Consultants’ Communications Privileged from Discovery

In healthcare, companies often hire consultants to review billing and coding, privacy and security and a host of other technical issues that regular staff does not have the time or expertise to pursue.  A recent discovery ruling in federal court in the Eastern District of Pennsylvania holds that communications with such outside consultants are privileged from discovery if they are made for the purpose of assisting the company in securing legal advice or making legal decisions.

In Smith v. Unilife Corporation, a whistleblower brought an action under Sarbanes-Oxley and Dodd-Frank alleging shareholder fraud and failure to comply with certain FDA requirements.  The plaintiff sought discovery of two non-lawyer consultants regarding drafts of the company’s SEC Form 10-K filing.  The Court’s decision to deny the plaintiff’s motion to compel was based on the “functional equivalent” doctrine, a principle already adopted in the 8th, 9th and D.C. Circuits, but not yet in the 3rd Circuit.

Continue reading Consultants’ Communications Privileged from Discovery

Civil RICO Actions on the Rise to Combat Healthcare Insurance Fraud

Over the past several years, insurance carriers have aggressively pursued civil suits against doctors and other medical providers in an effort to fight healthcare insurance fraud. Besides theories of liability based upon common law claims such as fraud and unjust enrichment, insurers have more frequently asserted claims under the federal Racketeer Influenced and Corrupt Organizations Act, a.k.a. RICO, as well as its state law analogues, as tools in their litigation arsenal.  Thirty-three states, as well as Puerto Rico and the U.S. Virgin Islands, have state civil RICO statutes.

Civil RICO claims entail demanding proof of the defendants’ operation of an criminal enterprise intended to harm another and engaged in a pattern of racketeering activities, which are statutorily-defined and typically involve a list of specific criminal acts. Notwithstanding its arduous proof requirements, civil RICO claims provide a substantial incentive for success:  an award of three times actual damages as well as recovery of attorneys’ fees and expenses.

A suit filed this month in New York federal court by the GEICO insurance companies, Gov’t Employees Ins. Co. v. Bakst, No.: 15-cv-537 (E.D.N.Y., filed Feb. 4, 2015), illustrates the expanding use of civil RICO claims by insurers against doctors and other medical providers. Continue reading Civil RICO Actions on the Rise to Combat Healthcare Insurance Fraud

HHS Moves to Limit In-Office Ancillary Services Exception

The Department of Health and Human Services (“HHS”) is once again targeting the In-Office Ancillary Services Exception (“IOASE”) to the federal Stark Law, in an attempt to produce cost savings in the U.S. healthcare system. The IOASE provides a limited exception to the Stark Law that allows physicians to refer patients to receive specified ancillary services in the physicians’ own offices. Such permitted services currently include certain diagnostic imaging, radiation therapy and supplies, clinical laboratory services, outpatient prescription drugs, and physical, occupation and speech therapy. In order to qualify for the Stark Law exception, the services must be furnished in accordance with strict guidelines related to, inter alia, billing, group practice organization and ownership, office hours, and the identity of the individuals actually providing the services.

Lawmakers and administration officials have long attempted to impose further restrictions on the use of the IOASE. Most recently, HHS indicated its desire to limit the IOASE through its Fiscal Year 2016 proposed budget.   Arguing that some ancillary services are “rarely furnished on the same day as the related physician office visit” and that the IOASE has caused “overutilization and rapid growth” of these services, HHS has proposed tightening the list of services covered by the IOASE to eliminate permitted self-referrals for therapy services, advanced imaging, radiation therapy and anatomic pathology services unless they are offered at “clinically integrated” practices that demonstrate cost containment. The budget proposal claims that this change will save six billion dollars over ten years.

While the current political climate in Washington leaves the fate of HHS’s proposed budget far from certain, physicians must once again be on the alert for increased limitations on their ability to provide in-office ancillary services.

Virtual Credit Card Payments

Paying for Health Care by Virtual Credit Card
On January 30, 2015, several healthcare organizations sent a group letter to CMS protesting the use of virtual credit cards by health plans to pay providers. In a virtual credit card payment (a nonstandard type of electronic funds transfer EFT), a health plan or its payment vendor issues single-use credit card information to a provider via mail, fax or email; the payment is “virtual” in that there is not a physical credit card. Providers then manually enter the virtual credit card number into their point-of-sale (POS) processing terminal, and the card processing network authorizes the payment. Virtual credit card programs are generally rolled out as an opt-out function and providers can end up being enrolled without their knowledge or consent.
The letter states that “While the process described above may sound benign and similar to provider processing of patient credit cards, virtual credit card payments can have a significant negative financial impact on a provider. Interchange fees of up to five percent are imposed on virtual credit card payments; these fees essentially reduce the contracted fee rate that has been negotiated with the health plan for a particular service or services. Unfortunately, many providers are unaware of these fees when accepting virtual credit card payments. Yet while providers are losing income from this payment method, health plans and intermediaries can profit from virtual credit cards, as they often receive cash-back incentives from credit card companies.”

The letter recommended that CMS provide the following direction to the health care industry regarding virtual credit card and Automated Clearing House ACH EFT payments:
• Require that a provider explicitly opt-in to virtual credit card payments prior to the issuance of any payments via this method;
• Require that prior to opting in to virtual credit card payments, the provider must receive a complete disclosure of all fees associated with this payment option;
• Require that virtual credit card programs provide clear and hassle-free instructions to providers on how to opt-out of these payments, should they later decide to choose another payment method;
• Prohibit health plans from requiring acceptance of virtual credit card payments as part of their provider contracts;
• Clarify the definition of “excessive fees” in the context of ACH EFT payments to prohibit health plans and their vendors from charging fees for ACH EFT payments in excess of the nominal charge assessed by the providers’ financial institution; and
• Require that any services designed to supplement the standard ACH EFT process be independently selected at the provider’s discretion and be unambiguously separate from ACH EFT enrollment forms.
Providers need to examine the impact of virtual credit cards on their practices and consider the merits of opting in or opting out.

Health System Integration and Antitrust Laws on Collision Course

Health systems attempting to fulfill the mandate of integrating hospitals and physicians may find themselves accused of going too far.  Although the Affordable Care Act, shared savings, gainsharing and other alternative payment methodologies have made integration of physicians, hospitals and other providers an operational goal, success in reaching that goal may be challenged by private antitrust actions.

In a recent Florida federal court decision, the antitrust complaint of “several of Southern Brevard County’s physicians and physicians practice groups” was held to have stated a monopolization claim against Health First, Inc. and three of its wholly-owned subsidiaries —  an insurer, a hospital and a physician practice group.  Essentially, by fully integrating its business, and incentivizing in-network referrals and managed care pricing, Health First became vulnerable to claims of tying, exclusive dealing, price discrimination and monopolization. Continue reading Health System Integration and Antitrust Laws on Collision Course

New Jersey State Bar Committee to Review RPC 1.2(d) and Issues Pertaining to Medical Marijuana

The New Jersey State Bar Association (“NJSBA”) has established an ad hoc committee to review the ethical issues raised under New Jersey Rule of Professional Conduct 1.2(d) (which prohibits a lawyer from counseling or assisting a client in conduct that the lawyer knows is illegal or criminal)  for an attorney representing a client in connection with the sale, distribution, or use of medical marijuana.  Duane Morris partner James J. “J.”Ferrelli, a past NJSBA Trustee, will serve as chair.  Continue reading New Jersey State Bar Committee to Review RPC 1.2(d) and Issues Pertaining to Medical Marijuana

AHLA’s Post-Acute Care Handbook Published

Duane Morris partner Ari J. Markenson is the editor-in-chief for the Post-Acute Care Handbook: Regulatory, Risk and Compliance Issues, newly published by the American Health Lawyers Association.

About the Handbook

Traditional long term care has evolved to increased sub-acute and rehabilitative care, inspiring new regulatory changes and increased scrutiny. In addition, the expectations of facility residents and their families are growing.  Continue reading AHLA’s Post-Acute Care Handbook Published

New CMS Payment Policy Will Negatively impact Healthcare Investors

I have been concerned about the difficulty of projecting revenue and determining valuations for new and existing healthcare companies based on risk based reimbursement models.  My fears have not been allayed.  Rather, they have been confirmed.

On Monday, Secretary Burwell issued a press release that essentially committed CMS to moving the entire Medicare payment model from a fee for service to a value based model ( see this link:

The current Medicare demonstration projects—bundled payments,  shared savings models using Accountable Care Organizations and patient centered medical homes will be expanded to include the vast majority of health care providers.  This shift over the next several years will certainly change the financial outlook ( and perhaps valuations) for many health care portfolio companies. Currently, health care service rollups are a favorite of some investors where the management fee that is earned is paid to the investor owned management company as a percentage of collections.  Under many of these models especially the shared savings program, provider bonuses earned barely get them back to the revenue level they had in the prior year.    What do providers do about increasing costs when their revenue is fixed or declining?

The impact of this new policy will also drive the commercial insurers and managed care companies to shift their patterns of payment as well.  As it is well known, that Medicare changes are quickly followed by the commercial insurers and managed care companies.  I expect that many of the new companies which service health care providers will be looking at new financial models that have aligned incentives with their customers.

However, any investor investing in companies that take health care reimbursement risk should be asking their current and future portfolio company two questions—-how will the new Medicare reimbursement policy impact their business and what is the company going to do about it?

Health Care Workers May Think Twice Before Becoming a Relator

The Federal False Claims Act (and many similar state false claims acts) allow an individual—called a “relator”—to file a lawsuit on behalf of the United States Government. If successful, the relator stands to collect a portion of the amount collected. Since the False Claims Act provides for treble damages and statutory penalties of up to $11,000 per false claim, the reward to the relator can be considerable.

Complaints by relators must filed under seal. This allows the Government time to investigate the relator’s allegations before deciding whether to intervene in the case. Cases in which the Government intervenes tend to have higher judgments or settlements. Once the Government makes this decision, the complaint is unsealed and the case can move forward.

Earlier this week, an Alabama judge ruled that the relators could not keep their identities secret, even though they voluntarily dismissed their lawsuit against Great Bend Regional Hospital. Frank Coyle and Randy Bruce argued that their careers in health care may be damaged if their identities are revealed. However, the court agreed with the Government, that the reason for sealing the complaint is for the limited purpose of protecting the Government’s investigative process.

It may have been a bad choice for Coyle and Bruce to ask for anonymity. If they had merely dismissed their case, the dismissal may have been a mere footnote or back page news item. By seeking anonymity and losing, it is front page news. When filing a case, relators may think that they will no longer have to work once they win millions of dollars. As these relators have learned, you don’t always win. And there are consequences to your actions.

Pennsylvania Could Enact Medical Marijuana Legislation In 2015

On January 26, 2015, in a bipartisan effort, Pennsylvania senators Mike Folmer (R) and Daylin Leach (D) reintroduced to the General Assembly of Pennsylvania a bill (Senate Bill No. 3) providing for the medical use of cannabis in the Commonwealth of Pennsylvania.   Senate Bill No. 3 comprises  a comprehensive set of regulations that include (1) licensing and administrative procedures for growers, processors, dispensers, patients and health care professionals; (2) enforcement and penalties; and (3) fees and surcharges.

Recent comments by Pennsylvania’s newly inaugurated Governor, Tom Wolf, and last year’s passage by the PA Senate of a similar bill (Senate Bill No. 1182) by a 43-7 vote, suggest that Pennsylvania may be one of the states (the recent trend suggests there will be others) that enacts Medical Marijuana legislation in 2015.  As Governor Wolf stated on the same day that Senate Bill No. 3 was introduced, “I commend the bipartisan effort to allow Pennsylvania doctors to prescribe medical marijuana… We should not deny a physician’s ability to recommend medical marijuana treatment for Pennsylvanians suffering from seizures, those affected by PTSD, cancer patients affected by chemotherapy, and Pennsylvanians suffering from many other ailments and conditions that could benefit from this effective, doctor-prescribed treatment.” Continue reading Pennsylvania Could Enact Medical Marijuana Legislation In 2015