Michigan Health Law Link

Health Care Reform: Supreme Court upholds individual mandate but places restrictions on Congress' expansion of Medicaid

Megan M. Hard — Fri, 29 Jun 2012 12:27:14 -0500

Yesterday morning the Supreme Court of the United States, in a 5-4 vote, upheld the controversial Individual Mandate provision of the Affordable Care Act ("ACA"). The Supreme Court also issued a plurality opinion, meaning that no majority opinion was reached, regarding the expansion of the Medicaid program under the ACA. According to the plurality, the expansion of the Medicaid program was constitutional, but the provision requiring that a state lose all Medicaid funding if the state chose not to participate in the Medicaid expansion was not constitutional. Thus, the expansion can proceed, but the states will have the option of whether to participate.

Individual Mandate

Chief Justice Roberts authored the majority opinion relative to the Individual Mandate, joined by Justices Kagan, Sotomayor, Breyer and Ginsburg. The majority upheld the Individual Mandate under Congress' power to tax. Under the Mandate, if an individual does not maintain health insurance, the only consequence is that he must make a payment to the IRS when he pays his taxes; this payment is called the "shared responsibility payment". Thus, the Mandate need not be read as a legal command to buy insurance. Rather, the Mandate establishes a condition, i.e. not owning health insurance, which triggers a tax. The Court found that Congress had the authority under its taxing power to enact such a tax. The joint dissenting opinion of Justices Kennedy, Scalia, Alito and Thomas would have found the Individual Mandate an unconstitutional exercise of the taxing power because, according to their dissent, the Mandate is a penalty, not a tax, and therefore it is outside of Congress' authority to enact.

Interestingly, a majority of the Justices on the Supreme Court found that the Individual Mandate was not authorized under Congress' commerce power, which was the government's primary argument for the law's constitutionality. Rather, the four dissenting Justices and Chief Justice Roberts concluded that under the Commerce Clause, Congress can only regulate "activity" that has a substantial impact on interstate commerce. However, Congress' enactment of the Individual Mandate was attempting to regulate "inactivity", specifically by requiring that individuals enter the market and purchase insurance, which the Justices found to be outside of the scope of Congress' commerce power. Because the Individual Mandate was upheld on other grounds, however, this analysis by the Court does not impact the Mandate's success.

Medicaid Expansion

Despite the Individual Mandate being the highlight of most of the news coverage and commentary surrounding the ACA and its journey through the federal court-system, it was the Medicaid expansion provision that truly divided the Court, so much so that a true majority was not reached. Under the ACA, Congress substantially expanded the definition of individuals eligible for Medicaid, increasing coverage by 2014 to all individuals under the age of 65 with incomes below 133% of the federal poverty line. The plurality opinion held that this expansion was constitutional under Congress' Spending Clause power. However, the Medicaid expansion also contains a requirement that if a state does not accept the new expansion, the state will lose all of its Medicaid funding, which on average accounts for around 10% of each state's budget. The plurality found that this condition imposed by Congress amounted to compulsion or coercion, which is not allowed under the Spending Clause. Congress, in short, is free to impose conditions on the financial incentives that it provides to the states, but when pressure to accept such funds turns into compulsion, that power is overstepped.

Instead of ruling that the entire Medicaid expansion was unconstitutional, however, the plurality ruled that the compulsion provision is severable from the remaining portion of the law, allowing the remainder of the expansion to occur. In short, the Medicaid expansion is constitutional, but states have the option of whether or not to participate without fear of losing their current Medicaid funding. Justices Ginsburg and Sotomayor would have found the entire Medicaid expansion constitutional, including the requirement that a state participate or lose all Medicaid funding, but both Justices concurred in the result of the plurality, which was to sever the unconstitutional provision from the remainder of the Medicaid expansion, as opposed to throwing out the entire expansion as unconstitutional.

The four dissenting Justices would have ruled that the entire ACA, including the Individual Mandate and Medicaid expansion, is invalid.

Conclusion

One conclusion that can be reached by the Court's ruling yesterday is that members of the health care industry should continue to progress in implementing the requirements of the ACA and look to the federal and state governments for guidance as such guidance is released. One of the next benchmarks that will be implemented as a part of the ACA is the statewide exchanges for individuals and companies to purchase insurance. The exchanges become effective January 1, 2014.

Health Care Reform: Supreme Court's decision expected on Thursday.

Megan M. Hard — Tue, 26 Jun 2012 14:20:59 -0500

On Thursday, the Supreme Court is expected to announce its decision on the constitutionality of the health care reform law, the Patient Protection and Affordable Care Act. This decision will have a significant impact on all health care providers.

We are closely monitoring the pending Supreme Court decision. We have spent hours reviewing the bill, following the oral arguments, and contemplating how any changes to the bill will affect our clients.

Watch for our analysis of the decision and its potential consequences to be posted soon after the decision is announced.

Healthcare Reform Oral Arguments to be Heard in the United States Supreme Court This Week

Megan M. Hard — Tue, 27 Mar 2012 08:35:57 -0500

Two years after the signing of the Affordable Care Act, the United States Supreme Court is poised to decide the law's constitutionality. The Supreme Court agreed to hear challenges to the healthcare reform law last November, and since then, both sides have been preparing their arguments. After a long preparation period, it is now time for both sides to present their arguments to the Court.

Yesterday marked the first of three days of oral arguments wherein the attorneys from both sides of the litigation will offer their arguments and answer questions from the justices on the four major issues involved in this litigation.

The four issues involved in this litigation to be addressed by the Supreme Court during oral arguments this week are:

the standing of the challengers to bring this action;
the constitutionality of the individual mandate;
whether other parts of the law can survive if the mandate is struck down; and
the federal vs. state conflict over expansion of the cooperative Medicaid program.

Arguments Monday focused on whether the challengers have standing, or present ability, to bring the action now or whether they must wait until 2014 when the insurance mandates become effective, and the impact of the law is experienced. This argument has been deemed the "threshold" issue because if the challengers are found to lack present ability to bring suit, the remaining issues will not be decided by the Supreme Court, and the action will have to be re-filed in 2014. The general consensus from commentators is that the justices will find that the challengers have the power to bring the case now, and that the Supreme Court has the present ability to resolve this matter.

Today's arguments focus on whether the individual mandate is constitutional. This is the focus of the litigation, and oral arguments are sure to be both heated and instructional on which way the justices are leaning on the issue.

After oral arguments conclude, the justices will meet privately to determine their ruling on the four issues and issue a written opinion with their holdings. This process can be a lengthy one, and there is a chance that a written opinion may not be issued until late June.

Affordable Care Act Saved Medicare Recipients Billions on Prescription Drugs in 2011

Megan M. Hard — Tue, 14 Feb 2012 14:16:40 -0500

The Obama administration reported that in 2011, the first full year of the new healthcare reform law, 3.6 million people in the Medicare program saved $2.1 billion on prescription drugs. According to Kathleen Sebelius, the Secretary of Health and Human Services, eventually healthcare reform will close the Medicare donut hole completely.

The "donut hole" is the informal name for the Medicare Part D coverage gap. When a Medicare beneficiary has a Part D prescription plan, the beneficiary is responsible for paying an initial deductible. Then, the beneficiary enters the initial coverage phase, where the beneficiary is responsible for paying a co-payment on all prescriptions while their insurance pays the remaining balance. After a Medicare beneficiary surpasses the prescription drug coverage limit for the year, however, the Medicare beneficiary is financially responsible for the entire cost of prescription drugs until the expense reaches the catastrophic coverage threshold. Then, insurance will again cover the primary cost of the prescriptions until the end of the year. This "gap" when the beneficiary must cover the entire cost of prescriptions is known as the "donut hole". These costs can be extremely burdensome on Medicare beneficiaries, which is why the Affordable Care Act's ("ACA") provisions that lower such costs are so appealing to beneficiaries.

According to the Detroit News, the savings on prescription drugs created by healthcare reform had a substantial impact on Michigan Medicare beneficiaries in 2011. More than 84,000 Michigan residents receiving Medicare benefits saved nearly $49 million on prescriptions in 2011. This amounted to an average savings of $582 on prescriptions for each Michigan Medicare beneficiary who hit the donut hole.

This savings is due to certain provisions in the ACA. Beginning in 2011, the ACA provided Medicare recipients a 50% discount on brand-name prescriptions. By 2020, these changes will effectively close the coverage gap and rather than paying 100% of the costs, beneficiaries' responsibility will be 25% of the costs.

Michigan Supreme Court Decision in Jilek v Stockson a Win for Healthcare Providers

Stephanie Hoffer — Mon, 09 Jan 2012 09:54:23 -0500

The Michigan Supreme Court has issued its long-awaited decision in Jilek v Stockson, and it is a victory for healthcare providers.

The Supreme Court summarily reversed the Court of Appeal’s holding that the applicable standard of care for a physician board-certified in family practice medicine but practicing in an urgent care facility was that of an emergency medicine physician. The Supreme Court succinctly held, “[T]he appropriate standard of care was ‘family practice’ because the defendant physician is board-certified solely in family practice.” The Supreme Court added that it was proper to allow the jury to consider the setting in which the physician was practicing, i.e., urgent care as opposed to an emergency medical facility.

The Supreme Court also reversed the Court of Appeal’s holding that the urgent care center’s internal policies and procedures could be used as evidence of a breach of the standard of care. Interestingly, the Court did not author its own reasoning on this point but rather, incorporated by reference the dissent contained in the Court of Appeals opinion. It reasoned that this case was indistinguishable from prior case law holding that policies and procedures were inadmissible for purposes of establishing the standard of care. This rationale is consistent with long established public policy arguments in favor of protecting and encouraging best practices without fear of having those efforts used against them in court.

What this Means for Healthcare Providers

Health care providers can be reassured that courts will not be allowed to sanction the use of experts whose qualifications do not match the specialty in question; rather, their conduct will continue to be judged by someone with similar knowledge, skill and experience, in a setting- specific context.

Hospitals can be reassured that their internal policies and procedures remain inadmissible to establish the standard of care. While plaintiffs’ attorneys will likely continue their efforts to seek admission of policies and procedures for other reasons, they must still overcome a relevancy objection. Notably, Jilek does not address the threshold discoverability of policies and procedures.

Michigan Denied Health Law Waiver by Federal Regulators

Megan M. Hard — Wed, 21 Dec 2011 15:02:05 -0500

In August, we reported that Michigan had submitted an application to the Department of Health and Human Services (HHS) requesting a waiver of the Affordable Care Act's (ACA) medical loss ratio requirements for its individual health insurance, claiming that without a phase-in to the medical loss ratio requirements, many insurers would stop offering insurance in Michigan. Under the ACA, health insurers must spend 80% (individual and small group revenue) to 85% (large group revenue) of premiums on direct care for patients and efforts to improve care quality. This percentage is called the medical loss ratio (MLR). Starting in 2012, insurers who come short of the MLR must provide a rebate to their customers under the ACA.

Michigan's waiver application requested a phase-in of the MLR requirements between now and January 1, 2014.

HHS denied Michigan's request in full, finding that research in Michigan showed that most of its insurers were either profitable or adjusting business models to meet the 80% standard. This, according to HHS, showed no intent by the insurers to stop offering insurance in Michigan, and consequently that no waiver was justified.

Of the 17 states that have asked for adjustments to the MLR requirements, six have been turned down, five received partial exemptions, and only Maine had its full request approved. The rest of the applications remain outstanding.

Smith Haughey Rice & Roegge will continue to monitor this decision and its impact on Michigan.

Michigan Court of Appeals Holds Physician Cannot Refuse to Provide IVF Treatment to a Woman Solely Based on the Woman's Marital Status

Megan M. Hard — Mon, 24 Oct 2011 15:39:39 -0500

In an unpublished opinion on September 29, 2011, the Michigan Court of Appeals found that a physician cannot refuse to enter into a physician-patient relationship with a single woman seeking in vitro fertilization (IVF) treatment because the woman is single.

In Moon v. Michigan Reproductive & IVF Center, P.C., plaintiff Allison Moon contacted two fertility clinics and specifically asked if the clinics would provide IVF services to a single woman. Both clinics responded that they did not provide such services to a single woman. Moon filed a discrimination suit against both clinics, alleging a violation of the Elliot-Larsen Civil Rights Act (ELCRA) based on her marital status. The lower court dismissed the claim, stating that under that under the common law, a physician could refuse to enter into a physician-patient relationship with any individual for any reason or no reason at all. The lower court found that under the language of the ELCRA, discrimination was prohibited "except where permitted by law." Thus, the court found that since common law allowed a physician to choose who he or she wanted to enter into a physician-patient relationship with for any or no reason, the ELCRA was inapplicable to the physician-patient relationship.

The Court of Appeals reversed the lower court, finding that the ELCRA specifically includes the right to receive services at a place of public accommodation, including a health facility, and it would be against the purpose of the ELCRA to allow such a broad reading of the physician-patient relationship. As such, the Court of Appeals held that a physician may only deny his or her consent to enter into a physician-patient relationship with a potential patient based on legally permissible, nondiscriminatory reasons.

Smith Haughey will continue to monitor this issue.

18 Detroit Individuals Charged with Fraudulently Billing $28 Million in Medicare Schemes

Megan M. Hard — Thu, 22 Sep 2011 13:53:05 -0500

The Obama Administration has brought charges against 91 people nationwide who are accused of fraudulently billing the Medicare system out of nearly $300 million. Among those accused, 18 people have been indicted by federal investigators in the Detroit area. The Detroit defendants have been charged with fraudulently billing Medicare $28 million in separate health care schemes. Of those indicted, one doctor allegedly billed Medicare for services provided to dead people and claimed that he performed psychotherapy treatments for more than 24 hours a day.

The Detroit defendants include three physicians, four clinic owners and managers, two clinic employees, one nurse, and four physical therapists and physical therapy assistants. The charges show that Medicare fraud schemes in Detroit have branched out to newer areas, such as psychotherapy services targeting residents in adult foster care homes and home health care scams.

According to one indictment unsealed on September 9, 2011, 14 individuals are charged with conspiracy to commit health care fraud in a $14 million scheme to defraud Medicare by submitting fraudulent claims for home health services out of multiple home health agencies in Livonia. In addition, another physician and two other individuals allegedly submitted false claims for individual and group psychotherapy services at two Detroit clinics. Finally, an owner of a Southfield medical clinic was charged with conspiracy to commit health care fraud, health care fraud, and identity theft. The clinic owner allegedly used identities of Medicare providers and beneficiaries to bill for psychotherapy services that were never performed.

Since March 2007, nationwide law enforcement has charged more than 1,000 individuals who collectively have falsely billed Medicare for more than $2.3 billion.

Smith Haughey Rice & Roegge will continue to monitor the progress of the nationwide effort to eliminate Medicare fraud.

Charissa Huang assisted in the writing of this entry.

Michigan Court of Appeals Case Rules Medical Marihuana Dispensaries and Patient-to-Patient Sale Violates the Public Health Code

Megan M. Hard — Tue, 30 Aug 2011 08:45:27 -0500

On August 23, 2011, the Michigan Court of Appeals ruled that the patient-to-patient sale of medical marihuana is an enjoinable public nuisance, meaning that the State can discontinue the activity due to its negative effects on the surrounding community, and that the operation of medical marihuana dispensaries violates the Michigan Public Health Code (PHC). The Court further found that the sale of medical marihuana is not excused by the Michigan Medical Marihuana Act (MMMA) because the MMMA does not address patient-to-patient sales of marihuana.

In State of Michigan v. McQueen, the defendants owned and operated Compassionate Apothecary, LLC, a medical marihuana dispensary by which members who are either registered qualifying patients or their primary caregivers would purchase marihuana that other members had grown in excess of their medical needs and stored in lockers rented from the Apothecary. The Apothecary would facilitate the purchase and collect a 20% service fee on each sale.

The Michigan Court of Appeals found that the PHC governs the manufacturing, distributing, prescribing, and dispensing of controlled substances. The PHC defines marihuana as a Schedule 1 controlled substance, meaning it has been found to have a high potential for abuse and has no accepted medical use in treatment or lacks accepted safety for use in treatment under medical supervision. As such, except for certain circumstances involving medical research by a licensed practitioner, the PHC makes the possession of marihuana a misdemeanor offense and the manufacture, creation, and delivery of marihuana a felony offense.

The Court further found that the MMMA, which excuses the medical use of marihuana in certain circumstances, does nothing to change this rule under the PHC. The MMMA does not "legalize" marihuana, but simply offers certain circumstances where criminal liability for its use can be avoided. According to the Court, the MMMA does not authorize dispensaries and does not state that patients can sell their marihuana to other patients. As such, the MMMA does not "excuse" this activity, and rather, it is governed by the PHC, which makes the sale of marihuana illegal.

Michigan Requests Health Law Waiver

Megan M. Hard — Tue, 09 Aug 2011 13:44:28 -0500

On July 28, 2011, Michigan submitted an application to the Department of Health and Human Services (HHS) requesting a waiver of the Affordable Care Act's (ACA) medical loss ratio requirements for its individual health insurance.

Many insurance companies spend a portion of consumers' premiums on administrative costs and profits, including executive salaries, overhead, and marketing. Under the ACA, consumers will receive more value for their premiums. New regulations require health insurers to spend 80% (individual and small group revenue) to 85% (large group revenue) of premiums on direct care for patients and efforts to improve care quality. This percentage is called the medical loss ratio (MLR). Starting in 2012, insurers who come short of the MLR must provide a rebate to their customers under the ACA.

To compensate for transitional difficulties, the ACA allows the Secretary of Heath and Human Services to adjust the MLR standard for a State "if it is determined that meeting the 80 percent medical loss ratio standard may destabilize the individual market and . . . result in fewer choices for consumers." On July 28, 2011, Michigan submitted an application to HHS, requesting an adjustment to the MLR standard. The request may be found here.

Michigan's application requests a phase-in of the MLR requirements between now and January 1, 2014 where the MLR for 2011 would be 65%, followed by 70% for 2012, and 75% for 2013. Michigan's request stated that without this adjustment to its MLR requirements, "fourteen (14) companies would be scheduled to issue rebates totaling $30.6 million, with eight (8) paying rebates in excess of their after tax profit for 2010." This could lead such insurance companies to stop offering health insurance in Michigan. Currently, "the market is dominated by one insurer, Blue Cross Blue Shield of Michigan, [who] already operates at an MLR [of 93%]." Thus, the loss of competitors could substantially reduce a consumer's choice of where to purchase health insurance. In addition to Michigan's request, U.S. House Representatives Dave Camp and Fred Upton have together submitted a letter to HHS in support of Michigan's adjustment.

According to the HHS website, Michigan's application is under review for completeness. Upon a finding by HHS that the application is complete, public comment will be invited regarding Michigan's request for ten days.

Smith Haughey Rice & Roegge will continue to monitor the progress of Michigan's request to adjust federally mandated MLR requirements.

Summer Associate Peter Afendoulis assisted in the writing of this entry.

Sebelius Unveils Rules For State Health Exchanges

Megan M. Hard — Tue, 19 Jul 2011 10:22:35 -0500

On July 11, 2011, the U.S. Department of Health and Human Services (HHS) published two Notices of Proposed Rulemaking (NPRM). The first proposed rule, the Exchange NPRM, will enable States to build Affordable Insurance Exchanges (AIE). AIEs are new State-based competitive insurance marketplaces created under the Affordable Care Act. The second NPRM addresses standards related to re-insurance, risk corridors, and risk adjustment to assure stability in these newly established markets. The main topics of the proposed NPRMs include standards for:

States that elect to establish and operate an Exchange;
Health insurance plans to participate in an Exchange;
Enrollment in health plans through Exchanges; and
Employers who opt to participate in the Small Business Health Options Program (SHOP).

These exchanges are intended to level the playing field for individuals and small businesses by consolidating their purchasing power, making it easier for them to comparison-shop among a larger field of competing plans and ensuring that all available options meet minimum standards.

The law will offer tax credits to offset the cost of insurance for small businesses with 25 or fewer employees. However, states will be able to set the size of small businesses that can buy insurance through the exchange at anywhere from 50 to 100 employees through 2016. Furthermore, States may open the exchanges to larger companies after this time. "Flexibility is the name of this game," said Donald Berwick, administrator of the Centers for Medicare and Medicaid Services.

Both NPRMs may be found here.

Smith Haughey Rice & Roegge will continue to monitor the progress of new State-based competitive insurance exchanges created under the Affordable Care Act.

Summer Associate Peter Afendoulis assisted in the writing of this entry.

Sixth Circuit Court Finds Healthcare Reform's Individual Mandate Constitutional

Megan M. Hard — Tue, 05 Jul 2011 12:40:41 -0500

On June 29, 2011, a three-judge panel of the U.S. Circuit Court of Appeals for the 6th Circuit upheld the constitutionality of a key part of the healthcare reform law - the requirement that Americans purchase health insurance. This provision of the healthcare reform law, also known as the individual mandate, is considered the most contentious portion of the law.

This ruling by the Sixth Circuit (which includes Michigan) marks the first decision by an appeals court regarding the constitutionality of the law, and it is the first of three decisions expected soon from appeals courts that heard arguments on the new law in recent months, including the 4th Circuit in Richmond and the 11th Circuit in Atlanta.

The Thomas More Law Center argued before the panel that the law was unconstitutional and that Congress overstepped its powers. The government countered that the measure was needed for the overall goal of reducing health care costs and reforms such as protecting people with pre-existing conditions. After hearing arguments from both sides, the panel found, by a 2-1 vote, that the minimum coverage provision is a valid exercise of legislative power by Congress under the Commerce Clause because the mandate regulates economic activity with a substantial effect on interstate commerce.

The Thomas More Law Center stated that the group will appeal this decision to the United States Supreme Court.

Smith Haughey Rice & Roegge will continue to monitor the activity of this decision and its progress in the Supreme Court.

Department of Justice Asks Court To Dismiss Michigan Challenge Of Health Care Law

Megan M. Hard — Fri, 03 Jun 2011 12:48:03 -0500

The Thomas More Law Center filed a federal lawsuit in 2010 against the Patient Protection and Affordable Care Act. The Law Center is challenging the Act's constitutionality in an effort to permanently prohibit enforcement of the Act

On May 27, 2011, the Justice Department requested that the court dismiss the health care lawsuit, Thomas More Law Center v. Obama et al, based upon a lack of standing. Oral arguments were heard Wednesday on this matter by a three-judge panel of the Sixth Circuit Court of Appeals.

The Department submitted its motion when one of the plaintiffs in the suit acknowledged that she receives health insurance from her employer, and therefore has not been affected by the mandate that most people buy insurance. After alleging that the remaining plaintiffs have only shown the new mandate “require[s] them to change their lifestyle,” the Department sought dismissal for lack of standing.

This panel is the second of three US appellate courts that will consider the merits of the dispute over the constitutionality of the health care reform legislation over a five-week span.

Smith Haughey Rice & Roegge will continue to monitor the progress of this lawsuit and the result of the oral arguments.

Summer clerk Peter Afendoulis contributed to this post.

Michigan Healthcare Professionals Convicted of Certain Criminal Sexual Conduct Violations Could Face Permanent Revocation of their License or Registration if Pending Legislation Passes

Megan M. Hard — Mon, 23 May 2011 12:20:51 -0500

The Michigan House of Representatives recently passed a bill package that would allow for the permanent revocation of a healthcare professional’s license or registration for certain criminal sexual conduct (CSC) violations.

As proposed, House Bills 4411, 4412, and 4413 would amend the Public Health Code, making a conviction of a criminal offense for first-, second-, or third-degree CSC or a second or subsequent conviction of first-, second-, or third-degree CSC grounds for action by the disciplinary subcommittee. Further, these bills would make permanent revocation of the license or registration of a healthcare professional an option to the disciplinary subcommittee when assigning a sanction to a healthcare professional for a conviction of a criminal offense for first-, second-, or third-degree CSC or a second or subsequent conviction of first-, second-, or third-degree CSC.

Under current law, a licensee or registrant who is convicted of a CSC in the first through fourth degree or assault with intent to commit CSC can have their license or registration revoked; however, they can apply for reinstatement five years after the effective date of the revocation. But if the proposed legislation becomes law, only a license or registration revoked for a conviction of fourth-degree CSC or assault with the intent to commit CSC in the first-, second-, or third-degree could be reinstated after five years.

Smith Haughey will continue to monitor the progress of this legislation in the Michigan Senate. For a legislative analysis of House Bills 4411, 4412, and 4413, click here.

Michigan Court of Appeals Rules State Law on Patient Privacy Trumps HIPAA in Certain Circumstances

Megan M. Hard — Thu, 14 Apr 2011 13:20:32 -0500

A new published health law opinion from the Michigan Court of Appeals could have some far reaching effects on HIPAA litigation.

In the case of Isidore Steiner, DPM, PC v Marc Bonanni, Dr. Bonanni was employed by Isadore Steiner, DPM, PC and his contract included a non-competition and non-solicitation provision. After Dr. Bonanni left his employment with them, Isidore Steiner, DPM, PC sued him for allegedly violating the non-solicitation provision of the contract and stealing their patients. In order to prove their allegations, Isidore Steiner, DPM, PC sought Dr. Bonanni's patient list during the discovery portion of the case.

The Michigan Court of Appeals found that the patient list was not discoverable as it was privileged under Michigan law. The Michigan Court of Appeals held on April 7, 2011 that Michigan law protects the very fact of the physician-patient relationship from disclosure, absent patient consent; this means that the name, address, and contact information is protected from disclosure in litigation. The Court found that HIPAA (which would have allowed for disclosure) does not preempt state law on this matter because state law is more stringent.

Generally, HIPAA requires patient consent for the disclosure of protected health information, just as Michigan state law does. In litigation, however, HIPAA has special provisions that allow for the disclosure of protected health information in response to a subpoena or court order if the provider receives adequate assurances that notice was provided to the patient or that reasonable efforts were made to secure a QPO. However, Michigan law does not have such an exception and requires the patient's consent to reveal private patient information. Thus, it would seem that non-solicitation provisions in employment contracts may potentially lose some of their weight unless a violation can be proven without reference to patient information. If an ex-employee violates this contractual provision, the employer does not have access to the ex-employee's patient list to prove its allegations of violation of the employment contract under this latest Michigan Court of Appeals ruling.

Click here to read the entire opinion.

Medical Residents Considered Employees, Not Students, Under Federal Tax Law

Megan M. Hard — Tue, 25 Jan 2011 11:44:20 -0500

On January 11, 2011, the United States Supreme Court, in an unanimous opinion authored by Chief Justice Roberts, upheld a Treasury Department rule that established that medical residents are full-time employees, not students, for purposes of federal income taxation and Social Security coverage.

The case considered a federal law, namely the Federal Insurance Contributions Act (FICA), which exempts students from paying Social Security taxes. In 2004, the Treasury Department issued a rule that essentially stated medical residents were not students and therefore that their wages were taxable under FICA. Petitioner Mayo Foundation for Medical Education and Research argued that this was an improper rule, and that medical residents should be treated as students under the plain language of the statute. In announcing the decision, the Court focussed on the question of whether residents were "workers who study or students who work."

The Court held that the Department’s regulation was a permissible interpretation of an ambiguous statute, and therefore that medical residents would be treated as employees for purposes of federal taxation and Social Security coverage under FICA. Chief Justice Roberts wrote, "The department certainly did not act irrationally in concluding that these doctors... are the kind of workers that Congress intended to both contribute to and benefit from the Social Security system."

Click here to read a copy of the entire Court opinion.

New Rule Allows for Electronic Transmission of Controlled Substance Prescriptions

Adil Daudi — Tue, 29 Jun 2010 14:33:02 -0500

A new Drug Enforcement Agency (DEA) rule could substantially impact the way prescriptions for controlled substances can be transmitted from a physician to a pharmacy. As physicians and pharmacies seek to cut costs and maximize efficiency, electronic record keeping and prescription filing has become more commonplace. In response, the DEA has relaxed previous restrictions on electronically filing controlled substance prescriptions. However, recognizing the high risks posed by abusing or forging controlled substance prescriptions, the DEA has created a system of requirements which must be met before a physician is able to take advantage of the new rule.

The DEA defines controlled substances as drugs and other substances that have a potential for abuse and psychological and physical dependence; these include opioids, stimulants, depressants, hallucinogens, anabolic steroids, and drugs that are immediate precursors of these classes of substances. Once classified as a controlled substance, drugs are then broken down into one of five categories depending on the potential for abuse and risk of dependance. Today, controlled substances account for between 11% and 12% of prescriptions written in the United States.

Under the previous rule, physicians were prohibited from electronically sending prescriptions for schedule II-V controlled substances to pharmacies. However, under the current rule, which was published March 31, 2010 in the Federal Register, physicians who meet certain requirements will be permitted to e-file those prescriptions beginning June 1, 2010. To be eligible to e-file controlled substance prescriptions, physicians must meet two of three factors. The “two-factor authentication protocol,” which seek to guard against fraudulent prescription filings by confirming the prescribers true identity includes:

A password or PIN number,
biometric data- either a fingerprint or iris scan, or
a “hard token”- a secured device separate from a computer that can provide a password to a physician at the time of e-filing.

To be eligible to e-file controlled substance prescriptions, physicians must validate their identity with a designated agency. When applying for the proper credentials to utilize e-filing programs, physicians must supply verifiable information such as government issued identification or financial account information.

Currently, Michigan laws vaguely address the current state of e-filing prescriptions for controlled substances. MCL 333.7333(7) states that physicians may electronically transmit prescriptions as long as they do not conflict with federal law. The law does not differentiate between controlled substance and non-controlled substance prescriptions. As a result, we may see future clarification from the Michigan legislature or the Board of Pharmacy regarding this issue. Importantly, physicians and pharmacies that currently possess the technology to e-file prescriptions must ensure that their systems comply with the new DEA “two-factor authentication protocol” requirements for controlled substances. Licensed physicians who cannot afford to implement the required technology or simply wish to opt out of the program are still able to produce physical prescriptions which can be presented at a pharmacy.

Smith Haughey Rice & Roegge will continue to monitor developments in this area and distribute updated information as it becomes available.

Summer clerk Brian Shekell contributed to this post.

MMSEA Section 111 Alert Regarding Risk Management Write-Offs by Health Care Providers

Adil Daudi — Wed, 16 Jun 2010 13:00:50 -0500

On May 26, 2010, CMS officials finally clarified one of the outstanding issues for insured health care providers relative to the mandatory reporting requirements contained in Section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007. Section 111 imposes an affirmative duty on certain “reporting entities” to make reports to the Centers for Medicare & Medicaid Services (CMS) of personal injury claims settled with Medicare beneficiaries.

For some time now, insured health care providers have been in a holding pattern as they wait for promised guidance from CMS as to whether a common practice by some health care providers to offer something of value to a patient as a risk management tool triggers a Section 111 reporting obligation. Typically, in these instances, a Medicare beneficiary does not retain legal counsel, does not come in making a demand for anything per se, but will have a complaint. And occasionally a provider will attempt to resolve the complaint with the Medicare beneficiary by, for instance, giving him/her a gift certificate for the hospital cafeteria.

CMS had previously indicated that it considers at least some write-offs of charges and other offers of items of value to Medicare beneficiaries to be a form of “self-insurance” that may trigger Section 111 reporting obligations. CMS' recent Alert, which addresses risk management write-offs, clarifies that reductions in the amount due on a medical bill and other efforts at offering something of value, constitutes self-insurance for the purpose of the Medicare Secondary Payer provisions. CMS notes, however, that the specific factual scenario will determine whether reporting under Section 111 is required. According to the Alert:

• No Report Required. In instances where the entity is a physician, provider or supplier and has reduced its charges or written-off a portion of the charge to a Medicare beneficiary as a risk management tool, the provider, physician or other supplier is expected to submit a claim to CMS reflecting the unreduced permissible (e.g., limiting charge) charges and showing the amount of the reduction provided or write-off as a payment from liability insurance (including self-insurance). CMS indicates that its interests are protected through this billing procedure and no Section 111 reporting is required.

• Reporting Required. In instances where a provider, physician, or other supplier has provided property of value to a Medicare beneficiary as a risk management tool when there is evidence, or a reasonable expectation, that the individual has sought or may seek medical treatment as a consequence of the underlying incident giving rise to the risk, the entity shall report the write-off or value of the property provided as a TPOC from liability insurance (including self-insurance). Significantly, CMS states in the Alert that if the value of the property provided is less than the TPOC reporting threshold, it need not be reported under Section 111.

With respect to the first instance, providers, physicians and other suppliers should assess internal practices to determine whether claims submitted to CMS reflect the unreduced permissible charge and also show the amount of the reduction provided or write-off. Per CMS’ Alert, deductions or discounted services must be reflected in the provider's original billing and are therefore not subject to reporting.

In instances where a provider, physician or other supplier provides property of value to a beneficiary, the critical inquiry in evaluating whether a report will be required concerns whether there is a “reasonable expectation the individual has sought or may seek medical treatment as a consequence of the underlying incident giving rise to the risk.” Providers should take to care to develop plans to internally document the basis for this conclusion.

Finally, CMS officials also disclosed that they plan to issue an updated Version 4.0 of the User Guide in July 2010.

CMS Updates Signature Guidelines

Adil Daudi — Fri, 11 Jun 2010 09:42:15 -0500

On May 16, 2010, the Centers for Medicare and Medicaid Services (CMS) issued Transmittal 327 which revises the signature requirements for medical review activities of Medicare claim review contractors. Transmittal 327 has an effective date of March 1, 2010 and an implementation date of April 16, 2010, but the changes are effective retroactively to the November 2010 report period for comprehensive error testing. The transmittal updates Chapter 3, Section 3.4.1.1 of the Medicare Program Integrity Manual to require that services provided or ordered for medical review purposes are authenticated by the author. The previous version of this section only required authentication by a legible identifier. Specifically, Transmittal 327 amends Section 3.4.1.1 to:

Expressly state that stamp signatures are not acceptable. The transmittal clarifies that the method of authentication for services provided or ordered for medical review purposes must be by handwritten or electronic signature.
Add a new exception for clinical diagnostic tests when a treating physician, who authenticates medical documentation by handwritten or electronic signature, indicates that he or she intended the clinical diagnostic test be performed. The amended section suggests that such medical documentation could be in the form of a progress note.
Provide that if handwritten signatures are illegible, reviewers should consider evidence in a signature log or attestation statement to determine the identity of the author.
Finally, when providers fail to meet handwritten signature requirements of Section 3.4.1.1, reviewers should contact providers to inquire as to whether they want to submit an attestation statement or signature log within 20 calendar days.

Interestingly, Transmittal 327 appears to reconcile with similar regulations concerning signatures and authentication of orders, which are contained in the Medicare Conditions of Participation at 42 CFR 482.24(c)(1), by expressly indicating that other regulations and CMS instructions take precedence over signature guidelines set forth in Section 3.4.1.1. Thus, only when the relevant regulations, national or local coverage determinations, and CMS manuals lack specific signature requirements and/or guidelines to determine legibility or presence of signatures for medical review purposes, should Section 3.4.1.1 requirements be followed.

Therefore, based on the new information from CMS in Transmittal 327, acceptable methods for handwritten signatures are:

a legible full signature;
a legible first initial and last name
an illegible signature accompanied by signature log or attestation statement;
initials over a printed or typed name; and
initials accompanied by a signature log or attestation statement.

On the other hand, unacceptable signature methods are as follows:

Rubber stamp signatures, except for clinical diagnostic tests when a treating physician who authenticates medical documentation by handwritten or electronic signature, indicates that he or she intended the clinical diagnostic test be performed;
illegible signatures with no additional documentation to identify the signature;
initials with no additional documentation identifying them;
an unsigned note; and
a note with the statement “signature on file.”

Smith Haughey Rice & Roegge will continue to monitor developments in this area and distribute updated information as it becomes available.

Summer clerk Charissa Huang contributed to this post.

New Compliance Rules Stemming from the Medicare, Medicaid, SCHIP Extension Act Delayed, But Compliance Efforts Continue...

Adil Daudi — Wed, 10 Mar 2010 10:29:07 -0500

For over a year now, the health care team at Smith Haughey Rice & Roegge has been busy assisting insurers and third-party administrators as they develop plans and procedures to comply with Section 111 of the Medicare, Medicaid, SCHIP Extension Act (MMSEA). On February 25, 2010 CMS posted new information on its Web site informing liability insurers, workers’ compensation insurers and self-insured entities (defined as “NGHPs”) that reporting of live claim input files is moved from the original deadline of April 1, 2010 to January 1, 2011. The immediate impact of this change is that entities subject to the reporting requirements now have additional time to register and test their processes for reporting claims to CMS. Additionally, CMS indicates that in February they will publish the next version of the “NGHP Section 111 User Guide” and alerts related to particular policy issues.

By way of background, Section 111 of the MMSEA amended the Medicare Secondary Payer Statute to impose mandatory data reporting requirements on liability insurers, no-fault insurers and workers’ compensation insurers. MMSEA Section 111 now places an affirmative obligation on insurers to: (a) determine if a claimant is entitled to Medicare; and (b) notify CMS of said entitlement and report specific information regarding the claim directly to CMS.

MMSEA builds off of a separate federal statute called the Medicare Secondary Payer (MSP) Statute. Under the MSP Statute, Medicare is designated as the secondary payer for Medicare beneficiaries who also have group health plan (GHP) coverage, as well as for Medicare beneficiaries who receive settlements, judgments, awards or other payment from liability insurance (including self-insurance), no-fault insurance, or workers’ compensation (non-group health plans or NGHPs). The purpose of the Section 111 mandatory reporting requirement is to notify CMS of instances when Medicare beneficiaries receive payments that relieve CMS of its obligation to cover medical costs.

Notwithstanding the recent delay in the reporting schedule, we have begun to see the first stages of action by some responsible reporting entities (RREs), which is the term used under Section 111 to identify those GHP and NGHPs that will be making reports. These entities are beginning to gather the information necessary to generate the necessary reports. Specifically, a NGHP RRE is now required to report to CMS:

any claim that is addressed or resolved, fully or partially, through a settlement, judgment, award or other payment;
on or after October 1, 2010;
with a Medicare beneficiary (broadly defined to include all persons age 65 years of age or older or certain people under 65 years of age with qualifying disabilities);
where medicals are claimed or paid;
regardless of whether there is a determination or admission of liability.

The registration period for NGHPs on the Coordination of Benefits Secure Web site (COBSW) began on May 1, 2009 and by now most RRE’s are registered and ready to begin the Claim File Testing process. Significantly, in light of CMS’ recent delay in the reporting schedule, the targeted claims subject to reporting are claims made on or after October 1, 2010. CMS has indicated that RREs may choose, from a process perspective, to report claims prior to October 1, 2010. However, pursuant to the new information, the only claims subject to reporting are those occurring after October 1, 2010.

Additionally, some lingering questions remain in the insurance industry about whether the Section 111 rules have now added a requirement that Medicare Set Aside (MSA) arrangements be implemented in liability settlements involving a Medicare beneficiary. From the start of the Section 111 “rule-making” process, CMS has made it clear that MMSEA Section 111 does not change or alter any legal obligation/requirements under the Medicare Secondary payer statute. Therefore, insurers are still responsible for protecting Medicare’s interest and Medicare still needs to be considered for both past (conditional payments/liens) and future payments. Satisfying Medicare’s interest for future injury-related care in liability settlements has a host of issues that do not exist in the workers’ compensation context, were MSAs are regularly employed.

As a general principle, the standard relative to evaluating whether an MSA should be considered in a liability settlement is based on the concept of whether the parties have “properly considered Medicare’s interest” in negotiating the liability settlement. Some factors to consider in this regard include: (1) whether the parties have addressed Medicare’s past “conditional payments” (e.g. issuing third-party checks listing Medicare as payee) and (2) whether future injury related care is expected (if not, is there physician written certification of this fact). All this being said, in some cases, the sheer size of some liability settlements, for instance in catastrophic injury cases, may suggest that there will necessarily be some future costs of care that Medicare will likely be paying for. These instances should be evaluated on a case-by-case basis to determine whether a MSA Arrangement may be appropriate.

Importantly, on February 25, 2010, CMS also published an Alert outlining information for RREs regarding how to remain in compliance with the reporting requirements. According to CMS, RREs seeking to test their compliance with the Section 111 requirements should consider three factors: (1) has the RRE completed the registration process; (2) has the RRE engaged in file data sharing testing; (3) has the RRE begun and continued to engage in ordinary live data exchanges. Moreover, on its most recent conference, CMS stressed, once again, that the goal of the program is to generate quality data and RREs demonstrating a good faith effort to report accurate information to CMS will not likely be subject to penalties.

CMS is continuing to hold policy and technical related conference calls to resolve some still outstanding issues in this area. Additionally, an interesting future concern relates to how CMS plans on using the information generated in reports to initiate recovery action against, for instance, insurers.

Smith Haughey Rice & Roegge will continue to monitor developments in this area and distribute updated information as it becomes available.