Health Lawyers Weekly:
August 05, 2011 Vol. IX Issue 31
CMS Final Rule Increases Medicare Payments To IRFs By $150 Million In FY 2012
Medicare payment rates to the more than 1,200 free-standing and hospital-based inpatient rehabilitation facilities (IRFs) will increase by 2.2%, or a projected $150 million, under a fiscal year (FY) 2012 final rule (76 Fed. Reg. 47836) the Centers for Medicare and Medicaid Services (CMS) published in the August 5 Federal Register.
The proposed rule (76 Fed. Reg. 24214) issued in April projected a 1.8%, or $120 million, increase under the IRF Prospective Payment System.
The final rule, which is effective for discharges on or after October 1, 2011, also establishes a new quality reporting system for IRFs as authorized under the Affordable Care Act.
“The final rule extends to the Inpatient Rehabilitation Facility payment system a quality reporting program designed to encourage these facilities to adopt practices that will better protect patient safety and prevent hospital-acquired conditions, which is an essential part of providing well-coordinated patient-and-family-centered care,” said CMS Administrator Dr. Donald Berwick in a press release.
Under the final rule, IRFs initially will submit data on two quality measures—urinary catheter-associated urinary tract infection and pressure ulcers that are new or have worsened. IRFs that do not submit quality data would see their payments reduced by two percentage points beginning in FY 2014, CMS said.
A third measure—“30-day Comprehensive All Cause Risk Standardized Readmission”—also is under development, CMS said.
Among other provisions, the final rule also allows IRFs to receive temporary adjustments to their full-time equivalent intern and resident caps if they take on interns and residents who are unable to complete their training because the IRF that had been training them either closed or ended its resident training program.
IPPS Final Rule Increases Medicare Payments To Hospital
The Centers for Medicare and Medicaid Services (CMS) issued August 1 a final rule that increases payment rates in fiscal year (FY) 2012 for most general acute care hospitals paid under the inpatient prospective payment system (IPPS) by 1%, instead of the negative 0.5% update included in the proposed rule.
According to CMS, the positive rate update in the final rule, which increases payments to acute care hospitals for inpatient services in FY 2012 by $1.13 billion compared to FY 2011, was due to the adoption of a higher market basket than earlier projections (3% versus 2.8%); a lower multifactor productivity adjustment based on more recent data (1% versus 1.2%); and a lower prospective documentation and coding adjustment of negative 2% rather than the 3.15% called for under the proposed rule.
Last week, House and Senate lawmakers urged CMS to take another look at proposed cuts in Medicare payments to hospitals intended to offset coding changes that are not based on changes in patient severity, which they said would have cut hospital reimbursement by $6 billion in FY 2012.
American Hospital Association President and Chief Executive Officer Rich Umbdenstock said in a statement the group was “disappointed CMS continues to implement coding cuts,” but “pleased that it acknowledged the earlier plan would have been detrimental to hospitals’ mission of caring.”
“CMS has developed its update policy in response to many comments expressing concerns about our original proposal,” Deputy Administer and Director for the Center for Medicare Jonathan Blum said in an agency press release. “We believe that our final policy strikes the appropriate balance between providing a fair update to hospitals and ensuring careful stewardship of the Medicare Trust Fund.”
The final rule, which will be published in the August 18 Federal Register and is effective as of October 1, 2011, also provides a 2.5% increase, or $126 million bump, in Medicare payments to Long Term Care Hospitals (LTCH) under the LTCH PPS for FY 2012. The proposed rule projected a 1.9%, or $95 million, increase in payments for LTCHs.
The rule also finalizes a number of proposals related to quality initiatives.
The Affordable Care Act (ACA) requires CMS to implement a Hospital Readmissions Reduction Program that will reduce payments beginning in FY 2013 to certain hospitals that have excess readmissions for certain selected conditions. The recently announced public-private Partnership for Patients is aimed at decreasing hospital readmissions by 20% in 2014 compared to 2010.
The final rule adopts initial measures for rates of readmissions for three conditions—acute myocardial infarction (or heart attack), heart failure, and pneumonia—as well as the methodology that will be used to calculate excess readmission rates for these conditions.
In addition, the final rule expands to 76 the quality measures that hospitals must report under the new Hospital Inpatient Quality Reporting Program to receive a full update in FYs 2014 and 2015.
The rule also finalizes the first measure set for a quality reporting program under the LTCH PPS. Under the final rule, reporting will begin in FY 2013 for payment determination in FY 2014.
Fifth Circuit Affirm Convictions, Sentences Of Individuals Involved In Medicare, Medicaid Fraud Scheme
The Fifth Circuit affirmed July 15 the convictions of three individuals who were accused of participating in a scheme to defraud Medicare and Medicaid of more than $34 million by submitting fraudulent claims for durable medical equipment (DME).
A federal jury in Texas convicted King Arthur, Bose Ebhamen, and Rhonda Fleming of healthcare fraud and wire fraud, and conspiracy to commit those crime. Ebhamen and Fleming also were convicted of money laundering.
According to evidence presented at trial, Fleming owned a medical billing company, Advanced Medical Billing Specialists, and paid Arthur and Ebhamen, who owned or co-owned medical equipment companies, for their supplier numbers to use for fraudulent billing purposes.
The district court sentenced Fleming, Arthur, and Ebhamen to 360, 95, and 135 months' imprisonment, respectively.
All three defendants argued, on appeal, that the evidence was insufficient to sustain the convictions.
In an unpublished opinion, the Fifth Circuit noted "ample evidence" to support Arthur and Ebhamen's convictions, rejecting their argument that they lacked the requisite knowledge or intent to defraud.
Specifically, the appeals court pointed to evidence that they failed to notify Medicare of the sale fo their supplier numbers and the financial rewards they received for participating in the scheme.
The appeals court also rejected Fleming's challenge to the sufficiency of the evidence as to her convictions, citing her "central" role in the fraud scheme.
Finally, the appeals court affirmed the sentences, rejecting defendants' arguments of district court errors.
United States v. Arthur, No. 08-20877 (5th Cir. July 15, 2011).
Fifth Circuit Affirms Dismissal Of Physician’s Claims Against Texas Medical Board, Private Physicians
The Fifth Circuit affirmed the dismissal of a physician’s lawsuit against members of the Texas State Medical Board (Board), two private doctors, and an administrative law judge (ALJ) alleging various constitutional claims in connection with the revocation—or attempted revocation—of his medical license.
According to plaintiff Rodulfo Rivera, a former patient filed a complaint against him with the Board in March 2006, prompting an investigation.
After finding plaintiff no longer competent to practice medicine, the Board asked him to voluntarily relinquish his license, but he refused. The Board then filed charges against him in the Texas State Office of Administrative Hearings (SOAH), the opinion said.
Before SOAH held a trial, plaintiff filed the instant action in court, which the various defendants moved to dismiss.
The district court granted the motions to dismiss and plaintiff appealed.
As to the private physicians, plaintiff alleged they provided, or encouraged his patients to provide, false information to the Board and conspired with the Board to interfere with his medical practice.
Affirming the district court’s dismissal as to these defendants, the Fifth Circuit noted plaintiff failed to allege the private physicians were state actors for purposes of bringing an action against them under 42 U.S.C. § 1983.
“In fact, the complaint concedes that they are private medical doctors. . . and that they were not themselves members of the [Board],” the appeals court observed.
The appeals court likewise affirmed the dismissal of the action as to the individual members of the Board on the grounds of qualified immunity.
Plaintiff alleged these defendants were not entitled to qualified immunity because they failed to sign their oaths of office and therefore were not acting in their “official capacity.”
But the appeals court disagreed, holding the failure to take an oath under state law was not a basis to deny qualified immunity.
Finally, the appeals court upheld the dismissal as to the ALJ defendant, also on the ground of qualified immunity.
In so holding, the appeals court rejected plaintiff’s contention that the ALJ could not claim qualified immunity because her actions were administrative rather than judicial in nature.
“Rivera provides no basis for holding that qualified immunity is applicable only to officers engaging in judicial acts,” the appeals court said.
Rivera v. Kalafut, No. 10-4140 (5th Cir. July 27, 2011).
Final Rule Increases Medicare Payments To Hospices By 2.5%
The Centers for Medicare and Medicaid Services (CMS) issued July 29 a final rule that increases Medicare payments to hospices in fiscal year (FY) 2012 by 2.5%, or a projected $340 million.
The final hospice wage index for FY 2012, published in the August 4 Federal Register (76 Fed. Reg. 47302), includes a 3% increase in the “hospital market basket” offset by an estimated 0.5% decrease due to updated wage index data and the third-year of CMS’ seven-year phase-out of a wage index budget neutrality adjustment factor.
The final rule also makes changes to “face-to-face” encounter requirements on physician certification of beneficiary eligibility for the hospice benefit. Specifically, the final rule allows “any hospice physician to perform the face-to-face encounter, regardless of whether that same physician recertifies the patient’s terminal illness and composes the recertification narrative,” CMS said in a press release.
Hospice Aggregate Cap Calculation Methodology
The final rule adopts changes to the hospice aggregate cap calculation methodology. Numerous courts have concluded CMS' current methodology for determining the number of Medicare beneficiaries used in the aggregate cap calculation was inconsistent with the Medicare statute.
Going forward, CMS said that for the cap year ending October 31, 2012 and subsequent cap years, the hospice aggregate cap will be calculated using the patient-by-patient proportional methodology. However, the final rule allows hospices to elect to continue to use the current patient counting method as well.
The final rule also implements a new hospice quality reporting program as authorized under the Affordable Care Act.
Under the program, beginning in FY 2014, any hospice that does not comply with the quality reporting requirements will see its market basket update reduced by 2 percentage points.
Final SNF PPS Rule Corrects Unintended Rise In FY 2011 Payments
Skilled nursing facilities (SNFs) will see an 11% cut in fiscal year (FY) 2012 Medicare prospective payment system (PPS) payments under a final rule released by the Centers for Medicare and Medicaid Services (CMS) July 29.
The FY 2012 payment, which will be $3.87 billion lower than payments for FY 2011, corrects for an unintended spike in payment levels and better aligns Medicare payments with costs, CMS said in a press release.
The agency said it is now recalibrating the case-mix indexes (CMIs) for FY 2012 to restore overall payments to their intended levels on a prospective basis.
The SNF PPS uses a system known as Resource Utilization Groups Version 4 (RUG-IV). In transitioning from the previous classification system to the new RUG-IV, CMS adjusted the CMIs for FY 2011 based on forecasted utilization under this new classification system to establish parity in overall payments.
But CMS found that the parity adjustment, which was intended to ensure that the new RUG-IV system would not change overall spending levels from the prior year, instead resulted in a significant increase in Medicare expenditures during FY 2011.
As a result, the FY 2012 recalibration of the CMIs will result in a reduction to skilled nursing facility payments of $4.47 billion or 12.6%. However, that reduction would be partially offset by the FY 2012 update to Medicare SNF payments, the release explained.
CMS pointed out that its recalibration ”removes an unintended spike in payments that occurred in FY 2011 rather than decreasing an otherwise appropriate payment amount.”
“Even with the recalibration, the FY 2012 payment rates will be 3.4 percent higher than the rates established for FY 2010, the period immediately preceding the unintended spike in payment levels,” the agency noted.
The rule also makes a number of additional revisions aimed at enhancing SNF PPS accuracy and integrity, CMS said.
The final rule is scheduled to be published in the August 8 Federal Register.
GAO Reports On Medicare Part D Mid-Year Formulary Changes
Medicare Part D sponsors implemented multiple mid-year formulary changes for almost all plans in 2008 and 2009, the Government Accountability Office (GAO) found in a report released August 1.
The report, Medicare Part D Formularies: CMS Conducts Oversight of Mid-Year Changes; Most Mid-Year Changes Were Enhancements (GAO-11-366R), looked at mid-year formulary changes in the context of the Centers for Medicare and Medicaid Services’ (CMS’) oversight and the potential effect of mid-year changes on beneficiaries.
The report noted that mid-year formulary changes implemented in 2008 and 2009 affected a majority of Part D drugs, but the percentage of drugs affected by a mid-year change to any plan’s formulary decreased from 88.2% in 2008 to 70.5% in 2009.
Formulary enhancements, which added a drug to the formulary or removed or loosened restrictions on a drug, accounted for 87.4% of changes in 2008 and 88.6% in 2009, the report found.
Whereas negative changes, such as removing a drug from a formulary, accounted for only 12.6% of changes in 2008 and 11.4% in 2009.
In 2008, about 5% of beneficiaries filled a prescription for a drug that was later affected by a negative mid-year change, GAO said.
However, 68% percent of such beneficiaries had access to an offset drug, such as a generic, added as part of the formulary change that removed their drug from the formulary or tightened requirements for the drug, the report noted.
In terms of oversight, GAO found that CMS monitors certain requests for mid-year formulary changes prior to their implementation to ensure that formularies meet requirements including mid-year change requirements.
CMS also conducts retrospective oversight activities of sponsors’ compliance with mid-year formulary change requirements, the report said.
Specifically, in 2008 and 2009, CMS’ program audits evaluated sponsors’ compliance with mid-year formulary change beneficiary notification requirements, GAO found.
HELP Committee Examines State Health Insurance Premium Review
The Senate Committee on Health, Education, Labor and Pensions (HELP) held a hearing August 2 on the healthcare reform law’s effect on health insurance premiums.
Steve Larsen, Director, Center for Consumer Information and Insurance Oversight (CCIIO) told the Committee that the Affordable Care Act helps make coverage more affordable by providing states with unprecedented resources to improve how states review proposed health insurance premium increases.
The reform law “ensures that, in any State, large proposed increases will be evaluated by experts to make sure they are based on reasonable cost assumptions and solid evidence,” Larsen said.
For instance, starting September 1, 2011, insurers seeking rate increases of 10% or more for non-grandfathered plans in the individual and small group markets are required to publicly disclose the proposed increases and the justification for them, Larson told the Committee.
Larsen also noted that Health Insurance Exchanges can, beginning in 2014, exclude health plans that show a pattern of unjustified premium increases.
According to Larsen, the Affordable Care Act provides $250 million in grants to assist states and Territories enhance their health insurance rate review process.
Since enactment, $48 million has been awarded to 42 states, the District of Columbia, and the 5 Territories, Larsen noted.
Committee Ranking Member Mike Enzi (R-WY), however, in his opening statement, said that the reform law is “already driving up insurance premiums.”
According to Enzi, giving states or the federal government the authority to deny premium increases will do nothing to address the expensive new benefit mandates, billions of dollars in taxes on drugs and medical devices, and unsustainable cuts to Medicare payments, which were all part of the new healthcare law, and which all drive up private sector healthcare costs.
“We must examine how the specific provisions in the new law are increasing premiums and determine how to replace those provisions with measures that could actually lower costs for individuals and small businesses,” Enzi said.
“We also need to enact provisions that will actually lower health care costs, help employers and allow Americans to keep the plans they want, rather than being forced to buy the plan that a government bureaucrat thinks best meets their needs,” he added.
In conjunction with the hearing, the Government Accountability Office (GAO) released a new report, Private Health Insurance, State Oversight of Premium Rates (GAO-11-701).
Testifying about the key findings in the report, John E. Dicken, Director, Health Care, GAO, detailed what changes states that received Department of Health and Human Services (HHS) rate review grants have begun making to enhance their oversight of premium rates.
According to the report, 41 respondents from states that were awarded HHS rate review grants reported that they have begun making such changes.
Specifically, respondents reported that they have taken steps in order to: (1) improve their processes for reviewing premium rates, (2) increase their capacity to oversee premium rates, and (3) obtain additional legislative authority for overseeing premium rates.
The report also noted that while nearly all—48 out of 50—of the state officials who responded to GAO’s survey reported that they reviewed rate filings in 2010, the practices reported by state insurance officials varied in terms of the timing of rate filing reviews, the information considered in reviews, and opportunities for consumer involvement in rate reviews.
Survey respondents also varied in the types of information they reported reviewing and the timing of the reviews, the report observed.
Respondents from 38 states reported that all rate filings they reviewed were reviewed before the rates took effect, while respondents from eight states reported reviewing at least some rate filings after the rates went into effect, GAO found.
The outcomes of states’ reviews of premium rates in 2010 also varied, GAO said.
While survey respondents from 36 states reported that at least one rate filing was disapproved, withdrawn, or resulted in a rate lower than originally proposed in 2010, the percentage of rate reviews that resulted in these types of outcomes varied widely among these states, according to the report.
HHS Announces Requirements On Insurance Coverage Of Preventative Services For Women At No Cost
The Department of Health and Human Services (HHS) announced August 1 new guidelines requiring health insurers to cover a range of preventative services for women with no cost-sharing, according to an agency press release.
The guidelines are based on Institute of Medicine (IOM) recommendations set forth in a July 19 report. The Affordable Care Act (ACA) provides that plans must cover for free certain preventative services as designated by HHS, which asked IOM to formulate a list of such services specific to women’s health.
Under the guidelines, health plans must cover the eight preventative services recommended by IOM, including well-woman visits, screening for gestational diabetes, birth control, and breastfeeding support, supplies, and counseling.
“These historic guidelines are based on science and existing literature and will help ensure women get the preventative health benefits they need,” said HHS Secretary Kathleen Sebelius.
New health plans must include the preventative services without cost-sharing in their insurance policies with plan years beginning on or after August 1, 2012, HHS said. Plans retain the ability to implement medical management to control costs and promote efficiency.
The preventative services coverage requirements do not apply to grandfathered health plans.
At the same time the guidelines were released, HHS, along with the Departments of Treasury and Labor, issued interim final rules with request for comments (76 Fed. Reg. 46621), due September 30, giving religious organizations the choice of whether to cover contraception services in insurance policies they offer their employees.
“Such an accommodation would be consistent with the policies of States that require contraceptive services coverage, the majority of which simultaneously provide for a religious accommodation,” the rule noted.
The Internal Revenue Service (IRS) also issued a notice of proposed rulemaking (76 Fed. Reg. 46677) related to the interim final rule regarding excise tax regulations.
In a statement, America’s Health Insurance Plans (AHIP) President and Chief Executive Officer Karen Ignagni said AHIP supports coverage for evidenced-based preventative services, but argued the IOM’s recommendations “would increase the number of unnecessary physician office visits and raise the cost of coverage.”
HHS Says Medicare Prescription Drug Premiums Will Slightly Decrease In 2012
Medicare average prescription drug premiums will not increase in 2012, the Department of Health and Human Services (HHS) announced August 4.
According to the agency, average Medicare prescription drug plan premiums in 2012 will be about $30, while the average premium in 2011 is $30.76. The announcement was based on bids submitted by Part D plans for the 2012 plan year, HHS noted.
America’s Health Insurance Plans (AHIP) President and CEO Karen Ignagni said in a statement that “Medicare beneficiaries will have more affordable prescription drug coverage next year as a result of vigorous competition in the Part D program and Medicare drug plans’ efforts to encourage seniors to choose the most affordable medicines."
"Medicare drug plans have a proven track record of providing innovative, affordable prescription drug benefits that meet the unique needs of seniors in the Part D program," Ignagni said. "Taxpayers are also saving billions of dollars as the total cost of the program continues to be far below original projections.”
At the same time, the agency announced that new data indicates that 17 million people with Medicare have received free preventive services this year while 900,000 Medicare beneficiaries who hit the prescription drug donut hole have received a 50% discount on their prescription drugs.
The dollar amount of such out-of-pocket savings on drug costs for Medicare beneficiaries has risen to $461 million saved through June 2011—up from $260 million through May 2011.
As a result, beneficiaries in the donut hole saved over $200 million in the month of June alone, HHS said.
“The Affordable Care Act is delivering on its promise of better health care for people with Medicare,” HHS Secretary Kathleen Sebelius said in a statement.
Insurer Properly Granted Summary Judgment In Contract Dispute, California Appeals Court Holds
A California appeals court agreed July 29 with a lower court that a plaintiff claiming her insurer breached the insurance contract and committed fraud failed to raise any genuine issues and may not amend her complaint.
According to the Court of Appeal of California, First Appellate District, the trial court did not abuse its discretion in failing to allow amendment because the insurer’s motion was clearly a motion for summary judgment rather than a motion for judgment on the pleadings as plaintiff had argued.
Plaintiff Marci L. Pinkard sued her insurer Blue Shield of California for breach of contract and fraud claiming that during her period of coverage she “received few medical and dental benefits” and Blue Shield “systematically delayed, denied, and refused medical procedures,” raised premiums, and “instituted yearly out-of-pocket expenses.”
Blue Shield filed a motion for summary judgment presenting specific facts in opposition to all of the allegations in the complaint.
Blue Shield argued judgment should be entered in its favor as to the breach of contract cause of action because the undisputed facts showed there was no evidence Blue Shield failed to do something the contract required it to do and no evidence Pinkard suffered any damages.
As to the fraud cause of action, Blue Shield argued Pinkard failed to proffer any evidence of misrepresentation on which she relied to her detriment.
Pinkard requested she be allowed to amend her complaint, but the trial court refused and granted Blue Shield summary judgment.
On appeal, Pinkard argued that the trial court abused its discretion in denying her request to amend her complaint.
According to Pinkard, Blue Shield’s motion was effectively a request for judgment on the pleadings and she should therefore have been allowed to amend her complaint.
But the appeals court agreed with the trial court, finding the lower court properly considered Blue Shield’s motion a motion for summary judgment rather than a motion for judgment on the pleadings.
According to the appeals court, “Blue Shield’s motion was a motion for summary judgment premised on the factual negation of Pinkard’s allegations that Blue Shield failed to do something the contract required it to do, that Blue Shield made misrepresentations on which she relied to her detriment, and that she suffered damages.”
“It was not a facial challenge to the complaint but one that rested on undisputed facts derived from evidence outside the pleadings, e.g., the contract and Pinkard’s deposition,” the appeals court concluded.
The appeals court also noted that Pinkard made no showing below of how she intended to amend her complaint.
Pinkard v. Blue Shield of California, No. A128212 (Cal. Ct. App. July 29, 2011).
IOM Says FDA Should Scrap 510(k) Device Approval Process
The Food and Drug Administration (FDA) should scrap its 510(k) clearance process for medical devices because it lacks the legal basis to be a reliable premarket screen of the safety and effectiveness of moderate-risk Class II devices and cannot be transformed into one, the Institute of Medicine (IOM) said in a report released July 29.
FDA's finite resources would be better invested in developing a new framework that uses both premarket clearance and improved postmarket surveillance of device performance to provide reasonable assurance of the safety and effectiveness of Class II devices throughout the duration of their use, the report concluded.
The 510(k) process was intended as an alternative to premarket approval (PMA) that high-risk Class III devices must undergo. The 510(k) process generally relies on "substantial equivalence"—determining if new devices are sufficiently similar to comparable products that have been previously cleared or were on the market prior to 1975 when the 510(k) process was first put in place by legislative action, according a press release.
“However, reliance on substantial equivalence cannot assure that devices reaching the market are safe and effective,” the report said.
"The 510(k) process cannot achieve its stated goals -- to promote innovation and make safe, effective devices available to patients in a timely manner -- because they are fundamentally at odds with the statutes that govern how FDA must implement the process,” said David Challoner, chair of the committee that wrote the report.
“While current information is not adequate to immediately start designing a new framework, we believe the agency can get the necessary data and establish a new process within a reasonable time frame," Challoner added.
While the report did not detail what a new framework should entail, the report did note that FDA should analyze what barriers hamper the efficient and effective use of its regulatory tools and identify ways to overcome them and it should also develop and implement a comprehensive strategy to collect, analyze, and act on information about devices' performance after clearance.
The report also noted that the committee “is not suggesting that all, many, or even any medical devices cleared through the 510(k) process and currently on the market are unsafe or ineffective.”
Medicare Providers Could See Cuts Under Debt Ceiling Deal
President Obama signed August 2 legislation that raises the nation’s debt ceiling through 2012, with deficit reduction of at least $2.1 trillion over the next decade, according to the Congressional Budget Office (CBO).
The debt ceiling legislation, which the House cleared August 1 in a 269-161 vote, and the Senate approved by a 74-26 margin the next day, includes $971 billion in immediate discretionary spending cuts through 2021.
The legislation raises the debt ceiling between $2.1 and $2.4 trillion in several steps through 2012.
The legislation also creates a bipartisan congressional committee tasked with identifying up to an additional $1.5 trillion in spending cuts over the next decade, according to a White House fact sheet. The committee must report legislation for achieving at least $1.2 trillion in reductions by November 23.
Congress will consider the legislation under fast-track procedures and has until December 23 to vote up or down on the committee’s recommendations.
A failure to enact the committee’s legislation will trigger automatic reductions in discretionary and mandatory spending of $1.2 trillion starting in 2013.
Under this scenario, Medicare providers could see reductions of no more than 2%. Medicaid is exempt from the automatic spending cut trigger, but could be targeted as part of the committee’s effort to identify $1.5 trillion in spending cuts.
In a statement, American Hospital Association President and Chief Executive Officer Rich Umbdenstock said “[f]unding reductions for hospital services translate into decreased access for our nation’s seniors,” arguing Medicare also should be exempt from the automatic spending cuts.
New York Appeals Court Finds Physician’s License Was Properly Revoked
The state medical board did not err in revoking a physician’s license to practice medicine in the state, the New York Supreme Court, Appellate Division, Third Department, held July 28.
In so holding, the appeals court found ample evidence to support the board’s findings and found no evidence that the physician was deprived of a fair hearing or due process.
Maria-Lucia Anghel, a physician board-certified in anesthesiology and pain management, was charged by the Bureau of Professional Medical Conduct (BPMC) with 25 specifications of professional misconduct related to her treatment of seven patients and her operation of a laboratory.
Following extensive hearings on the matter, the BPMC Hearing Committee sustained all charges except for one and revoked Anghel’s license to practice medicine in New York.
On appeal of the sanction, Anghel argued that she was deprived her of her right to a fair hearing and due process.
After detailing all of Anghel’s specific complaints about the hearing, the appeals court found itself “unpersuaded” that Anghel was deprived of a fair hearing or due process.
Turning to the merits, the appeals court noted that its review of the Committee's decision is limited to determining whether it is supported by substantial evidence.
The court first found substantial evidence supports the Committee’s finding that Anghel willfully failed to comply with federal law and regulations governing the practice of medicine.
According to the court, the Clinical Laboratory Improvement Amendment of 1988 (CLIA) and its regulations require physicians to obtain a CLIA certificate before operating a physician office laboratory.
But the evidence presented at the hearing established that Anghel operated such a laboratory between 1995 and 2003 without obtaining the required certification under CLIA.
“Although petitioner testified that she was not aware of the certification requirement until she became the subject of an investigation in 2003, substantial evidence supports the Committee's conclusion that petitioner's failure to comply with CLIA was, in fact, willful,” the court found.
The appeals court went on to find “[a]mple record evidence also supports the Committee's findings of fraudulent practice as to all seven patients and excessive tests and treatment” as to some of the patients.
“[T]he testimony and the medical evidence in the record established that petitioner had engaged in a pattern of billing fraud over a period of several years,” the appeals court found.
In addition, “[a]s for petitioner's explanations of her billing practices, the Committee found that she was ‘intentionally deceitful’ and wholly lacking in credibility, and we can find no reason to disturb that determination,” the court said.
Lastly, the appeals court found the destruction of Anghel’s “current patients' old medical records and her failure to maintain accurate medical records, as well as her egregious behavior in subjecting her patients to excessive testing for her own monetary gain and in contravention of the minimum standard of care of a reasonably prudent physician, provide substantial evidence to support the Committee's decision to sustain the charges of negligence on more than one occasion and gross negligence.”
The appeals court did find insufficient evidence supporting certain factual allegations, but said that annulment of those allegations “does not require reconsideration of the penalty imposed as each of the remaining allegations in those specifications are supported by substantial evidence.”
Anghel v. Daines, No.507537 (N.Y. App. Div. July 28, 2011).
New York Appeals Court Finds Question Of Fact Regarding Whether Hospital May Be Vicariously Liable For Advice Given By Consulting Physician Over The Phone
A New York appeals court held July 28 that more evidence was needed to determine if a treating hospital could be held vicariously liable for advice given over the telephone by a physician at a neighboring hospital.
In so holding, the Supreme Court of New York, Appellate Division, Third Department, agreed with the trial court’s holding denying the treating hospital’s request for a ruling that it was not liable for the opinion.
In October 2004, plaintiff Stella Brink presented at the emergency room of defendant Community Memorial Hospital, Inc. with symptoms consistent with a stroke.
During the course of plaintiff's treatment, a question arose as to whether she should be given a tissue plasinogen activator (TPA), otherwise known as a clot buster.
Defendant, a small community hospital, did not have a neurologist on call, so plaintiff’s treating physician telephoned Michael Miller, the on-call neurologist at another hospital, who advised against the administration of TPA.
The treating physician later called for a second opinion Hassan Shukri, the on-call neurologist at another hospital at the patient’s daughter’s request, who also agreed that plaintiff should not receive a TPA.
Plaintiff’s condition later deteriorated and the next day she suffered another stroke.
Plaintiff sued defendant and others for medical malpractice. During trial, defendant sought a ruling that it was not liable for the opinions provided by Miller and Shukri during the course of plaintiff’s treatment.
The trial court granted the motion as to Shukri but denied the motion as to Miller, finding that the record presented a question of fact as to whether defendant could be held vicariously liable for Miller's advice.
Noting that generally a hospital may not be liable for the malpractice of a physician who is not an employee, the appeals court explained that an exception to this general rule exists where a patient comes into a hospital emergency room seeking treatment from the hospital itself rather than a physician of the patient's own choosing.
In that case, liability may be imposed under an apparent or ostensible agency theory, the appeals court said.
Specifically, "[i]n the context of a medical malpractice action the patient must have reasonably believed that the physicians treating him or her were provided by the hospital or acted on the hospital's behalf" and, further, must have accepted the physicians' services in reliance not upon their particular skill but, rather, based upon their relationship with the underlying hospital.
“Applying these principles to the matter before us, we are persuaded that the record as a whole presents a question of fact as to whether defendant may be held vicariously liable for Miller's alleged negligence,” the appeals court held.
But there is also evidence in the record that militates against such a finding, the appeals court noted.
In addition, it is not clear whether plaintiff's daughter was aware of the actual relationship (or the alleged lack thereof) between Miller and defendant, the court said.
Accordingly, the lower court’s refusal to grant the motion as to Miller in light of the need for more evidence, was correct, the appeals court held.
Significantly, the appeals court warned that its decision “should in no way be construed as standing for the proposition that any sort of telephone consultation between colleagues in an emergency room setting necessarily exposes the admitting hospital to vicarious liability for any opinion rendered by the physician so consulted.”
Brink v. Muller, No. 511684 (N.Y. App. Div. July 28, 2011).
OIG Allows Healthcare Management Company To Make Pay-for Performance Payments On Behalf Of State Medicaid Program
A healthcare management services company may disburse pay-for-performance financial incentives on behalf of a state’s Medicaid program without risking sanctions, the Department of Health and Human Services Office of Inspector General (OIG) said in an advisory opinion posted August 1.
Although the arrangement has the appearance of possible impropriety, OIG found, the specifics of the arrangement would not implicate the Anti-Kickback Statute.
The opinion requestor sells a variety of healthcare management services, including behavioral health administrative services and disease management and care coordination services.
The state’s Medicaid Department runs a Medical Home Program, which has a disease management component that provides comprehensive systemic care to chronically ill beneficiaries suffering from certain conditions.
The requestor and the Department entered into an agreement pursuant to which the requestor agreed, among other things, to administer the disease management program on behalf of the Department, the opinion explained.
The disease management program includes a pay-for-performance program in which physicians and dentists participate.
Under the program, payments are made by the state’s Medicaid program to induce physicians and dentists to arrange for, order, or recommend certain specified services, with the goal of reducing overall medical costs by achieving better health outcomes for patients.
OIG first pointed out that its opinion “addresses the narrow question of whether the Arrangement, i.e., Requestor’s disbursement of Pay-for-Performance Program payments to physicians and dentists on behalf of the Department, implicates the anti-kickback statute.”
“We are specifically not opining on other elements of the Agreement or the Pay-for-Performance Program,” OIG specified.
An Anti-Kickback Statute issue arises in this case because of the appearance that the requestor is making payments to physicians and dentists by issuing pay-for-performance checks drawn on its own bank account, the opinion said.
Ideally, this problem could be solved by drawing payments from a state bank account, but such arrangement is apparently not possible, according to the opinion.
Noting that “[s]uperficial appearances are not controlling,” OIG found that the specific circumstances of the arrangement do not implicate the Anti-Kickback Statute.
Specifically, OIG found, the payments are funded by the state; the requestor does not have control or discretion over the payments; the parties have taken meaningful steps to minimize any misimpression by physicians and dentists that the requestor is paying them for referrals of Medicaid business; and the Department supervises all payments disbursed by the requestor and retains the right to audit the requestor’s performance under the agreement.
Lastly, OIG highlighted that its opinion in this case was fact-specific and that it “might reach a different conclusion were we to consider, for example, a similar arrangement whereby an administrator had power to control payments that related to its products or services.”
Advisory Opinion No. 11-10 (Dept. of Health and Human Servs. Office of Inspector Gen. July 25, 2011).
OIG Finds Problematic Two Possible Medical Supply Contracts With SNF
Two possible options for a medical supplier contract with a skilled nursing facility (SNF) to supply both items that are covered by Medicare Part B and items that are not covered could potentially generate prohibited remuneration under the Anti-Kickback Statute and the Department of Health and Human Services Office of Inspector General (OIG) could potentially impose administrative sanctions, according to an advisory opinion posted August 4.
Both arrangements present the possibility that the SNF may be soliciting improper discounts on business for which it bears risk in exchange for referrals of business for which it bears no risk, OIG found.
The opinion requestor is a supplier that furnishes medical supplies and equipment to SNFs as well as certain related services.
When the medical supplies and equipment that the requestor furnishes to a SNF are covered by Medicare Part B (Covered Items), the requestor bills the Medicare program directly. When they are not (Non-Covered Items), the requestor bills the SNF directly.
A county-owned SNF has issued a request for proposals (RFP) soliciting bids to be the exclusive supplier of Covered Items and related services to the SNF. Suppliers that submit bids in response to the RFP are also required to submit pricing for the Non-Covered Items and related services, which the SNF may purchase at its option.
Under Proposed Arrangement A, the opinion requestor would submit a bid in connection with the RFP and, if selected, enter into a contract with the SNF to: (1) serve as the SNF’s exclusive supplier of Covered Items, (2) furnish Non-Covered Items at the pricing listed in its bid if the SNF chose to purchase those items from the requestor, and (3) furnish the related services in connection with all Covered Items and Non-Covered Items it would furnish under the contract.
Under Proposed Arrangement B, the requestor’s owners would form a new company (Newco) and would submit a joint bid in response to the RFP and, if selected, enter into a contract with the SNF whereby the requestor would be the exclusive supplier of the Covered Items and related services and Newco would furnish the Non-Covered Items and related services.
Turning first to Proposed Arrangement A, OIG noted that the requestor said it would charge the SNF an amount that would be below the requestor’s costs for Non-Covered Items and related services.
“Thus, the circumstances surrounding Proposed Arrangement A suggest that a nexus may exist between the below-cost payment rates offered to the SNF for Non-Covered Items and related services and referrals of other Federal health care program business,” OIG concluded.
In support of its finding, OIG cited the following facts: (1) the SNF is in a position to direct business to the requestor that is not paid by the SNF under Proposed Arrangement A, i.e., Covered Items; (2) the single RFP solicits pricing information for the Non-Covered Items, together with service information related to the provision of both Covered Items and Non-Covered Items, suggesting a link between the two; and (3) both parties have obvious motives for agreeing to trade below-cost payment rates for the Non-Covered Items and related services for referrals of other federal healthcare program business.
According to the opinion, in evaluating whether an improper nexus exists between the rates offered for items and services and referrals of federal business in a particular arrangement, OIG looks for indicia that the rate is not commercially reasonable in the absence of other, non-discounted business.
Here, “[p]rices offered to a skilled nursing facility that are below the supplier’s total costs of providing the items and services . . . give rise to an inference that the supplier and the skilled nursing facility may be ‘swapping’ the below-cost rates on business for which the skilled nursing facility bears the business risk (i.e., the Non-Covered Items) in exchange for other profitable non-discounted Federal business (i.e., the Covered Items), from which the supplier can recoup losses incurred on the below-cost business, potentially through overutilization or abusive billing practices,” OIG said.
Thus, OIG concluded that it would be “unable to exclude the possibility that the Requestor may be offering improper discounts to the SNF for the Non-Covered Items and related services with the intent to induce referrals of more lucrative Federal business.”
Next looking at Proposed Arrangement B, OIG noted that it reflects the same substantial risk of improper “swapping” as Proposed Arrangement A.
The fact that the Covered Items and related services would be provided by the Requestor and the Non-Covered Items and related services would be provided by Newco—a separate, but commonly-owned, company—does not mitigate that risk, OIG found.
“It is the substance, not the form, of an arrangement that governs under the anti-kickback statute,” the opinion noted.
Advisory Opinion No. 11-11, (Dept. of Health and Human Servs. Office of Inspector Gen. Jul. 28, 2011).
Texas Enacts New Mandates And Increased Penalties Regarding Electronic Health Records
By Michael Silhol, Haynes and Boone, LLP
Any entity or individual in possession of protected health information (PHI) in Texas faces new mandates and increased penalties as a result of HB300, which was passed in the 2011 Texas legislative session and signed into law by Governor Rick Perry. The Texas legislation expands privacy rights of patients beyond that contained in federal Health Insurance Portability and Accountability Act (HIPAA) legislation. Under the preemption provision in HIPAA, the stricter Texas law will be applied to anyone in possession of PHI within the state. HB300 covers a vastly broader group of organizations and individuals than are classified as “covered entities” under HIPAA. The new law, which is not effective until September 1, 2012, is designed to better ensure the security and privacy of PHI that is exchanged via electronic means. However, the law also will increase mandates on “covered entities,” as they are defined under Texas law, grant new enforcement authority to a variety of state agencies, establish standards for the use of electronic health records (EHR), and increase penalties for the wrongful electronic disclosure of PHI, including creating a new felony for wrongfully accessing or reading of EHR via electronic means.
Covered Entities in Texas
Under existing Texas law “covered entities” include a far broader range of individuals and organizations than those classified as covered entities under HIPAA. For example, in Texas, a “covered entity” includes any person who:
- For commercial, financial, or professional gain, monetary fees, or dues, or on a cooperative, nonprofit, or pro bono basis, engages, in whole or in part, and with real or constructive knowledge, in the practice of assembling, collecting, analyzing, using, evaluation, storing or transmitting protected health information. The term includes a business associate, health care payer, governmental unit, information or computer management entity, school, health researcher, healthcare facility, clinic, healthcare providers, or person who maintains an Internet site;
- Comes into possession of protected health information;
- Obtains or stores protected health information under this chapter; or
- Is an employee, agent, or contractor of a person listed above, insofar as the employee, agent, or contractor creates, receives, obtains, maintains, uses, or transmits protected health information.
By contrast, the definition of “covered entity” under HIPAA means:
- A health plan;
- A healthcare clearinghouse; or
- A healthcare provider who transmits any health information in electronic form in connection with a transaction covered by this subchapter.
Consequently, the stringent new privacy regulations in Texas will cover a far greater number of entities due to the expansive definition of a “covered entity” under Texas law.
Broad Training Obligations Required
Each Texas covered entity must provide ongoing training to their employees regarding state and federal law concerning PHI. The training must be customized as to the entity’s particular course of business and each employee’s scope of employment. An employee must complete the training no later than the 60th day after the employee is hired, and such training must be repeated at least once every two years. Additionally, all covered entities must maintain records documenting each employee’s attendance at training programs. Such records may be maintained either electronically or in writing.
This training requirement is an expansion of the HIPAA Privacy Rule, which does not require ongoing training of existing employees. HIPAA merely requires that employees be trained “within a reasonable period of time” after hiring and any material changes in privacy policies or procedures. Additionally, many entities that were not “covered entities” under HIPAA, are now “covered entities” under Texas law, and must institute training programs, when they have no such requirement before. Although HB300 is not effective until September 1, 2012, Texas covered entities should begin planning now to provide the required training for their employees. Such training will have to be customized to reflect each employee’s scope of employment and the particular course of business of each entity.
Increased Patient Rights and Remedies over Electronic Health Records
The Texas Legislature granted patients additional rights and remedies concerning their EHRs, which place more stringent requirements on covered entities than currently exist under HIPAA. Under HB300, covered entities must provide patients their EHRs in electronic format within 15 business days of receiving a written request. The Texas Health and Human Services Commission is to recommend a standard format for the release of EHRs that is consistent with federal law. Additionally, the Texas Attorney General is required to establish a website containing information for patients regarding patients’ medical privacy rights under federal and state law, a list of state agencies that regulate covered entities, detailed information regarding each agency’s complaint enforcement process, and contact information for each such agency. The Attorney General also must report annually to the Texas Legislature the number and types of complaints received by state agencies regarding patient complaints over medical privacy.
HB300 also prohibits the sale of PHI, except for treatment, payment, healthcare operations, performing an insurance function, or as otherwise allowed by federal law. This provision of HB300 is consistent with HIPAA, as amended by the 2009 Health Information Technology for Economic and Clinical Health (HITECH) Act.
Covered entities also will have to provide notice to, and authorization from, patients of the electronic disclosure of their PHI, except in instances for treatment, payment, or healthcare operations. The Texas Attorney General will adopt a standard for authorization of such disclosures, consistent with HIPAA and the federal Privacy Rule.
Increased Enforcement Penalties
The Texas Attorney General may institute penalties against covered entities that violate state laws regarding EHRs. Penalties can range from $5,000 to $1.5 million annually for providers that wrongfully disclose a patient’s PHI. In determining the amount of penalty, the law provides that a court should consider:
The seriousness of the violation;
The covered entity’s compliance history;
Whether the violation poses a significant risk of financial, reputational, or other harm to the patient;
The amount necessary to deter future violations; and
The covered entity’s efforts to correct the violation.
Additionally, the Texas Attorney General may request that the Secretary of the U.S. Department of Health and Human Services audit a HIPAA covered entity’s compliance with the HIPAA Privacy Rule. If the audit shows egregious violations that constitute a pattern or practice, a covered entity may be required to conduct a risk analysis as required under the Privacy Rule, and submit the results to the Texas Health and Human Services Commission. The Texas Attorney General also will have to report annually to the Legislature the number of federal audits of covered entities.
Standards for Electronic Sharing of PHI
In earlier legislative sessions, the Texas Health Services Authority (THSA) was created as a public-private collaborative to implement state-level health information technology functions and to serve as a catalyst for the development of a seamless electronic health information infrastructure. HB 300 adds to the duties of the THSA by requiring it to develop privacy and security standards for the electronic sharing of PHI. The THSA also will establish a process by which a covered entity can be certified for compliance with the standards it develops.
Under HB300, any business (not just a covered entity) that conducts business in Texas that handles PHI must provide notification to Texas residents if their PHI is wrongfully disclosed. This notification requirement is consistent with the requirement in the HITECH Act that subjects vendors of personal health records and their service providers to the same security breach notification requirements as covered entities. Any business that fails to make the required notification is subject to state penalties not exceeding $250,000 for a single breach. Moreover, HB300 makes it a state felony if an individual, without the consent of the patient, accesses, reads, scans, stores, or transfers PHI via a scanning device or electronic payment card.
Covered Entities Should Begin Compliance Efforts Now
The new requirements placed on covered entities in Texas as a result of HB300 are numerous and extend beyond those requirements contained in HIPAA and the federal Security and Privacy Rules. Even though the new law is not effective until September 1, 2012, covered entities (healthcare providers, health insurers, and health clearing houses) should begin now their efforts to develop and conduct employee training, change their notices of privacy practices, and update policies regarding the security and privacy of patients’ electronic protected health information.
 Tex. Health and Safety Code § 181.001(b)(2)
 HB300, § 6, to be codified at Tex. Health and Safety Code § 181.101.
 45 C.F.R. § 164.530 (b)(2). The federal Privacy Rule also requires covered entities to document that training has been provided.
 Tex. Health and Safety Code § 181.102. This is consistent with current state regulations and law, which require physicians to provide patients with a copy of a patient’s medical record within 15 business days. See Tex. Occ. Code § 159.008 and 22 Tex. Admin. Code § 165.2. Hospitals must provide access to a patient’s medical record as promptly as circumstances require, but no later than the 15th day after they receive a written request and payment (if copies are requested). See Tex. Health and Safety Code § 241.154. Under HIPAA, covered entities must respond to a request for access to PHI within 30 days. Because the Texas law is stricter, covered entities in Texas must respond to requests for access to PHI within the 15 business day period.
 Tex. Health and Safety Code § 181.153. The HITECH Act was enacted as part of the American Recovery and Reinvestment Act (ARRA) of 2009, Pub. L. No. 111-5.
 Tex. Health and Safety Code § 181.201.
 This provision of HB300 is puzzling, given that states have been given increased enforcement authority under the HITECH Act. The Office for Civil Rights of the U.S. Department of Health and Human Services (HHS) has recently been providing training to state Attorneys General to help them implement their enforcement authority. Also, the U.S. HHS would likely not have jurisdiction to audit or investigate a Texas “covered entity” that was not a HIPAA “covered entity.”
 45 C.F.R. § 164.308(a)(1)(iii)(A).
 Tex. Health and Safety Code § 182.108.
 See Interim Final Rule, published at 74 Fed. Reg. 42740 (Aug. 24, 2009).
Third Circuit Finds Physician Plaintiffs Lack Standing To Challenge Reform Law
The Third Circuit August 3 found a physician, his patient, and a physician association failed to establish standing in their challenge to the individual mandate provision of the healthcare reform law.
The appeals court did not consider the merits of the claims, as the appeal was solely brought in response to a lower court ruling on standing.
The individual mandate provision of the reform law remains controversial and has been widely litigated. Three district courts have previously upheld the individual mandate provision, while two federal trial courts in Florida and Virginia have ruled the individual mandate is unconstitutional.
The Eleventh and Fourth Circuits are expected to rule soon on the issue and the D.C. Circuit is set to hear oral arguments in a third case in the fall. The issue is widely expected to be eventually resolved by the Supreme Court.
The plaintiffs in the case are Mario A. Criscito, M.D., a licensed New Jersey physician, a patient of Criscito, and New Jersey Physicians, Inc., a nonprofit corporation that “has as a primary purpose the protection and advancement of patient access to affordable, quality healthcare.”
Plaintiffs challenged the individual mandate provision in the Patient Protection and Affordable Care Act (PPACA) in New Jersey federal court.
The individual mandate, beginning in 2014, will require individuals either to maintain a certain minimum level of health insurance or pay a monetary penalty.
The district court did not reach the merits of the action, instead finding that plaintiffs failed to adequately plead injury in fact and, therefore, could not establish standing. Plaintiffs appealed.
The appeals court first considered the standing of the patient of Criscito. According to the court, plaintiffs allege that “Patient Roe” has the following injury: (1) “Roe is a patient of Dr. Criscito who pays himself for his care,” and (2) Roe “is a citizen of the State of New Jersey who chooses who and how to pay for the medical care he receives from Dr. Criscito and others.”
Finding such allegations insufficient to establish injury in fact, the court noted the complaint is “factually barren with respect to standing.”
The appeals court found “no facts alleged to indicate that Roe is in any way presently impacted by the Act or the mandate.”
In so finding, the appeals court distinguished the facts of the instant case from others where standing was found.
“This case is thus unlike some of the other pending health care challenges, in which the plaintiffs alleged or demonstrated that they were experiencing some current financial harm or pressure arising out of the individual mandate’s looming enforcement in 2014,” the appeals court noted.
The appeals court went on to find the complaint “similarly deficient in regard to Dr. Criscito.”
The complaint alleges only that some of Criscito’s patients currently pay out of pocket.
Although the complaint states that the individual mandate provisions “will have a direct, substantial impact upon Dr. Criscito’s medical practice, the manner in which he may, or may not, seek payment for his professional services and the manner in which he may render treatment to his patients,” the plaintiffs plead no facts in their complaint to buttress these arguments and thus prove nothing more than an impermissible “conjectural or hypothetical” injury in fact suffered by Criscito, the appeals court held.
Similarly, New Jersey Physicians, Inc. failed to allege sufficient injury, the appeals court found.
In order to establish associational standing, an organization must “make specific allegations establishing that at least one identified member ha[s] suffered or would suffer harm,” the court noted.
But here, the only member of New Jersey Physicians, Inc. identified in the complaint is Criscito, who the court found failed to establish any injury in fact.
New Jersey Physicians, Inc. v. Obama, No. 10-4600 (3d Cir. Aug. 3, 2011).
Nelson Fernandez, a Miami-area resident, pled guilty August 2 to one count of conspiracy to commit healthcare fraud and one count of conspiracy to defraud the United States and to pay and receive illegal healthcare kickbacks related to his role in two separate fraud schemes that resulted in the submission of more than $200 million in fraudulent claims to Medicare, announced the Department of Justice, the Federal Bureau of Investigation, and the Department of Health and Human Services. Fernandez admitted to serving as a patient broker and providing patients to a company that runs partial hospitalization programs and a sleep institute in exchange for kickbacks in the form of checks and cash. Fernandez and his co-conspirators also recruited for a home health company Medicare beneficiaries who did not qualify for home health services. Fernandez faces a maximum penalty of 15 years in prison and a $250,000 fine.
A federal grand jury in Louisville, Kentucky has returned a 13-count indictment charging the owners of two durable medical equipment companies with conspiracy, healthcare fraud, submitting false claims, and wire fraud, David J. Hale, U.S Attorney for the Western District of Kentucky, announced August 2. According to the indictment, between September 2007 and November 2008, Yunior Lopez and Arturo Esquivel, through their corporations, Universal of Work Services and Steel Quality Medical, submitted false claims to Medicare for products that were not authorized nor provided to patients. Lopez and Esquivel allegedly submitted claims on behalf of Florida patients, living and deceased, who were purportedly treated by Kentucky physicians, when in fact neither the patients nor the physicians had any knowledge of one another.
Twenty-six individuals have been charged in an indictment for their participation in a large-scale healthcare fraud and drug distribution scheme, U.S. Attorney for the Eastern District of Michigan Barbara L. McQuade announced August 2. The indictment alleges that Babubhai "Bob" Patel, a pharmacist, was the owner and controller of some 26 pharmacies statewide and would offer and pay kickbacks, bribes, and other inducements to physicians for writing prescriptions for patients with Medicare, Medicaid, and private insurance. Patients were recruited into the scheme by patient recruiters, who would pay kickbacks and bribes to patients in exchange for the patients' permitting the Patel Pharmacies (and the physicians associated with Patel) to bill their insurance for medications and services that were medically unnecessary and/or never provided. The indictment further alleges a conspiracy to distribute controlled substances at the Patel pharmacies. According to the indictment, Patel and his associates paid physicians and podiatrists associated with the scheme kickbacks and other inducements in exchange for the medical professionals writing prescriptions for controlled substances for their patients, and directing those patients to fill the prescriptions at a Patel Pharmacy. In addition, controlled substances were dispensed to patients and recruiters outside the scope of legitimate medical practice.
U.S. Court In D.C. Refuses To Dismiss Hospitals’ Outlier Litigation
The U.S. District Court for the District of Columbia refused July 15 to dismiss litigation challenging Medicare’s outlier regulations citing the need to consider the administrative record before making a final determination.
Plaintiffs in the litigation are 29 organizations that own or operate hospitals participating in the Medicare program. Plaintiffs contended that during fiscal years 1998 through 2006 they were deprived of more than $350 million in outlier payments, which are additional payments Medicare makes to hospitals for patients who are unusually expensive to treat.
Specifically, plaintiffs challenged the Department of Health and Human Services Secretary’s outlier payment regulations, fixed loss threshold regulations, and implementation and enforcement of the outlier payment system.
According to plaintiffs, certain “vulnerabilities” in these regulations allowed “unscrupulous” hospitals to game the system by submitting excessive reimbursement claims. As a result, these hospitals received higher outlier payments than they otherwise should have, which, in turn, caused other hospitals to lose outlier payments to which they were entitled.
After concluding plaintiffs had standing at this stage of the litigation, the court dismissed plaintiffs’ claim alleging the Secretary failed in “implementing” and “enforcing” the outlier payment system.
“Plaintiffs’ vague and non-specific allegations challenging the Secretary’s overall ‘implementation’ and ‘enforcement’ of the outlier payment system plainly ‘lack the specificity requisite for agency action,’” the court held.
The court refused, however, to dismiss plaintiffs’ other claims, rejecting the Secretary’s argument that plaintiffs were impermissibly challenging “the adequacy of [her] efforts to prevent, detect, and control false inflation of charges in outlier payments,” which are activities specifically committed to agency discretion.
The court found the Secretary’s argument “misconstrue[d]” plaintiffs’ claims, noting plaintiffs expressly disavowed any challenge to the agency’s discretion to bring enforcement actions.
Plaintiffs “intend to argue that the Secretary failed to fully grapple with the effect her regulations would have (or were having) on the behavior of third parties and the implications of that third-party behavior on the outlier payment system as a whole, and that by failing to grapple with this problem, the Secretary failed to examine all the relevant data and articulate a satisfactory explanation for her chosen course of action.”
The court declined to reach the merits of the Secretary’s remaining arguments for dismissing plaintiffs’ claims in the absence of the administrative record.
The court did, however, reject plaintiffs’ claim under the Mandamus Act. Plaintiffs sought mandamus to compel the Secretary to exercise what they claimed was her non-discretionary duty to pay them a share of $1.5 billion in proceeds allegedly recovered under the False Claims Act against hospitals that submitted excessive reimbursement claims.
“In short, far from identifying a clear and indisputable duty owed to them by the Secretary, Plaintiffs’ claim for mandamus-type relief relies upon a wholly implausible and unsustainable reading of the relevant statute,” the court commented. Banner Health v. Sebelius, No. 1:10-cv-01638-CKK (D.D.C. July 15, 2011).