A federal district court has denied immunity under the Health Care Quality Improvement Act (HCQIA) to a hospital, individual members of its Board of Trustees, Peer Review Committee (PRC), Medical Executive Committee (MEC), Fair Hearing Committee FEC, and the hospital’s Chief Medical Officer, in a lawsuit brought by a physician challenging a number of adverse decisions, including a final decision to indefinitely suspend the physician’s privileges. 

The HCQIA was enacted in 1986 to encourage hospital peer review activities “to improve the quality of medical care by encouraging physicians to identify and discipline physicians who are incompetent and who engage in unprofessional behavior.” To qualify for immunity from liability under the Act, the hospital must establish that the action was taken:

1. In the reasonable belief that the action was in furtherance of quality health care;
2. After a reasonable effort to obtain the facts of the matter;
3. After adequate notice and a hearing that was fair to the physician under the circumstances; and
4. In the reasonable belief that the action was warranted by the facts known after such reasonable efforts to obtain facts and after the hearing specified above.

In Osuagwu v. Gila Regional Medical Center, the New Mexico federal district court noted that the Eleventh, Sixth, and Fifth Circuits “have explicitly held that a physician has a constitutionally-protected property interest in medical-staff privileges where the hospital’s bylaws detail an extensive procedure to be followed when corrective action or suspension or reduction of these privileges is going to be taken.” Thus, in addition to the “minimum procedural process” due under the HCQIA, the court held that the actions taken by the hospital “must also be adjudged in light of constitutional due-process protections,” which the court found to be “immutable in our jurisprudence.” Examining the hospital’s medical staff bylaws, the court described a detailed three-part decisional process that it found “provided fair procedures for determining the reasonableness and propriety of imposing severe sanctions that will negatively affect [a physician] for the rest of [his] career.” However, the court concluded, there were numerous flaws in how the procedure was applied in the case before it, which resulted in the denial of “minimum standards of constitutional due process.” 

The court found that the evidence was “compelling and undisputed” that the MEC and PRC failed to give notice to the physician of the cases they were investigating and did not make “a reasonable effort to obtain the facts” regarding those cases. Neither the MEC nor the PRC interviewed or questioned the physician about the cases before or during the initial seven-day suspension or during the subsequent indefinite extension and expansion of his suspension.

The court further concluded that the suspension hearing also violated the physician’s due process rights. At the hearing, the Fair Hearing Committee did not obtain testimony from the PRC physician-reviewers or the other physicians who informed the MEC and PRC of the alleged errors. The court stated that, “[a]s a matter of law,” the committee’s failure to call these witnesses “violated [the physician’s] rights of cross-examination under both the Bylaws and the minimum standards of constitutional due process.” In addition, the court concluded the Fair Hearing Committee panel was not impartial because the hospital’s Chief Medical Officer, “who holds a position of power over all of the physicians who participated in the disciplinary proceedings,” was the accuser, investigator, prosecutor, and one of  the judges. The court also concluded that the discipline MEC took was not based on a “reasonable belief that the action was warranted by the facts known,” because the discipline it imposed was much harsher than that recommended by the Fair Hearing Committee, which had heard the evidence, and the MEC had no explanation for ignoring the committee’s recommendation. Finally, when the findings and recommendation were presented to the Board of Trustees, it considered additional evidence and heard new testimony that the physician was not permitted to refute.         

As a result of the hospital’s failure to follow and apply all of the procedural safeguards afforded by its medical staff bylaws, the institution and all of the individuals involved in the peer review and physician disciplinary process were left unprotected by the HCQIA and exposed to a potentially large suit for damages. This case provides a dramatic illustration of the importance of not only carefully crafting medical staff bylaws to comply with the procedural requirements of the HCQIA, but also adhering to those procedures. Hospitals are encouraged to consult with their in-house experts and knowledgeable outside counsel when drafting medical staff bylaws and conducting peer review sessions and disciplinary proceedings.

Photo credit: dra_schwartz

The Seventh Circuit has weighed in on the employers’ side of the pharmaceutical sales representative exemption issue, finding that pharmaceutical sales representatives at Abbott Laboratories, Inc. and Eli Lilly & Company were properly classified as exempt under the administrative exemption to the overtime requirements of the Fair Labor Standards Act (FLSA). In Schaefer-LaRose v. Eli Lilly & Co., the Seventh Circuit issued a consolidated opinion in two cases in which the district courts had reached opposite results, with one court ruling in favor of the plaintiffs and the other ruling against.

Noting that the factual disputes in the cases “are insignificant and, therefore, are not material to the outcome of either case,” the court focused primarily on the application of the U.S. Department of Labor’s (DOL) administrative exemption regulations and case law interpreting the exemption. First, the Seventh Circuit examined whether the sales representatives’ primary duty, as required to meet the criteria of the exemption, was the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers, as required by the regulations. Plaintiffs argued that to meet the requirements for the exemption, the sales representatives must be “higher level employees” whose work is targeted at the overall sales, promotional, and marketing policies of the company. Further, they argued that cases that have applied the exemption involved employees who had greater authority regarding strategic design, proposal writing, supervision or other “similar significant responsibilities.” Rejecting these arguments, the Seventh Circuit pointed out that in the preamble to the current regulations, the DOL reaffirmed “the view it has held for more than sixty years that ‘the administrative operations of the business include the work of employees servicing the business, such as, for example, advising the management, planning, negotiating, representing the company, purchasing, promoting sales, and business research and control.’” In this regard, the court noted that the sales representatives “are the principal ongoing representatives of the company to the professional community that is in a unique position to make, or deny, a viable market for the company’s product . . . [and] are one of the principal, and perhaps the main conduit by which physicians provide meaningful feedback to the company on the actual effectiveness, and limitations, of the product.” Thus, the Seventh Circuit concluded, the sales representatives’ primary duty was the performance of work directly related to the general operations of the employers’ business.

Next, the court turned to whether the sales representatives’ primary duty required the exercise of discretion and independent judgment with respect to matters of significance. The Seventh Circuit concluded that despite the regulatory constraints imposed on representatives in the pharmaceutical industry, “it is in the core function of the representatives’ duties, the physician office visits, that we see the most important exercise of discretion and professional judgment . . . .” The court found it significant that the sales representatives were largely unsupervised, extensively trained and needed to exercise professional judgment to know when the physicians’ questions required the response of a more knowledgeable person. The court was also persuaded by the discretion the sales representatives employed in planning for sales calls, including what physicians to visit and the degree of frequency and priority of those visits. Indeed, the court noted, the representatives “are sent into physicians’ offices with minimal supervision to engage in conversation with the prescribing physicians who, as a practical matter, are in the most direct position to determine whether their companies’ products have a viable market.”

The Seventh Circuit’s decision provides a thorough and useful analysis of the administrative exemption and its application to pharmaceutical sales representatives. The decision may become even more significant, depending on the U.S. Supreme Court’s analysis of the applicability of the outside sales exemption to pharmaceutical sales representatives in Christopher v. SmithKline Beecham, which is currently pending before the Court.  For more information on the Christopher case, please see Littler’s ASAP, Supreme Court to Decide Significant Case on the Outside Sales Overtime Exemption.

Photo credit: MBPhoto, Inc.

In a significant case for healthcare and other employers, a Massachusetts federal district court dismissed, with prejudice, and denied  certification of a wage and hour class and collective action at the initial stage of the case, finding that the plaintiffs “failed to allege that this proposed nebulous block of potentially over 4,000 plaintiffs are ‘similarly situated.’” As in similar decisions discussed on this blog (here and here), the  court criticized the vague and conclusory allegations in the complaint, which the court found failed to state a claim under the FLSA. Most significantly, however, in what may become a powerful argument for healthcare employers seeking to dismiss class and collective actions, the court went a step further and held that the complaint failed to satisfy the pleading standards for class and collective actions under the FLSA and Rule 23 of the Federal Rules of Civil Procedure. To survive a motion to dismiss in such cases, the court stated, “a plaintiff must properly allege a factual basis showing that there are similarly situated persons entitled to relief . . . and/or that [there are] common issues of fact.”

In Manning v. Boston Medical Center Corporation, the plaintiffs filed a putative class action under the FLSA and state common law, alleging that the defendants failed to pay plaintiffs for: (1) work during their lunch breaks; (2)  pre- and post-shift work; and (3) time spent attending training programs. After the court granted the defendants’ motion to dismiss the original complaint under section 301 of the Labor Management Relations Act, the plaintiffs amended the complaint on behalf of 4,000 non-union employees in nearly 50 different job positions. The defendants again moved to dismiss.

As to the CEO and Senior HR Director, who were named as individual defendants, the court found the complaint was deficient “because there are simply no allegations tying either of them directly to the alleged FLSA violations or linking them in any way to the common law claims.”

As to the defendants’ motion to dismiss the claims against the hospital, the court held that “a plaintiff must properly allege a factual basis showing that there are similarly situated persons entitled to relief pursuant to 29 U.S.C. § 216(b) and/or that common issues of fact that predominate are sufficient to pass muster under the traditional Fed. R. Civ. P. 12(b)(6) standard.” In this regard, the court found that the complaint failed to allege that the off-the-clock work and the allegedly uncompensated training programs “amounted to some official policy for each of the more than 50 discrete occupational classes plaintiffs claim make up the potential class.” The court further stated that “the existence of such ‘policies’ across a group of putative plaintiffs whose job function, hours, and daily tasks share little to no common ground is simply not plausible.” 

The court also found that the plaintiffs’ conclusory allegations failed to provide sufficient facts to support the substance of their claims. The court noted that the plaintiffs “do not allege that any employees were ‘required’ to perform any work during their off time. The only allegations in the complaint that suggest an element of compulsion are utterly conclusory in nature.” The court also found the complaint failed to provide facts demonstrating that the defendants had actual or constructive knowledge of the overtime worked, an essential element of an FLSA overtime claim. Finally, the court found that the complaint failed to identify the training sessions plaintiffs claimed they attended without compensation, when those training sessions were conducted, which groups of employees attended, and the estimated unpaid time spent at the training sessions.

With respect to collective action certification, the court rejected the plaintiffs’ arguments that the hospital’s automatic deduction policy gave rise to an FLSA collective action. The court held that “mere adoption of a system that, by default, deducts meal breaks from its employees’ compensation does not constitute a unified policy of FLSA violations capable of binding together [a collective action].” (Bracket in the original)

For purposes of certification under Rule 23 of the Federal Rules of Civil Procedure, the court concluded that individualized issues predominated over class-wide issues:

[I]ndividualized analysis is inevitable here. The highly particularized inquiries include the dates of the work-interrupted meal breaks and trainings, the job related activities performed during each ‘pre-’and ‘post-’ shift, whether those activities constituted compensable ‘work’ . . .  whether any compensation was paid for this time, whether defendants had knowledge of each plaintiffs’ work, plus the compensation paid to each plaintiff and how it was calculated. These individualized factual inquiries predominate over any class-wide issues and thus also foreclose class treatment under Rule 23. 

Thus, Manning confirms that courts are willing to scrutinize broad, conclusory allegations in wage and hour class and collective actions, and also provides a basis to dismiss such actions when the complaint fails to provide a factual basis for plaintiffs’ claims that there are similarly situated persons subject to the same allegedly unlawful policies and/or that there are common issues of fact that bind putative class members.

Photo credit: MBPHOTO, INC.

On April 25, 2012, the Office of Federal Contract Compliance Programs (OFCCP) presented a short webinar on “The Status of Pending Compliance Evaluations of Entities that Participate in Tricare Networks” to provide additional information on the agency’s position regarding jurisdiction over health care providers.

First, the agency confirmed that it continues to take the position that it has jurisdiction over TRICARE participants notwithstanding language in the 2012 National Defense Authorization Act] that was intended by Congress to establish a contrary result.  The OFCCP is currently seeking vindication of its position in the case it brought against Florida Hospital of Orlando in 2008, which is now pending before the Department of Labor’s Administrative Review Board. The OFCCP did not, however, explain the basis for its position in the Florida Hospital case and declined to answer questions about the issue.

Second, the agency confirmed that all previously scheduled audits of health care providers for which the sole basis of claimed jurisdiction is TRICARE will remain on hold pending resolution of the Florida Hospital case. The OFCCP further stated that if its jurisdiction is ultimately affirmed, these audits will be resumed at that time and contractors will then be required to provide the affirmative action plans and data that were requested in the original scheduling letters. The OFCCP stated that providers whose audits are on hold will be receiving letters shortly confirming their status. Since it is possible that it may be years before there is a final decision on jurisdiction, health care systems may be required to defend audits in 2013 or 2014 (or even later) that were initially scheduled four or five years earlier, without any intervening agency activity. Therefore, hospitals with audits on hold should consult legal counsel regarding their record retention obligations as well as ways to control the risks associated with such drawn-out audits.   

The OFCCP also stated during the webinar that providers with pending but inactive audits for which the agency believes it has a non-TRICARE basis for jurisdiction will also be receiving letters notifying them that their audits will resume now. Such providers will be given 30 days in which to respond to these new letters and will be required to produce the affirmative action plans and data that were requested by the original scheduling letters.

Finally, the agency indicated that it was rescinding, effective April 25, 2102, its prior Directive No. 293 in which it had first indicated, among other things, that it might have jurisdiction over participants in Medicare Parts C and D. Although this Directive represents the only basis upon which the OFCCP has ever asserted jurisdiction over Medicare Parts C and D participants, agency officials indicated that rescission of the Directive does not mean that the OFCCP has abandoned the claim of jurisdiction. Instead, the agency stated, it will now review such arrangements on a case-by-case basis and assertions of jurisdiction will depend on the “specific terms of the contract or subcontract.” However, the agency offered no examples of when participation in Parts C or D would support a finding of federal contractor status.

Last week, the Ninth Circuit Court of Appeals issued a favorable decision for healthcare employers regarding reasonable accommodation under the Americans with Disabilities Act, recognizing that regular attendance is an essential function of an intensive care unit nurse’s job. In Samper v. Providence St. Vincent Medical Center, a neo-natal intensive care (“NICU”) nurse suffering from fibromyalgia argued that the hospital failed to reasonably accommodate her condition by allowing her unlimited absences. The hospital’s leave of absence policy was already generous, providing every NICU nurse with five unplanned absences during any 12-month period. The district court granted summary judgment in favor of the hospital, holding that exempting the nurse from this absence policy was unreasonable.

The Ninth Circuit affirmed, finding that regular attendance was an essential function of the plaintiff’s job because: (1) continuity of service was necessary for patient care and coordinated teamwork; (2) NICU nurses have specialized training and it is difficult to find replacements; and (3) the life-saving work that NICU nurses perform makes attendance “even more essential” than at other jobs. The court distinguished NICU nurses from other occupations, like medical transcriptionists, who rarely have direct contact with patients. Unlike medical transcriptionists, NICU nurses are on the front lines providing life or death patient care. The court noted, “reliable, dependable performance requires reliable and dependable attendance. An employer need not provide accommodations that compromise performance quality—to require a hospital to do so could, quite literally, be fatal.”

Importantly, the crux of the Ninth Circuit’s decision focused on the fact that the plaintiff was attempting to flout the hospital’s absence policy by coming and going as she pleased, without regard to any limit or notice regarding absences. By focusing on the unlimited number of absences that the plaintiff requested, the court left open the possibility that allowing an employee a specific number of additional unplanned absences might be reasonable in certain circumstances. Similarly, it remains unclear if the court would consider unlimited planned absences reasonable in certain circumstances because planned absences would allow an employer more time to find coverage for the absent employee.

In light of Samper, healthcare employers evaluating additional absences as a potential reasonable accommodation for an employee with a disability should carefully review the requesting employee’s specialized skill set and amount of patient interaction, as well as the extent to which patient care would be compromised if the employer were to allow additional absences.

The webinar requires registration here.

A recent opinion from a federal court in Michigan, Cason-Merenda v. Detroit Medical Center, dramatically underscores the risk of excessive sharing of compensation information between hospitals in the same geographic market, particularly through use of third-party wage surveys that do not satisfy the requirements of the policy statement issued by the Department of Justice and Federal Trade Commission (“DOJ Guidelines”).

In this blog in August 2010, we reported on five antitrust class actions brought by nurses, in partnership with the Service Employees International Union (SEIU), in Memphis, San Antonio, Albany, Chicago, Detroit, and Arizona, alleging that hospital employers in each of these markets conspired to suppress nurses’ wages in violation of the Sherman Antitrust Act.

In Cason-Merenda, registered nurses (RNs) sued Detroit Medical Center, Henry Ford Health System, Mount Clemens General Hospital, St. John Health, Oakwood Healthcare, Bon Secours Health Services, Trinity Health Corporation and William Beaumont Hospitals for alleged “wage-fixing.” Early in the litigation, the court held that, if proven, the complaint stated an antitrust claim against all defendants. The plaintiffs alleged that the health care providers violated section 1 of the federal Sherman Antitrust Act by: (i) conspiring among themselves and with other local hospitals to hold down the wages of RNs employed by these institutions; and (ii) exchanging compensation-related information among themselves in a manner that reduced competition among Detroit-area hospitals in the wages paid to RNs. Three of the defendants—St. John, Oakwood and Bon Secours—entered into  settlements with the plaintiffs, agreeing in total to pay a maximum of $13,583,475, with various future contingencies that could lower the sum significantly.

On March 22, following years of discovery, federal district court Judge Gerald Rosen ruled on the five remaining hospitals’ joint motion for summary judgment. The opinion, granting in part and denying in part the dispositive motion, ensures that a significant portion of the plaintiffs’ case survives for trial.

Both of the nurses’ antitrust claims were premised on the theory that the hospitals conspired to unlawfully depress nurses’ wages. In their first claim, the plaintiffs asserted that there was an actual agreement to “fix” salaries, which is a per se violation that does not require additional proof that the conspiracy caused competitive damage to nurses in the Detroit healthcare market. The second claim, which does require the plaintiffs to prove actual damage, was that the exchange of compensation information caused an unlawful suppression of nurses’ salaries. Calling the decision on both claims a “close call,” the court dismissed the claim of a per se violation but allowed the nurses’ second claim to survive for trial.

The hospitals argued that the record failed to establish any anticompetitive effects in the Detroit-area hospital market resulting from the exchange of compensation-related information. The court, however, found the evidence of regular and pervasive exchanges of information was sufficient to raise a question of fact as to whether the information exchanged resulted in depressed wages for nurses.

The plaintiffs identified three principal mechanisms through which compensation data were shared:

• Direct contacts between employees of the various hospitals who were involved in determining RN compensation;
• Meetings of health care industry organizations that addressed nursing issues, including compensation; and
• Third-party surveys of RN compensation sponsored by the defendant hospitals.

The record disclosed that human resources and compensation staff at each of the hospitals retained contact lists of their counterparts at other Detroit-area hospitals and contacted each other directly to obtain information about nurses’ compensation.

As to the exchange of information through salary surveys, the court and the parties acknowledged that salary surveys conducted by third parties are commonly used in healthcare and other industries and are not per se unlawful. In evaluating the legality of salary surveys, Judge Rosen relied on the DOJ Guidelines, which provide that the government “will not challenge, absent extraordinary circumstances, provider participation in written surveys of . . . wages, salaries, or benefits of health care personnel,” so long as: (i) the survey is “managed by a third-party;” (ii) the information provided is more than 3 months old; (iii) there are “at least five providers” participating in the survey, with no participant’s data representing “more than 25 percent” of a given reported statistic; and (iv) “the information disseminated is sufficiently aggregated such that it would not allow recipients to identify the . . . compensation paid by any particular provider.”

In Cason-Merenda, the court found that at least some of the compensation surveys sponsored or relied on by the hospitals in determining their RN compensation deviated in one or more respects from the criteria set forth in the DOJ Guidelines. According to Judge Rosen, “[p]laintiffs have produced evidence that . . . the results of various third-party surveys were reported to the sponsoring Defendant hospitals with unmasked, named hospital data, including wage rates and effective dates. Plaintiffs also point to instances where a Defendant hospital was given a ‘key’ that permitted it to identify the hospitals participating in a third-party survey. Indeed, Plaintiffs have identified several instances of the Defendant hospitals divulging information in third-party surveys as to their projected future pay increases, with the bulk of this data reported in a disaggregated format.”

It was, in large part, the alleged inappropriate use of and reliance upon compensation-related information, which the hospitals obtained directly from competitors, or through surveys that otherwise failed to comport with the “safety zone” criteria set forth in the DOJ Guidelines that created triable issues and resulted in denial of the summary judgment motion. Accordingly, the court held that the wages paid by the hospitals to their RN workforces may have been held below the competitive level based upon the inappropriate sharing of information. Of course, the Detroit hospital defendants can still voluntarily resolve the plaintiffs’ claims or seek vindication at trial. Nonetheless, this was a significant, albeit interlocutory, decision for the plaintiffs.

Health systems should take away some important lessons from the experience of their Detroit counterparts. First, direct communication between competitors regarding compensation is prohibited. Although independent wage surveys are lawful, they become illegal if the survey in question is managed by a competitor rather than a third party; the information provided by the survey is less than three months old; there are fewer than five providers participating in the survey; or the survey data allow the participating hospital to identify the compensation paid by any particular provider.

Photo credit: MBPhoto, Inc.

If the Affordable Care Act’s (ACA) individual mandate provision is deemed unconstitutional, which parts – if any – of the law can survive without it? That was the first question the Supreme Court considered during the third and final day of oral argument on the constitutionality of the health care law. Members of the Court also debated whether the ACA’s Medicaid expansion – which is expected to add an additional 16 million individuals into the healthcare fold – is an unlawful exercise of Congressional spending power. Continue reading this entry at Littler’s Washington DC Employment Law Update.