connecticut Attorney General Richard Blumenthal on August 11. The payment is part of a $12.4 million settlement between Quest and Connecticut as well as other states and the U.S. Department of Justice. The case involves allegations that, over a one-year period, NID billed Medicare for defective tests to determine whether patients with late stage kidney disease also had thyroid problems. According to the states’ allegations, these and other tests generated inaccurate results. Prior to reaching a settlement in the case, Quest completed the closure of NID. Read Blumenthal’s press release.
• New Jersey Attorney General Anne Milgram announced August 7 that Paola D’Ottavio, a pharmacist, was sentenced to eight years’ imprisonment for illegally dispensing hydrocodone and defrauding the Medicaid program as well as private insurance companies. Evidence established that, over a period of a year-and-a-half, D’Ottavio created false telephone prescriptions for hydrocodone and provided thousands of pills to certain customers. In addition, D’Ottavio submitted false claims to Medicaid, Caremark, and other private insurance companies for drugs that had not been legitimately prescribed by physicians. D’Ottavio also was ordered to pay over $19,500 in restitution to the Medicaid program. Read Milgram’s press release.   
• Alpha Therapeutic Corp. (Alpha) reached a $1.2 million settlement with the state of Texas to resolve allegations that the company improperly reported the prices of drugs it manufactured, thereby resulting in overpayment by the Medicaid program, announced Texas Attorney General Greg Abbott. The state also alleged that windfall profits from these inflated reimbursement, which date back over a decade, induced providers to favor Alpha over other manufacturers, and resulted in an unlawful market advantage for the company. Read Abbott’s press release.  

A federal district court upheld August 4 the Department of Health and Human Services’ denial of claims by an Independent Diagnostic Testing Facility (IDTF) that did not comply with applicable Medicare regulations.

The provider should have known that its claims would not be paid unless they were compliant with federal law and thus it was not entitled to a waiver, the U.S. District Court for the Central District of California, Western Division, held.

Between November 27, 2002 and January 18, 2003, plaintiff KGV, an IDTF, billed its Medicare carrier for providing mobile diagnostic testing services to a number of Medicare beneficiaries. The claims were denied because they were not reasonable and necessary, according to the carrier.

KGV subsequently obtained two favorable Administrative Law Judge (ALJ) decisions. The Medicare Appeals Council (MAC), however, reviewed, reversed, and remanded both decisions.

The ALJ then issued another opinion adverse to KGV and the MAC affirmed the ALJ’s conclusions.

The court noted at the outset that, in support of its claim for payment, KGV had submitted copies of its preprinted physician order forms. The court found, however, these forms had numerous deficiencies and did not conform to the requirements of 42 C.F.R. § 410.33(d).

“KGV never presented medical records or witness testimony, or submitted signed declarations from the five physicians named on the order forms attesting to the accuracy of the information allegedly contained on those forms, or submitted any other form of evidence, that would verify that the information allegedly contained on its order forms establishes medical necessity,” the court found.

Accordingly, the court concluded the ALJ reasonably found KGV failed to meet the medical documentation requirements that IDTFs must meet to be eligible for reimbursement for services to Medicare beneficiaries.

The court noted that even if services were not medically necessary, Medicare payment may still be made pursuant to a “waiver” provision contained in Section 1879 of the Social Security Act, 42 U.S.C. § 1395pp.

This section provides that payment may be made if “neither the beneficiary, nor the provider/supplier knew or reasonably could have been expected to know that such services would be excluded from Medicare coverage.”

Here, the court held that KGV was not entitled to a waiver because it should have known that it was required to comply with the Medicare Act regulations and that Medicare would not provide reimbursement for services that were not demonstrably medically necessary and otherwise properly documented.

KGV Easy Living Corp. v. Sebelius, No. CV 08-2350 DSF (RZx) (C.D. Cal. Aug. 4, 2009).

The U.S. District Court for the Western District of Kentucky dismissed a claim August 6 by a plaintiff who challenged Medicare’s recovery action of a conditional payment made on his behalf.

According to the court, under the Medicare Secondary Payer Act, the Administrator of the Centers for Medicare and Medicaid Services (CMS) has a statutory right of recovery of conditional Medicare payments made where a payment has been made under liability or no-fault insurance.

Because plaintiff did not quality for a waiver of the recovery, the court held CMS did not err in recovering its payment made on plaintiff’s behalf.

Plaintiff Vernon Hadden was severely injured when he was struck by a public utility vehicle owned by Pennyrile Rural Electric Cooperative Corporation.

Hadden settled his claims with Pennyrile and under the terms of a release/indemnity agreement, plaintiff agreed to pay and satisfy all medical expenses, liens, and/or claims related to the incident.

Medicare conditionally paid plaintiff’s medical expenses. CMS then sought recovery of the payments. Plaintiff sought a waiver of recovery but CMS denied the request.

An administrative law judge (ALJ) issued an opinion finding in favor of CMS, which the Medicare Appeals Council (MAC) affirmed. The MAC later amended its decision, but still affirmed the ALJ’s findings. Hadden appealed.

The court first noted that under the Social Security Act, CMS may grant a waiver of recovery where (1) a claimant is without fault and (2) recovery would either defeat the purposes of Title II or would be against equity and good conscience. 42 U.S.C. § 404(b).

It is undisputed in this case that plaintiff was without fault; therefore, the court considered whether recovery would be against equity and good conscience.

Plaintiff argued the recovery should be reduced based on equitable allocation principles.

According to plaintiff, a reasonable fault allocation would be 10% for Pennyrile and 90% for the unidentified motorist under Kentucky comparative fault principles. Therefore, plaintiff argued, “CMS could expect to recover no more than ten percent of the total principle amount of any Medicare subrogation claim.”

Finding plaintiff’s reliance on cited cases misplaced, the court noted the primary payor in this case was the insurer who paid $125,000 to plaintiff pursuant to the settlement agreement between plaintiff and Pennyrile.

“More importantly,” the court continued, “the underlying claim in this case was not adjudicated on the merits; it was settled. In other words, had Plaintiff wanted equitable allocation and subrogation principles to apply in this case, then he should have proceeded to trial on the merits of his tort claim in state court.”

Noting plaintiff “offered no evidence demonstrating that recovery is against equity and good conscience,” the court held the Secretary’s decision was supported by substantial evidence.

The court likewise found no merit in plaintiff’s argument that any recovery should be waived under the “made whole” doctrine, which is not recognized by Medicare.

Hadden v. United States, No. 1:08-CV-10 (W.D. Ky. Aug. 6, 2009).

A hospital was not liable in a strict product liability action in Missouri because the hospital was not a "seller" of the allegedly defective product, a federal district court held July 31.

Accordingly, the hospital where the plaintiff had an operation during which an allegedly defective product was used must be dismissed from the action, the U.S. District Court for the Eastern District of Missouri said.

Plaintiff Pamela Kampelman had an operation on April 26, 2004 at St. Luke’s Hospital during which a “quarter-by-quarter cottonoid” was left in her body.

The cottonoid, which was allegedly designed, manufactured, distributed, and sold by defendant Johnson & Johnson, caused plaintiff permanent injury.

Plaintiff and her husband sued Codman Shurteef, Inc., Johnson & Johnson, and St. Luke’s Hospital, claiming the cottonoid was defective and unreasonably dangerous when put to a reasonably anticipated use.

St. Luke’s moved to dismiss the claims against it arguing plaintiffs asserted claims under a strict product liability theory and that St. Luke’s as a healthcare provider did not make a “sale” of the product.

The court agreed with St. Luke’s, noting “the Supreme Court of Missouri has unequivocally announced that hospitals are not subject to strict product liability actions” in Budding v. SSM Healthcare System, 19 S.W.3d 678, 681-682 (Mo. 2000).

In addition, the court found “no facts or circumstances alleged upon which a verdict might be rendered against St. Luke’s in this case under a products liability theory, other than as an alleged seller in the stream of commerce, nor have Plaintiffs responded with any such basis for liability.”

The court noted, lastly, that plaintiffs still may seek redress against the other defendants, who are the alleged manufacturers of the cottonoid in question.

Kampelman v. Codman & Shurteef, Inc., No. 4:09CV1039 HEA (E.D. Miss. July 31, 2009).