Health Lawyers Weekly:
September 28, 2007 Vol. V Issue 38
Bill Delaying Implementation Of Tamper Proof Pad Requirement Passes Senate
Bill Delaying Implementation Of Tamper Proof Pad Requirement Passes
The Senate passed September 26 legislation (S. 2085) that would delay
for six months implementation of a provision requiring all Medicaid
prescriptions to be written on "tamper resistant" pads in order to be
eligible for federal reimbursement.
The requirement, contained in § 7002(b) of the U.S. Troop
Readiness, Veterans’ Care, Katrina Recovery, and Iraq
Accountability Appropriations Act of 2007, would have required
compliance by October 1, 2007. But numerous healthcare organizations
implored lawmakers and the Department of Health and Human Services to
delay implementation of the rule.
"The purpose of the tamper proof requirement is to combat fraud, not
create chaos for patients and pharmacies" said Senator Sherrod Brown
(D-OH), who along with Senator George Voinovich (R-OH) issued a press
release announcing passage of the bill.
"I’m pleased this bipartisan bill passed the Senate," Brown
said. "We’ll keep working until it’s signed into law."
The National Association of Chain Drug Stores (NACDS), which had
lobbied for a delay in the tamper-proof pad requirement, applauded
Senators Brown and Voinovich for their efforts to get the bill passed in
According to a September 26 NACDS statement, "four months is not
enough time for physicians across the country to comply with such a
Also on Septmber 26, the House passed H.R. 3668, the TMA, Abstinence
Education, and QI Programs Extension Act of 2007, which included the
same six-month delay in the tamper-proof pad requirement. (See
related item in
Read Brown's press
Read the NACDS statement.
CMS Asks For Specific Evidence To Reconsider NCD On Anti-Anemia Drugs For Cancer Patients
CMS Asks For Specific Evidence To Reconsider NCD On Anti-Anemia
Drugs For Cancer Patients
Responding to calls to reconsider a recently released final national
coverage decision (NCD) limiting Medicare coverage of anemia drugs for
patients with certain cancers, the Centers for Medicare and Medicaid
Services (CMS) asked for specific data that the agency “materially
misinterpreted” existing evidence.
CMS issued July 30 the final NCD, which was effective immediately,
concerning anti-anemia drugs, or erythropoiesis stimulating agents
(ESAs). The anti-anemia biologics are distributed in the United
as Epogen and Aranesp, which are manufactured by Amgen Inc., and
Procrit, which is manufactured by Ortho Biotech LLC.
The American Society of Clinical Oncology has urged CMS to reconsider
the provision of the NCD that restricts coverage whenever a
patient’s hemoglobin goes above 10g/dl, noting such a restriction
is inconsistent with the labeling approved by the Food and Drug
Administration (FDA) and national guidelines.
In a letter addressing the call to reopen the NCD, Chief Medical
Officer Barry Straube, M.D. reiterated that the decision was prompted by
"emerging safety concerns" after the FDA decided to require a
“black box” warning on labels for ESAs.
According to the letter, the final NCD “was based on an
exhaustive review of more than 800 individual publications and
approximately 2,600 comment letters received during the two public
The agency said it needs to see new evidence to support a different
conclusion than the one reached in the NCD.
For example, the letter asked for evidence that cancer patients
undergoing chemotherapy require hemoglobin levels above 10 g/dl, or that
patients with a level above this mark have better outcomes. CMS also
asked for data that cancer patients undergoing chemotherapy have better
outcomes from ESA therapy as compared to transfusions.
Lawmakers also have weighed in as the Senate recently
passed by unanimous consent a resolution (S. Res. 305) pressing CMS to
reconsider the NCD. The resolution asked CMS to consult with the
clinical oncology community to determine appropriate revisions to the
CMS Proposes Clarifications To Medicaid Outpatient Hospital Services Definition
CMS Proposes Clarifications To Medicaid
Outpatient Hospital Services Definition
The Centers for Medicare and Medicaid Services (CMS) issued a
proposed rule in the September 28 Federal Register (72 Fed.
Reg. 55158) that would amend the regulatory definition of outpatient
hospital services for Medicaid to align it more closely with the
CMS said the current Medicaid regulatory definition is broader than
Medicare’s definition and can overlap with other covered benefit
categories that may be reimbursed at lower levels.
Moreover, CMS said, the current broad definition “is
inconsistent with the applicable UPL [Upper Payment Limit], which is
based on the premise of some level of comparability between the Medicare
and Medicaid definitions of outpatient hospital and clinic
CMS also noted that the revisions would provide more transparency in
determining available coverage in any state and generally clarify the
scope of services for which federal matching funds are available under
the outpatient hospital services benefit category.
Comments on the proposed rule are due October 29.
Read the proposed
CMS Use Of External Data For DRG Reclassifications, Add-On Payments Limited, GAO Says
CMS Use Of External Data For DRG Reclassifications, Add-On Payments
Limited, GAO Says
Although the Centers for Medicare and Medicaid Services (CMS) has
used external data to inform diagnosis related group (DRG)
reclassifications and to evaluate new technology add-on payment
applications related to inpatient hospital stays, it continues to rely
chiefly on its Medicare Provider Analysis and Review (MEDPAR) file, the
Government Accountability Office (GAO) reported.
According to the report, CMS’ use of data from other government
agencies also is limited because the data often was not
representative of the Medicare population, not timely in comparison to
the MEDPAR file, or incomplete.
GAO said MEDPAR remains the primary data source for setting DRG
payments because they include all charges from inpatient claims provided
to Medicare beneficiaries nationwide under the inpatient prospective
payment system (IPPS).
“A major challenge for the IPPS is to maintain a system of DRGs
that accounts for the use of new technologies,” GAO noted.
As required under the Medicare, Medicaid, and SCHIP Benefits
Improvement and Protection Act of 2000 (BIPA), CMS provides
“add-on-payments” to hospitals for certain new technologies
if the technology is new, costly, and a substantial clinical improvement
over existing technologies, the report explained.
Manufacturers have raised concerns that use of the MEDPAR file as the
basis for revising the DRG may result in inadequate payments to
hospitals for inpatient stays involving new technologies, the report
The report found CMS used external data in certain instances to
evaluate proposed DRG reclassifications, but generally will not make a
reclassification decision involving a new technology if the technology
is so new that it does not appear in the MEDPAR file.
With respect with add-on payment applications, CMS typically uses
external data in conjunction with data from the MEDPAR file to evaluate
whether the new technology meets the eligibility criterion related to
cost, the report said.
Read the report, Medicare
Inpatient Hospital Payments: CMS Has Used External Data for New
Technologies in Certain Instances and Medicare Remains Primary Data
Dingell Introduces Bill To Improve Safety Of Drug, Food Imports
House Energy and Commerce Committee Chairman John D. Dingell (D-MI)
introduced legislation September 20 that would impose user fees on
imported food and drug shipments to provide additional funds for
inspections and laboratory analysis.
Fees collected under the “Food and Drug Import Safety Act of
2007” (H.R. 3610) also would be used to test import samples and
research new testing techniques, according to a press release posted by
“Increasing reports of contaminated imports have made it clear
that the [Food and Drug Administration (FDA)] does not have the
resources and authority it needs to ensure the safety of our food and
drug supply,” Dingell said.
The legislation also bars the Department of Health and Human Services
(DHHS) from closing or consolidating any of the current 13 FDA field
laboratories or any of the 20 FDA district offices.
According to a summary of the bill, fees collected on drug imports
would be used to conduct inspections at U.S. ports and abroad and to
perform laboratory tests on import samples, with an emphasis on measures
to detect the intentional adulteration or misbranding of drugs.
The bill specifies that fees assessed on each line item of drugs will
not exceed $1000 per line item and may be waived or reduced where the
DHHS Secretary finds the fee to exceed the present and future costs of
The legislation also would amend the federal Food, Drug, and Cosmetic
Act to increase civil monetary penalties to $100,000 for an individual
and $500,000 for a company, with a $1 million cap for all adjudications
in a single proceeding.
Under H.R. 3610, DHHS also would have new authorities to issue
mandatory recalls and require country of origin labeling for food,
drugs, and medical devices, the press release said.
The Energy and Commerce Subcommittee on Health held a hearing
September 26 to consider the bill.
Appearing at the hearing, FDA Deputy Commissioner for Policy Randall
Lutter, PhD, said in a written statement that the administration has not
yet taken a position on the bill but is open to providing
“technical assistance to Committee and Subcommittee
The sheer increase in the volume of FDA-regulated imports, which has
doubled in the last five years, is one of the significant challenges
facing the agency, Lutter told the panel.
William K. Hubbard, a former FDA Associate Commissioner and now an
advisor for the Coalition for a Stronger FDA, said the recent string of
tainted products entering the country should serve as a “national
wake-up call” to addressing gaps in the current system.
Hubbard said the huge upswing in import volume has
“overwhelmed” the agency, which only has 450 inspectors
nationwide, enough to man only about 40 of the nation’s 300-400
ports of entry.
Moreover, FDA lacks up-to-date information systems and modern
scientific tools to carry out its oversight function of imported
products, Hubbard said.
Hubbard attributed these problems to FDA’s inadequate budget,
which has not kept pace with its growing responsibilities, and a flawed
“regulatory paradigm” that does not meet 21st century
Hubbard said the import safety system should be re-engineered to
focus on prevention and involve everyone in the chain of
supply—producers, exports, importers, and U.S. purchasers.
Pharmaceutical Research and Manufacturers of America (PhRMA) Deputy
Vice President of Regulatory Affairs Alan Goldhammer, PhD outlined a
number of steps PhRMA thinks could help further secure the
pharmaceutical supply chain.
For example, Goldhammer said FDA should increase requirements for
repackaging drugs to help ensure their authenticity, including applying
the same counterfeit resistant requirements used for original
PhRMA also believes federal requirements for wholesalers/distributors
need to be strengthened, Goldhammer said. In particular, federal law
should require higher minimum standards for state licensing of drug
wholesalers and distributors, Goldhammer noted.
PhRMA also has called for increasing the current criminal
penalties for counterfeiting prescription drug products from a maximum
of three years’ imprisonment to twenty, he said.
View the legislation.
View information on the hearing.
Fourth Circuit Finds Private Right Of Action Under Medicaid “Reasonable Promptness Provision”
Fourth Circuit Finds Private Right Of Action Under Medicaid
“Reasonable Promptness Provision”
A developmentally disabled plaintiff may bring a private right of
action to enforce the Medicaid Act’s “reasonable
promptness” requirement with respect to services provided
under a waiver program for care in non-institutionalized settings, the
Fourth Circuit ruled in a 2-1 decision.
Sue Doe, who has developmental disabilities, sued the South Carolina
Department of Health and Human Services (DHHS) and the Department of
Disabilities and Special Needs (DDSN) alleging she was denied the
services she sought under a Medicaid waiver program to provide care to
those with mental retardation or related disabilities in alternative
settings. 42 U.S.C. § 1396n(c).
At issue in the instant case was Doe’s claim under 42
U.S.C. § 1983 alleging defendants deprived her of Medicaid
services and freedom to choose providers and failed to provide
residential habilitation and other Medicaid services with
“reasonable promptness” in violation of the Medicaid Act. 42
U.S.C. § 1396a(a)(8).
The district court eventually dismissed Doe’s claims as moot
after defendants placed her in a group home, the most restrictive
setting, as a temporary measure to address a change in her family
The Fourth Circuit first held Doe’s reasonable promptness claim
was not moot, since defendants acknowledged her placement in the group
home was temporary.
Applying the three-part test under Blessing v. Freeston, 520
U.S. 329 (1997), the appeals court next concluded Doe could bring a
§ 1983 action to enforce § 1396a(a)(8).
Specifically, the appeals court found the Medicaid provision at issue
was expressly intended to benefit “all” individuals eligible
for Medicaid; the “reasonable promptness” requirement was
not so “vague and amorphous” to preclude competent
enforcement (noting relevant federal and state regulations establishing
a 45 – 90 day time period depending on circumstances); and the
statute used mandatory rather than precatory terms.
Finally, the appeals court noted the Medicaid Act neither
expressly nor impliedly barred recourse to § 1983. Thus, the
appeals court vacated the district court’s judgment on this
The appeals court then turned to Doe’s claim that defendants
violated the freedom of choice provision in § 1396a(a)(23) of the
Medicaid Act, which in essence “gives recipients the right to
choose among a range of qualified providers, without government
The appeals court held the claim was not moot, but lacked merit
because Doe’s freedom of choice was not implicated.
Doe claimed that although defendants were providing her care under
the waiver program, they were not doing so in the setting in
which she wanted to receive Medicaid services.
According to the appeals court, § 1396a(a)(23) requires freedom
of choice only as to the available providers, not to the appropriate
setting for the provision of the waiver services, which is determined by
A dissenting opinion argued that Doe’s “reasonable
promptness” claim was moot, or alternatively, Doe had no private
right of action under § 1983.
On this “thorny” issue of first impression, the dissent
said the majority improperly relied on the Blessing decision
and should have instead considered the Supreme Court's more recent
opinion in Gonzaga Univ. v. Doe, 536 U.S. 273 (2002), which
stated nothing “short of an unambiguously conferred right”
will support a § 1983 cause of action.
“If Congress had intended to subject the countless Medicaid
decisions made by state agencies each day to the scrutiny of the federal
judiciary, I would expect to find clear and unmistakable language in the
statute stating as much,” the dissent observed.
v. Kidd, No. 05-1570 (4th Cir. Sept. 19, 2007).
FTC Finds Mylan’s Acquisition Of Merck’s Generic Unit Anticompetitive, Says Companies Must Shed Assets
FTC Finds Mylan’s Acquisition Of Merck’s Generic Unit
Anticompetitive, Says Companies Must Shed Assets
The Federal Trade Commission (FTC) said September 27 that Mylan
Laboratories’ proposal to acquire the generic unit of
Merck oHG in a $6.6 billion deal would lessen competition in the market
for five generic drugs produced by both companies.
Under the terms of a consent agreement, the companies must divest all
assets related to the five generic drugs—acebutolol hydrochloride
capsules; flecainide acetate tablets; guanfacine hydrochloride tablets;
nicardipine hydrochloride capsules; and sotalol hydrochloride AF
tablets—to Amneal Pharmaceuticals LLC within 10 days of the
deal’s closing, according to an FTC press release.
Four of the drugs are used to treat hypertension and one is an
anti-arrhythmia medication used to treat heart problems.
The FTC’s complaint alleged that the transaction would violate
§ 5 of the FTC Act and § 7 of the Clayton Act by
causing “significant anticompetitive harm to consumers in the
already concentrated U.S. markets for the
manufacture and sale of each of the relevant products” at
According to the FTC, the combination of the two companies could lead
to higher prices of these drugs and entry by a new competitor would not
likely be sufficient to counter the anticompetitive impact.
Read FTC’s press
Georgia Supreme Court Reverses Dismissal Of Claims Challenging State’s Exclusion Of Medically Necessary Abortions
Georgia Supreme Court Reverses Dismissal Of Claims Challenging
State’s Exclusion Of Medically Necessary Abortions
The Georgia Supreme Court overturned September 24 a lower
court’s dismissal of claims that the state’s law excluding
medically necessary abortions from Medicaid coverage violated
the Georgia constitution on privacy and equal protection
In so holding, the high court found plaintiff medical providers
had third-party standing to assert such claims. In addition, the high
court concluded the lower court erred in finding an individual
plaintiff must first exhaust administrative remedies because no adequate
Plaintiffs, a physician and several healthcare facilities who have
performed medically necessary abortions on low-income women, were
refused payment under
Medicaid plan, which provides payment for covered services when such
services are medically necessary.
Under the plan, the state will reimburse for abortions performed on
Medicaid-eligible patients only “if the life of the mother would
be endangered if the fetus were carried to term or if the mother was a
victim of rape or incest.”
Plaintiffs, including Leslie Roe, a Medicaid-eligible woman
suffering from spina bifida and paralysis who lacked the funds for a
medically necessary abortion, alleged that the program’s exclusion
of medically necessary abortions violated the Georgia Constitution on
privacy and equal protection grounds.
The trial court dismissed the complaint holding the medical provider
appellants lacked third-party standing to assert a claim on behalf of
their Medicaid-eligible patients and that Roe’s individually
asserted claim was barred because she failed to exhaust her
administrative remedies. Plaintiffs appealed.
The Georgia Supreme Court reversed. The high court first noted that
it had not directly addressed “whether medical providers have
third-party standing to assert the rights of their Medicaid-eligible
Looking to other case precedent, the high court found the U.S.
Supreme Court has allowed medical providers to raise the rights of their
patients and that “[v]irtually every state court considering the
issue has similarly held that abortion providers have standing to raise
the constitutional rights of their patients.”
The high court adopted the test for third-party standing set out by
the Supreme Court. “To successfully establish third-party
standing, a federal litigant must have suffered an ‘injury in
fact,’ thus giving him or her a sufficiently concrete interest in
the outcome of the issue in dispute; the litigant must have a close
relation to the third party; and there must exist some hindrance to the
third party's ability to protect his or her own interests.”
400, 411 (1991).
Under the Powers test, the high court found plaintiffs had
standing to challenge on behalf of their patients
denial of Medicaid reimbursement for medically necessary abortions.
The high court pointed out that plaintiffs sustained an injury in
fact because “they have a direct financial interest in obtaining
State funding to reimburse them for the cost of abortion services
provided to Medicaid-eligible women and have alleged that they performed
and will continue to perform medically necessary abortions for which
they will not be reimbursed under
In addition, the high court found the relationship between the
medical provider plaintiffs and their patients made them uniquely
qualified to litigate the constitutionality of the state’s action
and that privacy concerns and mootness issues significantly hindered a
woman’s assertion of her own right to obtain a medically necessary
Accordingly, the high court reversed the trial court’s
dismissal of the medical provider plaintiffs’ claims.
The high court next held the lower court erred in dismissing
Roe’s claim based on her failure to exhaust her administrative
remedies, finding “no adequate administrative remedy.”
“The department has no established procedure by which Roe could
assert a constitutional challenge to the State’s exclusion of
medically necessary abortions from Medicaid coverage inasmuch as the
controlling legislation and regulations provide for hearings only from
the denial of a claim for services covered under the plan, not for
challenges to the constitutionality of the plan itself,” the high
Women’s Health Ctr. v. Burgess, No. S07A1039
(Ga. Sept. 24, 2007).
Grassley Asks Device Maker Medtronic For Details On Payments To Physicians
Grassley Asks Device Maker Medtronic For Details On Payments To
Senate Finance Committee Ranking Member Charles Grassley (R-IA) is
asking medical device maker Medtronic Inc. to respond to allegations
that its “practices of providing physicians with inordinately high
consulting fees, free travel, and other perks distort decision-making
among physicians and obscure the best interest of patients.”
In a September 20 letter to Medtronic President and Chief Executive
Officer Bill Hawkins, Grassley sought information regarding
“payments or other transfer of value” made by the company or
its subsidiaries to physicians.
In July 2006, Medtronic agreed to pay the United
States $40 million to resolve civil
allegations that its Medtronic Sofamor Danek division (MSD) paid
kickbacks to physicians to induce them to use MSD’s spinal
products. The settlement agreement specifically stated that Medtronic
and its MSD division denied any wrongdoing.
Grassley also asked Medtronic to explain its process for providing
funds to physicians to attend medical meetings and making contributions
for various educational activities.
“Another questionable form of medical product promotion appears
to be in the area of Continuing Medical Education (CME),” Grassley
said in the letter.
“I would like to learn more regarding how those courses are
structured and how you ensure that the courses and seminars offered are
independent and free of bias toward any particular device,”
Grassley wrote, seeking a response to his information requests by
In that vein, Grassley also sent separate letters to the Medical
Education & Research Institute (MERI), a nonprofit medical teaching
and training facility, and Broadwater, a medical education services
company, “with close ties to Medtronic.”
Grassley asked MERI and Broadwater to provide information by October
2 on their practices and medical education programs in general.
Read Grassley’s letters to Medtronic, MERI,
House, Senate Clear Bipartisan SCHIP Reauthorization Bill, But Veto Threat Looms
House, Senate Clear Bipartisan SCHIP Reauthorization Bill, But Veto
Both the House and Senate cleared this week a bipartisan bill (H.R.
976) to reauthorize the popular State Children’s Health Insurance
Program (SCHIP) with $35 billion in additional funding over five
While the Senate cleared the measure by an
overwhelming 67-29 vote, the House’s 265-159 margin of
approval fell short of the two-thirds majority needed to override
President Bush’s promised veto of the measure.
The Children’s Health Insurance Program Reauthorization Act of
2007 finalized by House and Senate negotiators would preserve coverage
for all 6.6 million children currently enrolled in the program, and add
about 3.8 million children to SCHIP’s roles.
A press release posted by the Senate Finance Committee emphasized
that the final bill, which largely reflects the version initially passed
by the Senate in August, is not designed to expand coverage for children
in higher income families as the President and some GOP lawmakers have
Instead, the bill, which would be funded in part with a 61-cent hike
in the federal tobacco tax, would reduce federal matching funds for
future coverage of children at higher income levels and provide
incentives to states for covering the lowest-income children, the
In a September 22 radio address, President Bush reiterated, however,
his pledge to veto the bill, saying the legislative package would shift
the program’s intended focus from low-income children,
clear the way for “government-run health care,” and raise
taxes on working Americans.
The administration has proposed providing an additional $5 billion in
funding above the $25 billion baseline to reauthorize SCHIP.
With the program set to expire September 30, and a veto by the
President expected, House and Senate lawmakers also cleared a stop
gap measure that includes a temporary SCHIP extension until November 16
along with other pending appropriations bills.
Among other things, the agreement reached on the SCHIP bill would
give states the new option of covering pregnant women, while still
allowing states to do so through a waiver or through regulation,
according to a summary of the bill.
The bill also would prohibit new waivers to cover parents under
SCHIP, allowing states that currently do so to transition parents into a
separate block grant. In addition, the bill includes provisions for
mental parity and dental benefits and would provide $100 million in
grants for new outreach activities.
The bill also would offer incentives to states for lowering the rate
of uninsured children while placing new overall caps on federal funding
to ensure expenditures stay within authorized limits, the summary
H.R. 976 would replace the Centers for Medicare and Medicaid
Services' (CMS') controversial August 17, 2007 guidance on avoiding
substitution of SCHIP for public coverage with a more measured
approach, the Finance Committee’s press release said.
States and many lawmakers have expressed concerns, and even
threatened legal action, that the guidance undermines historical state
flexibility and imposes unreachable standards for expanding SCHIP
Under the bill, the Government Accountability Office and the
Institute of Medicine would issue reports on best practices for curbing
so-called “crowd out” and on ways to measure the actual
extent of SCHIP substitution.
Based on these reports, the bill directs the Department of Health and
Human Services Secretary to publish in the Federal Register
recommended best practices to address "crowd out," as well as uniform
By 2010, states seeking to extend SCHIP coverage to children above
300% of the federal poverty level (FPL) would have to show a target rate
of coverage of low-income children as a condition of receiving federal
The target rate of coverage would equal the average rate of health
benefits (both private and public) as of January 1, 2010 among the 10 of
the 50 states and the District
of Columbia with the highest percentage of
health benefits coverage for low-income children.
Despite bipartisan support for the bill, President Bush has stood
firm in his opposition of the measure, arguing that Democrats are
seeking a “political victory by passing a bill they know will be
In a White House statement, the administration said the bill would
allow states to expand SCHIP coverage in families with incomes up to
$83,000 annually, or 400% of FPL.
But the bill’s backers were quick to refute this claim.
According to a news release posted by Senate Finance Committee Chairman
Max Baucus (D-MT), the bill would leave the decision whether to allow
expansion beyond 200% of FPL up to DHHS, just as the original SCHIP law
“The congressional agreement only addresses what level of
matching funds states would receive if the Administration approves a
proposal to cover at a higher income level,” the release said.
Baucus also disputed that the bill would accelerate crowd-out, noting
instead that the bill includes measures for minimizing substitution.
The Committee’s Ranking Member Charles Grassley (R-IA) said the
measure will get SCHIP “back on track,” adding that it is
structured to phase adults out of the program and “tamps down on
states covering higher income kids.”
The final bill approved by Congress dropped the Medicare proposals
passed in the original House bill, including blocking a 10% cut in
Medicare physician payment rates for 2008 and eliminating the managed
care regional stabilization fund.
The Senate Finance Committee is expected to begin considering these
Medicare issues on a separate basis before the end of the year.
View the legislation.
View a summary of
House Passes Bill That Would Block CMS From Fully Implementing So-Called “Behavioral Offset” In IPPS Rule
House Passes Bill That Would Block CMS From Fully Implementing
So-Called “Behavioral Offset” In IPPS Rule
The House passed legislation (H.R. 3668) September 26 that would
block the Centers for Medicare and Medicaid Services (CMS) from
fully implementing over $20 billion in prospective payment cuts to
hospital Medicare services that was called for under the so-called
“behavioral offset” in the inpatient prospective payment
system (IPPS) final rule published on August 22.
The final IPPS rule (72 Fed. Reg. 47129), which becomes effective
October 1, creates 745 new severity-adjusted diagnosis-related groups
(MS-DRGs) to replace the current 538 DRGs in order to more accurately
base hospital reimbursements on the complexity of medical diagnoses and
CMS also included in the final rule the
controversial “behavioral offset” provision, which the
agency said was designed to prospectively reduce payments based on the
assumption that the IPPS changes would result in hospitals changing
their coding practices to receive greater payments.
The provision calls for a –1.2% adjustment to total payments
for services provided to Medicare patients in fiscal year
(FY) 2008, and a –1.8% adjustment in each of FYs 2009 and
2010. Over the next five years, the “behavioral offset” is
estimated to result in a $20.3 billion cut in operating and capital
payments to hospitals.
Under H.R. 3668, otherwise known as the TMA, Abstinence Education,
and QI Programs Extension Act of 2007, the adjustments would be halved
in FYs 2008 and 2009, to 0.6% and 0.9%, respectively. Although H.R. 3668
did not specifically require a reduction in the –1.8% adjustment
for FY 2010, it stated that subsequent adjustments should be
based on available data.
The legislation follows months of strong opposition to the
“behavioral offset” voiced by members of Congress as well as
the hospital industry.
In June, 269 representatives signed a bipartisan letter to former CMS
Acting Administrator Leslie V. Norwalk stating their opposition to the
“behavioral offset” adjustments. The Senate followed suit
with a similar letter signed by 64 Senators.
Also in June, the House passed by an overwhelming majority of 412-12
an amendment, otherwise known as the Lewis-Welch-Weller amendment, to
the FY 2008 Health and Human Services appropriations bill that would
halt the planned cuts.
More recently, 38 freshman Democrat Representatives sent a
September 20 letter to House Speaker Nancy Pelosi (D-CA) urging
legislative action to prevent implementation of the cuts.
“Enacting the Lewis-Welch-Weller amendment, or similar
legislation, would provide Congress with sufficient time to exercise its
oversight responsibilities and would ensure that we fully understand the
impact of the proposed behavioral offset on our nation’s health
care system” the letter said.
H.R. 3668 also provides for a number of other healthcare-related
“extensions,” including a six-month delay in the requirement
that Medicaid prescriptions be written on tamper-resistant prescription
paper. The Senate passed September 26 a bill (S. 2085) that
would providing the same extension to this requirement (see
related item in
The bill also includes an increase in funding for the Medicare
Physician Assistance and Quality Reporting Initiative to $325
million in 2009 and $60 million during or after 2013 and extends to
December 31 the transitional medical assistance (TMA) program,
which is set to expire September 30.
View text of H.R.
Read the September 20 letter
House Ways And Means Committee Approves Mental Health Parity Legislation
House Ways And Means Committee Approves Mental Health Parity
The House Ways and Means Committee on September 26 voted 27-13 in
favor of the Paul Wellstone Mental Health and Addition Equity Act of
2007 (H.R. 1424).
The Senate last week passed its version of the mental health parity
legislation (S. 558) by unanimous consent.
The House bill, introduced by Representatives Patrick Kennedy (D-RI)
and Jim Ramstad (R-MN), amends the Employee Retirement Income Security
Act and the Public Health Service Act to prohibit employer group health
plans from imposing mental health treatment limitations, financial
requirements, or out-of-network coverage limitations unless comparable
limitations and requirements are imposed on medical-surgical
The legislation does not require employers to offer mental health
coverage, but does mandate that if coverage is offered it must be on par
with all comparable medical and surgical benefits that the plan
Opponents of the parity bill have argued it will raise costs
significantly for employers. But supporters of the measure said
providing mental health parity would help reduce costs associated with
untreated mental illnesses.
Unlike the House version, the Senate bill does not require health
plans offering mental health benefits to cover the same mental health
and addiction disorders that are included in the health plans for
members of Congress.
The House Education and Labor Committee passed H.R. 1424 on July 18
by a vote of 33 to 9.
To view more information, search on H.R. 1424.
Implant Manufacturers Enter Agreements With DOJ To Escape Prosecution For Alleged Fraud
Implant Manufacturers Enter Agreements With DOJ To Escape
Prosecution For Alleged Fraud
Five companies that manufacture hip and knee surgical implants have
entered into agreements with the Department of Justice (DOJ) that
require new corporate compliance procedures and federal monitoring, U.S.
Attorney for the District of New Jersey Christopher J. Christie
announced September 27.
The 18-month deferred prosecution agreements (DPAs) allow four of the
five companies—Zimmer, Inc., Depuy Orthopaedics, Inc., Biomet
Inc., and Smith & Nephew, Inc.—to avoid criminal prosecution
if they meet all the requirements for reform under the agreements.
The fifth company, Stryker Orthopedics, Inc., voluntarily cooperated
with the U.S. Attorney’s Office before any other company and
therefore executed a Non-Prosecution Agreement under which Stryker is
required to implement all the reforms imposed on the other companies
under the DPAs, according to Christie.
The companies—which together account for nearly 95% of the
market in hip and knee surgical implants—were accused of using
consulting agreements with orthopedic surgeons as inducements to use a
particular company’s artificial hip and knee reconstruction and
replacement products, Christie said.
The four companies that agreed to DPAs have also reached civil
settlements with the DOJ and the Department of Health and Human Services
Office of Inspector General (OIG), Christy said, under which they have
agreed to pay a total of $311 million to settle claims under the
Anti-Kickback Statute and the False Claims Act.
They have also entered into five-year Corporate Integrity Agreements
(CIAs) with OIG.
In addition all five companies have agreed to accept the appointment
of federal monitors to review compliance with the corporate reforms
required under their agreements, Christie said.
Read Christie’s press
release and view related documents.
Medicare Continues To Overpay For ESRD Drugs, Stark Charges
Medicare’s payment system for end stage renal disease (ESRD)
drugs, specifically Epogen, must be modernized, as Medicare continues to
overpay for the drug, Representative Pete Stark (D-CA) said in a
September 25 statement.
Stark issued the statement in response to a letter from the
Department of Health and Human Services Office of Inspector General
(OIG) comparing Medicare’s reimbursement rates for ESRD drugs to
those paid by the Department of Veterans Affairs (VA).
OIG found Medicare pays $9.10 per 1000 units of Epogen while the VA
pays only $8.03, Stark said. "If Medicare paid the VA rate for Epogen,
it would save $187 million a year," he added.
Stark, a co-author of the Children’s Health and Medicare
Protection (CHAMP) Act, which passed the House in August, said CHAMP
would institute a "bundled" payment system for Epogen.
Stark also noted that a "perverse incentive to over-prescribe" Epogen
exists and that more than half of the patients who receive Epogen, take
the drug "at or above the upper limit considered medically safe."
Read Stark's statement
and the OIG letter.
Mississippi Supreme Court Finds Error In Lower Court’s Refusal To Dismiss Plaintiff’s Negligence Suit Against Nursing Home
Mississippi Supreme Court Finds Error In Lower Court’s Refusal
To Dismiss Plaintiff’s Negligence Suit Against Nursing Home
A state trial court erred in denying a nursing home’s motion to
dismiss a negligence lawsuit brought by the daughter of a resident who
developed decubitus ulcers during her stay at the nursing home, the
Mississippi Supreme Court ruled September 20.
The state high court reasoned that the trial court erroneously
concluded the plaintiff-daughter had “substantially
complied” with state medical malpractice statutes in bringing her
lawsuit, in particular filing requirements.
Sarah Goodlett was admitted to the defendant-nursing
home—Community Hospital of Jackson, Mississippi
(Community)—in February 2004. Because of complications from a
previous stroke, Goodlett’s daughters, Bernadette and Carolyn,
signed their mother's admissions agreement, which also contained an
Subsequently, during her stay at Community, Goodlett developed two
decubitus ulcers that required surgery in August 2004.
A month later, Bernadette Goodlett’s counsel sent Community a
letter stating that Bernadette intended to sue Community for negligence
and gross negligence in the care and treatment of her mother. The letter
was accompanied by an authorization form signed by Bernadette and
required under the Health Insurance Portability and Accountability Act
(HIPAA) to obtain Sarah Goodlett’s medical records.
Community sent back a letter stating that the HIPAA authorization
form was inadequate because Bernadette did not have power of attorney
for her mother. Community therefore refused to release Goodlett’s
medical records without her consent, noting that providing Bernadette
with such information would be a HIPAA violation.
Community also noted that it was error to cite 45 C.F.R. §
164.502(g) as supporting an alleged obligation on Community’s part
to provide Bernadette with her mother’s medical chart. That rule
states that the personal representative of the deceased must be provided
with the deceased’s medical chart, but in this case Goodlett was
not deceased, Community said.
In addition, Community emphasized that, although Goodlett was
paralyzed, she was of sound mind, and that there had been no proof of
any physician stating she was mentally incompetent.
After Bernadette filed her lawsuit against Community in December
2004, Goodlett signed a General Power of Attorney form designating
Bernadette as her “lawful
attorney-in-fact.” Bernadette’s counsel then sent this
form to Community, along with an authorization to obtain
Goodlett’s medical records.
Community moved to dismiss or, in the alternative, to stay
proceedings and enforce the arbitration agreement. In the motion,
Community argued that Bernadette had failed to comply with the mandates
of Miss. Code. Ann. § 11-1-58(1), which states that the
plaintiff’s complaint in a medical malpractice case must be
accompanied by a “certificate of expert consultation”
executed by plaintiff’s attorney and stating that the attorney has
consulted with at least one expert qualified to give expert testimony as
to the standard of care or negligence at issue.
Bernadette later signed an affidavit stating she had signed
Community’s admissions agreement on behalf of her mother, and that
she had specifically not initialed the arbitration section of the
agreement because she did not agree with the arbitration provision. In
addition, Bernadette’s counsel filed the certificate required
under Miss. Code. Ann. § 11-1-58(1).
The trial court denied Community’s motion, finding Bernadette
had substantially complied with Mississippi’s medical malpractice
statutes. The court also found that the arbitration agreement was
unenforceable because it was not signed by Sarah Goodlett, and neither
of her daughters had authority to sign the agreement on her behalf.
On appeal to the state high court, Bernadette’s counsel argued
that, while the original complaint did not comply with §
11-1-58(1)’s requirement to accompany the complaint with a
certificate of expert consultation, Bernadette nonetheless complied with
state malpractice statutes under Miss. Code. Ann. § 11-1-58(4).
That statute provides that in cases where a plaintiff has requested
records pertaining to plaintiff’s medical treatment by the
defendant(s) and the records have not been produced, the plaintiff is
not required to file a certificate of expert consultation until 90
days after the records have been produced.
The state high court rejected this argument, finding Miss. Code. Ann.
§ 11-1-58(4) inapplicable. “We agree that only Sarah had
standing to bring suit . . . therefore, only [she] had the right to
obtain her medical records,” the high court said. “Since
Bernadette obtained [her mother’s] authorization only after filing
suit, Bernadette simply jumped the gun in filing suit without meeting
the requirements of section 11-1-58.”
Therefore, the high court reversed the trial court’s order
denying Community’s motion to dismiss and remanded the case for
entry of an order consistent with its opinion.
A dissenting opinion noted the absence of any language in Miss. Code
Ann. § 11-1-58 providing that the remedy for noncompliance is
dismissal. “By reading a remedy into the statute that does not
exist, . . . [the] Court is not adhering to the tenets of strict
construction, and continues to judicially legislate a remedy which the
Court itself has rejected as harsh and extreme,” the opinion
Hosp. v. Goodlett, No. 2006-IA-01586-SCT (Miss. Sept. 20,
No New DHS Clinic Licensure Requirement For California Medical Practices According To California Court Of Appeal Decision
No New DHS Clinic Licensure Requirement For California Medical Practices According To
California Court Of Appeal
By Laurence G. Solov, Katten Muchin Rosenman LLP*
In 2002, Dr. Daniel A. Capen, an orthopedic surgeon,
planned to become the sole owner of a new surgical clinic at which he
and other, non-owner physicians would practice. Since he would own and
operate the surgical clinic, Dr. Capen believed that no license from the
California Department of Health Services (DHS) was required under the
California Health and Safety Code sections governing his type of
practice. Throughout California, countless other physicians
who owned clinics without DHS licensure were employing and/or allowing
other physicians and licensed healthcare practitioners to practice at
their clinics, and Dr. Capen was following that model.
Although California Health and Safety Code § 1204 requires
surgical clinics to obtain a license from DHS, § 1204(b)(1)
excludes from the definition of a “surgical clinic,” any
clinic "owned or leased and operated as a clinic or office by one or
more physicians . . . in individual or group practice.” In
addition, § 1206(a) exempted from the licensing requirement,
“any place or establishment . . . owned or leased and operated . .
. by one or more health care practitioners, within the scope of their
license.” Despite these statutes, Dr. Capen was nevertheless
informed by DHS that a license was required for his proposed clinic
because it would be used by physicians who would not share in its
ownership and operation.
Dr. Capen filed a declaratory relief action in Sacramento Superior
Court, claiming that DHS’ interpretation of the relevant statutes
constituted an underground regulation that was void because DHS had
failed to comply with the formal rulemaking requirements of the
California Administrative Procedures Act (APA).
In April 2004, the trial court granted summary judgment and issued a
judgment in Dr. Capen’s favor, voiding DHS’ interpretation.
In doing so, the court held that the statutes were ambiguous, that
DHS’ interpretation was a rule of general application and
therefore a regulation, and that said regulation was void for failure to
comply with the APA. Predictably, DHS appealed the ruling.
On February 8, 2007, the California Court of Appeal, Third Appellate
District, affirmed in part and reversed in part, the trial court’s
decision. The appeals court agreed with Dr. Capen and the trial court
that the statute was ambiguous, that the Department’s generally
applicable interpretation was a regulation, and that DHS’
interpretation was a void because DHS had failed to comply with the APA.
However, the appeals court also determined that resolution of the
underlying ambiguity of § 1204(b)(1) did not require administrative
expertise or formal rulemaking to resolve. Rather, the appeals court
concluded that resolving the ambiguity was a matter of “simple
interpretive policy” that the court itself could determine. The
appeals court concluded that this “simple interpretive
policy” was that all physicians who practice at an unlicensed
clinic must have an interest in that clinic’s safe operation, and
therefore, an unlicensed clinic must be owned by all physicians who
The court also analyzed § 1206(a) and in doing so, acknowledged
that it had the same ambiguity as § 1204(b)(1). It then interpreted
that statute consistent with its interpretation of § 1204(b)(1),
noting that if physicians who are not owners and operators of a clinic
also practice there, the clinic must be licensed by DHS. However,
because the § 1206(a) exemption applied not just to surgical
clinics, but to any office setting, and not just to physicians, but to
any licensed healthcare practitioner, the court’s decision had far
broader implications for the practice of medicine in California.
A literal interpretation of the decision actually made illegal
countless unlicensed group practices in California, including professional
medical corporations that employed non-owner physicians or even
registered nurses. This meant that, if read literally, the court’s
decision barred the neighborhood pediatrician from employing other
physicians or nurses without first obtaining a license from DHS. While
such consequences were surely unintentional, they served to further
illustrate that the statutes needed further study and clarification.
Dr. Capen petitioned the Third Appellate District for rehearing,
arguing that the far-reaching implications of the court’s decision
highlighted the need for administrative expertise in resolving the
underlying statutory ambiguity and that the court should not resolve the
ambiguity itself, but instead remand the matter to DHS for formal
rulemaking in compliance with the APA. Dr. Capen also argued that the
court had incorrectly identified the policy underlying the licensing
scheme, which is not to ensure that every physician who practices at an
exempt clinic owns and operates the clinic, but rather, to ensure that
those who do own and operate an unlicensed clinic are physicians, rather
The California Medical Association (CMA) helped Dr. Capen’s
cause immeasurably by filing an amicus brief in support of rehearing.
CMA argued that, among other things, the 1994 legislation contained in
§ 1248 et seq. of the Health and Safety Code, implied that the
legislature placed the regulation of surgical clinics operated by
physicians under the Medical Board, not DHS. On March 7, 2007, the court
granted rehearing and vacated its prior decision.
On September 19, 2007, the court issued a new decision, this time
affirming the trial court in full. The court’s opinion has been
certified for publication. In it, the court reframes the issue as the
jurisdictional extent of the DHS’ licensing power over surgical
clinics. It reasons that the legislature has distinguished between
surgical clinics owned and operated by doctors, which are generally
regulated by the Medical Board, and surgical clinics owned and operated
by others, which are generally regulated by DHS. The "simple
interpretive policy" implicated by the ambiguous statutes is that
physician owned and operated surgical clinics are to be regulated by a
division of the Medical Board when general anesthesia is used, and
surgical clinics owned and operated by non-physicians are to be
regulated by DHS. Accordingly, the court concluded that Dr.
Capen’s clinic and others with identical ownership structures are
not subject to licensing and regulation by the DHS.
* Laurence G. Solov
is a partner in the Los Angeles office of Katten Muchin Rosenman LLP,
concentrating his practice in healthcare litigation. He represents the
business and litigation interests of clients in the healthcare industry,
including hospitals, outpatient surgery centers, healthcare management
companies, medical groups, and individual physicians.
OIG OKs Medical Center Proposal To Pay Physicians For On-Call ED Coverage
OIG OKs Medical
Center Proposal To Pay
Physicians For On-Call ED Coverage
A medical center’s proposal to compensate physicians for
providing on-call coverage does not run afoul of the Anti-Kickback
Statute, the Department of Health and Human Services Office of Inspector
General (OIG) said in an Advisory Opinion posted September 27.
The requestor, a tax-exempt, not-for-profit medical
center, runs an emergency department (ED) that always remains open and
accepts all people regardless of their ability to pay, the opinion
Nearly one in four patients visiting the ED has no
form of health insurance, whether private or governmental, the opinion
noted, and underinsured and uninsured patients often present through the
ED and move on to follow-up care as medical center inpatients.
Faced with a shortage of physicians willing to
provide ED on-call coverage, the medical center proposed an arrangement
under which it would pay a per diem rate to physicians for each day
spent on-call at the ED, except for one and one-half days that each
physician must contribute free of charge to the rotation schedule
The medical center certified that the per diem rates
paid under the arrangement are, and will be, fair market value for the
services provided and are not, and will not, take into account in any
way the volume or value of referrals or business generated between the
parties, the opinion said.
In finding that it would not impose sanctions on the
proposed arrangement, OIG noted hospital's increasing difficulties
in sustaining necessary on-call physician services without providing
compensation for on-call coverage.
While on-call coverage compensation potentially
creates considerable risk that physicians may demand such compensation
as a condition of doing business at a hospital, it should be possible to
structure on-call coverage compensation to satisfy the personal services
safe harbor at 42 C.F.R. § 1001.952(d), OIG explained.
Here, OIG found the personal services safe harbor
does not apply to the arrangement because the hospital’s payments
to physicians are not “set in advance” as required under the
Nevertheless, OIG concluded the arrangement “presents a
low risk of fraud and abuse,” pointing to the fact that the
payments are fair market value for actual services needed and provided,
without regard to referrals.
In addition, the opinion noted that the per diem
payments are administered uniformly for all doctors in a given
The opinion also pointed to other facts that tended
to minimize the risk of fraud and abuse such as the medical center's
legitimate unmet need for physicians to provide the call coverage and
monthly call obligations in each specialty are divided as equally as
possible, “a practice that suggests that call scheduling is not
being used to selectively reward the highest referrers.”
Thus, OIG concluded that while the arrangement could
potentially generate prohibited remuneration under the Anti-Kickback
Statute, it would not impose administrative sanctions on the medical
Opinion No. 07-10 (Dep’t of Health and Human Servs. Office
of Inspector Gen. Aug. 28,
OIG Report On SCHIP Finds Percentage Of Uninsured Low-Income Children In U.S. Dropped Between 2002 And 2005
OIG Report On SCHIP Finds Percentage Of Uninsured Low-Income
Children In U.S. Dropped Between 2002 And 2005
The percentage of uninsured low-income children in the U.S. dropped
from 20% in 2002 to 18.5% in 2005, and 37 states met or made
progress in meeting at least half of their State Children’s Health
Insurance Program (SCHIP) goals in 2006, according to a report released
September 24 by the Department of Health and Human Services Office of
Inspector General (OIG).
Under the Balanced Budget Act of 1999, OIG is required to assess
every three years states’ progress toward meeting SCHIP
performance goals in their state plans, according to the report.
To this end, OIG reviewed the performance goals listed in each
state’s fiscal year (FY) 2006 Annual Report, which must be filed
annually with the Centers for Medicare and Medicaid Services (CMS), and
then compared progress since FY 2005.
Although finding a statistically significant decrease nationally in
the percentage of uninsured low-income children, OIG said each
state’s sample size was too small to show a statistically
significant change on a state level.
Of the 37 states that met or made progress in meeting at least
half of their SCHIP performance goals, the largest number of states
reported progress for goals related to increasing access to care and
increasing the use of preventative care. Thirty-one states met or made
progress toward at least half of their program’s goals to increase
access to care, while 28 states met or made progress toward at
least half of their goals to increase preventative care.
The report also found 25 states met or made progress toward at
least half of their goals for enrollment, and 24 states met or made
progress toward at least half of their goals to reduce the number of
OIG explained that assessing states’ progress on SCHIP goals is
difficult because CMS’ Annual Report template has limitations,
including automatically entering U.S. Census Bureau data to measure the
number or percentage of uninsured low-income children.
“There continues to be concerns about using Census data to
measure States’ progress in reducing the number of uninsured
low-income children,” the report said. “CMS staff shared
State concerns regarding the small State sample sizes and the
undercounting of Medicaid recipients.”
OIG recommended that the agency continue “departmental efforts
to collaborate with Census” to address the problem of small state
OIG also recommended that CMS implement changes to ensure states
report on all of their goals, as well as the progress made on each goal,
in their Annual Reports.
CMS generally agreed with the report's findings and recommendations
but indicated a “limited ability to effect a change at
Census.” While acknowledging this limitation, OIG said CMS could
have an important impact by continuing to work with the U.S. Census
Bureau to address the data concerns outlined in the report.
States’ Progress in Meeting State Children’s Health
Insurance Program Goals (OEI-05-07-00330).
President Signs FDA Bill Into Law
President George Bush September 27 signed H.R. 3580, the Food and
Drug Administration Amendments Act of 2007, into law.
H.R. 3580 reauthorizes the Prescription Drug User Fee Act (PDUFA) and
Medical Device User Fee and Modernization Act (MDUFMA) and includes the
administration's request for an increase in the total annual user fees
collected to $392.8 million for fiscal year 2008.
The new law also reauthorizes the Pediatric Research Equity
Act of 2007 and the Best Pharmaceuticals for Children Act of 2007 and
establishes the Pediatric Medical Device Safety and Improvement Act of
The bill passed the Senate by unanimous consent September 20 and
passed the House September 19 on a motion to suspend the rules.
Seven Plan Sponsors To Resume PFFS Marketing, CMS Announces
Seven health plan sponsors may resume marketing their
Private-Fee-For-Service (PFFS) plans, the Centers for Medicare and
Medicaid Services (CMS) announced September 24. After a comprehensive
marketing review, the agency found the plans were compliant with
The seven approved sponsors, as well as all other Medicare Advantage
organizations, may market to newly eligible Medicare beneficiaries
through October 1, 2007, CMS said in a press release.
Four newly approved sponsors, United Health Group, Blue Cross Blue
Shield of Tennessee, Humana Inc., and Sterling Life Insurance Co., had
voluntarily suspended marketing PFFS plans earlier this year. CMS
completed a similar review of and approved PFFS-plan marketing by the
three other sponsors, Coventry Health Care Inc., Universal American
Financial Corp., and WellCare Health Plans Inc., in August, the release
"Overseeing the marketing activities of Medicare Advantage plans to
ensure beneficiaries have access to the health care services they need,
and are not discriminated against in any way is one of my top
priorities," said CMS Acting Administrator Kerry Weems in a press
"CMS conducted a comprehensive review of these seven sponsors and
found vast improvements to their internal controls and oversight
processes consistent with regulations and guidance for Medicare
private-fee-for-service plans. But we’re not stopping there.
Medicare’s procedures to continuously monitor all plans marketing,
including the activities of their agents and brokers, are now in place,"
The release noted that any plan that is found to be in violation of
CMS requirements can be subject to a full range of available penalties,
which can include suspension of marketing and/or enrollment, suspension
of payment for new enrollees, civil monetary penalties, and termination
from the Medicare program.
Still skeptical of "whether CMS is sufficiently protecting
seniors in the market," Senate Finance Committee Chairman Max Baucus
(D-MT) sent a letter September 26 to Weems questioning how the agency
plans to oversee and monitor the marketing practices of Medicare
Advantage plans and PFFS in particular.
Baucus asked Weems to provide detailed information about CMS' ongoing
efforts to monitor PFFS marketing, including how CMS will implement
the continuous monitoring of all plan marketing including the activities
of agents and brokers; how CMS will ensure compliance with the new
requirements; and how and when the CMS dedicated monitoring team and the
rapid response plan will be in place, among other things.
The letter also asked for further information about two specific
requirements--that the seven plans create an outreach and education
program to ensure providers are aware of PFFS plans and payment
provisions, and that plans encourage providers to provide services
to PFFS enrollees.
Read CMS' press
Read Baucus' letter.
Seventh Circuit Finds Lower Court Erred In Not Granting New Trial To Physician Convicted Of Fraudulent Billing
Seventh Circuit Finds Lower Court Erred In Not Granting New Trial To
Physician Convicted Of Fraudulent Billing
A federal trial court erred in not declaring a mistrial in a
criminal case against a physician alleged to have bilked insurance
companies by ordering unnecessary tests where a juror
had notified the court that just prior to jury deliberations she
discovered the word “GUILTY” written in the middle of her
notebook, the Seventh Circuit ruled September 17.
Reversing the physician's conviction on 20 counts of
healthcare fraud and seven counts of mail fraud, the federal appeals
court reasoned that the notebook incident gave rise to a presumption of
prejudice to the defendant and therefore it was error for the lower
court to refuse to declare a mistrial.
Nine days into the original trial of defendant Dr. Felix
Vasquez-Ruiz, a juror complained to the presiding federal district court
judge that the word “GUILTY” had mysteriously appeared
written in the notebook she had been using during trial. At that
time, the juror said she felt that the anonymous message was meant to
The district court immediately conducted a more detailed interview
with the juror and concluded the juror could remain impartial and that
the trial could proceed. The court also issued cautionary instructions
to the rest of the jurors.
Vasquez-Ruiz moved for a mistrial, which the district court
The jury subsequently found Vasquez-Ruiz guilty on all counts of the
indictment and he was later sentenced to 14 years' imprisonment.
Vasquez-Ruiz appealed the judgment, arguing the district court had
erred in refusing to grant him a mistrial following the
“notebook” incident, and requesting a new trial.
The Seventh Circuit agreed with Vasquez-Ruiz’s argument and
said that “a number of aspects of [the] record . . . [gave the
court] grave concern.”
One problematic aspect was the lower court’s assumption that
the note could have been written only by another juror or a member of
the courthouse cleaning staff, the appeals court noted.
The third possibility "that another person might have obtained access
to [the juror’s] notebook and tried to interfere with the
jury’s deliberations . . . went largely unexplored before the
district court,” the Seventh Circuit said, further noting that the
juror herself was not able to definitively say she had never taken the
notebook out of the courthouse.
Under these circumstances, the appeals court concluded that a
presumption of prejudice against Vasquez-Ruiz arose as a result of the
“notebook” incident, and that the government failed to rebut
“[W]here a mysterious note simply appears in a juror’s
notebook, and where we cannot even say with assurance that it was
another juror who wrote the note in the first place, there was a need to
make a greater effort to find out what had happened before declaring
that it did not make any difference,” the Seventh Circuit
“Such an investigation would not necessarily involve
questioning other jurors (an option the district judge rightly thought
held its own risks), but as a last resort such a step may be
Accordingly, the court reversed Vasquez-Ruiz’s conviction and
remanded the case to the district court for a new trial.
States v. Vasquez-Ruiz, No. 06-2180 (7th Cir. Sept. 17,
Sixth Circuit Finds Participants In Self-Funded Health Plans Have Standing To Bring ERISA Claims Against Blue Cross
Sixth Circuit Finds Participants In Self-Funded Health Plans Have
Standing To Bring ERISA Claims Against Blue Cross
Two participants in self-funded health plans have standing to seek
injunctive and other equitable relief against Blue Cross and Blue Shield
of Michigan (BCBSM) under the Employee Retirement Income Security
Act (ERISA) for allegedly breaching its fiduciary duties even though
neither plaintiff is covered under the BCBSM-administered coverage
options offered by their employers, the Sixth Circuit ruled September
BCBSM is the parent company of Blue Care Network (BCN), a
state-licensed health maintenance organization that issues its
own insurance policies to groups and individuals. In addition,
BCBSM acts as a third-party administrator and claims processor for
various ERISA welfare benefit plans, including self-funded health plans
sponsored by Ford Motor Co. (Ford) and American Axle & Manufacturing
Eugene Loren and Danielle Hagemann (collectively, plaintiffs) are
participants in self-funded health plans sponsored by Axle and Ford,
Pursuant to §§ 502(a)(2) and 502(a)(3) of ERISA, plaintiffs
brought a class action against BCBSM, alleging that BCBSM violated its
fiduciary duties under ERISA when it negotiated rates more favorable to
BCN than to the Ford and Axle self-insured plans. Plaintiffs sought
injunctive and other equitable relief, including reimbursement to
themselves as well as the self-funded plans for the alleged excess
charges resulting from BCBSM’s conduct.
Even though they were not covered by a BCBSM-administered option
offered by their employers, plaintiffs argued that because the employers
operate under single ERISA plans, the alleged increases affected the
plans as a whole, and that, in turn, plaintiffs had to pay excessive
contributions, deductibles, and co-payments.
BCBSM moved to dismiss, and the U.S. District Court for the Eastern
District of Michigan granted the motion, finding neither plaintiff was
a participant in BCBSM-administered options, and therefore neither
had standing under ERISA to sue BCBSM for fiduciary breach.
On appeal, plaintiffs reiterated their argument that they had
standing because the benefit options they participated in, while not
BCBSM-administered, were part of a single ERISA plan offered by Ford and
In response, BCBSM asserted that each benefit option was a
“separate and distinct” ERISA health plan and therefore, as
the lower court had concluded, plaintiffs lacked standing because they
were not participants in a BCBSM-administered plan.
The Sixth Circuit began its analysis by noting that the question of
whether multiple coverage options constitute one plan under ERISA was an
issue of first impression for the court. Moreover, the appeals court
said there was “a paucity of case law on the issue,” and
therefore it would look to administrative interpretation.
“The only guidance from this source comes from a proposed
regulation governing the group health plan portability provisions of the
Health Insurance Portability and Accountability Act (HIPAA),”
which clarifies that “all medical care benefits made available by
an employer . . . are generally considered to constitute one group
health plan,” the appeals court said.
In addition, the appeals court emphasized the fact that an employer
intending to create multiple plans has the ability to do so by filing
multiple plan documents. Thus, “we start with the strong
presumption that the filing of only one ERISA plan document indicates
that the employer intended to create only one ERISA plan,” the
appeals court said.
The appeals court concluded that BCBSM had failed to overcome
this presumption because they did not show, through the
relevant plan documents, that the multiple coverage options at
issue were intended to operate as separate plans. To the contrary,
Ford and Axle "each registered only one plan document with one
ERISA identification number,” the appeals court said.
Turning to the question of standing, the appeals court noted
plaintiffs were permitted to bring a lawsuit on behalf of their
respective plans under ERISA § 502(a)(2), but to establish standing
each plaintiff must show individualized harm. Neither plaintiff
presented sufficient evidence of such injury, the appeals court found,
stating that any alleged injury suffered by plaintiffs was “too
speculative” to establish constitutional standing.
The appeals court did find, however, that plaintiffs had standing to
bring a lawsuit seeking injunctive or other appropriate equitable relief
under ERISA § 502(a)(3) for BCBSM’s alleged breach of
fiduciary duties. The appeals court highlighted case precedent holding
that “a plan participant or beneficiary may have Article III
standing to obtain injunctive relief, pursuant to [§ 502(a)(3)],
related to ERISA’s disclosure and fiduciary duty requirements
without a showing of individual harm.”
The appeals court therefore reversed the lower court’s
dismissal of plaintiffs’ lawsuit, and remanded the case back to
the district court for further proceedings.
v. Blue Cross & Blue Shield of Mich., No. 06-2090 (6th
Cir. Sept. 20, 2007).
Tennessee Appeals Court Reverses Summary Judgment For Hospital In Malpractice Action
TennesseeAppeals Court Reverses Summary Judgment For
Hospital In Malpractice Action
An appeals court in
Tennesseeheld September 21 that a lower court erred in
granting a hospital summary judgment in a medical malpractice
According to the appeals court, the
hospital’s expert witness’ affidavit failed to negate the
causation element of plaintiffs’ claim.
Muriel Powers Davis was hospitalized in
the JohnW.HartonRegionalMedicalCenterfor pneumonia. During the admission process, it
was noted she had recently fallen and had difficulty ambulating without
assistance. As a result, fall precautions were implemented.
Nevertheless, two days later
Davisfell and broke her femur. Surgery was performed,
but approximately twenty days later, Davisdied. Her next of kin (plaintiffs) sued the
hospital for medical malpractice.
The hospital moved for summary judgment,
which was granted by the trial court.
On appeal, the Tennessee Court of Appeals
reversed. The appeals court observed that in support of its motion for
summary judgment, the hospital filed an affidavit from Dr. Stephen J.
D'Amico believed the nurses appropriately
monitored and cared for Davison the evening of her fall, and were not
negligent, the appeals court said.
Plaintiffs presented an affidavit from
their expert, Catherine Wilson, a clinical nursing supervisor in patient
care services at another Tennesseehospital. The appeals court noted that Wilson was
of the opinion that the nursing care provided to Davis was substandard
in that the nurses failed to use appropriate precautions to prevent a
fall, specifically a bed alarm to alert the nursing staff of any attempt
by the patient to arise unassisted.
The appeals court then turned to the
lower court’s ruling that plaintiffs’ opposing motion was
defective because it relies on the testimony of a nurse and not a
doctor, finding the lower court erred in so holding.
Noting the conflicting expert testimony
presented by the parties, the appeals court found “a genuine issue
of material fact as to whether Ms. Davis's fall was the result of
substandard care provided by Harton.”
“Dr. D'Amico's affidavit, in our
judgment, fails to sufficiently negate the causation element of
plaintiffs' claim to entitle Harton to summary judgment,” the
appeals court held.
The appeals court thus remanded the case
for further proceedings.
Vaughn v. John W. Harton Reg’l Med. Ctr., No.
U.S. Attorney Acosta Discusses Antifraud Efforts At AHLA Fraud And Compliance Forum
U.S. Attorney Acosta
Discusses Antifraud Efforts At AHLA Fraud And Compliance Forum
Speaking at the American Health Lawyers Association/Health Care
Compliance Association Fraud & Compliance Forum in Baltimore, Maryland, U.S. Attorney for the
Southern District of Florida Alexander Acosta called healthcare
fraud an "epidemic" that increases costs, compromises patient
safety, and undercuts legitimate suppliers.
In his keynote address September 25, Acosta outlined some of the
innovative approaches being implementing to curb healthcare fraud
in his district, where statistics show billing data in a number of areas
such as for infusion therapy services and durable medical equipment
(DME) that are out of line with the rest of the nation.
For example, Acosta cited a recent Department of Health and Human
Services (DHHS) Office of Inspector General report noting that in 2005
three South Florida counties—Miami-Dade, Broward, and Palm
Beach—accounted for 72% of submitted charges for beneficiaries
with HIV/AIDS nationwide, though only 8% of such beneficiaries lived in
Acosta said increased costs and cutting-edge practices could not
account for this size discrepancy.
For this reason, Acosta said his office has made healthcare fraud
investigations and prosecutions a top enforcement priority. Since
launching this effort in 2005, healthcare fraud cases in the Southern
District of Florida have almost doubled and account for about a quarter
of such cases nationwide.
Acosta attributed this uptick to a “quick hit
approach” modeled on traditional law enforcement techniques,
including the newly launched healthcare fraud “strike
Using real time data helps identify patterns of “utterly
impossible claims” and facilitating cooperation between agents and
prosecutors improves efficiency and proactive law enforcement, he
Acosta also discussed the lawsuit initiated September 18 by his
office against Tenet Healthcare Corporation’s former General
Counsel Christi R. Sulzbach under the False Claims Act (FCA) alleging
she submitted false certifications about Tenet’s compliance with
federal requirements while under an existing Corporate Integrity
The complaint alleged that Sulzbach, who at the time was the
Associate General Counsel and Corporate Integrity Program Director for
Tenet, submitted declarations in June 1997 and June 1998 to DHHS
that Tenet was in material compliance with federal program legal
requirements, despite having knowledge that certain physician employment
contracts were illegal under the Stark Law.
In closing, Acosta said prevention on the front end, not prosecution,
is really the key to a long-term solution for addressing healthcare
fraud. Acosta touted recent DHHS pilot programs such as those requiring
DME suppliers to reenroll in Medicare and plans to conduct unscheduled
site visits, as good initial steps that at the same time would not
burden legitimate providers.
Acosta also called on private industry to support and help facilitate
government antifraud efforts.
U.S. Court In Pennsylvania Declines Federal Jurisdiction, Finding Pending State Court Action Addresses Same Issues
U.S. Court In
Federal Jurisdiction, Finding Pending State Court Action Addresses Same
A federal court in
Pennsylvania ordered a
stay in a declaratory judgment action by a professional liability
insurer seeking a declaration that fraud committed by the covered
physician voids his policy.
The court found the underlying medical malpractice case pending in
state court would most likely resolve the pending issues.
After a patient of Chadrakant C. Shah, M.D. died, the administratrix
of his estate sued Shah for medical malpractice. Shah notified his
insurer, ProNational Insurance Company, of the suit, and sought a
defense under his renewed policy.
ProNational (plaintiff) provided a defense, but the same day the
malpractice suit was certified as trial ready, filed its own suit
against Shah alleging that it recently learned of fraudulent conduct by
Shah that voided the insurance policy. Shah moved to dismiss.
The U.S. District Court for the Eastern District of Pennsylvania
first considered whether it should decline jurisdiction. The court noted
that a district court was not obligated to hear a declaratory judgment
action that otherwise satisfied jurisdictional requirements.
The court rejected plaintiff’s argument that the state
court malpractice proceeding would not adequately address the coverage
questions raised. The court found that, in a coverage dispute, a
garnishment proceeding against the insurer invariably follows a merits
judgment against the insured in the underlying proceeding and that an
insurer is entitled to raise the same coverage defenses in both
declaratory judgment and garnishment proceedings.
Thus, the court held “that the state court proceedings
available to ProNational are adequate.”
The court next found both the pending action and the state court
malpractice action revolved around similar issues. Both ProNational and
the malpractice plaintiff claimed Shah altered the patient’s
records after the fact, the court said.
“In these circumstances, the likelihood of overlapping issues
compels” the exercise of “[a] general policy of
restraint,” the court held.
The court also noted state law issues involved in the case
that were “close or unsettled,” another factor weighing
against the exercise of federal jurisdiction.
Accordingly, the court ordered a stay of the instant litigation
pending conclusion of the malpractice trial to ensure ProNational a
forum in which to have its coverage questions heard if the state court
did not decide them.
Ins. Co. v. Shah, No. 07-1774 (E.D.
Pa. Sept. 17, 2007).
U.S. Court In Utah Dismisses With Prejudice FCA Whistleblower Action, Finds Insufficient Support For False Certification Claim
Court In Utah Dismisses With Prejudice FCA
Whistleblower Action, Finds Insufficient Support For False Certification
A whistleblower failed to show how allegedly improperly coded
laboratory services amounted to a False Claims Act (FCA) violation under
a theory of improper certification, a federal court in Utah ruled
In dismissing the whistleblower's complaint with prejudice,
the court noted the relator did not identify a statute or
regulation conditioning payment on compliance that the defendant medical
lab and Medicare carrier allegedly violated.
The case arose when Edyth Sikkenga brought a qui tam action against
her former employer Regence Bluecross Blueshield of Utah (Regence), a
Medicare carrier, and Associated Regional and University Pathologists
(ARUP), a laboratory owned by the University of Utah Medical Center.
Sikkenga alleged among other things that Regence and ARUP violated
the FCA when Regence paid claims for laboratory testing submitted by
ARUP that were improperly coded and not medically necessary.
Specifically, Sikkenga contended that ARUP and Regence billed
Medicare using a generic diagnoses code, 796.4, signifying “other
abnormal clinical findings,” that did not reflect patients’
The district court ultimately dismissed her claims. On appeal, the
Tenth Circuit reversed as to Sikkenga’s claim that ARUP submitted
false diagnosis information on Medicare claims forms but did not reach
the issue of whether Sikkenga’s pleadings met the particularity
requirements under Fed. R. Civ. P. 9(b).
On remand, defendants moved to dismiss on this ground. The U.S.
District Court for the District of Utah granted the motion, dismissing
the complaint with prejudice.
According to the court, in her opposition brief, Sikkenga shifted her
focus from allegations of using false diagnostic codes to a theory of
But the court found a false certification theory failed because
Sikkenga did not identify a statute, regulation, or contractual term
that defendants allegedly violated and that expressly made compliance a
prerequisite for payment.
In support of her false certification argument, Sikkenga pointed to
42 U.S.C. § 1320c-5(a), which requires healthcare providers
“to assure” the services for which they bill the government
“will be supported by evidence of medical necessity.”
The requirement to assure, however, is not necessarily the same as
the require to certify, the court pointed out, refusing to equate the
two absent some specific authority to that effect.
Moreover, § 1320c-5(a)(3) does not expressly condition payment
on compliance with its terms nor does it make use of the 796.4 code
non-compliance, the court added.
The court also rejected Sikkenga’s other bases for her false
certification theory. According to the court, “Sikkenga’s
theories, if adopted, would convert the federal courts into examiners of
every aspect of regulatory compliance by any entity paid from Medicare
funds because it is possible to imagine undesirable results from
Thus, the court concluded, Sikkenga failed to articulate a legal
theory explaining why any particular claim was false. The court noted
that lack of precision, i.e. using the more generic 796.4, was not
necessarily the same as an inaccuracy.
Having failed to identify a single false claim or provision to
support her false certification theory, despite “every
opportunity” to do so, Sikkenga’s complaint must be
dismissed with prejudice, the court held.
States ex rel. Sikkenga, Regence
Bluecross Blueshield of Utah, No.
2:99-CV-00086 (D. Utah Sept. 12, 2007).
When Worlds Collide: Healthcare Compliance And Union Work Force
When Worlds Collide: Healthcare Compliance And Union
By: Theresamarie Mantese, Rolf Lowe, Lisa Hearn-Shumpert, Gregory
Across the nation, unions are steadily declining. Yet, healthcare
professionals are steadily unionizing. This trend creates new challenges for the
industry. From a labor law perspective, courts and the National Labor
Relations Board (NLRB) have already applied labor law to disputes
between healthcare unions and management, often carving out exceptions
to traditional rules on union solicitation, the contract bar doctrine, and appropriate bargaining
Labor law was not concerned with the complex integration between
public and private funding of healthcare because healthcare was, and to
some extent still is, in its infancy. Now, healthcare is part of all our
lives. Consequently and due to the high quantity of dollars spent on
healthcare, extensive federal (and state) law exists regulating this
massive funding machinery.
Healthcare organizations find themselves caught in conflict between
following the rich legal tradition of labor law and often cutting-edge
or swiftly changing federal and state health law mandates. Compliance
officers must familiarize themselves with both labor law and healthcare
law. Most compliance officers are capable of such innovation, but, the
constant demands of answering union representation regarding complex
labor and healthcare issues places strains on this relationship. We will
focus in this article on the dilemma of employers caught between
healthcare compliance programs and a unionized work force.
II. What is Healthcare Compliance?
Over ten years ago, the Office of Inspector General (OIG) initiated a
plan involving the private healthcare community in order to prevent
fraud and abuse in the federal healthcare programs through voluntary
compliance. The OIG has developed a series of compliance program
guidances (CPGs) directed at various segments of the healthcare
industry, which are “intended to encourage the development and use
of internal controls to monitor adherence to applicable statutes,
regulations, and program requirements.” To meet OIG’s criteria, healthcare
organizations generally implement a compliance plan to prevent fraud and
abuse, false claims, and other illegal
actions. The concern is
not that the healthcare provider is violating healthcare laws, but
rather to prevent violations. The emphasis is typically part of the
ongoing effort of organizations to initiate policies guiding their
unions through complex healthcare laws.
In order to implement a compliance plan,
healthcare organizations are also involved in training their workforce
on how to follow these guidelines so as to avoid situations that may
cause healthcare fraud. The Code of Federal Regulations defines compliance training as:
the basic elements of a compliance program (for example, establishing
policies and procedures, training of staff, internal
monitoring, reporting); specific training regarding the requirements of
Federal and State healthcare programs (for example, billing,
coding, reasonable and necessary services, documentation, unlawful
referral arrangements); or training regarding other Federal, State, or
local laws, regulations, or rules governing the conduct of the party for
whom the training is provided (but not including continuing medical
All too often it is healthcare labor that finds itself faced with the
potential for fraud and abuse because of direct contact serving
patients. FBI data shows that healthcare fraud occurs often at the
grassroots level, where unionized labor is involved in the daily
operations of the healthcare system. Situations ripe for abuse include:
billing for services not rendered, up-coding—a billing practice
where the healthcare provider submits a procedure code yielding a higher
payment than the code for the service truly rendered, and duplicate
claims—where one service is billed twice.
Obviously, individual employees may be subject to liability for their
criminal conduct. This is not the only risk. The Department of Justice
has consistently held workers may also cause the healthcare organization
to be criminally liable even though the organization may not benefit
from the conduct. U.S. v. Automated Medical
liability for employee conduct. The court found that potential liability
existed, even though the organization, officers, and directors did not
know, authorize, or participate in unlawful fraud and abuse that would
benefit the organization.Additionally, the court found that an
employee’s intent to benefit the corporation was unnecessary,
since such a requirement would “insulate the corporation from
criminal liability for actions of its agents.”The
court clarified: “benefit is not a “touchstone of criminal
corporate liability; benefit at best is an evidential, not an operative,
III. Why is a Compliance Plan Important?
A compliance plan implements a process for unions to learn and
understand procedures and conduct in order to avoid a violation. While
there are many reasons why a compliance plan is important, one of the
more pragmatic reasons is that without compliance, healthcare
organizations risk losing their funding under Medicaid, Medicare, and
under other third-party payer plans, which are tied closely to
certification under federal regulations and statutes. Indeed, the risk of
non-compliance may be significant, resulting in the exclusion from
participation in federal healthcare programs. Accordingly, healthcare organizations have an
immediate and continuing interest in the integrity and accuracy of the
payment process that assures accurate payment determinations.
IV. Labor Law
Equally important, though, is compliance with labor law; healthcare
organizations rely upon labor to serve their patients. An employer
generally has wide latitude to control employees. For example, employers
generally control the terms and conditions of employment. When
negotiating collective bargaining agreements, discussions surround: (1)
mandatory subjects of bargaining, (2) permissive subjects of bargaining,
and (3) illegal subjects of bargaining. In terms of labor law, these
categories are generally well accepted, but can run contrary to many
principles of healthcare compliance when fit into the compliance program
of an operating provider.
One of the cornerstones of healthcare is to improve the quality of
patient care through legislation and regulations. Indeed, in late 2003,
Congress passed, and President Bush signed into law, H.R.1, the Medicare
Prescription Drug, Improvement, and Modernization Act of 2003 (Medicare
Section 501(b) of the Act amended section 1886(b)(3)(B) of the Social
Security Act by
adding a new provision tying the annual payment rate for hospitals to
the submission of hospital quality data. The requirements of the Medicare Modernization
Act have culminated in the publicly accessible “Hospital
Compare” website, allowing healthcare consumers to now compare
hospitals based on various quality indicators.
In contrast, labor issues impose unique challenges on healthcare
organizations. The emphasis of labor law is by its nature driven by
individual workers’ concerns. Global management issues are
irrelevant to those individuals that perform the hard labor associated
with providing medical services to patients. Issues such as job
dissatisfaction, inadequate staffing, heavy workloads, and increased use
of overtime, wages, and healthcare benefits, stress, physical demands,
and inattention by administrators to workers’ concerns trigger
Likewise, healthcare organizations may be resistant to a unionized labor
force, since “labor expenses add up unexpectedly, with overtime,
extra shift bonuses, on-call and call-in bonuses and other expenses
necessary for safely staffing healthcare facilities. . . typically
bundled into the pay system . . . untracked and unevaluated. . . a part
of the organizational culture.”
V. War of the Worlds: How Health and Labor Law
Oftentimes, the tension in
labor-management relationships within the healthcare industry occurs
because the objectives of each side are different. Compliance for healthcare organizations is a
dynamic process that involves never-ending implementation and updating
of policies and directives to their workforce in that it is a pro-active
effort to prevent healthcare fraud before it occurs.In
contrast, this goal may not appear so straightforward to healthcare
employees. Compliance by its very nature will involve workers performing
services in new and innovative ways. Workers that are already burdened
and taxed may be unaccustomed, unhappy, or uncomfortable performing
their services in these new ways.
A tension between labor and management may occur when a collective
bargaining provision conflicts with a healthcare policy. A healthcare
organization cannot simply point to general healthcare policies as a way
to remove itself from traditional collective bargaining: the NLRB has
rejected the notion that a healthcare organization may cite a nursing
shortage as justification that healthcare policy trumps the National
Labor Relations Act.
While healthcare organizations are sensitive to recruiting competent
nurses in connection with providing skilled care to patients, the NLRB and courts tend to
balance quality care and labor concerns through the lens of labor law.
In St. John’s
Mercy Health System and United Food & Commercial Workers
Union Local 655, the Unionfiled an Unfair Labor Practice (ULP) charge
against the employer claiming that the employer failed to discharge
union members failing to pay their dues. The employer argued that no ULP
occurred because the union members were registered nurses and
discharging them would compromise patient care, thus violating public
policy. The employer also contended
that it was having difficulty recruiting and retaining RNs because of a
nursing shortage, and should be exempt from its obligations under the
collective bargaining agreement on public policy grounds.
John’sattempts to balance healthcare concerns and labor
issues. It essentially held that healthcare concerns have no greater
public policy implications than “meaningful collective bargaining
and industrial peace.”In these instances
where conflicting concerns may confront the healthcare
organization, St. John’s shows that healthcare
“must make its plea to the legislative
branch,”instead of in the
courts. The lesson: healthcare organizations may not rely on a shadowy
public policy argument to override longstanding labor law
Another example involves a
healthcare organization that changes work-rules in order to abide by
federal law. A recent NLRB
Nurses Association—involved a hospital instituting a
state and federally mandated vaccine requirement for all employees. The union argued that
the policy was a mandatory subject of bargaining. The employer was thus
caught between implementing the policy for healthcare compliance and
bargaining over a mandatory subject of bargaining. The NLRB went on to
find that while the presumption is that a mandatory subject of
bargaining exists where the work-rule affects the terms and conditions
of employment, that presumption was overcome since the work-rule
involved the core of the business that was narrowly tailored and applied
to the appropriate employees.
This article discusses just a few of the tensions occurring between
healthcare organizations and a union workforce. But the few that have
been discussed should provide some insight into the unique interplay
between health law and labor law. There is not a tremendous amount of
reported cases in this area, and most reported cases come from the NLRB
or other employment commissions. That this is the case, by definition,
may skew the legal analysis favoring labor law principles. However,
probably the more correct answer lies with the fact that healthcare laws
regulate an industry and contain very little, if any, directives to the
Evolving jurisprudence, NLRB and administrative decisions are
creating confusion regarding the responsibilities of a healthcare
organization to its employees and the government.
suggests the legislature must referee the dispute. Through either the
courts or legislature, the current system is forced into perpetual
collision, costing healthcare organizations both financially and in
labor-management relations, producing lower quality healthcare for
One thing is certain: as healthcare is becoming increasingly
important to individuals and to an aging population, the need for more
healthcare workers will be a continuing concern for healthcare
organizations. Employment issues should become just as important to
healthcare administrators as compliance where healthcare workers are the
ones ultimately providing quality medical services to patients. We thus
should not rely solely on healthcare law to formulate how we approach
labor-management relationship in the healthcare industry.
* Theresamarie Mantese is one of the founding shareholders of Rogers
Mantese. Her practice focuses on health care law in matters such as,
compliance issues, labor and employment matters, fraud-and-abuse issues,
business organization, professional license actions, peer review, and
joint ventures. She has authored several articles on health care law
that have appeared in national and state publications. Ms. Mantese can
be reached at email@example.com.
Rolf Lowe is an associate with Rogers Mantese. He received his B.S.
from the University of Michigan, Ann Arbor, in 1998 and J. D., cum
laude, from Wayne State University Law School, Detroit, Michigan in
2002. His practice focuses on health care law in matters such as,
compliance issues, labor and employment matters, fraud-and-abuse issues,
business organization, professional license actions, peer review, and
joint ventures. Mr. Lowe can be reached at firstname.lastname@example.org.
Lisa A. Hearn-Shumpert is the Corporate Compliance Officer
for the largest Mental Health Organization in Flint, Michigan and
has worked on several significant compliance issues related to the union
labor force employed by the organization. During her 10-year tenure in
behavioral health, Ms. Hearn-Shumpert earned her certification
in compliance through the Health Care Compliance Association. Ms.
Hearn-Shumpert has a Masters of
Science in Psychology from Howard University in
Gregory Nowakowski joined Rogers Mantese
as an associate upon graduation from Wayne State University Law School
in May 2007. Before joining Rogers Mantese, Mr. Nowakowki was the
Editor-in-Chief of the Wayne State University Law Review and was a
judicial intern for the Honorable Gerald Rosen of the U.S. District
Court, Eastern District of Michigan. Mr. Nowakowski can be reached at email@example.com.
 DMC nurses go
public with unionization efforts, Detroit Free Press, (Sept. 6,
2007); Unions vie for healthcare workers, Houston
Chronicle, Unions take closer look at health-care
stories, Pittsburgh Post-Gazette, (Mar. 22, 2007); Midwest:
Michigan: Home Care Workers to Join Union, New York Times (Aug. 20,
 Stanford Hosp
and Clinics v. NLRB, 325 F3d 334
40 NLRB Ann. Rep. 22 (1976).
499 U.S. 606 (1991) (NLRB rule
defining appropriate units in acute-care hospitals).
. 70 Fed. Reg. 4858
For others, see
Furrow, et al, (3d ed, 2003), pp 977-1045.
 42 C.F.R. 411.357(o).
770 F.2d 399 (4th Cir.
42 C.F.R. 424.510(d)(8) (“CMS reserves the right, when
deemed necessary, to perform on-site inspections of a provider or
supplier to verify that the enrollment information submitted to CMS or
its agents is accurate and to determine compliance with Medicare
enrollment requirements. Site visits for enrollment purposes do
not affect those site visits performed for establishing compliance with
conditions of participation.”).
42 C.F.R. 488.7(d) (“If a validation survey results in a finding that
the provider or supplier is out of compliance with one or more Medicare
conditions, the provider or supplier will no longer be deemed to meet
any Medicare conditions. Specifically, the provider or supplier
will be subject to the participation and enforcement requirements
applied to all organizations or suppliers that are found out of
compliance following a State agency survey. . .”).
PL 108-173, 117
42 U.S.C. 301,
 42 U.S.C.
Workforce: Emerging Nurse Shortages Due to Multiple
Factors, GAO-01-0944, 8-10 (2001).
and Harper, David, 7 Steps Toward Gaining
Control of Your Labor Costs, Healthcare Financial Management
Association, 76 (April 2007).
See Allina Health System d/b/a/ Abbott
and Minnesota,343 NLRB 498
Workforce: Emerging Nurse Shortages Due to Multiple
Factors, GAO-01-0944, 8-10 (2001). See discussion of
nurse staffing and healthcare policy in Mantese, Et al., Depaul Journal
of Healthcare Law, (2006), 1171-93.
2004 WL 2826824 (2004).
Barnabas Medical Center and New Jersey Nurses Union,
Affiliated with the Communication Workers of America, AFL-CIO as Local
1091ST, 2002 WL 31046013
(2002) (employee health nurses were
included in the collective bargaining unit of nurses even though they
were confidential employees subject to separate regulatory mandates
involving pre-employment drug and tuberculosis tests for positions at
Mason Hosp and
Ass’n, 2006 WL 2647513, (NLRB Div. of Judges).
Publication, Inc., 283 NLRB 334 (1987). Of
course, the problem in applying this formula is that healthcare
compliance is always the “core” of providers, and that
almost always, narrowly tailoring the work-rule means applying the rule
to every employee.