Bill Delaying Implementation Of Tamper Proof Pad Requirement Passes Senate

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 the Senate.

According to a September 26 NACDS statement, "four months is not enough time for physicians across the country to comply with such a widespread change."

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 this issue).

Read Brown's press release.

Read the NACDS statement.

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 States 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 comment periods.”

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 NCD.

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 Medicare definition.

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 services.”

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 rule.

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 said.

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 Source (GAO-07-46).

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 the Committee.

“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 conducting inspections.

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 staff.”

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 needs.

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 manufacturers.

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”

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 circumstances.

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 issue.

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 interference.”

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 DDSN.

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.

Doe 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

The Federal Trade Commission (FTC) said September 27 that Mylan Laboratories’ proposal to acquire the generic unit of Germany’s E. 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 issue.

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 release. 

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 grounds.

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 remedies existed.

Plaintiffs, a physician and several healthcare facilities who have performed medically necessary abortions on low-income women, were refused payment under Georgia’s 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 patients.”

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.” Powers v. Ohio, 499 U.S. 400, 411 (1991).

Under the Powers test, the high court found plaintiffs had standing to challenge on behalf of their patients Georgia’s 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 Georgia’s Medicaid program.”

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 abortion.

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 court held.

Feminist Women’s Health Ctr. v. Burgess, No. S07A1039 (Ga. Sept. 24, 2007).

Grassley Asks Device Maker Medtronic For Details On Payments To Physicians

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 October 3.

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, and Broadwater.

House, Senate Clear Bipartisan SCHIP Reauthorization Bill, But Veto Threat Looms

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 years.

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 argued.

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 release said.

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. 

Compromise Bill

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 said.

Crowd-Out

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 eligibility.

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 measurement standards.

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 funding.

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.

Debate Continues

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 vetoed.”

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 does.

“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.”

Medicare Provisions

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 the bill.

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 services.

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 this issue).

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. 3668.

Read the September 20 letter to Pelosi.

House Ways And Means Committee Approves Mental Health Parity Legislation

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 benefits.

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 covers.

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

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’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

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 arbitration agreement.

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 said.

Community Hosp. v. Goodlett, No. 2006-IA-01586-SCT (Miss. Sept. 20, 2007).

No New DHS Clinic Licensure Requirement For California Medical Practices According To California Court Of Appeal Decision

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 practice there.

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 than laypersons.

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.

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 said.

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 monthly.

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 safe harbor.

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 specialty.

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 center.

Advisory Opinion No. 07-10 (Dep’t of Health and Human Servs. Office of Inspector Gen. Aug. 28, 2007).

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 uninsured children.

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 sample sizes.

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.

Read Assessing States’ Progress in Meeting State Children’s Health Insurance Program Goals (OEI-05-07-00330).

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 2007.

The bill passed the Senate by unanimous consent September 20 and passed the House September 19 on a motion to suspend the rules.

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 Medicare requirements.

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 said.

"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 release.

"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," Weems added.

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 release.

Read Baucus' letter.

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 intimidate her.

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 denied.

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 that presumption.

“[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 said.

“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 unavoidable.”

Accordingly, the court reversed Vasquez-Ruiz’s conviction and remanded the case to the district court for a new trial.

United States v. Vasquez-Ruiz, No. 06-2180 (7th Cir. Sept. 17, 2007).

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 20.

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 (Axle).

Eugene Loren and Danielle Hagemann (collectively, plaintiffs) are participants in self-funded health plans sponsored by Axle and Ford, respectively.

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 Axle.

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.

Loren v. Blue Cross & Blue Shield of Mich.,  No. 06-2090 (6th Cir. Sept. 20, 2007).

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 action.

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.

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. M2006-01326-COA-R3-CV (Sept. 21, 2007).

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 those areas.

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 force.”

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 said.

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 Agreement.

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

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.

ProNational 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

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 September 12.

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’ true diagnoses.

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 false certification.

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 (alleged) noncompliance.”

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.  

United 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

By: Theresamarie Mantese, Rolf Lowe, Lisa Hearn-Shumpert, Gregory Nowakowski*

I. Introduction

Across the nation, unions are steadily declining. Yet, healthcare professionals are steadily unionizing.[1] 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,[2] the contract bar doctrine,[3] and appropriate bargaining units.[4]

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.”[5] To meet OIG’s criteria, healthcare organizations generally implement a compliance plan to prevent fraud and abuse,[6] false claims,[7] and other illegal actions.[8] 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:

 [T]raining regarding 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 education).[9]

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.[10]

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 Laboratories[11]illustrates this 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.”[12]The court clarified: “benefit is not a “touchstone of criminal corporate liability; benefit at best is an evidential, not an operative, fact.”[13]

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.[14] Indeed, the risk of non-compliance may be significant, resulting in the exclusion from participation in federal healthcare programs.[15] 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 Modernization Act).[16] Section 501(b) of the Act amended section 1886(b)(3)(B) of the Social Security Act[17] by adding a new provision tying the annual payment rate for hospitals to the submission of hospital quality data.[18] The requirements of the Medicare Modernization Act have culminated in the publicly accessible “Hospital Compare” website,[19] 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 labor efforts.[20] 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.”[21]

V. War of the Worlds: How Health and Labor Law Conflict

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.[22]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.[23]

While healthcare organizations are sensitive to recruiting competent nurses in connection with providing skilled care to patients,[24] 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,[25] 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.

St. 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.”[26]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,”[27]instead of in the courts. The lesson: healthcare organizations may not rely on a shadowy public policy argument to override longstanding labor law concepts.[28]

Another example involves a healthcare organization that changes work-rules in order to abide by federal law. A recent NLRB decision—Virginia Mason Hospital and Washington Nurses Association—involved a hospital instituting a state and federally mandated vaccine requirement for all employees.[29] 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.[30]

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 healthcare workforce.

VI.  Conclusion

Evolving jurisprudence, NLRB and administrative decisions are creating confusion regarding the responsibilities of a healthcare organization to its employees and the government. St. John’s 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 consumers.

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.