Health Lawyers Weekly:
August 06, 2010 Vol. VIII Issue 30
AMA Survey Finds Over 40% Of Physicians Have Faced Medical Liability Claim
Forty-two percent of physicians in a recent survey reported they had a medical liability claim filed against them at some point in their career, the American Medical Association (AMA) said August 3.
The AMA survey, which included data from 5,825 physicians over the 2007 to 2008 period, found an average of 95 medical liability claims filed for every 100 physicians, almost one per physician.
The AMA used the survey’s findings to bolster their call for federal and state medical liability reform.
“This litigious climate hurts patients’ access to physician care at a time when the nation is working to reduce unnecessary health care costs,” said AMA Immediate Past-President J. James Rohack, M.D. in a statement.
“The findings in this report validate the need for national and state medical liability reform to rein in our out-of-control system where lawsuits are a matter of when, not if, for physicians,” Rohack added.
The survey revealed variation in medical liability claims by age, gender, specialty, and practice setting. For example, nearly 70% of physicians practicing general surgery or obstetrics and gynecology had faced a medical malpractice lawsuit.
According to the survey, the number of claims per 100 physicians was more than five times greater for general surgeons and obstetricians/gynecologists than for pediatricians and psychiatrists, who had the lowest incidence of claims.
Nearly 61% of physicians age 55 and over have been sued, the survey said.
The survey also found gender differences in claim frequency, with the incidence of medical malpractice actions much higher among men than women. According to the survey sample, twice as many men had been sued, 47.5%, compared to 23.9% of women.
The survey attributed the gender differences to a number of demographic factors, including that men physicians are concentrated in the specialties with the highest levels of claim incidence, the fact that women are newer entrants in the medical workforce, and men physicians are more likely to be practice owners than women.
Practice ownership and delivery setting also had an impact on claim frequency, though to a lesser decree than physician specialty.
For example, the survey found 45% of physicians in solo or single specialty group practices were sued, while 40% of hospital-based physicians and 37% of physicians in multi-specialty group practices had faced a medical liability claim.
AMA said 65% of claims are dropped or dismissed, but even those carry a hefty price tag of an estimated $22,000.
Average defense costs per claim were about $40,000, with tried cases averaging over $100,000.
Medicare Payments To FQHCs In 2007 Less Than Costs, GAO Finds
Medicare payments to most federally qualified health centers (FQHCs) were less than the FQHCs’ submitted costs of services, the Government Accountability Office (GAO) said in a new report.
According to the report, Medicare Payments to Federally Qualified Health Centers (GAO-10-576R), FQHCs, established under the Omnibus Budget Reconciliation Act (OBRA) of 1990, are typically rural and urban safety net providers that offer primary and preventive care services to individuals regardless of their ability to pay.
About 72% of FQHCs had costs per visit that exceeded the upper payment limits established by Medicare, GAO found.
“However, FQHCs varied greatly in their costs per visit, with FQHCs with the highest costs per visit having relatively fewer Medicare visits than FQHCs with the lowest costs per visit,” the report noted.
The application of productivity guidelines reduced Medicare payments to 7% of FQHCs that did not meet the required minimum number of visits and had costs per visit that did not exceed the upper payment limits, according to the report.
Overall, application of the upper payment limits and productivity guidelines reduced FQHCs’ submitted costs of services by about $72.8 million from roughly $504 million to $431 million in 2007, GAO said.
Therefore, because Medicare pays 80% of the FQHCs’ costs, the application of these limits reduced Medicare FQHC payments by $58.2 million.
However, the report cautioned, the Patient Protection and Affordable Care Act (PPACA) requires the Secretary of the Department of Health and Human Services to establish a prospective payment system for Medicare payments to FQHCs, which, in effect, will eliminate the Medicare FQHC all-inclusive payment rate, upper payment limits, and productivity guidelines currently in effect and described in the report.
Bill Would Allow EHR Incentive Payments For Multi-Campus Hospitals
Lawmakers on the House Ways and Means and Energy and Commerce Committees introduced July 30 a measure to clarify that incentive payments for “meaningful users” of electronic health records (EHRs) are available to all qualified hospitals that are part of multi-campus hospital systems.
The Electronic Health Record Incentives for Multi-Campus Hospitals Act of 2010 seeks to address a provision in the recently issued final regulations defining “meaningful use” of EHRs for purposes of incentive payments under the Health Information Technology for Economic and Clinical Health (HITECH) Act of 2009.
Under the HITECH Act, eligible healthcare professionals and hospitals can qualify for Medicare and Medicaid incentive payments when they adopt certified EHR technology and use it to achieve specified objectives.
Despite substantial opposition, the final rule provides only a single incentive payment to eligible hospitals based on their Medicare Certification Number. Thus, hospitals with multiple campuses registered under the same Medicare provider number would receive only a single payment.
“The final rule retains the proposed definition of an eligible hospital because that is most consistent with policy precedents in how Medicare has historically applied the statutory definition of a ‘subsection (d)’ hospital under other hospital payment regulations,” the Centers for Medicare and Medicaid Services and Office of the National Coordinator for Health Information Technology said in issuing the final rule.
But hospital groups argued the incentive payments should flow to all qualifying hospitals, regardless of whether they share a provider number with other hospitals.
According to a fact sheet, the bill would “clarify that hospitals with multiple campuses should receive larger incentives that reflect their incremental costs incurred in installing, operating, and using certified electronic health records, and training staff at multiple campuses.”
Under the bill, incentive payments could go to each campus of a multi-campus hospital system consisting of a main provider hospital and one or more remote location hospitals, the fact sheet said.
The EHR payment incentive has two components, the fact sheet explained, base payments of $2 million per hospital campus and an incentive ($200) for every discharge annually (between 1,150 and 23,000 discharges), adjusted for the Medicare and Medicaid shares of the hospital's patients and for phase-out factors.
Multi-campus hospitals would have the choice of two payment approaches—either base payments for each campus, but only one per-discharge amount; or additional per-discharge amounts for each campus, but only one base payment.
“The current rule provides only one payment for multi-campus hospitals, treating them as if they were only one hospital. In reality though, if a hospital has multiple campuses, they will be spending money for HIT implementation at each location. Even after several attempts to get this provision fixed, the rule still ignored the issue, and this bill would finally fix the problem,” said Representative Michael Burgess (R-TX), one of the legislation’s sponsors.
House Ways and Means Health Subcommittee Chairman Pete Stark (D-CA), Representative Zack Space (D-OH), and Energy and Commerce Health Subcommittee Chairman Frank Pallone, Jr. (D-N.J.) also sponsored the bill.According to a press release posted by Stark, the legislation has bipartisan support from over 30 members of the Ways and Means and Energy and Commerce Committees, including the two Committee Chairs.
CMS Issues Final Drug Manufacturer Agreement For Coverage Gap Discount Program
The Centers for Medicare and Medicaid Services (CMS) has posted the final agreement drug manufacturers of applicable Part D drugs must sign by September 1 to provide Medicare beneficiaries in the coverage gap a discount on their medications.
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, mandated the drug discount program for Medicare Part D beneficiaries in the coverage gap.
CMS expects Medicare beneficiaries enrolled in Part D plans to see 50% savings on their brand name drugs and biologics during 2011 when they enter the coverage gap, also called the “donut hole.”
CMS published in the May 26 Federal Register (75 Fed. Reg. 29555) a draft model agreement for drug manufacturers to participate in the coverage gap program, which they must execute to continue to offer drugs under the Part D program.
Based on comments to the draft, CMS said it revised the agreement “to provide additional time for quarterly invoice payments by manufacturers to plan sponsors within 38 days of receipt through the Third Party Administrator.”
In addition, CMS is providing manufacturers with claims level data necessary to validate invoices, without sharing private patient information, according to an agency press release.
The agreement outlines a dispute resolution and appeal process for manufacturers to raise payment inconsistencies or other conflicts.
“We believe our final language is responsive to the comments and we expect all brand name manufacturers to sign,” said CMS Deputy Administrator for the Center for Medicare Jonathan Blum.
Under the healthcare reform law, the coverage gap will begin to decrease incrementally in 2011 until it is eliminated altogether in 2020.
CMS Oversight Over State Rate Setting For Medicaid Managed Care Needs Improvement, GAO Says
The Centers for Medicare and Medicaid Services’ (CMS') oversight of states’ rate setting for compliance with the Medicaid managed care actuarial soundness requirements has been inconsistent, the Government Accountability Office (GAO) found in an August 4 report.
According to the report, Medicaid Managed Care: CMS’s Oversight of States’ Rate Setting Needs Improvement (GAO-10-810), Medicaid managed care rates must be actuarially sound and developed in accordance with actuarial principles, appropriate for the population and services, and certified by actuaries.
However, GAO found variation in CMS regional office practices contributed to inconsistent oversight with significant gaps in CMS’ oversight of two states in particular.
Senate Finance Committee Chairman Max Baucus (D-MT) and Ranking Member Charles Grassley (R-IA) said in a statement that CMS should improve its oversight to ensure states are paying accurate rates when contracting with private insurance companies to provide health coverage to Medicaid beneficiaries.
Both lawmakers said they are committed to continuing to monitor the rate-setting procedures to ensure the integrity of the Medicaid program is protected.
According to the report, CMS had not reviewed Tennessee’s rate setting for multiple years and only determined the state was not in compliance with the requirements through the course of GAO’s work.
In addition, CMS had not completed a full review of Nebraska’s rate setting since the actuarial soundness requirements became effective, the report found.
GAO said regional offices varied in the extent to which they tracked state compliance with the actuarial soundness requirements, their interpretations of how extensive a review of a state’s rate setting was needed, and their determinations regarding sufficient evidence for meeting the actuarial soundness requirements.
The report noted that CMS’ regulations do not include standards for the type, amount, or age of the data used to set rates, and states are not required to report to CMS on the quality of the data.
In addition, when reviewing states’ descriptions of the data used to set rates, CMS officials focused primarily on the appropriateness of the data rather than its reliability. “With limited information on data quality, CMS cannot ensure that states’ managed care rates are appropriate, which places billions of federal and state dollars at risk for misspending,” GAO said.
While CMS took a number of steps that may address some of the variation that contributed to inconsistent oversight, “additional steps are necessary to prevent further gaps in oversight and additional federal funds from being paid for rates that are not in compliance with the actuarial soundness requirements,” the report said.
“As a result of the weaknesses in CMS’s oversight, billions of dollars in federal funds were paid to one state for rates that were not certified by an actuary, and billions more may be at risk of being paid to other states for rates that are not in compliance with the actuarial soundness requirements or are based on inappropriate and unreliable data,” GAO concluded.
Improvements to CMS’ oversight of states’ rate setting will become increasingly important as coverage under Medicaid expands to new populations for which states may not have experience serving, and may have no data on which to base rates, the report cautioned.
Accordingly, GAO recommended that CMS: implement a mechanism for tracking state compliance, including tracking the effective dates of approved rates; clarify guidance for CMS officials on conducting rate-setting reviews; and make use of information on data quality in overseeing states’ rate setting.
CMS Publishes Proposed Rule Regarding Nursing Facility CMPs For Noncompliance With Medicare/Medicaid Program Requirements
By Shannon DeBra, Bricker & Eckler, LLP
The July 12, 2010 issue of the Federal Register (75 Fed. Reg. 39641)included a new proposed rule from the Centers for Medicare and Medicaid Services (CMS) implementing changes included in the Patient Protection and Affordable Care Act (PPACA) affecting civil monetary penalties (CMP) for nursing homes that fall out of compliance with Medicare and Medicaid participation requirements. The proposed regulations:
Establish an escrow account for CMP payments;
Provide for a 50% reduction of a CMP for nursing homes that self-report and promptly correct their noncompliance;
Create an independent informal dispute resolution process for challenging findings of noncompliance; and
Propose acceptable uses for CMPs collected by CMS.
According to CMS, the intent of the PPACA provisions and the proposed rule is to motivate nursing homes to maintain continuous compliance with basic expectations regarding the provision of quality care and eliminate a facility’s ability to significantly defer the direct financial impact of an applicable CMP until after an often long litigation process. Details about each of these proposals are set forth below.
Establishment of an Escrow Account for CMP Payments
Under the current process, nursing homes often avoid paying a CMP imposed for noncompliance with Medicare and/or Medicaid participation requirements for years while they exhaust all of their administrative appeals. Both the Government Accountability Office (GAO) and the Office of Inspector General (OIG) noted that significant time often lapses between the identification of noncompliance and the facility’s payment of an imposed CMP, and that such time lapse insulates the facility from the repercussions of enforcement and may undermine the deterrent effect of the sanction. As a result of a GAO study of nursing home CMPs, GAO recommended legislative change to allow for collection of CMPs before a nursing home has exhausted all of its appeals.
Section 6111(a) and (b) of the PPACA permits the Secretary of the Department of Health and Human Services to collect and place CMPs into an escrow account pending the resolution of any formal appeal filed by the nursing home. The CMP would not be collected until after the facility has gone through the independent informal dispute resolution process (described below), although the per-day penalty can begin to accrue as early as the date the facility is determined to be noncompliant (and can even be retroactive to the date of the adverse event that was documented through the survey process to have occurred prior to the issuance of a formal written notice of the CMP). According to CMS, Congress’ intent was to speed and strengthen the motivational and deterrent effects of CMPs, and that suspending the accrual of a CMP while the underlying noncompliance was informally challenged undermined those effects.
CMS has proposed to collect and place CMPs into escrow accounts pending the resolution of the facility’s formal appeal of the finding of noncompliance. Under this proposal, if the facility is ultimately successful through the formal appeals process, the CMP amount held in escrow will be returned to the facility, with interest, following the expiration of the time for CMS to appeal the Administrative Law Judge (ALJ) decision or, if CMS does appeal, the Departmental Appeals Board’s affirmation of the ALJ’s reversal of the CMP. The CMP would not be collected from the facility to be placed into escrow until the independent informal dispute resolution process (described below) is complete, or 90 days has passed since the notice of imposition of the CMP (whichever is earlier). If this proposal is finalized, CMS expects to issue additional guidance in the State Operations Manual (SOM) about how this rule would work.
50% Reduction in CMP for Nursing Homes That Self-Report and Promptly Correct Their Noncompliance
Section 6111 (a) and (b) of the PPACA authorized CMS to incentivize nursing homes to report and correct their noncompliance by authorizing CMS to reduce a CMP it imposes by up to 50% when CMS determines that a facility has self-reported and promptly corrects its noncompliance. In the proposed rule, CMS includes several conditions that a facility would have to meet to qualify for a 50% reduction in its CMP:
The facility must have self-reported the noncompliance to CMS or the state before it was identified by CMS or the state and before it was reported to CMS or the state by means of a complaint lodged by a person other than an official representative of the nursing home.
The facility must have corrected the noncompliance within 10 calendar days of the date the facility identified the deficiency.
The facility must waive its right to a hearing.
This 50% reduction in the CMP does not apply to instances of noncompliance that constitute immediate jeopardy to resident health or safety, or that constitute either a pattern of harm or widespread harm to facility residents, or that resulted in a resident’s death. In addition, the 50% reduction also is not applicable to repeat offenders--if the facility received a reduction in the CMP penalty for the same deficiency in the previous year, the facility is not eligible for the reduction the following year.
Finally, the proposed rule makes clear that if a facility receives this 50% reduction in the CMP for self-reporting, the facility will not also be eligible for the 35% reduction in the CMP that is already available under existing law to facilities that waive their right to a hearing.
Independent Informal Dispute Resolution Process
The proposed rule creates a second avenue for informal dispute resolution for nursing homes that wish to challenge a finding that they are out of compliance with Medicare and/or Medicaid program requirements. This proposed process differs from the existing informal dispute resolution process in several ways:
Available only when a CMP is imposed (not for non-CMP remedies).
A user fee will be imposed to cover the expenses of the process (cost will depend on complexity of the case).
Conducted by an independent state agency, a Quality Improvement Organization (QIO), or state survey agency as long as the participants had no involvement in the initial decision to cite the deficiency and impose the remedy.
The proposed rule sets forth the following requirements for this new independent information dispute resolution process:
Facilities must request independent informal dispute resolution within 30 days of notice of imposition of the CMP.
The independent informal dispute resolution must be completed within 60 days of the imposition of the CMP.
A written record of the process will be made prior to the collection of the CMP.
An involved resident or resident representative, as well as the state ombudsman, must be notified and given the opportunity to provide written comment.
It is not clear how useful or needed this second avenue of informal dispute resolution is, and it seems that even CMS is a bit puzzled as to why this process was created, with CMS delving into legislative history for legislation that was not enacted in order to provide “insight into what prompted the inclusion of this new independent review process.”
Acceptable Uses for CMP Money
Section 6111 of the PPACA identified new acceptable uses for CMPs collected by CMS. Some of the acceptable uses involve applying funds directly to the promotion of quality care and the well-being of nursing home residents. The PPACA makes clear that all uses of CMP funds must be approved by CMS. In the proposed rule, CMS proposes that 50% of the Medicare portion of collected CMP amounts be used for activities that benefit nursing home residents and that the remaining 50% continue to be deposited to the Department of the Treasury.
CMS also proposes that no CMP funds can be used for survey and certification operations and functions but instead must be used entirely for activities that benefit nursing home residents and that any such activity must be approved by CMS. In distinguishing between Medicare and Medicaid proportions of CMP collections for dually participating facilities, CMS will return funds to the state in which the noncompliant facility was located in proportion to the relative proportion of Medicare and Medicaid beds at the facility actually in use by residents covered by those programs on the date the CMP began to accrue. The proposed rule indicates that CMS is likely to issue guidance that will permit specific uses of the CMP funds without having to get case-by-case approval.
CMS is accepting comments to this proposed rule until August 11, 2010.
Drug Safety Bill Introduced In Senate
Senator Michael Bennet (D-CO) introduced August 3 legislation that would strengthen manufacturer quality standards, enhance the Food and Drug Administration’s (FDA’s) ability to track foreign manufacturing sites, and give the FDA authority to recall potentially dangerous drugs.
In 2009, there were a record 1,742 drug recalls, a 400% increase from the prior year, Bennet noted in a press release. The vast majority of these recalls were related to manufacturing quality and testing, Bennet said.
The Drug Safety and Accountability Act of 2010 would grant the FDA the authority to assess civil penalties for violations of the Food, Drug and Cosmetic Act and to subpoena documents and witnesses; facilitate exchange of information between the FDA and other regulatory agencies; and protect industry whistleblowers.
The bill also would boost manufacturer standards by requiring companies to institute quality management plans to ensure the quality and safety of their drugs and drug components, including strong supplier oversight; and by ensuring companies are able to document which entities are involved in the manufacturing supply chain for their drugs.
In addition, the bill would provide new oversight of over-the-counter (OTC) drugs by preventing FDA from relegating OTC drugs to a lower-risk category for site inspection because of their status.
Bennet noted that current FDA tracking systems for manufacturing sites contain data errors and duplicate entries. The Government Accountability Office has found that multiple tracking systems are not interoperable, preventing meaningful data comparison that could help the agency better target its oversight.
To improve tracking and risk assessment tools, Bennet said, the bill would require FDA to establish accurate, interoperable information systems to track all plants making drugs and active ingredients for the U.S.
The Pharmaceutical Research and Manufacturers of America (PhRMA) issued August 2 a statement noting that “[b]rand-name pharmaceutical companies make tremendous investments in quality control systems and take extensive measures to help protect patient safety and to help prevent adulterated ingredients from entering into America’s prescription drug supply.”
PhRMA Senior Vice President Ken Johnson said the association was looking forward “to reviewing U.S. Sen. Michael Bennet’s bill closely as part of that continuing effort.”
FDA Announces FY 2011 User Fees For Drug Applications, Establishments
The Food and Drug Administration (FDA) announced August 4 new user fees for the prescription drug industry that include increases for drug safety, inflation, and workload.
The August 4 Federal Register notice (75 Fed. Reg. 46952) establishes fee rates for FY 2011 of $1.542 million for a drug application requiring clinical data, $771,000 for an application not requiring clinical data or a supplement requiring clinical data, $497,200 for establishment fees, and $86,520 for product fees.
The fees are effective on October 1, 2011 and remain in effect for one year.
The fees are authorized under the Federal Food, Drug, and Cosmetic Act, as amended by the Prescription Drug User Fee Amendments of 2007 (Title I of the Food and Drug Administration Amendments Act of 2007).
The total fee revenue amount for FY 2011 is $619,070,000, FDA said.
FDA Issues Preliminary Recommendations For Improving 510(k) Process
The Food and Drug Administration (FDA) Center for Devices and Radiological Health (CDRH) issued August 4 two complementary reports that make recommendations to foster innovation, enhance regulatory predictability, and improve patient safety as it relates to medical devices.
The first report focuses on ways to strengthen and clarify the premarket review, or 510(k), process for medical devices that do not need to undergo a full premarket approval. The other report centers on CDRH’s use of science in decision-making, the agency said in a press release.
The Medical Device Amendments of 1976 (MDA) established the 510(k) process to speed the availability to consumers of devices that are safe and effective and to promote innovation in the medical device industry.
The 501(k) process has come under scrutiny of late over concerns that it is being used for devices that should be subject to more rigorous review.
Under the premarket notification process, a post-MDA device may be legally marketed without an approved premarket approval application if FDA concludes, through review of a 510(k) submission, that the device is substantially equivalent to a “predicate,” or previously cleared, device.
The agency emphasized the reports are preliminary, and CDRH is accepting comments on both through October 4.
"Taken together these preliminary reports show a smarter FDA—an agency that recognizes both sides of our mission to protect and promote health,” said CDRH Director Jeffrey Shuren, M.D. “The agency is ready to make necessary improvements to support device innovation while assuring patients receive safe and effective devices."
To foster innovation, the 501(k) report recommends developing a regulatory pathway for lower-risk novel devices that cannot be cleared through the 510(k) process but that do not warrant the more rigorous premarket approval review applied to high-risk devices.
To enhance regulatory predictability, the report recommends that CDRH define a subset of moderate-risk (Class II) devices, called Class IIb, for which clinical or manufacturing data typically would be necessary to support a substantial equivalence determination. CDRH would issue guidance clarifying the type of information that should be included in 510(k) submission to facilitate planning and eliminate time consuming follow-up requests.
With respect to improving patient safety, the 510(k) report recommends that CDRH revise regulations to require 510(k) submitters provide a summary of all scientific information they know, or should reasonable know, about the device’s safety and effectiveness.
“This is not required now for 510(k) submissions and, as a result, relevant information may not be included in an initial submission,” FDA said. “This summary would help CDRH review staff to more efficiently make decisions, and potentially avoid extensive follow-up inquiries and questions.”
In addition, the report advises that CDRH develop a guidance document clarifying when a device should not be used as a predicate such as when the device has been removed from the market because of safety concerns.
The science report recommends, among other things, that CDRH develop a web-based network of external scientific experts using social media technology and use a standardized “Notice to Industry” letter to quickly communicate when the agency has changed its premarket regulatory expectations due to emerging scientific information.
The Advanced Medical Technology Association (AdvaMed) said in a statement that it is “carefully reviewing FDA’s recommendations on the 510(k) process.”
“On first reading, FDA’s report includes a number of commendable steps to improve the 510(k) process,” said AdvaMed’s Stephen J. Ubl. “In particular, we are pleased the report incorporates key AdvaMed recommendations on targeting special requirements for a small subset of Class II 510(k)s. The proposals to increase the consistency and predictability of the process by greater reviewer training and oversight are very promising and, if successful, will address one of the most troublesome issues companies currently face in bringing new products to market.”
“At the same time, there are in excess of 70 proposed changes that, taken together, could result in a significant disruption to a program that has served patients well for more than 30 years. These range from potential changes in the fundamental basis for product clearance to publicly disclosing design schematics in a database where foreign competitors would have access to them. We believe changes should be targeted, have a corresponding public health benefit and not undermine a system that has a remarkable safety record,” Ubl added.
Federal Judge In Virginia Refuses To Dismiss Lawsuit Challenging Healthcare Reform Law
A federal district court judge in Virginia refused August 2 to dismiss a lawsuit brought by Virginia Attorney General Kenneth T. Cuccinelli, II challenging the constitutionality of the healthcare reform law.
Judge Henry E. Hudson of the U.S. District Court for the Eastern District of Virginia found the state had sufficiently demonstrated standing to challenge a provision of the healthcare reform law requiring individuals to buy insurance.
According to Hudson, a Virginia statute passed in March purporting to protect state citizens from a government-imposed mandate to buy health insurance directly conflicts with federal law, placing the state in the position of having to defend the enforceability of its duly enacted statute.
As to the merits, Hudson held the state had made a case, for purposes of surviving the government’s motion to dismiss, that the individual mandate exceeded Congress’ Commerce Clause powers. Using similar reasoning, the court also refused to find at this point that the penalty provisions of the individual mandate were a valid exercise of Congress’ taxing power.
Hudson emphasized that existing precedent did not provide a definitive conclusion for either of these “novel” constitutional issues, which precluded dismissal of the litigation.
“While this case raises a host of complex constitutional issues, all seem to distill to the single question of whether or not Congress has the power to regulate—and tax—a citizen’s decision not to participate in interstate commerce. Neither the U.S. Supreme Court nor any circuit court of appeals has squarely addressed this issue,” Hudson observed.
“This lawsuit is not about health care, it’s about our freedom and about standing up and calling on the federal government to follow the ultimate law of the land—the Constitution,” Cuccinelli said in a statement following the ruling. “The government cannot draft an unwilling citizen into commerce just so it can regulate him under the Commerce Clause.”
“The Court recognized that the federal health care law and its associated penalty were literally unprecedented,” Cuccinelli added.
Cuccinelli said a summary judgment hearing in the matter is scheduled for October 18.
In a posting on the White House blog, Stephanie Cutter, an Assistant to the President for Special Projects, emphasized the decision was “procedural” and not a ruling on the merits.
“The federal government believes this procedural ruling is in error and conflicts with long-standing and well-established legal precedents,” Cutter added.
Although a number of other states have challenged the healthcare reform law, Virginia brought its lawsuit in part to defend a recent legislative enactment, the Virginia Health Care Freedom Act, which the state argued made it uniquely positioned on the standing issue because the legislation conflicts directly with federal law.
“In the immediate case, the Commonwealth is exercising a core sovereign power because the effect of the federal enactment is to require Virginia to yield under the Supremacy Clause,” Hudson observed.
The government also argued unsuccessfully that the court lacked subject matter jurisdiction under the Anti-Injunction Act, which requires citizens to pay a challenged tax and then sue for a refund.
But Hudson found the Anti-Injunction Act was inapplicable here because Congress provided no other alternative remedy that would allow the state to vindicate its duly enacted laws (i.e. the Virginia Health Care Freedom Act).
Under the government’s interpretation, Hudson said, the state would never have the opportunity to pay the penalty and sue for a refund, and an individual taxpayer would be unable to assert the constitutional rights of the state.
“The mere existence of the lawfully-enacted statute is sufficient to trigger the duty of the Attorney General of Virginia to defend the law and the associated sovereign power to enact it.”
Hudson also refused to dismiss the case based on the government’s argument that the challenge was not ripe for judicial review because the individual mandate does not take effect until 2014.
“While the mandatory compliance provisions of the [individual mandate] do not go into effect until 2014, that does not mean that its effects will not be felt by the Commonwealth in the near future,” Hudson said.
“More importantly, the Commonwealth must revamp its health care program to ensure compliance with the enactment’s provisions, particularly with respect to Medicaid. This process will entail more than simple fine tuning. Unquestionably, this regulation radically changes the landscape of health insurance coverage in America,” Hudson wrote.
The Commerce Clause issue, Hudson said, boils down to whether Congress can regulate economic inactivity—i.e., individuals who decide not to buy health insurance.
Based on existing precedent, Hudson said he could not make a definitive ruling on this issue.
Thus, at this stage of the litigation the state could maintain its challenge to the individual mandate based on the argument that Congress exceeded its powers under the Commerce Clause.
Hudson also was not persuaded by the government’s argument that Congress could enact the individual mandate pursuant to the Necessary and Proper Clause, which grants Congress broad authority to pass laws in furtherance of its constitutionally enumerated powers.
The state argued Congress could not invoke the Necessary and Proper Clause to enforce an unconstitutional exercise of Commerce Clause power.
Hudson again found the “guiding precedent” on this issue informative but “inconclusive.”
“Never before has the Commerce Clause and associated Necessary and Proper Clause been extended this far. At this juncture, the Court is not persuaded that the Secretary has demonstrated that the Complaint fails to state a cause of action with respect to the Commerce Clause element,” Hudson said.
Finally, the government argued the individual mandate and its associated penalty provisions were properly enacted pursuant to Congress’ power to tax for the general welfare.
Hudson said this argument also raised the central question of whether Congress had the authority to regulate economic inactivity—an issue he ultimately concluded could not be resolved on a motion to dismiss.
Virginia v. Sebelius, No. 3:10CV1888-HEH (E.D. Va. Aug. 2, 2010).
Fifth Circuit Finds Labs Not Entitled To Additional Interest On Medicare Reimbursement Ruling
Texas Clinical Laboratories, Inc. and Texas Clinical Laboratories-Gulf Division, Inc. (collectively, TCLs) were not entitled to additional interest on the principal of a Medicare reimbursement ruling rendered in their favor against the Department of Health and Human Services (HHS), the Fifth Circuit ruled July 22 in affirming a district court decision.
In 1986, HHS implemented a new formula for calculating reimbursement for travel expenses that, among other things, used (1) 35 miles per hour average speed as the standard for delivery of services and (2) a median cost per specimen.
The TCLs objected to these two components of the new formula and in 1992 an Administrative Law Judge (ALJ) found both requirements not supported by substantial evidence.
The Office of Health Affairs Appeals Council vacated the ALJ’s ruling and remanded to the ALJ, who again found in favor of the TCLs.
The Appeals Council again reversed and remanded to a different ALJ, who in 1995 rendered a third ruling in the TCLs’ favor.
Following yet another reversal by the Appeals Council, the case went before a federal district court, which ruled in HHS’ favor. On appeal, the Fifth Circuit affirmed the dismissal of the TCLs’ median cost per specimen claim, but remanded the 35 mph claim.
On remand to the agency, HHS conceded that the 35 mph figure was not supported by objective evidence and in March 2003, an ALJ ruled in the TCLs’ favor for the fourth time, awarding $581,157 plus accrued interest.
HHS did not appeal and issued the Medicare reimbursement to the TCLs, including interest calculated from the March 2003 ALJ’s fourth ruling.
The TCLs argued interest should have accrued as of January 1992, the date of the first ALJ ruling in their favor.
A federal district court in Texas found in HHS’ favor and refused to award additional interest. The Fifth Circuit affirmed.
The appeals court framed the issue as which of the four ALJ rulings rendered in the TCLs’ favor constituted a “final determination” for purposes of triggering the accrual of interest.
Applying a Chevron analysis, the appeals court noted that neither the statute nor applicable regulation said what type of rulings constitute “final determinations” upon which interest should accrue.
According to the appeals court, the regulation could be interpreted to fit the scenarios advanced by both the TCLs and HHS.
Here, the Appeals Council concluded that interest did not accrue on a final determination that is subsequently reversed by an administrative or judicial ruling. Moreover, the instant case involved a mixed judgment where only part of the judgment (involving the 35 mph figure) was reversed.
The TCLs urged the court, however, to treat the 20 years of litigation as a lengthy adjustment of the initial determination. Because they were eventually successful on their challenge to the 35 mph component, they argued interest accrued from the initial judgment.
But the appeals court agreed with HHS that the 1992 ruling was not the final determination because “in addition to being a mixed judgment” that invalidated other components of the formula that were later upheld, “the debt included inappropriate claims that were inseparably intertwined with the amount awarded for the m.p.h. component.”
It was not until the March 2003 decision that the amount of the debt specifically related to the 35 mph component was set by the ALJ.
A dissenting opinion argued deference was “not due the Medicare Appeals Council’s unreasonable and inequitable interpretation of the regulations at issue.”
According to the dissent, after an “incredible” 22 years, HHS finally paid the TCLs’ “judgment plus two months’ interest for some fifteen years’ use of the plaintiffs’ money.”
“The majority, operating on automatic, nods to the Appeals Council’s discriminatory and self-serving new interpretation of the regulations,” the dissent argued.
The dissent discounted the majority’s acceptance of the Appeals Council’s justification that the mixed nature of the 1992 administrative judgment justified interest not accruing from that date.
“There is no reason established in the regulations as to why interest should not run on the favorable portion of the award,” the dissent said. “The majority’s interpretation frustrates the purpose of interest accrual: to make sure plaintiffs are compensated for the time value of money owed to them.”Texas Clinical Labs Inc. v. Sebelius, No. 09-10658 (5th Cir. July 22, 2010.
Final FY 2011 IPPS Rule Includes 2.9% Reduction For Coding Changes
The Centers for Medicare and Medicaid Services (CMS) issued July 30 a final fiscal year (FY) 2011 inpatient prospective payment system (IPPS) rule that reduces Medicare payments to inpatient hospitals by 2.9% as an offset for coding changes not related to the severity of patients’ illnesses.
The controversial payment reduction was opposed by hospital groups as well as some members of Congress who asked CMS to nix the documentation and coding adjustment included in the proposed rule issued in April.
CMS estimates that payments to the roughly 3,500 general acute care hospitals paid under the IPPS will decline by 0.4%, or $440 million, compared with FY 2010, under the final rule, according to an agency press release. The rule, slated for publication in the August 16 Federal Register, goes into effect beginning with discharges occurring on or after October 1, 2010.
The final rule includes a 2.6% inflationary update, reduced by 0.25% as required by the healthcare reform law. CMS is further adjusting the 2.35% payment update by a negative 2.9 percentage points to recoup one-half of the estimated excess spending in FYs 2008 and 2009 aggregate payments, due to changes in hospital coding practices that did not reflect increases in patients’ severity of illness.
“Under legislation passed in 2007, CMS is required to recoup the entire amount of FY 2008 and 2009 excess spending from changes in hospital coding practices by FY 2012,” according to an agency fact sheet.
CMS said a 5.8% cut is necessary to recoup these overpayments in their entirety, but it has decided to phase-in the reduction carefully over time and therefore is implementing one-half of the total adjustment for FY 2011.
The final rule also makes changes to the outlier threshold. For acute care hospitals, CMS estimates that the total outlier payments in FY 2010 will be 4.7% of total payments under the IPPS—0.4 percentage points lower than the target rate of 5.1%—thus the final rule raises the outlier threshold in FY 2011 to $23,075.
In a July 30 statement, the American Hospital Association (AHA) warned that the rule’s cuts in hospital payments comes at the worst possible time, with sicker patients, fragile economic conditions, and significant changes in the works because of healthcare reform.
“CMS failed to listen to concerns from members of Congress. A bipartisan majority of senators and representatives had expressed to CMS that the rule’s coding offset would hurt their communities’ ability to access health care,” AHA said.
Several hospital groups, including AHA, sent a letter to CMS Administrator Donald Berwick June 20 urging CMS to change its methodology for determining documentation and coding change to better account for increasing patient severity.
The letter pointed to recent studies concluding CMS’ methodology does not adequately isolate documentation and coding from other factors when calculating changes in case-mix index.
According to AHA, in issuing the final rule, CMS “failed to acknowledge . . . what we all know: hospital patients are increasingly sicker.”
Quality Reporting, HACs
Hospitals that successfully report quality measures included in the Reporting Hospital Quality Data for Annual Payment Update (RHQDAPU) program will receive the full update for FY 2011.
Non-participating hospitals will get the update less two percentage points.
In the final rule, CMS added 12 measures to the RHQDAPU set for FY 2011, but retires one current measure (mortality for selected surgical procedures (composite)), bringing the total to 55 for the FY 2012 market basket update. CMS added that only 10 of the new measures will be considered in determining a hospital’s FY 2012 update, according to an agency fact sheet.
The remaining two measures must be reported in 2011 but will not be used to determine a hospital’s update until FY 2013.
The FY 2011 final rule does not add any new conditions to the list of hospital-acquired conditions (HACs) for which Medicare will not pay unless documented by the hospital as present on admission.
But the final rule does report on the progress to date of the policy’s impact. According to a CMS analysis, the HAC policy resulted in payment adjustments for 3,416 discharges out of roughly 9.3 million total discharges for the 10 categories of conditions currently on the HAC list. These adjustments, CMS said, yielded a net savings of about $18.8 million.
Long Term Care Hospitals
The final rule also sets payment rates for the approximately 420 long term care hospitals paid under the Long-Term Care Hospital Prospective Payment System (LTCH PPS), beginning with discharges occurring on or after October 1, 2010.
The final rule adjusts LTCH rates by 2.5% for inflation, but reduces the update by a 0.5 percentage point as required by the healthcare reform law and by a negative 2.5 percentage points for the estimated increase in spending in FYs 2008 and 2009 due to documentation and coding. CMS estimates that payments to LTCHs would increase by 0.5%, or $22 million, in 2011.
For LTCHs, CMS projects the total estimated outlier payments in rate year (RY) 2010 will be approximately 7.42% of total estimated LTCH PPS payments, 0.58 percentage points lower than the target rate of 8%. The final rule thus includes a slight increase to the LTCH outlier threshold for FY 2011 to $18,785.
Healthcare Reform Provisions
The final rule includes inpatient hospital-related provisions of the recently enacted reform law that the agency originally issued as a supplemental proposed rule in June. The reform law was enacted too late to include its provisions in the original IPPS proposed rule, CMS said.
The final rule implements provisions in the Patient Protection and Affordable Care Act (PPACA), as amended, for supplemental payments totaling $400 million for FYs 2011 and 2012 for qualifying hospitals located in counties that rank, based on adjusted Medicare spending per beneficiary, among the lowest quartile in the country, CMS said in a fact sheet.
The final rule adopts a hospital wage index that is not less than 1.0 for hospitals located in frontier states, beginning in FY 2011, pursuant to the PPACA. CMS said 51 IPPS hospitals in five states—Montana, Nevada, North Dakota, South Dakota, and Wyoming, will benefit from this provision.
In addition, the PPACA expands eligibility for the low-volume payment adjustment during FYs 2011 and 2012 to hospitals within 15 miles of other hospitals (instead of the current requirement of 25 miles) and with less than 1,600 discharges of individuals entitled to, or enrolled for, benefits under Part A (instead of the current statutory requirement of 800 total discharges).
The law requires the Secretary to create a sliding payment scale, with larger payments (starting at a 25% adjustment) going to hospitals with 200 or fewer Medicare discharges and no payment adjustment for hospitals with greater than 1,600 Medicare discharges. CMS said it modified the formula used to determine these payments in response to comments on the proposed rule.
Specific provisions of the final rule and notice also extend the Medicare Dependent Hospitals program, extend the Rural Community Hospital Demonstration Program, and extend for an additional two years certain requirements of the Medicare, Medicaid, and SCHIP Extension Act of 2007 affecting certain LTCHs and LTCH satellite facilities and the moratorium on establishing new LTCHs and LTCH satellite facilities or increasing hospital beds in existing LTCHs and LTCH satellite facilities, among other provisions.
Healthcare Reform Law Adds 12 Years To Medicare Solvency Forecast, Trustees Say
The annual Medicare Board of Trustees report released August 5 projected the solvency of the Medicare Hospital Insurance (HI) Trust Fund has been extended by 12 years until 2029 as a result of the healthcare reform law.
The report last year forecast the trust fund would be insolvent by 2017.
According to a fact sheet issued by the Centers for Medicare and Medicaid Services, while costs are estimated to continue to exceed HI trust fund income for the next few years, savings under the healthcare reform law are expected to generate fund surpluses during 2014-2022.
The report also projected lower costs for the Part B Supplementary Medical Insurance (SMI) Fund as a result of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act.
Specifically, the report estimated Part B spending, currently at roughly 1.5% of gross domestic product (GDP), would rise to only 2.5% of GDP by the end of the 75-year projection period, instead of the 4.5% forecast last year before the healthcare reform law’s enactment.
Most of the over $500 billion in savings under the healthcare reform law, according to the report, stems from a productivity adjustment of about 1.1% per year in the amount Medicare pays for services by hospitals, skilled nursing facilities, and other providers.
The healthcare reform law also reduces Medicare costs by lowering payments to private Medicare Advantage health plans. In addition, single taxpayers making $200,000 annually, or married couples earning $250,000, will pay an additional 0.9% contribution to the HI trust fund, which also helps improve Medicare’s financial outlook, the report noted.
At the same time, the report cautioned that the productivity adjustment under the reform law is likely unrealistic in the long term and could compromise access to care. “Although the new law is assumed to apply in all years, there are serious concerns as to whether these future scheduled update reductions are workable in the long range,” the report said.
According to the report, “[w]ithout major changes in health care delivery systems, the prices paid by Medicare for health services are very likely to fall increasingly short of the costs of providing these services.”
The report also assumed, with respect to the SMI trust fund, that the substantial reductions in physician payments called for under the Sustainable Growth Rate formula will remain intact, while acknowledging that Congress, as it has done in the past, will likely intervene to block the cuts.
“Overriding the productivity adjustments, as Congress has done repeatedly in the case of physician payment rates, would lead to far higher costs for Medicare in the long range than those projected under current law,” the report observed.
“Although the current-law projections are poor indicators of the likely future financial status of Medicare, they serve the useful purpose of illustrating the exceptional improvement that would result if viable means can be found to permanently slow the growth in health care expenditures,” the report added.
Department of Health and Human Services Secretary Kathleen Sebelius lauded the report’s findings, but acknowledged that achieving “the gains projected in this report” will require the timely and effective implementation of the reform law.
Sebelius said she has convened a panel of experts that will focus specifically on long term healthcare spending. The panel will hold its first meeting later this month and their recommendations will be incorporated into next year’s report, Sebelius said.
“With reform of our health care system, new Medicare beneficiaries will come into the program healthier after having access to improved coverage and prevention benefits. Medicare will be a smarter purchaser of health care, rewarding value and efficiency. These improvements help to strengthen the program’s fiscal future,” said House Ways and Means Subcommittee on Health Chairman Pete Stark (D-CA).
But House Minority Leader John Boehner (R-OH) disputed the Medicare savings under the reform bill could be counted in extending the program’s solvency since that money is being used to fund the expansion in healthcare coverage under the reform law.
“Simple logic says that you can’t spend and save the same dollar,” Boehner said. “In fact, the chief Medicare actuary has already blown the whistle on the Obama administration for attempting to pass off cuts as ‘savings’ within Medicare when, in fact, the money is being used to establish a new federal entitlement and massive new bureaucracies,” he added.
HHS Report Says Reform Will Save $418 Billion In Ten Years
Provisions of the healthcare reform law already being implemented will save nearly $8 billion within the next two years and approximately $418 billion by 2019, according to a report released August 2 by the Department of Health and Human Services (HHS).
Medicare savings provided under the reform law will lower beneficiaries’ Part B premiums by nearly $200 annually by 2018, the report said.
“These new savings will come largely as a result of reducing excessive payments to private health insurance companies, promoting better quality of care, and cutting Medicare waste and fraud through powerful new tools,” Centers for Medicare and Medicaid Services (CMS) Administrator Donald Berwick said in a blog post.
According to the report, the Patient Provider and Affordable Care Act, as amended, takes immediate steps to improve quality of care, including provisions aimed at reducing unnecessary hospital readmissions; imposing payment penalties on the 25% of hospitals whose rates of hospital acquired conditions are the highest; implementing a bundled payment system for end stage renal disease; and rewarding higher quality care.
The report also identifies provisions to reform our healthcare delivery system “that will promote broader integration and coordination of care that enable physicians and nurses to spend more time with their patients and reduce duplicative services.”
Taken together, three delivery system reform provisions—accountable care organizations, the Center for Medicare and Medicaid Innovation, and an Independent Payment Advisory Board—will generate approximately $30 billion in savings and extend the life of the Medicare Hospital Insurance Trust Fund, the report said.
Key provisions in the reform law meant to maximize efficiency will save $370 billion over 10 years, HHS said. Such provisions include: ending overpayments to Medicare Advantage plans; improvements to productivity and market basket adjustments; more accurate payment for advanced imaging services; and competitive bidding for durable medical equipment.
Lastly, according to HHS, the reform law “focuses on preventing fraud and providing CMS with powerful new tools to screen providers so bad actors are unable to bill Medicare in the first place.”
Senate Finance Committee Ranking Member Charles Grassley (R-IA) took issue with some of the facts and figures in the report however, saying in a press release that it tells "only part of the story."
According to Grassley, the “Administration's own actuary and CBO have said over and over again that you can't ‘double-count’ the Medicare cuts by claiming they extend the life of the Medicare program and at the same time fund a new entitlement program. That’s common sense even if the experts didn’t say it. It’s intellectually dishonest to try to have it both ways."
“The White House claims to be correcting the record about the impact of health reform on seniors, but it's pretty clear the Administration isn’t letting facts get in the way of the story it wants to tell,” Grassley added.
Home Health PPS Rule 2011 - Therapy Utilization, Objective Standards, And You
By Robert W. Markette, Jr., Gilliland & Markette LLP
July is the time of year when you realize that summer is half over, school is about to start, and there are less than six months to get your Christmas shopping done. It is also that time of year when the Centers for Medicare and Medicaid Services (CMS) announces how it plans to change the home health prospective payment system (PPS) for next year.
There are many notable changes in this year’s rule (including another rate cut), but there is one item in the proposed PPS rule that this article will focus on—CMS' proposed changes related to therapy visits and documentation.
As they did last year, CMS spends a large amount of time evaluating case mix creep and therapy visit creep. CMS noted that episodes at the 10 visit threshold have declined since CMS removed the 10 visit threshold. In fact, CMS noted that episodes that fall within the range of 10, 11, 12, and 13 all declined. CMS also observed that episodes with visits in the 14-20+ range all increased. This increase in the 14-20 visit episodes appears to be taken as a sign that home health agencies are gaming the therapy system for profit.
CMS bases all of this on a statistical analysis of 2007 and 2008 data, but does not consider an issue that has been discussed at length in the industry—pre-2008 underutilization of therapy due to cost. A number of providers felt the higher visit episodes would increase because agencies could now afford to provide these additional visits. (Yes, underutilization pre-2008 is an issue, but a much different issue than choosing therapy visits based upon reimbursement.) Thus, it is possible that the 14-20 therapy visit episodes went up, because prior to 2008 home health reimbursement did not make it possible for agencies to routinely provide this type of care and stay in business.
It is also interesting that although CMS appears to presume this is a sign of fraud (as did the Wall Street Journal, the Senate Finance Committee, and other observers outside of the industry), it is not apparent that the HEAT task force has been focusing on this issue. Maybe they have been, but for an issue being portrayed as an industry-wide practice of overutilizing therapy for profit, one would expect a "tougher" reaction.
To address this issue, CMS is changing a number of aspects of therapy in the home health benefit. CMS proposes to amend 42 C.F.R. 409.44 in a number of ways. First, the therapy must relate directly and specifically to a treatment regimen that is designed to treat the beneficiary's illness. The plan of care "must describe a course of therapy treatment and therapy goals which are consistent with the evaluation of the patient's function.” The rule would require the plan of care and assessment to both be included in the patient's clinical record.
The clinical record also will need to include "documentation describing how the course of therapy treatment . . . is in accordance with accepted standards of clinical practice." The goals of treatment must be measurable. In the comments regarding the proposed changes, CMS repeatedly states that it wants objective measurements. CMS wants the documentation to show objectively measurable goals, objective measures of progress, etc. The rule also would require "the clinical record . . . demonstrate that the method used to assess a patient's function included objective measures of function in accordance with acceptable standards of practice . . . ." This will allow "comparison of successive measures to determine progress."
Under the proposed rule's requirements for what constitutes reasonable and necessary services, it again requires the patient to be initially assessed and periodically reassessed "using a method which would include objective measurement of function and progress . . . ." For plans of care with 13-19 visits, a therapist would need to functionally reassess the patient (again including objective measures) on the 13th and 19th visits and at least every 30 days.
Although it has been my opinion that providers should be using objective criteria because it is much easier to respond to a fraud investigator that way, CMS will now require it. (Assuming there is no major change to the rule when finalized.) If a home healthcare provider was not inclined to move towards a more objective measurements based therapy documentation practice previously, CMS' proposed changes are an excellent reason to do so.
Missouri Voters Reject Individual Mandate In Healthcare Reform Law
An overwhelming 71% of Missouri voters approved in an August 3 primary election a proposition to reject the individual mandate under the healthcare reform law.
Proposition C purports to invalidate the healthcare reform law’s requirement that, starting in 2014, individuals must obtain health insurance coverage or pay a penalty.
In a briefing August 4, White House Press Secretary Robert Gibbs said the vote had “no legal significance.”
But Senate Minority Leader Mitch McConnell (R-KY) said the vote “sent a clear message that the federal government has no business forcing people to buy insurance against their will.”
The vote came one day after a federal judge in Virginia said the state could proceed with its lawsuit challenging the constitutionality of an individual mandate. See related item in this issue.
The state has a law on the books, the Virginia Health Care Freedom Act, also purporting to protect state citizens from a government-imposed mandate to buy health insurance.
Ninth Circuit Finds PRRB Erred In Granting Expedited Judicial Review Of Rural Teaching Hospital’s Challenge
The Ninth Circuit held July 23 that the Provider Reimbursement Review Board (PRRB) should not have granted expedited judicial review (EJR) of five rural hospitals' challenge to the methodology used by the Department of Health and Human Services Secretary to determine their Medicare direct graduate medical education (DGME) payments.
According to the appeals court, the methodology for calculating the hospitals’ base-year per resident amounts (PRAs), known as Sequential Geographic Methodology (SGM), was an “ad hoc” policy and not a regulation. Thus, the PRRB had authority to decide the question at issue because it did not involve a question of law or regulations.
The district court therefore lacked subject matter jurisdiction, the appeals court held in vacating the decision below invalidating the SGM. The appeals court instead remanded to the district court with instructions to dismiss the hospitals’ challenge and remand to the agency for it to determine the validity of the SGM.
The appeals court also affirmed the district court’s determination that a 1989 regulation, which based the PRA for new graduate medical education programs on the lower of the hospital’s actual costs or the mean value of per resident amounts of hospitals located in the same geographic wage area, was not procedurally or substantively invalid.
The five plaintiff hospitals operate residency training programs in rural family medicine and receive DGME payments, which are based on a hospital-specific PRA calculated according to several formulas, including the 1989 regulation and SGM.
For purposes of the 1989 regulation, the Health Care Finance Administration (HCFA) instructed intermediaries in areas with “fewer than three amounts in the wage area” to write the “Central Office for a determination of the per resident amount to use.”
In a June 1997 letter, HCFA described the SGM formula as the one to use in calculating the PRAs for hospitals with “fewer than three amounts in the wage area.”
Specifically, HCFA instructed intermediaries to include all hospitals in contiguous wage areas. If this failed to yield three amounts, intermediaries were to use a statewide average and, if necessary, “a weighted average among all hospitals with teaching programs in contiguous states.”
Under its final rule, issued in 1997, the Secretary ultimately declined to adopt SGM as its methodology, relying instead on the “regional weighted average per resident amounts determined for each of the nine census regions established by the Bureau of Census” for areas with fewer than three hospitals in a given geographic wage area.
In the instant case, however, the Secretary calculated the hospitals’ PRAs via the SGM.
The hospitals appealed the PRA determinations to the PRRB, contending their allowed Medicare DGME costs exceeded these determinations. They challenged both the Secretary’s 1989 regulation and the SGM methodology as contrary to the Medicare law.
The PRRB granted EJR of the challenge, finding it involved a question of law or regulations that the Board was without authority to decide pursuant to 42 U.S.C. § 1395oo(f)(1).
The district court agreed with the hospitals that the SGM lacked the force of law and was arbitrary and capricious, but declined to invalidate the 1989 regulation.
The Ninth Circuit held the PRRB erred in granting EJR because the SGM was an “ad hoc” policy and not a regulation.
“The district court lacked jurisdiction to review SGM because SGM was not a regulation; no rule was promulgated as this was a case-by-case adjudication, and did not involve rulemaking of any kind,” the appeals court held.
Thus, the PRRB had authority to decide the question at issue because it did not involve a question of law or regulations, the appeals court said.
1989 Regulation Valid
The appeals court also rejected the hospitals’ cross-appeal arguing the district court erred in upholding the 1989 regulation.
Applying Chevron, the appeals court found the relevant statute, 42 U.S.C. § 1395ww(h)(2), was ambiguous regarding the Secretary’s responsibility of establishing PRAs for post-1984 DGME programs.
Section 1395ww(h)(2) states that “the Secretary shall . . . provide for such approved FTE [full-time equivalent] resident amounts as the Secretary determines to be appropriate, based on approved FTE resident amounts for comparable programs.” The statute does not define, however, any criteria for determining program compatibility.
The appeals court found the Secretary’s interpretation causing hospitals in wage areas with less than three teaching hospitals to be treated differently than other new programs as permissible given the statute’s silence on this issue.
The appeals court also held the statute was not arbitrary and capricious, finding reasonable the Secretary’s apparent assumption that calculating a mean from a larger pool of hospitals would result in a more accurate result. Providence Yakima Med. Ctr. v. Sebelius, Nos. 09-35266, 09-35402 (9th July 23, 2010).
OIG OKs Charitable Contributions To Encourage Providers To Use Online Scheduling Program With Drug Makers
A company’s proposal to encourage healthcare providers to use its online program for scheduling meetings with manufacturer representatives by offering the provider an opportunity to select a public charity to which the company would make a monetary, charitable contribution in the provider’s name would not generate prohibited remuneration under the Anti-Kickback Statute, the Department of Health and Human Services Office of Inspector General (OIG) concluded in an advisory opinion posted July 30.
The opinion requestor is a corporation that provides marketing services to pharmaceutical, medical, and diagnostic product manufacturers.
The requestor has developed an online scheduling website that pharmaceutical, medical, and diagnostic product manufacturers could use to schedule time with healthcare providers (including physicians) to educate them about new products.
Under the proposed arrangement, the manufacturers would pay the requestor an enrollment fee and a fee per five minute interval of time scheduled with each healthcare provider.
Healthcare providers would not pay to participate in the arrangement, nor would they be paid anything in connection with it. In order to secure their participation, the requestor is proposing to offer providers the opportunity to designate a public charity to which the requestor would make a monetary, charitable contribution in the name of the healthcare provider.
OIG first noted it is “mindful that the majority of donors who make contributions to charitable organizations involved in health care—and the majority of organizations who accept them—are motivated by bona fide charitable purposes.”
However, the opinion said, in some circumstances, payments characterized as “charitable donations” are nothing more than disguised kickbacks intended to induce referrals, directly or indirectly.
After highlighting some potentially problematic contributions, OIG found the proposal could potentially implicate the Anti-Kickback Statute if the charitable contributions would result in any actual or expected economic or other actionable benefit, whether direct or indirect, for the healthcare providers.
However, OIG concluded the proposed arrangement “would be structured to prevent health care providers from receiving any actual or expected economic or other actionable benefit from the charitable donations.”
The opinion noted that “[n]o funds would be transmitted to any health care provider, and no provider would be entitled to any tax deduction or other monetary benefit from the donation.”
Among other safeguards, the opinion said, charities designated by the requestor would be 501(c)(3) organizations that are public charities, and would meet the public support test under the Internal Revenue Code. These restrictions “minimize the risk that the donations would be made to private foundations or other organizations subject to the direction or control of the designating health care providers,” OIG said.
Advisory Opinion No. 10-11 (Dep't of Health and Human Servs. Office of Inspector Gen. July 23, 2010).
RAC Reopening Decision Not Subject To Review, U.S. Court In California Finds
A recovery audit contractor’s (RAC’s) reopening decision is not subject to review, the U.S. District Court for the Southern District of California held July 28.
According to the court, two different regulations specify that such reopening decisions are nonappealable; therefore, the Department of Health and Human Services Secretary was entitled to summary judgment on a hospital’s claims that the RAC did not establish good cause for its reopening decision.
Palomar Medical Center underwent a RAC review and was notified that it had been overpaid $7,992.92.
Palomar appealed the overpayment determination through three levels of appeal: redetermination by a fiscal intermediary (FI), reconsideration by a Qualified Independent Contractor (QIC), and a hearing before an administrative law judge (ALJ).
At each level, the services provided to a patient referred to as John Doe were found not to be medically necessary. However, the ALJ, while agreeing the services rendered were not medically necessary, found the RAC had not established good cause to reopen the claim and concluded the reopening was procedurally invalid.
The Medicare Appeals Council (MAC) reviewed the ALJ's decision and found neither the ALJ nor the MAC had jurisdiction to review the reopening because the decision to reopen is final and not subject to appeal.
Palomar filed suit and both parties moved for summary judgment.
The case was referred to a magistrate judge who recommended that Palomar's motion for summary judgment be denied and the Secretary's motion be granted.
The court adopted the magistrate judge’s report in its entirety, agreeing that the reopening of the claim was not subject to appeal.
After first finding that it would apply a deferential standard of review under Chevron, U.S.A., Inc. v. National Resources Defense Council, Inc., 467 U.S. 837 (1984), the court noted two different regulations state the Secretary’s decision to reopen is not subject to appeal.
Under 42 C.F.R. § 405.926(a)(1), "Actions that are not initial determinations and are not appealable under this subpart include, . . . [a] contractor's, QIC's, ALJ's, or MAC's determination or decision to reopen or not to reopen an initial determination, redetermination, reconsideration, hearing decision, or review decision."
And under 42 C.F.R. § 405.980(a)(5), "The contractor's, QIC's, ALJ's, or MAC's decision on whether to reopen is binding and not subject to appeal."
Palomar “essentially asks this Court to make a policy decision, that providers should have the right to appeal a decision to reopen for good cause if it is presented before an ALJ, despite regulations that explicitly say providers do not have a right to appeal the decision,” the court explained.
However, the court found that such decisions are “not the Court's role, particularly when the agency's interpretation is entitled to deference.”
The court further held the Secretary's interpretation was consistent with the plain language of the regulations and the the intent behind them when they were promulgated.
Thus, the court found it lacked “jurisdiction to consider the merits of Palomar's challenge to the reopening because it is not appealable under the plain language of the regulations and the Secretary's interpretation, to which the Court must give deference.”
Palomar Med. Ctr. v. Sebelius, No. 09cv605 (S.D. Cal. July 28, 2010).
Senate Appropriations Committee Clears Bill Restricting “Pay-For-Delay” Deals
The Senate Appropriations Committee narrowly cleared July 30 a financial services and general appropriations bill that includes language restricting so-called “pay-to-delay” payments as part of patent settlements between brand and generic drug companies that stall the market entry of cheaper-priced generics.
Senator Herb Kohl (D-WI) introduced the Preserve Access to Generic Drugs Act (S. 369), which the Committee approved this week as part of the appropriations bill.
The House approved July 1 a companion measure (H.R. 1706) as part of a supplemental war funding bill (H.R. 4899). However, the Senate subsequently stripped the provision from the bill when it considered the measure.
"The cost of brand-name drugs rose nearly ten percent last year. In contrast, the cost of generic drugs fell by nearly ten percent. At this time of spiraling health care costs, we cannot turn a blind eye to these anticompetitive backroom deals that deny consumers access to affordable generic drugs," said Kohl in a press release.
The Senate bill reflects a change to the original measure made by the Judiciary Committee, which cleared the legislation in a bipartisan 12 to 7 vote, that would allow settlement agreements between drug companies if they can prove to a judge by clear and convincing evidence that the deal will not harm competition.
According to the release, the Congressional Budget Office has pegged savings to the federal government from this provision at $2.6 billion over 10 years due to lower drug costs.
The Federal Trade Commission (FTC) has long argued in favor of banning this type of patent settlement, saying pay-for-delay deals cost consumers about $3.5 billion annually.
The pharmaceutical industry contends, however, that restricting drug patent litigation settlements will dampen innovation and delay consumer access to affordable medicines.
The Generic Pharmaceutical Association (GPhA) said in a statement that it was “extremely disappointed” that the Senate Appropriations Committee approved the bill with the pay-to-delay provision, although it said it was encouraged that the measure only moved forward by a narrow 15 to 15 margin.
“We are encouraged that a growing number of members of Congress are taking a closer look at the language and recognizing that a ban on settlements is a ban on pro-consumer access to medicines and the tremendous savings that results,” GPhA said.
Senate Clears FMAP Extension For State Medicaid Programs
The Senate approved August 5 by a 61-39 margin a measure that includes $26 billion in funding for education and an extension to the increase in the federal medical assistance percentage (FMAP) for state Medicaid programs.
A day earlier the measure cleared a major procedural hurdle when Senate Democrats, along with Maine Republicans Olympia Snowe and Susan Collins, voted 61-38 to invoke cloture and block a filibuster of the bill.
The additional funding, which was included in an aviation safety bill (H.R. 1586), allocates $10 billion to the states to prevent teacher layoffs and $16.1 billion to maintain a boost in the FMAP percentage for state Medicaid programs through June 30, 2011.
Enhanced FMAP funds originally were authorized by the American Recovery and Reinvestment Act (ARRA) but are set to sunset by the end of this year.
ARRA provided an across-the board 6.2% boost in FMAP for states; those with high unemployment could qualify for an additional increase.
A number of governors have warned that without an extension of the increase, their states would be forced to make steep cuts in essential services.
The amendment to H.R. 1586 would phase down the 6.2 percentage bump in the second quarter of fiscal year (FY) 2011 to 3.2 percentage points and in the third quarter of FY 2011 to 1.2 percentage points.
House Speaker Nancy Pelosi said she will call the House back into session at the beginning of next week from their August recess to vote on the measure and move it to the President’s desk.
In a statement, President Obama praised the Senate action, calling it “an important step towards ensuring that teachers across the country can stay in the classroom and cash-strapped states can get the relief they need.”
Senate Republican Leader Mitch McConnell (R-KY) criticized, however, the additional spending under the bill.
"The original Stimulus included about $90 billion in additional federal Medicaid spending,” McConnell said, “[y]et here we are, a year and a half later, and they want more.”
“The purpose of this bill is clear: it’s to create a permanent need for future state bailouts, at a time when we can least afford it,” he said.
States Concerned About Healthcare Reform Implementation While Struggling With Economic Woes
States are worried about the resources that will be needed to implement the expanded role of the Medicaid program contemplated by the healthcare reform law while they are still struggling to emerge from the economic downtown, according to a report from the Kaiser Commission on Medicaid and the Uninsured.
The report is based on discussions with leading state Medicaid directors in May 2010.
According to the report, states are still feeling the pinch from the recession, with weak revenue growth and Medicaid caseload and spending growth remaining high, additional budget shortfalls are likely to continue for the foreseeable future.
More than half of the states have assumed a six-month extension of the boost in federal matching rates for their Medicaid programs through June 30, 2011. The Senate recently approved the extension (see related item in this issue) of the increase in the federal medical assistance percentage, with the House expected to follow suit early next week. But the report points out the level of financing available under the extension declined from the original $24 billion to $16 billion in the measure recently cleared by the Senate.
The state Medicaid directors raised concerns about continuing to meet Medicaid budget reduction targets while at the same time putting in place new staff and funding to begin implementing the healthcare reform law.
“Directors also expressed concern about the availability of providers to handle increases in both Medicaid and overall health care coverage,” the report said.
States are beginning efforts to plan for the Medicaid expansion and coordinate eligibility with state insurance exchanges to be ready for the 2014 implementation deadline.
“These eligibility issues require significant IT system changes which can be expensive and time-consuming to implement,” the report noted.
“State officials believe that enhanced federal support for eligibility system upgrades is essential for states, who are facing severely constrained administrative budgets in the wake of the recession,” the report said.
M. Ritchea was charged in a federal complaint with defrauding the Medicare program out of over $2.2. million by improperly billing for pain injections administered by an unlicensed medical assistant in the states of Georgia and Alabama, announced
U.S. Attorney for the Northern District of Georgia Sally Quillian Yates on August 2. According to the complaint, this medical assistant, acting at the direction of Ritchea, performed unnecessary pain injection procedures that were billed to Medicare as nerve blocks. Ritchea admitted to both the Alabama and Georgia state medical boards that the procedures in question were not medically necessary and that they were over-prescribed and over-utilized, the release said. The complaint also alleges Ritchea billed Medicare for more expensive procedures than were actually performed and for other services that were not reimbursable when performed by a medical assistant.
The U.S. Department of Justice (DOJ), in conjunction with U.S. Attorney for the Southern District of Florida Wifredo A. Ferrer announced
August 5 that Gladis Badia, an employee at a Miami clinic that purported to provide injection and infusion treatment to HIV patients, pled guilty to her role in a $13.7 million Medicare fraud scheme.
Badia admitted that she created and entered false information into patient files to make it appear that patients qualified for services, when in fact, they did not. In addition, Badia admitted that she knew Medicare would be fraudulently billed for the purported services, the release said. Badia also indicated she knew the patients did not qualify for and in some instances did not receive the HIV infusion services, and that her co-conspirators routinely billed Medicare for HIV infusion services that were never rendered.
The owner of the clinic previously pled guilty, and sentencing hearings for all defendants are pending.
Alain Fernandez, a licensed practical nurse who formerly worked at a Miami home health agency, pled guilty to his participation in a scheme that caused the submission of approximately $43,000 in false claims to Medicare for home healthcare services that were not medically necessary and/or were not rendered, announced
the DOJ along with U.S. Attorney for the Southern District of Florida Wifredo A. Ferrer on
August 5. Fernandez admitted that he falsified patient files for Medicare beneficiaries to make it appear that they qualified for home healthcare and therapy services, when in fact, the beneficiaries did not qualify for and did not receive the services, the release said. Fernandez admitted that he did so in agreement with his co-conspirators at the agency.
A sentencing hearing is pending.
Rolando Nogueira and his brother, Jose Nogueira, pled guilty to their roles in participating in a $13.7 million HIV infusion Medicare fraud scheme, announced
the DOJ along with U.S. Attorney for the Southern District of Florida Wifredo A. Ferrer on July 30. According to plea documents, Rolando Nogueira was the owner and operator of a Miami clinic that purported to provide expensive injection and infusion treatments to patients with HIV. Nogueira’s brother, Jose, was an employee at the clinic. Nogueira admitted that he agreed with his brother and other co-conspirators to enlist patient recruiters and patients, among others, into a scheme to defraud Medicare. Rolando and Jose also admitted that they knew the patients at the clinic did not need and/or did not receive the purported services, and that it would be necessary to pay kickbacks and bribes to the patients. In addition, the brothers admitted that they caused the submission of $13.7 million in false claims to Medicare, of which approximately $4.1 was paid out to the clinic. Sentencing hearings are pending.
U.S. Attorney for the Southern District of New York Preet Bharara announced
August 4 that Joseph Akumu, the former executive director of a nonprofit organization, Guest House Community Services, Inc. (Guest House), was indicted on charges of stealing more than $300,000 from the Medicaid program.
The Guest House provides, among other services, in-home assistance to families dealing with children and adults with developmental disabilities. According to the indictment, over a six-year period, the Guest House received more than $6 million in Medicaid funds as payment for services provided to individuals with developmental disabilities.
Of that amount, Akumu allegedly obtained over $300,000 by misappropriating Medicaid checks and using them for personal expenses.
Guadalupe Garces Jr., a former commissioner of Hidalgo County in Texas, and his wife, Araceli Garces, were sentenced to 41 months and 33 months in prison, respectively, for their involvement in a Medicare and Medicaid fraud scheme run through their operation of two ambulance companies, announced
U.S. Attorney for the Southern District of Florida Jose Angel Moreno on August 5. The Garces were found guilty of conspiring to defraud Medicare and Medicaid by submitting false claims to both programs in connection with the transportation by ambulance of beneficiaries to and from dialysis clinics when ambulance transport was not medically necessary. A federal jury found that, over a three-year period, the Garces billed Medicare and Medicaid approximately $12 million for such transports through one of their ambulance companies, and were paid approximately $4.5 million. After payments were suspended to this company because of suspected fraud, the Garces formed another ambulance company in their son’s name, and then continued to bill Medicare and Medicaid for another $3 million over a one-and-a-half year period for medically unnecessary ambulance transports of dialysis patients. Medicare and Medicaid paid out approximately $1.6 million on those claims. The sentencing judge also ordered the Garces to pay a total of $636,742 in restitution to Medicare and Medicaid, and to each serve a three-year term of supervised release following release from prison.
Romelia Sanchez Puig, the wife of Manuel Anthony Puig, a physician assistant, pled guilty to participating in a conspiracy to defraud the Medicare and Medicaid programs out of over $170,000, announced
Attorney for the Southern District of Texas Jose Angel Moreno on August 3.
Romelia was originally indicted along with her husband on charges of healthcare fraud, mail fraud, and conspiracy to commit healthcare fraud arising from their operation of two family health clinics. Manuel pled guilty to all charges against him in July 2010.
Upon pleading guilty, Romelia admitted that she joined an ongoing conspiracy with others to submit claims to Medicare and Medicaid that fraudulently used a Medicaid provider number of a physician who was physically and mentally unable to practice medicine, and who did not delegate authority to Manuel Puig to provide any healthcare services. Romelia also admitted that she submitted a written notice with the Texas State Board of Physician Assistant Examiners that fraudulently claimed that a licensed and competent physician was supervising Manuel's provision of healthcare services, the release said.
Finally, according to the release, Romelia admitted that, over a one-and-a-half year period, she was the primary biller at one of the health clinics in question, and caused the submission of more than 6,000 claims to Medicare and Medicaid fraudulently using the physician’s provider number. The Puigs’ sentencing hearings are pending.
Massachusetts Attorney General Martha Coakley announced
July 30 that Calloway Laboratories, Inc. (Calloway), a Woburn-based clinical testing laboratory, and four individuals—Arthur Levitan, Patrick Cavanaugh, William Maragioglio, and Kelli Ann Cavanaugh, were arraigned on charges of orchestrating a Medicaid fraud and kickback scheme.
According to state investigators, Medicaid allegedly paid in excess of $10.6 million for urine drug screen business obtained by Calloway as a result of illegal kickbacks. Arthur Levitan and Patrick Cavanaugh, Calloway’s chief executive officer and chief operating officer, respectively, allegedly made a series of inappropriate kickbacks through two straw corporations they had set up to induce sober houses to order urine drug screens from Calloway.
Medicaid then reimbursed Calloway for these tests. Maragioglio and Cavanaugh were managers of the network of sober houses, and allegedly received kickbacks for arranging for or recommending that urine drug screens for sober house residents be performed by Calloway, according to the release.
Olasehmdeme Arowosaye, the former owner and operator of a home healthcare agency, and his wife, Emily Arowosaye, pled guilty to defrauding the Medicaid program out of $800,000, announced
New Jersey Attorney General
Paula T. Dow on August 5.
In pleading guilty, both defendants admitted that, over a three-year period,
they submitted fraudulent claims to the Medicaid program for personal care assistance services purportedly provided to Medicaid beneficiaries when, in fact, the services were not provided. In addition, the Arowosayes admitted to fraudulently billing Medicaid by billing for services during weekend hours when services were not rendered on the weekend; submitting claims with forged doctors’ signatures; billing for more hours of service than were actually rendered; billing for services for patients who were dead when the services were purportedly rendered; and billing for medical services that were not medically necessary nor authorized by a physician. Sentencing hearings are pending for both defendants.
However, defendants already signed a consent agreement to pay $800,000 in restitution to the Medicaid program, as well as an $800,000 civil penalty, and to exclusion from the Medicaid program for five years, the release said.
U.S. Court Holds Disciplinary, Peer Review Records Not Privileged, But Physician Must Show Relevance
Disciplinary and peer review records of similarly situated physicians are not protected from discovery under state law privileges in an action brought by a physician alleging race discrimination under federal law, the U.S. District Court for the Southern District of Ohio held July 23.
The court found, however, that the physician failed to show the relevance of all his discovery requests. Therefore, the court denied his motion to compel production without prejudice so he could refile his motion and set forth particularized arguments as to relevance.
Vincent L. Guinn, M.D. sued Mount Carmel Health (MCH), Mount Carmel Health Systems, Trinity Health Corporation, and various associated physicians for race discrimination under 42 U.S.C. § 1981, 42 U.S.C. § 1985, and applicable state law.
According to the complaint, defendants summarily suspended various of Guinn’s medical privileges without adequate investigation. Guinn also contended the suspension ultimately was upheld based on unsupported accusations of various defendants following a hearing process that found his implantation of a medical device into a patient fell below the standard of care.
Guinn also alleged that, to the extent his treatment of the patient did fall below the standard of care, he was treated differently from similarly situated physicians because of his race.
Guinn through 43 interrogatories and 34 requests for production of documents sought discovery from MCH of all similarly situated physicians with medical privileges, whether any of those physicians were ever disciplined, and the outcome of that discipline.
MCH objected to the discovery requests based on the Ohio peer review privilege, the physician-patient privilege, and relevance. Guinn moved to compel.
The court said the law in the Sixth Circuit is well-established that the privileges asserted by MCH (i.e., the state peer review and physician-patient privileges) do not exist in the federal context.
Thus, the court granted Guinn’s motion to compel to the extent MCH failed to respond to a particular discovery request based solely on a physician-patient or peer review privilege.
The court went on to deny the motion, however, for those discovery requests that Guinn failed to make specific arguments as to why MCH’s objection as to relevance was not justified.
Moreover, Guinn did not address the issues of overbreadth or undue burden raised by MCH. Guinn’s overly vague assertion that all of his discovery requests are “narrowly tailored” was insufficient, the court held.
The court told Guinn he could refile his motion to assert particularized arguments as to each discovery request’s relevance.
Guinn v. Mount Carmel Health Sys., No. 2:09-cv-0226 (S.D. Ohio July 23, 2010).
U.S. Court In New Hampshire Allows Hospital’s Claims For Damages After Physicians Allegedly Improperly Accessed Hospital’s Computers
The U.S. District Court for the District of New Hampshire declined to dismiss July 28 a hospital’s claims against a group of physicians and their professional association for damages caused by the physicians’ alleged unauthorized access and removal of data from the hospitals’ computers.
In so holding, the court found the hospital adequately pled its claims under the Computer Fraud and Abuse Act (Act), 18 U.S.C. § 1030.
The case began when plaintiff Wentworth-Douglas Hospital sued several physicians and their professional association under the Act.
According to the hospital, after it declined to renew a contract with defendants to provide pathology services, defendants allegedly appropriated and erased important computer data belonging to the hospital. Defendants moved to dismiss.
The Act provides a private right of action for compensatory damages and equitable relief to any person who suffers damage or loss because another "intentionally accesses a computer without authorization or exceeds authorized access, and thereby obtains . . . information from any protected computer." 18 U.S.C. § 1030(a)(2)(C).
According to plaintiff, by connecting removable storage devices to three Wentworth-Douglas computers and downloading data to those devices, defendants obtained information from those computers in a manner that exceeded their authorized access, because the hospital's policy prohibited them from connecting external hardware to Wentworth-Douglas computers.
Defendants contended the complaint failed to allege they were not authorized to access Wentworth-Douglas' computers and failed to allege, with adequate particularity, they accessed the hospital's computers in a way that exceeded their authorization to do so.
According to the court, defendants' argument addressed matters beyond the scope of a motion to dismiss. “Defendants are of course free to argue, in a motion for summary judgment, for example, that they were not subject to the [hospital’s] policy. But, taking the well-pleaded allegations of the complaint as true, as the court must at this point, the hospital has stated a cognizable legal claim upon which relief can be granted under 18 U.S.C. § 1030(a)(2)(C),” the court held.
Turning to the claims under Section 1030(a)(5)(A), the court noted the hospital claimed defendants damaged three Wentworth-Douglas computers, and the hospital's computer network, by installing DriveScrubber 3 software and/or issuing commands that deleted information from the C Drives of those three computers as well as the H, K, and P Drives of the hospital's computer network.
The court rejected defendants’ contention that a person who has authorization to access a computer cannot violate this section. “Unauthorized damage and/or unauthorized transmission are elements of a cause of action under § 1030(a)(5)(A); unauthorized access to the protected computer is not,” the court said.
After finding the hospital adequately pled damages that met the damages threshold in the law, the court denied defendants’ motion to dismiss.
Wentworth-Douglas Hosp. v. Young & Novis Prof'l Ass'n, No. 10-cv-120-SM (D.N.H. July 28, 2010).
U.S. Court In Pennsylvania Finds Plaintiffs Failed To Exhaust Administrative Remedies Under ERISA
The U.S. District Court for the Eastern District of Pennsylvania found July 27 that plaintiff individuals and pharmacies failed to exhaust administrative remedies under the Employee Retirement and Income Security Act of 1974 (ERISA) before suing certain insurers.
The court thus stayed all proceedings in the case challenging payment for certain claims until an expedited review could be completed by the defendant insurance companies.
Plaintiffs are individuals and pharmacies who are beneficiaries of or alleged assignees of beneficiaries of a group health insurance policy known as the Personal Choice Health Benefits Plan (Plan), which is administered by defendants Independence Blue Cross and QCC Insurance Company.
Defendants argued plaintiffs failed to exhaust their administrative remedies as required by ERISA, 29 U.S.C. § 1132(a)(1)(B).
Plaintiffs countered that defendants had a fixed policy of denying certain claims and they did not comply with their own internal administrative procedures for other claims by failing to render a decision on a number of claims.
But the court said these deficiencies did not apply to all of the disputed claims. Further, plaintiffs provided no evidence they attempted to avail themselves of the remedies available under the Plan, the court found.
“Although Defendants failed to render a decision on certain claims, they did render a decision on a large portion of disputed claims in the form of partial payment of the claim,” the court noted.
As such, these partial payments constitute adverse benefit determinations that plaintiffs should have challenged through the Plan's appeal process, the court held.
The court further held that it was not reasonable for plaintiffs to seek immediate judicial review under the circumstances.
After noting that plaintiffs' amended complaint listed 51 disputed claims, the court found that for it “to perform the first level of review of these claims--to examine the individual claim forms, identify any individual defects, and interpret and apply Plan terms to each claim--would contravene the purpose of ERISA and would waste judicial resources.”
Accordingly, the court stayed all proceedings in the case and ordered the parties to complete an expedited administrative review of all claims.
Templin v. Independence Blue Cross, No. 09-4092 (E.D. Pa. July 27, 2010).