Justice Department Continues to Target Health Care Providers with "Barrier-Free" Initiative


The Department of Justice's recent settlement with a Chicago-based hospital system is the latest reflecting the agency's continuing pursuit of claims against health care providers – small and large -- who fail to provide adequate service to persons who are deaf or hearing-impaired. Under the settlement, Franciscan St. James Health is required to conduct disability assessments to be documented in the Electronic Medical Records (EMRs), provide interpreters and other auxiliary aids and services to patients and companions with hearing disabilities, designate round-the-clock Americans with Disabilities Act (ADA) administrators, and establish a complaint resolution procedure. In addition, it is required to create policies and posters, train hospital personnel and affiliated physicians, make periodic reports and submit to three years of government oversight.

The St. James settlement, announced earlier this month, is the fourth since October 2014 arising out of the Barrier-Free Health Care Initiative (the Initiative). The Initiative was instituted in 2012 and initially aimed at ensuring that health care providers provide effective communication to people who are deaf or have significant hearing loss. In partnership with the Civil Rights Division and more than 40 U.S. Attorney's offices across the country, the Initiative is aimed at enforcing Title III of the ADA and Section 504 of the Rehabilitation Act. Those laws essentially require health care providers (and others) to ensure that their communications with people with hearing disabilities are as effective as their communication with people without disabilities. To meet this obligation, health care providers must provide appropriate auxiliary aids and services unless it would create an undue burden or would fundamentally alter the service being provided.  Health care providers may not charge the individual with a disability for the cost of auxiliary aids or services, including sign language interpreters. The obligation applies to all health care providers, regardless of size.  

Health care providers should ensure that they have ADA/Section 504 policies, procedures and assistive technology in place, and that staff have been trained on assessing and documenting how they deal with patients and companions with communications needs, including those who lack proficiency in English. EMR systems should be upgraded to ensure that they reflect initial and ongoing assessments of the patient's communications needs and preferences, what services were provided, and how the patient demonstrated that they understood the information being conveyed.

Many of the settlements under the Barrier-Free Health Care Initiative resulted from patients who complained after health care providers denied the patients' requests for American Sign Language interpreters at the providers' expense during treatment. In general, the settlement agreements reached to date require each provider, among other things, to:

  • provide appropriate auxiliary aids and services unless it would result in an undue burden or fundamental alteration of the service;
  • document the determination of what auxiliary aids or services are appropriate in consultation with the person with the disability, using established factors and a defined timeline;
  • perform a communications assessment and document the results in the patient's chart;
  • post conspicuous notices about the availability of qualified interpreters free of charge for patients, family members;
  • log each request for auxiliary services and how it was handled;
  • provide mandatory training to personnel annually; and
  • submit to two to three years of DOJ oversight.

Health care providers are well advised to take many of those steps now, including training staff on how to appropriately deal with patients with hearing disabilities. Those who have implemented EMRs also should adapt their EMR systems now to ensure appropriate documentation. 

For any questions about this blog or topic, please contact the author.

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Reimbursement Changes, Shift to Consumerism Discussed at Akerman Healthcare Briefing


Changing reimbursement models and a shift to consumerism were two of the hot topics discussed at Akerman LLP's recent Healthcare Briefing event titled "Financial and Corporate Implications of the Affordable Care Act: A Look at the Past, Present, and Future". Health care and financial industry leaders gathered Friday, November 21 in Tampa for the interactive discussion. Panelists leading the discussion included:

  • Jeff Bak, president and CEO of HealthPlan Services;
  • George Huang, director and senior analyst of the non-profit healthcare sector for Wells Fargo Securities, LLC; and
  • Lorraine Lutton, president of St. Joseph's Hospital, Tampa, Florida

Hospitals Adjusting to Reimbursement Changes

From the outset of the conversation, the panelists highlighted the effect of the Affordable Care Act (ACA) on hospital reimbursement. Hospitals are undergoing a major financial transition because the ACA was funded, in part, by reduced reimbursements to hospitals through the Disproportionate Share Hospital and Low-Income Pool programs. These programs allocated additional money to hospitals serving a disproportionate amount of Medicaid enrollees and uninsured patients. The drafters of the ACA anticipated such payments would no longer be essential because of Medicaid expansion; however, that expansion has not materialized in many states.

Hospitals are also adjusting to the ACA's shift to value-based purchasing, which focuses on quality and penalizes hospitals for factors like high readmission rates.

Hospitals have typically been reimbursed on a fee-for-service model, but the panel expected that more risk-based contracting will be on the way, resulting in an even greater emphasis on improving health outcomes and reducing costs.

Employers Lead Charge Toward Consumerism

A greater number of employers are choosing to offer high-deductible health plans and health savings accounts instead of traditional, low-deductible policies. The panel noted the number of high-deductible plans has tripled in the last five years, and this represents a 10-15 year ongoing trend of employers increasing cost-sharing requirements. The increased cost-sharing encourages consumerism, making employees more likely to ask "How much does it cost?" With low-deductible, cost-shielding plans less common, patients are incentivized to spend their healthcare dollars more like typical consumers, shopping around and comparing costs.

The Role of Physicians

The panel also addressed the effects the ACA continues to have on physicians with increased administrative and legal compliance burdens. One notable effect is the increased consolidation of physicians into larger physician groups and the affiliation of physician groups with hospitals to help physicians address the new concerns. Correspondingly, solo and duo physician practices are becoming more rare. More physicians also now work as employees of hospitals and health systems rather than as independent contractors.

Similarly to hospitals, the shift to integrated care networks and pay-for-performance reimbursement models – and the corresponding move away from fee-for-service – has changed incentives. Physicians now can earn more if they can improve health outcomes and decrease costs, such as by keeping patients from receiving services in the ER.

Additionally, because of an expected shortage of physicians, the panel foresees an even greater need to rely on physician extenders, such as nurses and physician assistants, for less complex ailments.

New Emphasis on Reducing Costs

With the changing reimbursement models and incentives discussed above, the healthcare sector has placed new emphasis on reducing the cost of healthcare. One cost reduction tool the panel addressed is telemedicine, which in some settings can improve care in addition to reducing costs. For instance, the panel discussed that one specialist, who can only be in one place at one time, can now monitor patients across multiple facilities using telemedicine technology. This gives patients better access to specialists and reduces the cost of providing the specialist's services – especially in rural or other under-served areas.

Directing patients to the least-complex care setting needed is another way providers are reducing costs. In particular, giving patients alternatives to the costly ER for non-emergency conditions can have a significant effect.

Finally, with a large portion of health care expenses incurred during the last 6 months of a person's life, end-of-life care is a very important factor that the panel agreed must be addressed. The panel noted that patients and families should be encouraged to have the difficult conversations about life and death.

Akerman's Healthcare Briefing programs continue to highlight pressing issues facing healthcare companies today. To inquire about future healthcare events, please contact the author, Sheryl Rosen.

ACO Participation By Tax-Exempt Healthcare Organizations –Is Tax-Exempt Financing at Stake?


Does A Tax-Exempt Healthcare Organization’s Participation in an Accountable Care Organization (ACO) Adversely Affect Its Tax-Exempt Financing? IRS Notice 2014-67 Provides Guidance.


The Patient Protection and Affordable Care Act authorizes the Department of Health and Human Services ("HHS") to establish a Medicare Shared Savings Program ("Shared Savings Program") to promote accountability for care of Medicare beneficiaries, to improve the coordination of Medicare fee-for-service items, and to promote efficiency in the delivery of services. Under the Shared Savings Program, groups of health care providers and suppliers that establish a mechanism for shared governance and meet criteria established by HHS can participate in "accountable care organizations" or "ACOs." ACOs may become eligible to participate in Shared Savings Programs under which they can share in the economic benefits of increased efficiency in the delivery of services.

Since ACOs frequently include for-profit healthcare providers, tax-exempt healthcare organizations initially were faced with the question whether their participation in an ACO with non-exempt entities would raise private inurement or excess private benefit concerns. The IRS, in Notice 2011-20, provided assurance that a tax-exempt healthcare organization’s participation in an ACO would not result in private inurement or an impermissible private benefit to the non-exempt participants in the ACO, provided that the requirements stated in the notice were met.  Although Notice 2011-20 provided comfort as to private inurement and excess private benefit concerns, tax-exempt healthcare organizations which used tax-exempt bonds to finance their facilities worried that their participation in an ACO might constitute a "private business use" of their facilities. If participating in an ACO were to constitute a "private business use" of facilities funded with tax-exempt bonds, the organization’s tax-exempt financing might be adversely affected. 

Guidance for Participation In An ACO:

In Notice 2014-67, the IRS expanded on Notice 2011-20 by providing additional guidance for tax-exempt healthcare organizations that have financed their facilities using tax-exempt financing. Notice 2014-67 provides that participation in an ACO by a tax-exempt healthcare organization will not give rise to private business use of bond-financed facilities if the following factors are met:

  • Terms of participation in the Shared Savings Program by the tax-exempt healthcare organization through the ACO (including its share of payments or losses under the Shared Savings Program) are set forth in advance in a written agreement negotiated at arm’s length;
  • CMS has accepted the ACO into the Shared Savings Program, and has not terminated the ACO’s participation;
  • The share of economic benefits of the tax-exempt healthcare organization (including its share of payments under the Shared Savings Program) is proportional to the benefits or contributions the tax-exempt healthcare organization makes to the ACO.  If the tax-exempt healthcare organization has an ownership interest in the ACO, the ownership interest is proportional and equal in value to the capital contributions to the ACO, and returns of capital, allocations and distributions from the ACO are made in proportion to ownership interests;
  • The tax-exempt healthcare organization’s share of ACO losses (including its share of Shared Savings Program losses) does not exceed the share of ACO economic benefits to which the tax-exempt healthcare organization is entitled;
  • All contracts and transactions entered into by the tax-exempt healthcare organization with the ACO and the other participants in the ACO, and by the ACO with the ACO’s participants, are at fair market value; and
  • The tax-exempt healthcare organization does not transfer or otherwise contribute the property financed with tax-exempt bonds to the ACO (unless the ACO is itself a governmental person or, for qualified 501(c)(3) bonds, a 501(c)(3) organization or a governmental person).

In a bow to consistent treatment, the first 5 factors in Notice 2014-67 are the same as those in Notice 2011-20. Thus, for the most part, the factors relevant to a private inurement and excess private benefit analysis of a tax-exempt organization’s participation in an ACO are also relevant to determining whether there is a private business use of facilities financed with tax-exempt bonds.

Management Contracts With Bonuses For Meeting Shared Savings Program Standards:

Notice 2014-67 also provides guidance concerning the terms of  management agreements that a tax-exempt healthcare organization may enter into with respect to facilities that are financed using tax-exempt bonds. Under Rev. Proc. 97-13, a management contract which compensates the manager on the basis of net profits from the facility provides for an impermissible private business use. Rev. Proc. 97-13 provides specific safe harbors for management contracts to avoid impermissible private business use. Notice 2014-67 expands Rev. Proc. 97-13 by providing a specific safe harbor for management contracts which include productivity awards determined by achievement of quality performance standards under a Shared Savings Program. To come within the safe harbor, the amount of the productivity award must be stated as a fixed dollar amount, a periodic fixed fee, or a tiered system of stated dollar amounts or periodic fixed fees based solely on the level of performance achieved.

Increased Flexibility In Term of Multi-Year Management Contracts:

Notice 2014-67 also adds flexibility to permissible multi-year management agreements by extending safe harbors and permitting five-year management contracts which are not terminable by the tax-exempt healthcare organization prior to the end of the term (prior guidance required that a 5 year management contract be terminable by the tax-exempt entity after 3 years).


Guidance regarding participation of tax-exempt healthcare organizations in ACOs is applicable to tax-exempt bonds issued after January 22, 2015. Guidance as to management contracts is applicable to contracts entered into, materially modified or extended on or after January 22, 2015. 

Public Comment Period:

The Treasury is soliciting public comment on the guidance provided by Notice 2014-67 and on any further guidance needed to facilitate participation un the Shared Savings Program by tax-exempt healthcare organizations. Public comments may be submitted on or before January 22, 2015.

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Self-Insured Group Health Plans: Two Deadlines to Note


As 2014 winds down, plan sponsors are likely thinking ahead to some of the significant changes that will take effect in 2015, most notably, the employer "pay or play" mandate under the ACA. However, there are two deadlines that plan sponsors of self-insured group health plans should be aware of.

November 5, 2014 - Health Plan Identifier (Enforcement is indefinitely delayed)

All large, self-funded, "controlling health plans" were originally required to have obtained a health plan identifier ("HPID") by November 5, 2014. Controlling health plans are those that—(1) control their own business activities, actions, or policies; (2) are controlled by an entity that is not a health plan; or (3) direct the business activities, actions, or policies of one or more subhealth plans. Small health plans (defined as those with annual receipts of $5 million or less) may take advantage of a one-year extension of the HPID deadline, to November 5, 2015. Insured plans are also subject to the HPID requirement, however, the insurance carrier will generally be responsible for obtaining the HPID on behalf of the plan.

HIPAA requires covered entities to use their HPIDs for all HIPAA "standard transactions." These standard transactions include: health care claims and encounters, payment and remittance advice, claims status request and response, eligibility and benefit inquiry and response, benefit enrollment and disenrollment, referrals and authorizations, and premium payment transactions. There is no charge to obtain a HPID, and it can be obtained through the CMS portal called Health Plan and Other Entities Enumeration System (HPOES).

Please note that effective October 31, 2014, CMS announced an indefinite delay in the enforcement of the HPID rules. Although this delay does not technically relieve plan sponsors of large, self-funded, controlling health of their obligation to obtain an HPID and use it for HIPAA standard transactions, the delay signifies that there will be no enforcement action taken at this time against entities that fail to do so.

November 15, 2014 - Enrollment Numbers for Reinsurance Fees

By November 15, 2014, self-funded health plans (including non-calendar year plans) are required to submit their enrollment data for January-September of this year to the Department of Health and Human Services ("HHS") for purposes of the 2015 payment of the ACA's temporary reinsurance fees. This reinsurance fee must be made for all "reinsurance contribution enrollees," a term that includes all individuals covered by a plan for which reinsurance contributions must be made, not just employees or covered employees.

CMS recently announced that the form for submitting this data will be available at www.pay.gov in advance of this November 15 deadline. The form will automatically calculate the reinsurance contribution amount due. HHS will then notify plans of their total reinsurance fee responsibility for the year. For 2014 the reinsurance fee will be $63 per health care plan enrollee. This $63 annual fee will be paid in two installments. The first installment of $52.50 per enrollee will be due by January 15, 2015, and the second installment of $10.50 per enrollee will be due by November 15, 2015. The reinsurance fee will be tax-deductible as an ordinary business expense.

For any questions about this blog or pending deadlines, please contact the authors.

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Talk Amongst Yourselves: HIPAA Does Not Preempt Florida Med Mal Presuit Authorization Law


A federal appellate court recently concluded that the Health Insurance Portability and Accountability Act of 1996 ("HIPAA") does not preempt a Florida law that requires aggrieved patients to authorize the release of their protected health information as a presuit condition to suing a medical provider for negligence. See Murphy v. Dulay (11th Cir. Oct. 10, 2014) (opinion available here).

How does this decision affect medical malpractice lawsuits in Florida?

  • In Florida, the presuit notice of intent to initiate a medical malpractice action must also include the authorization required under section 766.1065, Florida Statutes.
  • This authorization will allow a defendant, or his or her attorney, to interview a plaintiff's treating providers regarding the plaintiff's alleged injury without the presence of the plaintiff or the plaintiff's attorney.
  • If a plaintiff's presuit notice does not include the section 766.1065 authorization, the presuit notice is void, and the plaintiff will forego the ability to maintain a medical malpractice action in Florida state court.
  • Defendants in medical malpractice actions will now have the same access as plaintiffs to treating providers, but it remains to be seen whether treating providers will agree to ex parte interviews with defense lawyers.

To read more information about this case, click here.

CMS launches database of manufacturer and GPO payments to physicians


The Affordable Care Act contains a provision known as the Physician Payments Sunshine Act, which requires the Centers for Medicare and Medicaid Services (CMS) to establish a national databank containing information on the financial relationships between physicians (which includes dentists, chiropractors, and other physician specialties) and teaching hospitals, applicable manufacturers, and group purchasing organizations (GPOs). CMS launched its Open Payments website on September 30, 2014, making its database available to the public.

The database is populated by information reported to CMS by applicable manufacturers and GPOs regarding their payments or other transfers of value to physicians and teaching hospitals. It is important to note that this reported information specifically includes any ownership or investment interest that physicians (and their immediate family members) have in the manufacturers and GPOs.

CMS encourages physicians and teaching hospitals to register with the Open Payments website. While registration is voluntary, the reported information is made available to registrants before being made public, and registrants are given an opportunity to dispute any reported information. In fact, there is a mobile app and other resources that allow physicians, teaching hospitals, manufacturers, and GPOs to track provider and industry contact details, share information, and track payments and other transfers of value.

According to CMS and as reported, 4.4 million payments valued at nearly $3.5 billion were made to 546,000 individual physicians and 1,360 teaching hospitals in the last five months of 2013. The website will provide future reports on an annual basis. Beginning in June 2015, it is expected to report twelve full months of data.

We know that the public, and in particular the press, will access the Open Payments database, and there will likely be a high level of misunderstanding and misinformation. One cannot forget the feeding frenzy that arose when CMS released physician Medicare billing data earlier this year. Any physician who receives payments from a manufacturer or GPO would presumably want advance notice of any disclosure regarding payments to that physician. Accordingly, any physician who does receive such payments should register on the Open Payments website and check the accuracy of all information reported about them, and be prepared to answer questions they may be asked.

Court Allows Counterclaim Against Whistleblower for Breach of Employment Agreement


A federal court in New Jersey has permitted a defendant in a False Claims case to defend itself on the grounds that the whistleblower/ex-employees breached their employment agreements by using and disclosing confidential company information. The Defendant, Boston Scientific Neuromodulation Corp. ("Boston Scientific") is a medical device manufacturer. While in Boston Scientific's employ, the whistleblowers signed employment agreements which, among other things, required them to maintain the confidentiality of company information. The whistleblowers ultimately brought suit against their former employer, alleging that the company submitted claims to Medicare and Medicaid which were false for numerous reasons, including that Boston Scientific concealed defective equipment, that claims did not have underlying physician orders establishing medical necessity, and that the company promoted "off-label" use of the equipment. The government declined to intervene in the case.

Boston Scientific responded to the Complaint with its own counterclaims for violations of the whistleblowers' employment agreement, alleging they impermissibly "took, disclosed, and then published" confidential patient claims data and proprietary business information. The whistleblowers sought to dismiss the counterclaims on the grounds that restricting the disclosure of the documents evidencing false claims would frustrate the underlying policy considerations of the False Claims Act. The Court nevertheless sided with Boston Scientific, saying that the breach of contract defense was adequately pleaded at this early stage in the case. It is important to note, however, that the ruling merely allows the breach of contract claim to remain as a potential defense, and the Court did not opine as to whether the defense would ultimately succeed. More important, the Court provided no analysis as to whether or under what circumstances such a defense would be appropriate without undermining the public policies behind the False Claims Act.

Based on this and other recent decisions, healthcare industry employers should consider using employment agreements which strictly prohibit employees from using patient information and confidential employer information other than in the course of their job performance, and from retaining copies of any such information or disclosing it. This is especially important for employees in management, billing, and similar areas which give them access to information that would support a False Claims Act case. A court may ultimately conclude that the employment agreement does not provide the employer with a defense, but, without an appropriately drafted agreement, there is no possibility of such a defense.

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Illinois Court Dismisses Plaintiffs Privacy Claims Arising out of HIPAA Breach


On July 10, 2014, a Kane County, Illinois Circuit Court granted a motion to dismiss with prejudice in favor of Advocate Health & Hospitals Corporation (Advocate) in a class action case arising out of a breach of patients' protected health information (PHI). In August 2013, Advocate reported one of the largest data breaches to date under the Health Insurance Portability and Accountability Act of 1996 (HIPAA) after four laptops containing the unencrypted information of over four million patients were  stolen from an Advocate medical group administrative building. As a result of the breach, two patients filed a class action lawsuit alleging that Advocate failed to take necessary steps to safeguard patients' PHI. Plaintiffs' claims include: negligence, violation of the Illinois Personal Information Protection Act, violation of the Illinois Consumer Fraud Act and invasion of privacy. The Kane County Circuit Court granted Advocate's Motion to Dismiss the complaint with prejudice for lack of standing and failure to state a claim. 

The Court held that the plaintiffs lacked standing because they could not prove that the information stolen had been accessed or used, and therefore, they could not prove that there had been actual identify theft or harm. The Court stated that "there had been no injury and no change in the status quo." While the Court noted that there was an increased risk of harm due to the theft of the laptops and the potential accessibility of the unsecured PHI, there had been no impending certainty of identity theft. In order for the matter to be ripe, the thieves would actually have to disclose, sell to other criminals or otherwise misuse the PHI.

The Court further ruled that there were insufficient allegations of present injury to sustain negligence and Illinois Consumer Fraud Act claims. With respect to the invasion of privacy claim, the Court ruled that there were insufficient allegations of intentional conduct.

This case is an example of the challenges in bringing claims under state law for HIPAA data breaches. There is no private cause of action under HIPAA so plaintiffs must rely on state law theories. Because most, if not all, states require that plaintiffs show actual injury to state a sufficient claim, plaintiffs often must overcome a high hurdle because they cannot show that their PHI was used to commit identity theft or other harm. Even if there is an identity theft, they often cannot prove that the identity theft was the result of the HIPAA breach.   

Even though state causes of action may be difficult to prove, covered entities and business associates face penalties under HIPAA.  Also, although difficult, state causes of action are still a risk. Therefore, HIPAA covered entities and business associates should take steps to protect sensitive information, including encrypting PHI that is stored on portable devices such as laptops, tablets and smartphones.

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OIG's Rejection of Payments for Prescription Transfers Leaves Questions about Central Fill Pharmacy Arrangements.


The U.S. Department of Health & Human Services, Office of Inspector General (OIG) recently refused to bless a specialty pharmacy's request to pay a per-prescription fee to retail pharmacies for "support services" to be provided in connection with prescriptions transferred to the specialty pharmacy (OIG Advisory Opinion 14-06). The OIG found that the per prescription fee could influence the retail pharmacy's decision to transfer prescriptions, that the proposed arrangement implicated the Anti-Kickback Statute ("AKS") and posed more than a minimal risk of fraud and abuse.

Generally, a specialty pharmacy is a mail order pharmacy that carries only expensive, often injectable, medications (usually over $1,000 per month) used to treat specific conditions such as HIV/AIDS and Hemophilia. Often, manufacturers of these specialty drugs limit their distribution to only certain specialty pharmacies and payors often limit patient access to only certain specialty pharmacies. The cost of the drugs and the limited need by retail pharmacies for the medications makes it cost prohibitive for most retail pharmacies to carry most specialty medications in stock. Thus, a retail pharmacy presented with a prescription for a specialty drug will often need to transfer the prescription or refer the patient to a specialty pharmacy.

In this case, the specialty pharmacy asked OIG to allow it to enter into agreements with various local pharmacies and pharmacy networks such that the specialty pharmacy would provide specialty drugs to their patients in exchange for a per-prescription fee amount. The retail pharmacy would be required to provide various "support services" including: (1) accepting new prescriptions from patients or their prescribers; (2) gathering patient and prescriber demographic information; (3) recording patient-specific medication history and use, including drug names, strengths, and directions; (4) counseling patients on appropriate use of their medications; (5) informing the patients about specialty drug access and services generally provided by specialty pharmacies; (6) obtaining patient consent to forward the prescription to the specialty pharmacy; (7) transferring the prescription information; and (8) providing ongoing assessments for subsequent refills, including transmitting information on any changes in the patient's medication regimens (the "support services").

The OIG concluded that the AKS was implicated because the specialty pharmacy would pay a per-prescription fee for support services each time the retail pharmacy transferred (referred) a specialty drug prescription. In most pharmacy-to-pharmacy prescription transfers, there is no accompanying payment. The OIG noted that the specialty pharmacy paid the retail pharmacy for support services only when a specialty prescription was transferred. Thus, the OIG found that the per-prescription fee is "directly linked" to specialty pharmacy prescriptions generated by the retail pharmacy, and could therefore materially influence the retail pharmacy's referral decisions.

The requester argued and the OIG recognized that the retail pharmacy's support services may benefit care coordination. However, the AKS applies if "one purpose" of the remuneration is to generate referrals (the one purpose test). Though the specialty pharmacy argued that it was paying fair market value for the services, the OIG found that there was a significant risk that the per-prescription payments were compensation to the retail pharmacy for generating referrals, rather than solely compensation for bona fide commercially reasonable services.

Most states allow pharmacies that are either commonly owned or have a contractual arrangement to engage in central fill arrangements, whereby an originating pharmacy receives the prescription, the prescription is shared with a dispensing pharmacy which dispenses the medication either directly to the patient or back to the originating pharmacy (similar to the arrangement above). Generally in a central fill arrangement, there is a sharing of pharmacy duties and responsibilities and some sort of sharing of the reimbursement for the medication.  Since many state pharmacy boards allow central fill arrangements, these were usually not viewed as an improper payment for referral arrangements. The above opinion casts doubt on these arrangements where there is a split of the reimbursement and when the drugs are reimbursed by a federal health care program (the AKS only applies when payment is made under a federal health care program). At a minimum, pharmacies engaging in such arrangements should make sure that the arrangements are commercially reasonable and justified such that they would not be viewed as a mere referral arrangement. And, while excluding or "carving out" federal programs does not always remove the federal AKS risk, in this instance excluding federally reimbursed prescriptions may help insulate the arrangements.

Absent from the OIG's discussion was that many state prescription transfer laws and regulations only apply to refills and not to the transfer of the original prescription. 

The opinion may be viewed here.

Key Takeaways:

  • Per-prescription payment for prescription transfers likely implicates the Federal Anti-kickback Statute ("AKS").
  • Central fill arrangements should be carefully crafted to attempt to avoid characterization of reimbursement as a kickback.
  • Consider excluding prescriptions reimbursed by federal programs from central fill arrangements between separate entities (this would not be an issue for pharmacies under common ownership). 
  • In states that have state anti-kickback laws, consider obtaining a state declaratory statement or similar ruling to address the payment arrangements, if your state allows this process.

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Efforts to Stop Health Insurance Fraud Through Use of Contractors Under Fire


In recent reports, from June 25, 2014 and August 13, 2014, the Government Accountability Office (GAO) highlights the mixed results achieved by the federal government's increased efforts to crack down on health insurance fraud through the use of contractors. The government has spent upwards of $600 million a year to uncover and punish health care fraud and overpayments, but  some have seen a need to improve the new initiative’s effectiveness – specifically, its use of contractors to unveil fraud. The GAO has stated that the use of contractors has been, at times, inefficient and lacking in clear oversight.  Currently, while the government spends approximately $600 million a year to combat health insurance fraud, $4.3 billion in fraudulent charges has been recovered.  Medicare fraud is estimated at tens of billions of dollars per year. See U.S. GOV'T ACCOUNTABILITY OFFICE, GAO-14-712T, MEDICARE FRAUD: FURTHER ACTIONS NEEDED TO ADDRESS FRAUD, WASTE, AND ABUSE (2014). 

In June 2014, the GAO recommended a number of fixes to the lack of coordination in these new fraud recovery efforts. Many of these recommendations  had yet to be implemented due to obstacles and a lack of funding. For example, the GAO recommended that CMS increase the amount and type of data collected in its central data repository by fiscal year 2010, as such data would better help CMS and its contractors uncover fraud. As of June of this year, CMS had still not expanded the data reported to its central data repository despite the GAO's suggestions.  The GAO further suggested that CMS force all contractors to adopt a government web portal intended to provide CMS and contractors with a single access point to CMS' central data repository and analytical tools to better analyze CMS' data and uncover fraud. CMS had not required all contractors to adopt that government web portal by June of this year. These and other shortcomings prompted the GAO to conclude in a June report that "although CMS has taken some important steps to identify and prevent fraud through increased provider and supplier screening and other actions, the agency must continue to improve its efforts to reduce fraud, waste, and abuse in the Medicare program." See GAO-14-712T at 17.

The GAO's most recent report on August 13, 2014 detailed a number of further shortcomings with CMS’ management of its fraud contractors. See U.S. GOV'T ACCOUNTABILITY OFFICE, GAO-14-474, MEDICARE PROGRAM INTEGRITY: INCREASED OVERSIGHT AND GUIDANCE COULD IMPROVE EFFECTIVENESS AND EFFICIENCY OF POSTPAYMENT CLAIM REVIEWS(2014). The August report specifically notes that while CMS has created a Recovery Audit Data Warehouse, a claim database which tracks claims that contractors have already reviewed, that database does not track whether all of the various types of contractors have duplicated their efforts reviewing claims. The report concluded that "CMS does not have sufficient information to determine whether its contractors are conducting inappropriate duplicative claims reviews" and that "CMS has conducted insufficient data monitoring to prevent [contractors] from conducting inappropriate duplicative reviews." Id. at 38. The GAO has recommended development of clearer guidelines from CMS to contractors and better oversight by CMS to ensure that contractors are not duplicating efforts.

Adding to the difficulties, hospitals have resisted private contractors who arrive to investigate potential fraud. Some hospitals feel overburdened by the contractors' investigations and the fact that should a contractor's audit result in a determination of overpayment or another adverse action against a hospital, the CMS appeals process, which adjudicates whether a contractor's determination was justified, lacks sufficient resources to manage a high volume of cases. Some estimate there is a backlog of up to two years in the appeals process. See Memorandum From Nancy J. Griswold, Chief Administrative Law Judge, Office of Medicare Hearings and Appeals, to OMHA Medicare Appellants (Dec. 24, 2013). A recent article in The New York Times suggests that such burdens on hospitals may have led them to push back on the government's recent initiatives to curb fraud. Just this past summer, the government terminated a Florida fraud hotline even though it purportedly led to more than a thousand fraud investigations and uncovered millions in possible fraudulent payments. This hotline was once managed by an outside contractor, but calls to the hotline are now transferred to a general Medicare phone number that takes significantly longer to address complaints.  

The GAO's critical reviews, coupled with mounting pressure to do more to reduce health care fraud, should prompt efforts to collect more data regarding Medicare billing along with efforts to make more of that information available to contractors. Thus, it remains to be seen whether hospitals should prepare for and anticipate a more integrated and concerted effort from Medicare fraud contractors to uncover fraudulent billing. As always, Medicare and Medicaid providers should take measures to prevent fraud within their organizations, manage outside contractor audits effectively, and stay abreast of the various new CMS initiatives to address fraud and overbilling. 

For any questions about this blog or compliance with CMS regulations or contractor audits, please contact the authors.

Guidance Helps Medical Device Companies Determine Substantial Equivalence


When is a medical device substantially equivalent to another device? Like so much else, it depends. On July 15, 2014, the U.S. Food and Drug Administration (FDA) issued a draft guidance that aims to clarify that question. The document is officially directed at FDA staff, but it is equally instructive to companies seeking FDA approval for their devices. 

The FDA reviews medical devices before they can be sold in the United States, and manufacturers that prove their devices are substantially equivalent to existing products can undergo an abbreviated review process. However, substantial equivalence is a subjective target.  

The U.S. Food, Drug and Cosmetics Act at 21 U.S. Code 360c(i) states that a new device is substantially equivalent to an existing "predicate" device when the new device:

  1. has the same intended use as the predicate device; and
  2. either has the same technological characteristics as the predicate or has 
    different technological characteristics but is as safe and effective and does not
    raise different questions of safety and effectiveness than the predicate.

The guidance document focuses on the last step of the analysis – how FDA determines a device is as safe and effective as a predicate. The safety and effectiveness need not be identical. A new device can have increased safety and decreased effectiveness – or decreased safety and increased effectiveness – and still be considered substantially equivalent. When making these assessments, the FDA will weigh the benefits and risks of the new device versus the predicate. When considering benefits, the FDA will weigh:

  • Type of benefit
  • Magnitude of the benefit
  • Probability of the patient experiencing the benefit
  • Duration of the benefit

When assessing risks, the FDA will consider:

  • Severity, types, number, and rates of harmful events associated with use of the device
  • Probability of a harmful event
  • Probability of a patient experiencing one or more harmful events
  • Duration of harmful events
  • Risk from false-positive or false-negative results (for diagnostic devices)

The guidance provides several examples, including one in which a manufacturer wishes to market a tool for spinal surgery. The tool has a different shape and a deeper cutting action than the predicate device. Animal and clinical studies show the deeper cutting action leads to a greater risk of injuring surrounding tissue, but the new tool also shortens the duration of surgery and allows improved access to certain parts of the anatomy. The guidance concludes that the new device does not raise different questions of safety and effectiveness, and because the increased risk is accompanied by an increased benefit and a comparable benefit-risk profile, the new device would likely be found substantially equivalent to the predicate. 

Of course, the specific analysis will vary for every product and predicate. Companies seeking FDA approval should consult the guidance and an attorney to help prove their devices are substantially equivalent.



Florida Board of Medicine Clarifies That Common Cardiac Procedures Can Be Performed In Office Surgical Setting.


The Florida Board of Medicine recently amended its office surgery rules to clarify that many common cardiac procedures already being performed in office surgical settings around the state may, in fact, be performed legally in those settings. Rule 64B8-9.009, Fla. Admin. Code, sets forth the standard of care for office surgery. The rule previously defined office surgery, in part, as the type of surgical procedures that "do not result in blood loss of more than ten percent of estimated blood volume in a patient with normal hemoglobin; require major or prolonged intracranial, intrathoracic, abdominal, or major joint replacement procedures except for laparoscopic procures; directly involve major blood vessels; or are generally emergent or life threatening in nature."

The exclusion of surgical procedures that "directly involve major blood vessels" from the type of procedure that could be done in an office setting was confusing for many physicians. It was unclear whether procedures that require insertion of catheters, wires or other devices to advance through blood vessels, using imaging guidance - already being performed in many registered office surgery centers, - would be considered office surgery such that these physicians would be required to perform them in a hospital or ambulatory surgery center. The matter was brought to the attention of the Board of Medicine, input was solicited and gathered from the profession and other States, and the Board came up with a solution rather quickly. Rather than require these physicians to move these procedures to a different facility, the board opted to include them in the type of procedure that may be performed in the office surgery setting. Hence, the amended rule now clarifies that percutaneous endovascular intervention does constitute office surgery. 

The amended rule defines percutaneous intervention as:

"a procedure performed without open direct visualization of the target vessel, requires only needle puncture of an artery or vein followed by insertion of catheters, wires, or similar devices which are then advanced through the blood vessels using imaging guidance. Once the catheter reaches the intended location, various maneuvers to address the diseased area may be performed which include, but are not limited to, injection of contrast for imaging, treatment of vessels with angioplasty, artherectomy, covered or uncovered stenting, intentionally occluding vessels or organs (embolization), and delivering medications, radiation, or other energy such as laser, radiofrequency, or cryo."

This extensive definition covers a long list of procedures performed by a variety of specialties. To require these procedures to be performed outside the office surgery setting, would have been burdensome for both physicians and patients. Given the other criteria for procedures eligible for office surgery—non emergent and not life threatening, no major blood loss, not overly invasive—percutaneous intervention fit nicely within the intended scope of the original rule. 

However, despite the amendment, all physicians should remain mindful of the preamble to the office surgery rule:


This remains good advice.



New ACA Rules Could Require Broader Provider Networks


"If you like your doctor, you can keep your doctor." President Obama repeated this assurance to the American public numerous times, and the statement was prominently featured on the White House web site prior to and after adoption of the Affordable Care Act in 2010.  

The Obama administration is developing regulations to address the concerns of consumers who say the Affordable Care Act ("ACA") has restricted their ability to choose doctors and hospitals, without incurring sizeable medical bills for out-of-network services.

In order to create health insurance plans with lower premiums, so as to be more affordable and more attractive to individuals shopping for insurance on the ACA-mandated, newly-created insurance exchanges, many insurers have established plans with narrower provider networks, giving plan members fewer doctors and hospitals to choose from. Smaller networks allow the insuror to exercise greater control over provider charges and to limit their networks to only the highest quality providers, enabling them to offer high-value plans with lower premiums. The "flip side" of this trend, however, is that patients have fewer doctors and hospitals to choose from, and may incur substantial medical expenses if they receive services from doctors or hospitals which are not part of the network.

To address the concerns of patients who say that many health plans offered under the ACA unduly limit their choice of providers, CMS is developing new requirements which will require health plans to offer broader provider networks. Federal officials have said the new requirements will be similar to the standards currently used to determine whether Medicare Advantage Plans have a sufficient number of doctors and hospitals in their networks. Federal standards specify the minimum number of primary care doctors and specialists which must be included in the network for a Medicare Advantage Plan, based on population in the area served by this Plan, population density, and other factors. Medicare also establishes maximum travel time and distance criteria.  Similar travel standards are already in place for Florida HMOs.

A number of insurers have opposed detailed federal rules, arguing that consumers should be able to choose more affordable, high-value plans, with narrower provider networks.


Florida Information Protection Act of 2014 - Florida Means Business When It Comes to Protecting Customers' Personal Information


On June 20, 2014, Governor Rick Scott signed into law the Florida Information Protection Act of 2014 ("FIPA"), which became effective July 1, 2014. FIPA expands the obligations of businesses and government entities that maintain data containing personal information of individuals to safeguard and provide notice of breaches of such information. As a result, Florida now has one of, if not the most strict breach notification statutes in the country.

What should entities conducting business with Florida customers do to comply with FIPA?

  • Evaluate your current policies and security measures for electronic personal information and update them as necessary;
  • Develop new policies or update existing policies for identifying breaches and providing appropriate notification to affected individuals.
  • Ensure that your company is using proper methods to destroy or dispose of personal information;
  • Review and update your agreements with third party agents who maintain or transmit electronic personal information to address the new requirements of § 501.171, Florida Statutes, regarding notification of breaches suffered by the third party agent and what precautions the third party agent takes to safeguard and properly destroy data.
  • Review your liability policies to determine what coverage is available in the event of a breach. The cost to respond to a data breach continues to climb, and some insurers are revising their CGL policies to exclude coverage for data breaches. Separate cyber liability policies are available in the marketplace.

For more information about FIPA, click here.


Physicians and Photography Don't Mix


A gynecologist who secretly photographed and videotaped women's bodies in the examining room will cost one of the world's leading medical institutions $190 million.  In a damaging blow to its reputation, Johns Hopkins Hospital has agreed to a settlement with more than 8,000 patients of Dr. Nikita Levy, who wore a pen-like camera around his neck to secretly record videos and photos of his patients, including 62 girls.  Dr. Levy, a 25-year physician with Johns Hopkins Health System in Baltimore, Maryland, had seen approximately 12,600 patients during his tenure.  He was fired in February 2013 after a co-worker spotted the camera and alerted authorities.  Investigators discovered roughly 1,200 videos and 140 images stored on his home computer.  Dr. Levy committed suicide days after his termination.

Although the women's faces were not visible in the images, and it could not be established with certainty which patients were recorded or how many, thousands of patients were traumatized, according to lawyers.  A class action lawsuit was brought against Johns Hopkins on behalf of the more than 8,000 patients, who claimed the hospital should have known what Dr. Levy was up to.  Each plaintiff was interviewed by a forensic psychologist and a post-traumatic stress specialist to determine how much trauma she suffered and how much money she will receive.  The settlement is one of the largest on record in the United States involving a physician who took photographs of patients without their consent. 

In Florida, although such conduct would likely be seen as outrageous by the regulators at the Department of Health and the members of the Board of Medicine, there is no specific statutory prohibition against photographing a patient without his or her consent.   Section 458.331(1)(p), Fla. Stat., subjects a physician to discipline for performing "professional services" that have not been authorized by the patient. Photography is not likely a professional service provided by a physician.  Likewise, sexual  misconduct, although clearly prohibited, as defined in section 458.329, Fla. Stat., involves using the patient-physician relationship to induce the patient into sexual activity.  Taking unauthorized photographs in and of itself might not be considered sexual misconduct.  Despite those legal pitfalls, the conduct could be considered outside the standard of care and, therefore, be subject to disciplinary action.  Physicians simply should not take any photograph or create any image of a patient without his or her consent, even if the physician has no plan to share the information.  Surgical consent forms routinely disclose the potential for photographs or videos to be created during the surgery and spell out any use planned for them.  This should be the routine practice for any examination or other service that creates an opportunity for images to be taken and preserved.   

Unfortunately, the Johns Hopkins lawsuit is not the only case involving a physician photographing a patient inappropriately.  In 2013, Dr. Patrick Yang, an anesthesiologist at Torrance Memorial Medical Center in Torrance, California, said he believed an unconscious patient "would get a kick" out of him cutting up sticky medication labels with scissors to put a mustache and gang tears on her face during surgery.  Instead, the woman sued him and the hospital for breach of medical privacy over allegedly spreading a cellphone photograph on the internet.  Dr. Yang's action during the surgery also prompted a state investigation and a rebuke from the hospital, which called his joke a "breach of professionalism."  He was disciplined but kept his privileges at the hospital.    

Also in 2013, a former Northwestern University student claimed that after she was admitted to Northwestern Memorial Hospital in Chicago, Illinois, for extreme intoxication, a physician at the hospital took photos of her and posted them to social media sites, Instagram and Facebook, with commentary about her condition.  She is seeking compensation from Dr. Vinaya Puppala, the hospital and the Feinberg School of Medicine in excess of $1.5 million.  In 2010, four employees were terminated at St. Mary's Medical Center in Long Beach, California, because they used cellphones to photograph a dying emergency room patient and then shared the photos on Facebook.  In 2007, the Mayo Clinic in Rochester, Minnesota faced a lawsuit over the acts of Dr. Adam Hansen, chief resident of general surgery, who used his cell phone to take a picture of a patient's penis during surgery.

In this era of social media where the use of smartphones and tablets make sharing data so easy, these cases raise fresh concerns about a hospital's ability to protect patients' privacy.  Accordingly, it is imperative that hospitals implement comprehensive policies regarding patient photography, video imaging and audio recording.  Such policies should:

  • Define allowable purposes and circumstances for obtaining film, digital photographs, video images or recording patients using a camera or other device.
  • Set forth standards for the creation, use, disclosure and retention of the images.
  • Ensure that patient/legal representative consent is given in writing or by verbal consent documented through an appropriate authorization form.
  • Identify prohibited activities and behaviors relating to photography, video or audio recordings of patients, including personal use, entertainment purposes, posting on social media or in public areas, malicious use, or using such images in a way that is disruptive to patient care or the work environment.  Staff failing to comply with such policies must be subject to disciplinary action.

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