The National Law Forum

Proxy Advisory Firms Release Policy Updates for 2016

Institutional Shareholder Services (ISS) and Glass Lewis, two leading proxy advisory firms, recently published their 2016 proxy voting guidelines, which include updates applicable to the 2016 proxy season.

Institutional Shareholder Services

Key policy updates for US companies reflected in ISS’s 2016 proxy voting guidelines include:

Overboarding: Beginning in 2017, ISS will issue negative vote recommendations for non-CEO directors who sit on more than five public company boards (down from six under the current policy). For CEOs, the outside directorship limit will remain at two. In 2016, ISS will note in its analysis whether a director is serving on more than five public company boards.

Unilateral Board Actions: For established public companies, ISS will continue its policy of generally recommending that shareholders withhold votes (in uncontested elections) from directors who have unilaterally adopted a classified board structure, implemented supermajority vote requirements to amend the bylaws or charter or otherwise adopted charter or bylaw amendments that diminish the rights of shareholders. The negative recommendation would continue in subsequent years until the unilateral action is reversed or approved by stockholders. For newly public companies that have taken action to diminish shareholder rights prior to or in connection with an IPO, directors may be subject to negative vote recommendations under the updated policy, determined on a case-by-case basis (with significant weight given to shareholders’ ability to change the governance structure in the future through a simple majority vote and their ability to hold directors accountable through annual director elections).

Compensation of Externally Managed Issuers: The updated “Problematic Pay Practice” policy provides that an externally managed issuer’s failure to provide sufficient disclosure for shareholders to reasonably assess the compensation practices and payments made to executive officers on the part of the external manager will be deemed a problematic pay practice, and will generally warrant a recommendation to vote against the issuer’s “say-on-pay” proposal.

For a complete overview of the 2016 updates to ISS’s proxy voting guidelines, click here. ISS also recently updated both its Equity Plan Scorecard frequently asked questions (FAQs) and QuickScore 3.0. The updated 2016 US Equity Plan Scorecard FAQs, effective for meetings on or after February 1, 2016, can be found here, and QuickScore 3.0 can be found here.

Glass Lewis

Significant policy updates to Glass Lewis’s 2016 proxy season guidelines include:

Conflicting Management and Shareholder Proposals: Going forward, Glass Lewis will consider the following factors when it is analyzing and determining whether to support conflicting management and shareholder proposals: (1) the nature of the underlying issue; (2) the benefit to the shareholders from implementation of the proposal; (3) the materiality of the differences between the management and shareholder proposals; (4) the appropriateness of the provisions in light of the company’s shareholder base, corporate structure and other relevant circumstances; and (5) a company’s overall governance profile and, specifically, its responsiveness to previous shareholder proposals and its adoption of “progressive” shareholder rights provisions.

Exclusive Forum Provisions: Glass Lewis will no longer automatically recommend a “withhold” vote against the chairman of the nominating and corporate governance committee of a company that adopts exclusive forum provisions in connection with its initial public offering. Instead Glass Lewis will weigh exclusive forum provisions in a newly public company’s governing documents with other provisions that Glass Lewis believes unduly limit shareholder rights (e.g., supermajority vote requirements, classified board and/or a fee shifting bylaw). Glass Lewis will continue, however, to recommend voting against the chairman of the nominating and corporate governance committee when a company adopts an exclusive forum provision without shareholder approval outside of an IPO, merger or spin-off.

Nominating Committee Performance: Glass Lewis may consider recommending shareholders vote against the chair of the nominating committee where the board’s failure to ensure the board has directors with relevant experience––either through periodic director assessment or board refreshment––has contributed to a company’s poor performance. Notably, Glass Lewis does not define “poor performance.”

Overboarding: Beginning in 2017, consistent with ISS’s policy update described above, Glass Lewis will generally recommend voting against (1) any director who serves on more than five public company boards and (2) any executive officer of a public company who serves on a total of more than two public company boards. Like ISS, during 2016, Glass Lewis may note a concern where a director serves on (x) more than five total boards for directors who are not also executives, and (y) more than two boards for a director who serves as an executive officer of a public company.

For a complete overview of Glass Lewis’s 2016 proxy voting guidelines, click here.

Article By Jonathan D. Weiner, Mark J. Reyes & Andrew S. Herrington-Gilmore of Katten Muchin Rosenman LLP

Ariosa v. Sequenom: In Search of Yes After a Decade of No

The Federal Circuit this Wednesday declined to reconsider its June decision in Ariosa v. Sequenom, a closely watched medical diagnostics case involving patents on cell-free fetal DNA testing. Biotech companies, investors, and patent lawyers alike should expect a prompt petition for certiorari, and should hope that the Supreme Court grants it. (Disclosure: I was one of twenty-three law professors who submitted an amicus brief urging the Federal Circuit to grant en banc rehearing.)

In the last decade, the Supreme Court has suggested in case after case that the inventions they were considering were not merely unworthy of patent protection because they were, say, not inventive enough or useful enough or disclosed in enough detail. Rather, the Court in these cases gave us information about the very boundaries of the patent system—by placing the disputed inventions outside those boundaries altogether. But they have not yet told us what is just inside those boundaries.

This legal uncertainty has a significant chilling effect on investment in innovation, one that we are increasingly able to quantify. As USPTO Chief Economist Alan Marco and I explained in a 2013 paper in the Yale Journal of Law and Technology, when a court issues a decision resolving the legal uncertainty over whether a patent was valid, that newfound certainty actually moves the market as much as the initial patent grant does. In other words, the unpredictability of courts forces the market to discount—by as much as half—how much trust to put in the legal rights that the Patent Office issues.

Patent holder Sequenom certainly experienced the downside of that uncertainty, as Wednesday’s rehearing denial sent its stock price tumbling over 14% in just two days. Others have taken a hit as well, such as the large-cap DNA analysis firm Illumina, which has pursued Ariosa in a separate patent litigation and whose stock price fell 7% across the same two-day period.

The reason for this uncertainty is that we are effectively back in the late 1970s, when the Court was prominently rejecting inventions as patent-ineligible subject matter—Gottschalk v. Benson in 1972 and Parker v. Flook in 1978—without saying anything concrete about what was eligible. Relief would come only after Diamond v. Chakrabarty in 1980 and Diamond v. Diehr in 1981, when the Court finally produced binding precedents going the other way.

The result is that today’s patentees can only try to run away from the settlement risk mitigation patent in Alice Corp. v. CLS Bank (2014), the breast cancer genetic diagnostic patent in AMP v. Myriad (2013), the thiopurine dosage monitoring patent in Mayo v. Prometheus (2012), the energy futures risk hedging patent application in Bilski v. Kappos (2010), and, although they were never definitively adjudicated, the vitamin deficiency diagnostic patents in LabCorp v. Metabolite (2006). There is no case yet to run toward.

Ariosa v. Sequenom could have been that case and still can be, if the Court grants certiorari. Certainly the Federal Circuit order has framed the issue well. The per curiam order denying en banc rehearing was accompanied by three opinions that addressed in different combinations both the reach and the wisdom of the Supreme Court’s recent precedents.

Judge Dyk’s concurrence concluded that the precedents, particularly Mayo and Alice, do apply to the present facts and that those precedents are generally sound. He invited “further illumination” from the Supreme Court only on whether the all-important inventive concept must come at the second step of the two-step Mayo test (application of the natural law or abstract idea) or may also come at the first step (discovery of the natural law). Meanwhile, Judge Newman’s dissent concluded that the precedents, particularly Mayo and Myriad, do not apply here, for the facts “diverge significantly.” She found the Sequenom patent’s subject matter to be eligible and would have proceeded to more specific patentability analysis under §§ 102, 103, 112, etc.

Their midpoint and the best argument for certiorari was Judge Lourie’s concurrence, which agreed that Mayo controls, with “no principled basis to distinguish this case from Mayo”—but which also urged that Mayo and the Supreme Court’s other precedents from Bilski onward are an increasingly unsound basis for differentiating between natural laws and abstract ideas on the one hand, and applications of those laws and ideas on the other hand. Echoing a previously expressed position of the Patent Office, he favored the “finer filter of § 112” for issues of indefiniteness or undue breadth (rather than what the agency’s post-Bilski Subject Matter Eligibility Guidelines called the “coarse filter” of § 101).

He also pushed back directly against a argument that the Supreme Court frequently invokes to express its preference for flexible standards that foster over predictable rules that can be manipulated: the draftsman’s art. Decisions from Flook and Diehr to Mayo and Alice have rested in part on the suspicion that patent lawyers may at any time evade substantive doctrinal limitations through clever claim drafting. To this Judge Lourie’s opinion aptly responded that “a process, composition of matter, article of manufacture, and machine are different implementations of ideas, and differentiating among them in claim drafting is a laudable professional skill, not necessarily a devious device for avoiding prohibitions.”

In these regards, Judge Lourie’s approach may well represent the “center” of the Federal Circuit on subject-matter eligibility. He was in the en banc majority in Bilski and authored the panel opinion in Mayo. He authored both panel majority opinions in Myriad (before and after the Supreme Court’s GVR order). And he authored the five-judge en banc plurality opinion in Alice, whose analysis was ultimately consolidated and endorsed in the Supreme Court’s opinion in that case.

With the issues so well framed and the recent subject-matter eligibility precedents so well synthesized, then, there is reason to be optimistic that a decade of hearing “no” from the Supreme Court may finally give way to a “yes” and better orient us on the true boundaries of our patent system.

Article By Saurabh Vishnubhakat of Texas A&M University School of Law

Target to Pay Nearly $40 Million to Settle with Banks over Data Breach; Total Costs Reach $290 Million

A settlement filed Wednesday provides that Target Corp. will pay $39.4 million to the banks and credit unions who brought class action claims against the retailer for alleged losses the financial institutions suffered as a result of Target’s 2013 data breach. The breach, which impacted as many as 110 million individuals, compromised as many as 40 million credit cards.

This most recent settlement comes on the heels of a $67 million settlement with Visa, and a $10 million settlement with consumers, both earlier this year. The most recent settlement brings Target’s total costs to a staggering $290 million. Target expects insurers to reimburse it for only $90 million of that total, and shareholder derivative lawsuits are still pending, as well as regulatory enforcement and investigation actions by the FTC and various state attorneys general.

While financial institution settlements now top $100 million, trade groups representing banks and credit unions have argued that the Target breach actually cost their members more than $200 million.

Many will recall that the Target breach began after an HVAC vendor was hacked, providing cyber criminals access to Target’s backend system through its vendor interface. While the breadth and scope of Target’s losses are somewhat mind numbing, this settlement should serve as yet another reminder why a strong vendor management system including privacy and data security policies and audits is especially important in this day and age.

Article By Daniel L. Farris of Polsinelli PC

Key Changes to the Federal Rules Governing Discovery

Important amendments went into effect on December 1.

The major changes to the Federal Rules of Civil Procedure that govern discovery in federal cases affect Rules 26, 34, and 37.^[1]

Changes to Rule 26(b)(1)

The concept of proportionality and its factors are specifically included in the scope of discoverable information. The factors relating to proportionality include

the importance of the issues at stake in the action;
the amount in controversy;
the parties’ relative access to relevant information;
the parties’ resources;
the importance of the discovery in resolving the issues; and
whether the burden or expense of the proposed discovery outweighs its likely benefit.

The language that defines the scope of discovery has also changed—the former language that discovery should be “reasonably calculated to lead to the discovery of admissible evidence” was removed. The Advisory Committee stated that this language was wrongly interpreted to define the scope of discovery and that such a reading has lead to abusively overbroad discovery.

Further, the new version of the rule includes a cross-reference to 26(b)(2) to underscore the court’s obligation to supervise discovery to prevent abuse by appropriately limiting the scope of discovery.

Last, the amendment drops the language “for good cause, the court may order discovery of any matter relevant to the subject matter involved in the action” for being unnecessary and rarely invoked.

Changes to Rule 26(c)

In a protective order, the rule now specifically states that the court can allocate expenses for the disclosure or discovery of information. Judges have always had the authority to shift the cost of discovery, but it is now codified in the rule.

Changes to Rule 26(f)(3)

The discovery plan (26(f) report) must now specifically address any issues about preserving electronically stored information (ESI) and should also include any requests that the court enter an order under Fed. R. Evid. 502(d) if the parties agree on a procedure to assert privilege after production.

Changes to Rule 34

Under revised Rule 34(b)(2), objections to document requests must be made with specificity, and boilerplate general objections are insufficient. If a producing party is withholding documents pursuant to its objections, it must say so. The party need not create a “log” of withheld documents in the manner of a privilege log, but should state, for example, the limits that the party will place on a search for documents responsive to a request that it objects to as overbroad.

Revised Rule 34(b)(2)(B) also includes language that specifically codifies the typical practice of producing copies of documents in lieu of permitting inspection, adding that parties may “state that it will produce copies of documents or of electronically stored information instead of permitting inspection.”

Changes to Rule 37

The standard for imposing sanctions for failing to preserve ESI has changed under Rule 37(e). Under the new standard, a court may sanction a party if (1) ESI should have been preserved, (2) the party failed to take reasonable steps to preserve it, and (3) it cannot be restored or replaced through additional discovery.

If the court finds that a party has prejudiced by the failure to preserve evidence, the court may only order sanctions sufficient to cure the prejudice. However, if the court finds that the party that failed to preserve acted with “intent to deprive another party of the information’s use in litigation,” it may order severe sanctions (i.e., an adverse inference or even a dismissal or default judgment against the spoliating party).

This change addresses the varying standards that courts have established in regard to sanctions, essentially adopting the rule that bad faith on the part of a spoliating party must be established for a court to order severe sanctions (compare to the Southern District of New York case law prior to these amendments that allow severe sanctions for negligent spoliation).

Other Changes

Rule 1: Amended to specifically state that parties also bear responsibility to employ the rules to “secure the just, speedy, and inexpensive determination of every action and proceeding” and not just the court. This change does not create a separate basis for sanctions. The Advisory Committee debated but ultimately did not include an explicit “duty to cooperate” on discovery.

Rule 4(m): Changed the time limit for service of a complaint from 120 days to 90 days.

Rule 16 (b)(3): Reduced the time to issue a Scheduling Order to the earlier of 90 days after any defendant has been served or 60 days after any defendant has appeared, and added three items to the list contents permitted in a Scheduling Order: (1) a provision regarding preservation of ESI, (2) a provision regarding any agreements under Fed. R. Evid 502, and (3) a requirement that before filing a discovery motion, the movant must request a conference with the court.

Rules 30, 31 and 33: Parallel amendments were made to these rules to reflect the proportionality considerations added to Rule 26(b)(1).

Rule 55: Amended to make clear that the court may set aside a final default judgment pursuant to the standards set forth in Rule 60(b) only.

Rule 84 and the Appendix of Forms: This rule, which provided a set of sample forms to use in federal cases, was abrogated as no longer necessary.

Conclusion

Many of these amendments are codifications of existing case law that governs discovery, but some, especially the amended Rule 37(e) and Rule 34(b)(2), represent the adoption of one approach from multiple competing lines of cases. The Advisory Committee notes that accompany the rules are instructive and helpful, especially in the areas where substantial changes have been made. Litigants who engage in discovery in federal court should be aware of these changes and adjust their practices accordingly.

Article By

Stephanie A. “Tess” Blair

Morgan, Lewis & Bockius LLP

_{[1] Amendments went into effect for Rules 1, 4, 16, 26, 30, 31, 33, 34, 37, and 55. Rule 84 was abrogated. These amendments apply in civil cases filed on or after December 1, 2015 and “insofar as just and practicable” in all cases pending as of December 1, 2015. April 29, 2015 Order of the United States Supreme Court. A brief list of the amendments to Rules 1, 4, 16, 30, 31, 33, 55 and 84 is provided at the end of this article.}

Supreme Court Rejects States’ Request for 30 Day Filing Extension on DACA, DAPA

On Tuesday, December 1, the U.S. Supreme Court handed the Obama administration a “small procedural victory” and refused the request of Texas and other states for a 30-day extension to file briefs in support of the lawsuit blocking the Obama administration’s immigration executive action on DACA and DAPA. Instead, the Court accepted the Justice Department’s eight day extension request. The Supreme Court will likely decide in January whether or not to hear the case this term. If the Supreme Court hears the case during the current term, the decision would likely be published in June, providing quite the fan-flaming event during the 2016 presidential election.

The lawsuit itself is related to President Obama’s executive action expanding the Deferred Action for Children and creating Deferred Action for Parents (of U.S. Citizen or permanent resident children).

On Monday, over 220 organizations filed in favor of lifting the injunction on the executive action. These groups focused on the tangible benefits of expanding DACA and implementing DAPA and left the legal arguments to the Department of Justice.

Article By Immigration Practice at Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

Sell-abrating Sensibly re: Social Media Campaigns

The holiday season is in full swing, which means brand owners and merchants are seizing the opportunity to capture cyber market share via social media campaigns.

While social media can be a great way to quickly generate brand buzz, you may want to take heed of the following seven tips to make sure your holiday social media campaign doesn’t turn into a big bah humbug:

No Special Rules Apply – social media campaigns are not exempt from trademark infringement, false advertising, copyright, and right of publicity laws. Do not say anything or use any images in a social media context that you wouldn’t put in print.
Register company and key brand names as social media user names on popular social media sites such as Facebook, Twitter, and Instagram.
Monitor social media sites for uses of confusingly similar names by third parties selling counterfeit goods, or using your trademarks in a way that creates negative publicity or a false association with your brand.
Keep it Positive – Negative social media posts about a competitor often backfire, and rarely have the intended benefit of improving the poster’s own reputation.
Hashtag #careful – Avoid making a social media faux pas; research and be sure you understand the meaning of viral hashtags before using them in your own social media postings.
A Warning About Current Events – Avoid capitalizing on current events and/or tragedies. Instead, take time to thoroughly develop marketing campaigns that will speak to consumers regardless of timing.
Not Always Sweet to Retweet – As tempting as it may be to retweet celebrities’ or politicians’ tweets, such seemingly innocuous tweets/retweets may have a polarizing effect on consumers/social media followers, or create potentially damaging false associations.

Article by Shana L. Olson & Lauriel F. Dalier of Sterne, Kessler, Goldstein & Fox P.L.L.C.

Client, Staffing Agency and E-Verify: What’s Permissible?

Companies facing an I-9 audit by Immigration and Customs Enforcement (ICE) can be subject to heavy fines and penalties. Some companies that use staffing agencies may especially be concerned about their potential liability, particularly if they believe, after Browning-Ferris, they may be considered a joint employer with their staffing agencies due to the specific facts of the contract. Can such a business, for its protection, demand that the staffing agency use E-Verify for all individuals placed with the client?

The issue of whether a business may demand that the staffing agency use E-Verify for all staffed individuals implicates the I-9 anti-discrimination provisions that the Department of Justice enforces. A staffing agency may enroll in E-Verify as an employer or as an E-Verify employer agent with limited participation of hiring sites, but may not designate those hiring sites based on the national origin or citizenship status of employees hired at those sites. If the staffing agency only uses E-Verify at certain sites, it may create the appearance of a discriminatory practice, leading to complaints by employees.

Despite that, a recent TAL, a technical assistance letter, provided general guidelines for staffing agencies in this situation. It first reiterated compliance with the anti-discrimination provisions is required, but also stated that, to the extent E-Verify is used selectively by the staffing agency to meet the client’s demands for reasons “wholly unrelated” to the workers’ citizenship status or national origin, it likely will not violate any anti-discrimination provisions. As with guidance on other employment issues to employers, careful written documentation of the client’s legitimate reasons for the request, wholly unrelated to the citizenship status or national origin of the workers, is essential.

Article By Doreen D. Dodson of Polsinelli PC

Lawdragon: Celebrating Ten Years Of Captivating Legal Journalism

For ten years, legal media company Lawdragon has been telling great stories about the law and lawyering. Lawdragon embraced the power of the internet early on, creating content open to all who were interested in stories about the law. Lawdragon has shown their commitment to high-quality legal journalism by crafting feature stories, a popular Question and Answer series, and an annual Lawdragon 500 Leading Lawyers in America devoted to attorneys, what they do, and what is possible with a law degree.

Lawdragon was founded by Katrina Dewey as a platform to tell stories about lawyers and lawyering. Dewey began her career as a lawyer, but in her words, “I quickly discovered that I wanted to write about lawyers instead of practicing the law myself.” She left her law firm associate job and “I did what I could to get hired as the lowliest journalist at the Daily Journal in California.” The “lowly” journalist position became Editor in 1996, a move that Dewey describes as “a huge and lucky break.” In 2005, with a desire to work more in the emerging online journalism market, Dewey founded Lawdragon. Daily Journal reporter John Ryan joined her and continues to serve as the company’s editor-in-chief.

Looking back at the first issue, Dewey describes the publication process as like “giving birth.” They wanted to kick off the magazine in an edgy, interesting way, and one of the first stories was on the idea of term limits for Supreme Court justices. Dewey remembers, “the week after we shipped our first issue, Justice Rehnquist passed away.” Another memory of the beginning was Hurricane Katrina. That disaster hit the same weekend the first publication went out, and it lingered as a sort of ghost each time Lawdragon has published an article that showcased the aftermath of the storm and the various legal issues that followed afterwards. Looking back, Dewey describes the early days by saying, “we saw ourselves as an intrepid band of journalists, taking on larger lawyer outlets that were a little slow on the digital uptake.” And that has been part of Lawdragon’s success. Dewey saw the writing on the wall about how the media landscape was changing–and she wanted to create a place for features and profiles of lawyers with a company that had “digital in its DNA.” After ten years, the company has grown into a marketing and branding platform packed with fascinating tales of the law, using the power of the internet to allow anyone who is interested access to their stories. In fact, the content had become so popular among firms and lawyers that Lawdragon created a new “Lawdragon Press” division that provides paid content, marketing and branding services for firms.

Along those lines, when asked to describe Lawdragon’s audience, Dewey says, “We write for everyone who can read and has an interest in the law.” The goal is to create intelligent, wide-ranging, eclectic content that shows what an attorney can do with a law degree. Dewey says, “The goal is to write stories that everyone can access, but are still interesting enough to appeal to attorneys.”

And true to the mission, reading Lawdragon provides perspective on just how far-reaching a law degree can be. With features on everyone from David Tolbert, President of the International Center for Transitional Justice, Adam Streisand of Sheppard Mullin, who litigated the trial that paved the way for the sale of the LA Clippers to Jodi Westbrook Flowers at Motley Rice, who has worked for over a decade for the victims of the September 11 attacks against the financiers and and supporters of Al Qaeda, the subject matter is an abject lesson on just what the law can accomplish.

“We’ve tried to cast a wide net on our coverage of interesting lawyers and legal matters, which is why we’ve done original reporting on justice issues in places like South Africa, former Yugoslavia, Rwanda, The Hague and most recently Guantanamo Bay,” Ryan said.

One essential element of Lawdragon’s philosophy is an unwavering optimism about high-quality articles and reporting. Dewey says, “We are optimists about good content; we believe there is a place for good content in the world.” With an intrinsic belief that the law has the power to change people’s lives, right wrongs, and inspire as well as an understanding that lawyers who practice law have compelling reasons to do so, over the ten years of its existence Lawdragon has demonstrated a commitment to showcasing those stories. Dewey says, “We are about the power of story, generally. We want to show the individual stories of these attorneys who are advocates of the law, who all have their own perspective and ways of contributing to justice. ”

A natural outgrowth of that philosophy is the Lawdragon 500 Leading Lawyers. This feature highlights some of the most captivating attorneys and the work they do across the nation. While the Lawdragon 500 is probably the best known element of the publication, it is not a ranking system. Through a careful process balancing editorial research by Lawdragon staff, law firm submissions, and an open online nominations form, the 500 are carefully curated, but not ranked. Instead, the guide is a way for Lawdragon to showcase attorneys and their perspectives, how they contribute to justice, and how they use the law as a tool to advocate.

As a result of the commitment to quality content and great stories, Lawdragon articles have strong SEO content and can be a great platform for the attorneys who are featured. One thing Lawdragon provides for the attorneys that are featured is objective, third party, independent recognition of their skills and reputation. Additionally, Lawdragon publishes an annual print publication, giving attorneys and their clients something to hold, beautiful pictures to see, and amazing articles to read. As Carlton Dyce of Lawdragon points out, “Our print publication is great for attorneys to have in their offices, handy for their clients to read while they are waiting. It’s a great way to showcase the attorney they are about to see.”

The tenth edition of the Lawdragon 500 will be released soon, an exciting milestone for the company. Over the years and after many compelling stories, Lawdragon remains excited about its core mission–telling stories of lawyers and lawyering. With millions of lawyers doing captivating work in many fields there is no shortage of stories, and Lawdragon remains committed to telling them.

Article by Eilene Spear of the National Law Review

CMS’s Top 7 Changes to Stark Law

On November 16, 2015, the Department of Health and Human Services, Centers for Medicare and Medicaid Services, issued a final rule revising, clarifying, and adding exceptions to the Physician Self-referral Law (“Stark”) in order to (1) accommodate delivery and payment system reform; (2) reduce burdens; and (3) ensure and facilitate compliance. These changes include two new exceptions, clarifications adding additional explanations to existing policies, and revisions to existing definitions and exceptions.

Below are the top 7 changes providers and physicians should note:

New “assistance to compensate a nonphysician practitioner (NPP)” exception: allows remuneration from a hospital, federally qualified health center, or rural health clinic to a physician to recruit a NPP, where substantially all (i.e., 75%) of the services furnished by the NPP to the patients of the physician’s practice are for primary care services or mental health care services. Please note this exception applies to the following NPPs: (1) physician assistants; (2) nurse practitioners; (3) clinical nurse specialists; (4) certified nurse midwives; (5) clinical social workers; and (6) clinical psychologists.
New “timeshare arrangements” exception: this exception covers “use” arrangements only, which includes the use of premises, equipment (excluding advanced imaging equipment, radiation therapy equipment, and (most) clinical or pathology laboratory equipment), personnel, items, supplies, or services. Traditional office space leases and arrangements conveying a possessory leasehold interest in office space are not covered under this exception. Compensation for such arrangements must be carefully structured, as percentage compensation and per-unit services fees (i.e., “per-use” and “per-patient” rates) are prohibited but hourly or half day rates are acceptable.
Clarification on the writing requirement: exceptions containing a writing requirement for certain compensation arrangements use “arrangement” and “agreement” interchangeably. The rule now clarifies that this requirement only requires an arrangement be set out in writing. Although CMS recommends having one signed written contract that satisfies every requirement of the exception, the preamble clarifies that this requirement may also be satisfied through a collection of documents that relate to one another and to the exact arrangement.
Clarification on the 1-year term requirement for office space rental, equipment rental, and personal service arrangements exceptions: the final rule clarifies the arrangement itself must have a duration of at least one year, but a formal “term” provision in a contract is not required. Instead, the duration requirement can be shown through contemporaneous documents establishing the arrangement lasted for at least one year. However, if the arrangement was terminated during the first year, the parties must be able to show they did not enter into a new arrangement for the same space, equipment, or services during the first year.
Clarification regarding “split bill” arrangements: “split bill” arrangements do not involve remuneration between physicians and designated health services (DHS) entities, for items or services such as examination rooms, nursing personnel, and supplies, “because the physician and DSH entity do not provide items, services, or other benefits to one another.” 80 Fed. Reg. 70,886, 71,321 (Nov. 16, 2015). However, outpatient departments billing a payor in one single bill will establish a compensation arrangement and must fit under an exception.
Revision to “temporary noncompliance with signature” requirement: prior to this final rule, parties who inadvertently failed to comply with the signature requirement had 90 days to comply and others had 30 days. Now, there is a blanket 90 day period to comply with this requirement, regardless of whether the failure to obtain a signature was inadvertent or not.
Indefinite holdover provisions: expired arrangements under the office space and equipment rental exceptions and the personal service arrangements exception can be “heldover” indefinitely rather than for only six months, provided the arrangement: (1) satisfies all of the requirements at the time of expiration; (2) continues on the same terms and conditions; and (3) continues to satisfy all of the requirements during the holdover. Current arrangements in a valid holdover under the current six month holdover provisions on January 1, 2016 may qualify for an indefinite holdover.

Article By

Bryna S. Hummel

Robert D. Nauman

John E. Wyand

Squire Patton Boggs (US) LLP

Legal Executive Institute 23rd Annual Marketing Partner Forum – January 20-22 Orlando

Join Thomson Reuters’ Legal Executive Institute next January as Marketing Partner Forum heads to Orlando for a three day summit on transformative value in law firm profitability and business development. Set against the Tuscan luxury of the Loews Portofino Bay Hotel, Marketing Partner Forum will welcome law firm marketing partners, rainmakers, practice group heads, business development leaders and esteemed corporate counsel for a dynamic and vibrant conference designed for the industry’s elite.

For more information and to register, call 1-800-308-1700.

Why You Should Attend

Hear from venerable thought leaders both within and outside of the legal industry.
Network with colleagues and enjoy the family-friendly adventure of Universal Orlando®.
Broaden your horizons through a number of interactive seminars that ask participants to collaborate.
Participate in a number of compelling sessions designed for law firm partnership.
Interact with clients and network for new business.
Focus on global business development and the impact of “glocalization” on legal services.
Depart the event with practical takeaways to share with peers and firm leadership.

Who Should Attend

Law Firm Partners
Managing Partners
Marketing Partners
Practice Group Heads
Chief Marketing Officers
Senior Business Development Professionals

The National Law Forum

Proxy Advisory Firms Release Policy Updates for 2016

Like this:

Ariosa v. Sequenom: In Search of Yes After a Decade of No

Like this:

Target to Pay Nearly $40 Million to Settle with Banks over Data Breach; Total Costs Reach $290 Million

Like this: