Category: Administrative & Regulatory

Federal Reserve Doubles Down on Oversight of Crypto Activities for Banks

The Federal Reserve Board (the “FRB”) issued Supervision and Regulation Letter 22-6 (“SR 22-6”), providing guidance for FRB-supervised banking organizations (referred to collectively herein as “FRB banks”) seeking to engage in activities related to cryptocurrency and other digital assets.  The letter states that prior to engaging in crypto-asset-related activities, such FRB banks must ensure that their activities are “legally permissible” and determine whether any regulatory filings are required.  SR 22-6 further states that FRB banks should notify the FRB prior to engaging in crypto-asset-related activities.  Any FRB bank that is already engaged in crypto-asset-related activities should notify the FRB promptly regarding the engagement in such activities, if it has not already done so.  The FRB also encourages state member banks to contact state regulators before engaging in any crypto-asset-related activity.

These requirements send a clear message to FRB banks and in fact to all banks that their crypto-asset related activities are considered to be risky and not to be entered into lightly.

Indeed, the FRB noted that crypto-asset-related activities may pose risks related to safety and soundness, consumer protection, and financial stability, and thus a FRB bank should have in place adequate systems, risk management, and controls to conduct such activities in a safe and sound manner and consistent with all applicable laws.

SR 22-6 is similar to guidance previously issued by the OCC and FDIC; in all cases, the agencies require banks to notify regulators before engaging in any kind of digital asset activity, including custody activities. The three agencies also released a joint statement last November in which they pledged to provide greater guidance on the issue in 2022.  Further, in an August 17, 2022 speech, FRB Governor Bowman stated that the FRB staff is working to articulate supervisory expectations for banks on a variety of digital asset-related activities, including:

  • custody of crypto-assets
  • facilitation of customer purchases and sales of crypto-assets
  • loans collateralized by crypto-assets, and
  • issuance and distribution of stablecoins by banking organizations

Interestingly, SR 22-6 comes a few days after a group of Democratic senators sent a letter to the OCC requesting that the OCC withdraw its interpretive letters permitting national banks to engage in cryptocurrency activities and a day after Senator Toomey sent a letter to the FDIC questioning whether it is deterring banks from offering cryptocurrency services.

Although past guidance already required banks to notify regulators of crypto activity, this guidance likely could discourage additional banks from entering into crypto-related activities in the future or from adding additional crypto services. In the end, it could have the unfortunate effect of making it more difficult for cryptocurrency companies to obtain banking services.

Article By Grant F. Butler, Jeremy M. McLaughlin, Anthony R.G. Nolan, and Judith E. Rinearson of K&L Gates

For more finance and banking legal news, click here to visit the National Law Review.

Copyright 2022 K & L Gates

CERCLA PFAS Designation Major Step Forward

On January 10, 2022, the EPA submitted a plan for a PFAS Superfund designation to the White House Office of Management and Budget (OMB) when it indicated an intent to designate two legacy PFAS – PFOA and PFOS – as “hazardous substances” under the Comprehensive Environmental Response, Compensation & Liability Act (CERCLA, also known as the Superfund law). The EPA previously stated its intent to make the proposed designation by March 2022 when it introduced its PFAS Roadmap in October 2021. Under the Roadmap, the EPA planned to issue its proposed CERCLA designation in the spring of 2022. On Friday, a CERCLA PFAS designation took a significant step forward when the OMB approved the EPA’s plan for PFOA and PFOS designation. This step opens the door for the EPA to put forth its proposed designation of PFOA and PFOS under CERCLA and engage in the required public comment period.

Any PFAS designation will have enormous financial impacts on companies with any sort of legacy or current PFOA and PFOS pollution concerns. Corporations, insurers, investment firms, and private equity alike must pay attention to this change in law when considering risk issues.

Opposition to CERCLA Designation

Since the EPA’s submission of its intent to designate PFOA and PFOS as hazardous substance to the OMB, the EPA has been met with industry pushback on the proposal. Three industries met with the OMB earlier in 2022 to explain the enormity of regulatory and cleanup costs that the industries would face with a CERCLA designation of PFOA and PFOS – water utilities, waste management companies, and the International Liquid Terminals Association. These industries in particular are concerned about bearing the burden of enormous cleanup costs for pollution that third parties are responsible for. Industries are urging the OMB and EPA to consider other ways to achieve regulatory and remediation goals aside from a CERCLA designation.

During an April 5, 2022 meeting of the Environmental Council of the States (ECOS), several states also expressed concerns regarding the impact that a CERCLA designation for PFAS types would have in their states and on their constituent companies. The state environmental leaders discussed with EPA representatives how the EPA would view companies in their states that fall into categories such as waste management and water utilities, who are already facing uphill battles in disposing of waste or sludge that contains PFAS.

Realizing that the EPA is likely set on its path to designate at least two PFAS as “hazardous substances”, though, industries are asking the EPA to consider PFAS CERCLA exemptions for certain industries, which would exempt certain industry types from liability under CERCLA. Industries are also pushing the EPA, OMB and the U.S. Chamber of Commerce to conduct a robust risk analysis to fully vet the impact that the designation will have on companies financially. The EPA is statutorily required to conduct a risk analysis as part of its CERCLA designation process, so it is likely that the EPA’s delay in issuing a proposed hazardous substance designation until it feels that adequate time has passed for its designation to survive the likely legal challenges that will likely follow the designation.

CERCLA PFAS Designation: Impact On Businesses

Once a substance is classified as a “hazardous substance” under CERCLA, the EPA can force parties that it deems to be polluters to either cleanup the polluted site or reimburse the EPA for the full remediation of the contaminated site. Without a PFAS Superfund designation, the EPA can merely attribute blame to parties that it feels contributed to the pollution, but it has no authority to force the parties to remediate or pay costs. The designation also triggers considerable reporting requirements for companies. Currently, those reporting requirements with respect to PFAS do not exist, but they would apply to industries well beyond just PFAS manufacturers.

The downstream effects of a PFOA and PFOS designation would be massive. Companies that utilized PFOA and PFOS in their industrial or manufacturing processes and sent the PFOA/PFOS waste to landfills or otherwise discharged the chemicals into the environment will be at immediate risk for enforcement action by the EPA given the EPA’s stated intent to hold all PFAS polluters of any kind accountable. Waste management companies should be especially concerned given the large swaths of land that are utilized for landfills and the likely PFAS pollution that can be found in most landfills due to the chemicals’ prevalence in consumer goods. These site owners may be the first targeted when the PFOA/PFOS designation is made, which will lead to lawsuits filed against any company that sent waste to the landfills for contribution to the cost of cleanup that the waste management company or its insured will bear.

Also of concern to companies are the re-opener possibilities that a CERCLA designation would result in. Sites that are or were previously designated as Superfund sites will be subject to additional review for PFOA/PFOS concerns. Sites found to have PFOA/PFOS pollution can be re-opened by the EPA for investigation and remediation cost attribution to parties that the EPA finds to be responsible parties for the pollution. Whether through direct enforcement action, re-opener remediation actions, or lawsuits for contribution, the costs for site cleanup could amount to tens of millions of dollars, of course depending on the scope of pollution.

Conclusion

Now more than ever, the EPA is clearly on a path to regulate PFAS contamination in the country’s water, land and air. The EPA has also for the first time publicly stated when they expect such regulations to be enacted. These regulations will require states to act, as well (and some states may still enact stronger regulations than the EPA). Both the federal and the state level regulations will impact businesses and industries of many kinds, even if their contribution to drinking water contamination issues may seem on the surface to be de minimus. In states that already have PFAS drinking water standards enacted, businesses and property owners have already seen local environmental agencies scrutinize possible sources of PFAS pollution much more closely than ever before, which has resulted in unexpected costs. Beyond drinking water, though, the EPA PFAS plan shows the EPA’s desire to take regulatory action well beyond just drinking water, and companies absolutely must begin preparing now for regulatory actions that will have significant financial impacts down the road.

Article By John Gardella of CMBG3 Law

For more energy and environmental legal news, click here to visit the National Law Review.

©2022 CMBG3 Law, LLC. All rights reserved.

Relief Arrives for Renewable Energy Industry – Inflation Reduction Act of 2022

On August 12, 2022, Congress passed the Inflation Reduction Act of 2022 (“Act” or “IRA”), a $400 billion legislative package containing significant tax and other governmental incentives for the energy industry, in particular the renewable energy industry. The bill will have an immediate impact on the wind and solar industries, along with other clean energy projects and businesses.

SUMMARY

The IRA is a slimmed down substitute for the Build Back Better bill resulting from a compromise with Senator Joe Manchin (D-WV), whose support was necessary for the bill to pass the Senate.

The IRA comes as welcome news to the renewable energy industry as important tax incentives for wind, solar and other renewable energy resources are set to expire or wind down. Existing law also did not provide any federal tax incentives for the rapidly growing stand-alone energy storage and clean hydrogen industries.

The IRA fixes that, and more. The Act extends the investment tax credit (ITC) for solar, geothermal, biogas, fuel cells, waste energy recovery, combined heat and power, small wind property, and microturbine and microgrid property for projects beginning construction before January 1, 2025. It also extends the production tax credit (PTC) for wind, biomass, geothermal, solar (which previously expired at the end of 2005), landfill gas, municipal solid waste, qualified hydropower, and marine and hydrokinetic resources for projects beginning construction before January 1, 2025. The IRA also allows taxpayers to include their interconnection costs as part of their eligible basis for the ITC.

The Act now allows the ITC to be taken for stand-alone energy storage (previously storage was only allowed an ITC if it was part of another project, e.g., solar). Other technologies are also benefitted from the IRA, including carbon capture and sequestration (CCS) (tax credit extended and modified), clean hydrogen (a new credit of up to $3.00 per kilogram of clean hydrogen produced), nuclear power (a new credit of up to 1.5c/kWh) and biofuel (existing credit extended).

The ITC and PTC now come with strings attached. To qualify for the restored 30% ITC and the 2.6c/kWh PTC (adjusted for inflation), projects must pay prevailing wages during construction and the first five years (in the case of the ITC) and 10 years (in the case of the PTC) of operation, while also meeting registered apprenticeship requirements. Projects that fail to satisfy the prevailing wage and apprenticeship requirements will only receive an ITC of 6% or a PTC of .3c/kWh (adjusted for inflation). The prevailing wage and apprenticeship requirements apply to employees of contractors and subcontractors as well as the company. These requirements are effective for projects that begin construction 60 days after the IRS issues additional guidance on this issue. Certain exceptions apply, including for certain small (less than 1 MW) facilities.

On the flip side, the Act includes enhancements that, in the case of the ITC, can increase the credit percentage if a project satisfies certain additional criteria. Bonuses are available for projects that (1) satisfy certain U.S. domestic content requirements (10%) or (2) are located in an “energy community” (10%) or an “environmental justice” area (10% or 20%). An “energy community” is defined as a brownfield site, an area which has or had significant employment related to oil, gas, or coal activities, or a census tract or any adjoining tract in which a coal mine closed after December 31, 1999, or in which a coal-fired electric power plant was retired after December 31, 2009. An “environmental justice” area is a low-income community or Native American land (defined in the Energy Policy Act of 1992) (10%) or a low-income residential building or qualified low-income economic benefit project (20%).

The Act also creates two new methods for monetizing the ITC, PTC, and certain other credits. Tax-exempt organizations will be permitted to elect a “direct pay” option in lieu of a tax credit. In a dramatic change that may have substantial impacts on renewable project finance, the Act permits most taxpayers to transfer the ITC, PTC, and certain other tax credits for cash.

For the first time, the Act includes a tax credit, known as the Advanced Manufacturing Production Credit, for companies manufacturing clean energy equipment in the U.S. such as PV cells, PV wafers, solar grade polysilicon, solar modules, wind energy components, torque tubes, structural fasteners, electrode active materials, battery cells, battery modules, and critical minerals.

The Act also contains major tax incentives, in the form of credits and enhanced deductions to spur electric and hydrogen-fueled vehicles, alternative fuel refueling stations, nuclear power, energy efficiency, biofuels, carbon sequestration and clean hydrogen. Additional grants are available for interregional and offshore wind and electricity transmission projects, including for interconnecting offshore wind farms to the transmission grid.

Additional detail regarding these provisions follow below.

KEY ENERGY PROVISIONS OF THE INFLATION REDUCTION ACT OF 2022

Investment Tax Credit (ITC)

The ITC is extended for projects beginning construction prior to January 1, 2025. The ITC starts at a base rate of 6%. The ITC increases to 30% if a project (1) pays prevailing wages during the construction phase and for the first five years of operation and (2) meets registered apprenticeship requirements. The ITC applies to solar, fuel cells, waste energy recovery, geothermal, combined heat and power, and small wind property, and is now expanded to include stand-alone energy storage projects (including thermal energy storage), qualified biogas projects such as landfill gas, electrochromic glass, and microgrid controllers. For microturbine property the base rate is 2%, which increases to 10% if the prevailing wage and apprenticeship requirements are met.

Projects under one megawatt (AC) and projects that begin construction prior to 60 days after the Secretary of the Treasury publishes guidance on the wage and registered apprenticeship requirements do not have to meet the prevailing wage and apprenticeship requirements to qualify for the 30% ITC.

PREVAILING WAGE REQUIREMENT

The new prevailing wage requirement is intended to ensure that laborers and mechanics employed by the project company and its contractors and subcontractors for the construction, alteration or repair of qualifying projects are paid no less than prevailing rates for similar work in the locality where the facility is located. The prevailing rate will be determined by the most recent rates published by the U. S. Secretary of Labor. Prevailing wages for the area must be paid during construction and for the first five years of operation for repairs or alterations once the project is placed in service. Failure to satisfy the standard will result in a significant penalty, including an 80% reduction in the ITC (i.e., an ITC of 6%), remittance of the wage shortfall to the underpaid employee(s) and a $5,000 penalty per failure. For intentional disregard of the requirement the penalty increases to three times the wage shortfall and $10,000 penalty per employee.

The prevailing wage requirement takes effect for projects that begin construction after December 31, 2022, but not before 60 days after the Secretary publishes its guidance. Projects under 1 MW (AC) are exempt from the requirement.

APPRENTICESHIP REQUIREMENT

For projects with four or more employees, work on the project by contractors and subcontractors must be performed by qualified apprentices for the “applicable percentage” of the total number of labor hours. A qualified apprentice is an employee who participates in an apprenticeship program under the National Apprenticeship Act. The applicable percentage of labor hours phases in and is equal to 10% of the total labor hours for projects that begin construction in 2022, 12.5% for projects beginning construction in 2023, and 15% thereafter. Similar penalties to the prevailing wage penalties apply for failure to satisfy the apprenticeship requirement. A “good faith” exception applies where an employer attempts but cannot find apprentices in the project’s locality.

The apprenticeship requirement takes effect for projects that begin construction after December 31, 2022, but not before 60 days after the Secretary publishes its relevant guidance. Projects under 1 MW (AC) are exempt from the requirement.

Credit Enhancements

Domestic Content. Assuming a project meets the prevailing wage and apprenticeship requirements, a qualifying project can earn a 10% ITC bonus (i.e., bringing the ITC to 40%), if it satisfies the domestic content requirement. To satisfy the domestic content requirement a project must use 100% U.S. steel and iron, and an “adjusted percentage” of the total costs of its manufactured components with products that are mined, produced or manufactured in the U.S. The applicable percentage for projects other than for offshore wind facilities initially is set at 40%, increasing to 45% in 2025, 50% in 2026, and 55% in 2027. For offshore wind facilities the adjusted percentage initially is 20%, and phases up to 27.5% in 2025, 35% in 2026, 45% in 2027, and 55% in 2028 and after. The initial domestic content bonus for projects failing to meet the prevailing wage and apprenticeship requirement is 2%, which percentage similarly phases up.

Two exceptions exist to the domestic content requirement: (1) if the facility is less than 1 MW (AC) and (2) if satisfying the requirement will increase the overall cost of construction by more than 25 percent, or if the relevant products are not produced in the U.S. in sufficient and reasonably available quantities or quality. Under these circumstances, the unavailability of the product is counted 100% against the adjusted percentage, that is, the adjusted percentage is calculated as if 100% U.S. content was supplied for the unavailable items.

The domestic content bonus is only available for projects placed in service after December 31, 2022.

Energy Community Bonus. A project can earn an additional 10% ITC bonus if it is built in an energy community. An energy community is defined as (a) a brownfield site (as defined under CERCLA), (b) an area that has or had significant employment related to the coal, oil, or gas industry and has an unemployment rate at or above the national average, or (c) a census tract or adjoining tract in which a coal mine closed after December 31, 1999 or a coal-fired electric power plant was retired after December 31, 2009.

The Energy Community Bonus is only available for projects placed in service after January 1, 2023.

Environmental Justice. An additional 10% and, in some cases, 20% ITC bonus, is available for solar and wind projects of 5 MW AC or less where the project is located in, or services, a low-income community. The environmental justice bonus is limited to a maximum of 1.8 gigawatts of solar and wind capacity in each of calendar years 2023 and 2024, for which a project must receive an allocation from the U.S. Treasury Secretary. The 10% bonus is for projects located in a low-income community or on Native American land (defined in the Energy Policy Act of 1992). The 20% bonus is available for projects that are part of a qualified low-income residential building project or a qualified low-income economic benefit project. A qualified low-income residential project is a residential rental building that participates in a housing program such as those covered under the Violence Against Women Act of 1994, a housing assistance program administered by the Department of Agriculture under the Housing Act of 1949, a housing program administered under the Native American Housing Assistance and Self-Determination Act of 1996, or similar affordable housing programs. A qualified low-income economic benefit project is one where at least 50% of the households have income at less than 200% of the poverty line or at less than 80% of the area’s median gross income.

Storage projects installed in connection with a solar project also qualify for the environmental justice bonus, but not stand-alone storage projects. A project receiving an allocation for the environmental justice credit must be placed in service within four years of the date it receives the allocation.

Stand-Alone Storage. The Act now provides a tax credit for stand-alone energy storage projects. To qualify, the storage project must be capable of receiving, storing and delivering electrical energy and have a nameplate capacity of at least 5 kWh. Thermal storage projects and hydrogen storage projects qualify under the new provision. Like the ITC for other technologies, the base ITC for stand-alone storage is 6%, and increases to 30% for projects that satisfy the prevailing wage and apprenticeship requirements or if they are placed into service prior to 60 days after the Treasury Secretary issues guidance on prevailing wage and apprenticeship standards.

Interconnection Equipment. Qualifying projects under 5 MW (AC) now may claim an ITC on their interconnection costs. The credit applies even if the interconnection facilities are owned by the interconnecting utility, so long as they were paid for by the taxpayer. This is not a stand-alone tax credit, but rather an additional cost added to a project’s basis eligible for the ITC.

Production Tax Credit (PTC)

The Act extends the production tax credit (PTC) for projects beginning construction before January 1, 2025. The PTC is set at an initial Base Rate of .3c/kwh. Like the ITC, the credit increases to 1.5c/kwh for projects satisfying the prevailing wage and apprenticeship requirements. The 1.5 c/kWh, with the inflationary adjustment provided for the PTC, brings the PTC up to 2.6c/kWh in 2022. In addition to wind projects, the PTC is available to solar, closed-loop and open-loop biomass, geothermal, landfill gas, municipal solid waste, qualifying hydropower, and marine and hydrokinetic facilities. Thus, solar projects may now choose either the PTC or the ITC. They cannot receive both.

CREDIT ENHANCEMENTS

Like the ITC, a project can receive an enhanced PTC similar in degree to those under the ITC for satisfying the domestic content, energy community and/or environmental justice requirements. For projects meeting the prevailing wage and apprenticeship requirements the increase for each applicable bonus is generally 10% of the underlying credit and, for projects failing to satisfy those requirements, 2%.

Clean Electricity Investment Tax Credit

The Act creates a new clean electricity tax credit (ITC and PTC) that replaces the existing ITC and PTC once they phase out at the end of 2024. The successor ITC/PTC is technology neutral. Any project producing electricity can qualify for the tax credit if its greenhouse gas emissions rate is not greater than zero. The successor ITC is 30% and the PTC is 1.5c/kWh, escalated annually with inflation. The Clean Energy ITC/PTC will phase out the later of 2032 or when emission targets are achieved (i.e., the electric power sector emits 75% less carbon than 2022 levels). Once the target is reached, facilities will be able to claim a credit at 100% value in the first year, then 75%, then 50%, and then 0%.

Clean Hydrogen Production Credit

This Act for the first time provides a tax credit for qualifying clean hydrogen projects. The credit is available for clean hydrogen produced at a qualifying facility during the facility’s first 10 years of operation. The base credit amount is $0.60 per kilogram (kg) times the “applicable percentage,” adjusted annually for inflation. For projects meeting the prevailing wage and apprenticeship requirements the credit amount is five times that base amount, or $3.00/kg times the applicable percentage, adjusted annually for inflation.

The applicable percentage for hydrogen projects achieving a lifecycle greenhouse gas emissions rate of less than 0.45 kilograms of carbon dioxide equivalent (CO2e) per kg is 100%. The applicable percentage falls to 33.4% for hydrogen projects with an emissions rate between .45kg and 1.5kg, and to 25% for hydrogen projects with an emissions rate between 1.5 kg and 2.5 kg. For hydrogen projects with a lifecycle greenhouse gas emissions rate between 4 kg and 2.5 kg of CO2e per kg, the applicable percentage is 20%.

To qualify for the credit, the facility must begin construction before January 1, 2033. Facilities existing before January 1, 2023 can qualify for a credit based on the date that modifications to their facility required to produce clean hydrogen are placed into service. Taxpayers may also claim the PTC for electricity produced from renewable resources by the taxpayer if the electricity is used at a clean hydrogen facility to produce qualified clean hydrogen. The Direct Pay option, discussed below, is available for clean hydrogen projects.

Taxpayers can elect to claim the ITC in lieu of the clean hydrogen production credit. However, taxpayers claiming the clean hydrogen credit cannot also claim a tax credit for carbon capture under Section 45Q, and vice versa.

Carbon Capture and Sequestration (CCS) Credit

Under prior law, industrial carbon capture or direct air capture (DAC) facilities that began construction by December 31, 2025, could qualify for the Section 45Q tax credit for carbon oxide sequestration. This credit could be claimed for carbon oxide captured during the 12-year period following the facility being placed in service. The per metric ton tax credit for geologically sequestered carbon oxide was set to increase to $50 per ton by 2026 ($35 per ton for carbon oxide that is reused, such as for enhanced oil recovery) and adjusted for inflation thereafter.

The Act extends the deadline for construction to January 1, 2033 and increases the credit amount. The base credit amount for CCS is $17 per metric ton for carbon oxide that is captured and geologically sequestered, and $12 per metric ton for carbon oxide that is reused. For facilities that meet the prevailing wage and apprenticeship requirements during construction and for the first 12 years of operation, the credit amounts are $85 per ton and $60 per ton, respectively.

The credit amount for carbon oxide captured using DAC and geologically sequestered is also increased under the Act to a base rate of $36 per metric ton, and to $180 per metric ton for projects that meet prevailing wage and apprenticeship requirements. The rates are indexed for inflation beginning in 2026.

The Act reduces the minimum plant size required to qualify for the credit:  from 100,000 to 1,000 tons per year for DAC; from 500,000 to 18,750 metric tons per year for electric generating facilities paired with qualifying CCS equipment, and from 25,000 to 12,500 metric tons per year for any other facility. A CCS project paired with an electric generating unit will be required to capture at least 75% of unit (not facility) CO2 production.

Advanced Energy Project Credit

The Act provides a 30% credit for investments in projects that re-equip, expend, or establish certain domestic manufacturing or industrial facilities to support the production or recycling of renewable energy property. Examples of such facilities include those producing or recycling components for:

  • Energy storage systems and components;
  • Grid modernization equipment or components;
  • Equipment designed to remove, use, or sequester carbon oxide emissions;
  • Equipment designed to refine, electrolyze, or blend any fuel, chemical, or product which is renewable or low-carbon and low-emission;
  • Property designed to produce energy conservation technologies (residential, commercial and industrial);
  • Electric or fuel-cell vehicles, including for charging and refueling infrastructure;
  • Hybrid vehicles weighing less than 14,000 pounds and associated technologies, components, or materials;
  • Re-equipping industrial and manufacturing facilities to reduce their greenhouse gas emissions by at least 20%;
  • Re-equipping, expanding, or establishing an industrial facility for the processing, refining or recycling of critical materials.

Projects not satisfying the prevailing wage and apprenticeship requirements will only receive the base ITC credit of 6%.

The Act makes $10 billion available for qualifying advanced energy projects. Of that amount, at least $4 billion must be allocated to projects located in energy communities. The Treasury Secretary will establish a program to award credits to qualifying advanced energy projects. Applicants awarded credits will have two years to place the property in service. The provision goes into effect on January 1, 2023.

Advanced Manufacturing Production

The Act creates a new production tax credit that can be claimed for the domestic production and sale of qualifying solar and wind components, such as inverters, battery components and critical minerals needed to produce these components.

Credits for solar components include:

  • for thin film photovoltaic cell or crystalline photovoltaic cell, 4 cents per DC watt of capacity;
  • for photovoltaic wafers, $12 per square meter;
  • for solar grade polysilicon, $3 per kilogram;
  • for polymeric backsheet, 40 cents per square meter; and
  • for solar modules, 7 cents per DC watt of capacity.

For wind energy components, if the component is an offshore wind vessel, the credit is equal to 10% of the sales price of the vessel. Otherwise, the credits for various wind components vary as set forth below, which amount is multiplied by the total rated capacity of the completed wind turbine on a per watt basis for which the component is designed.

The applicable amounts for wind energy components are:

  • 2 cents for blades
  • 5 cents for nacelles
  • 3 cents for towers
  • 2 cents for fixed platform offshore wind foundations
  • 4 cents for floating platform offshore wind foundations
  • for torque tubes and longitudinal purlin, $0.87 per kg
  • for structural fasteners, $2.28 per kg
  • for inverters, the credit is an amount multiplied by the inverter’s AC capacity, with different types of inverters eligible for specified credit amounts ranging from 1.5 cents to 11 cents per watt
  • for electrode active materials, the credit is 10% of the production cost
  • for battery cells the credit is $35 per kilowatt hour of battery cell capacity. Battery modules qualify for a credit of $10 per kilowatt hour of capacity (or $45 in the case of a battery module which does not use battery cells).

A 10% credit is also available for the production of critical minerals. Critical minerals include aluminum, antimony, barite, beryllium, cerium, cesium, chromium, cobalt, dysprosium, europium, fluorspar, gadolinium, germanium, graphite, indium, lithium, manganese, neodymium, nickel, niobium, tellurium, tin, tungsten, vanadium and yttrium.

For purposes of the credits for battery cells and modules, to qualify the capacity-to-power ratio cannot exceed 100:1. The term ‘capacity-to-power ratio’ means the ratio of the capacity of the cell or module to the maximum discharge amount of the cell or module.

The advanced manufacturing credit phases out for components sold after December 31, 2029. Components sold in 2030 are eligible for 75% of the full credit amount. Components sold in 2031 and 2032 are eligible for 50% and 25% of the full credit amount, respectively. No credit is available for components sold after December 31, 2032. The phase-out does not apply to the production of critical minerals.

DIRECT PAY

The Act contains a valuable cash payment option that allows certain organizations to treat certain tax credit amounts including, among others, the ITC, PTC, clean hydrogen, and carbon capture credits, as payments of tax and then receive a refund for that tax that is deemed paid. Under the so-called “direct pay” option, in lieu of receiving a tax credit, an eligible entity will be treated as if it had paid taxes in the amount of the credit, for which it can then receive a cash refund. Entities eligible for the direct pay option include tax-exempt organizations, state and local governments, Indian tribes (as defined in the Act), the Tennessee Valley Authority, and any Alaska Native Corporation. The direct pay option is subject to an annual election and must be claimed by a partnership or S corporation rather than its partners or S corporation shareholders. Refunds under the direct pay provisions are treated the same as tax credits for purposes of basis reduction, depreciation rules, and recapture.

For qualifying facilities electing direct pay that do not meet the domestic content requirements, a reduction applies for projects beginning construction in 2024 (90%) and 2025 (85%). Thereafter, the direct pay option will not be available for projects that do not satisfy the domestic content requirement.

TRANSFERRABLE CREDITS

The IRA allows eligible taxpayers that do not elect the direct pay option to transfer certain credits to unrelated taxpayers including, among others, the ITC, PTC, clean hydrogen, and carbon capture credits. The transferred credit must be exchanged for cash. Credits may only be transferred once. Carryforwards or carrybacks are not transferable. Payments made to the transferor of the credit are not taxable to the transferor, nor is the payment by the transferee to the transferor deductible to the transferee.

The credit period for transferred credits is 23 years (including three years for carrybacks). The credit must be used in earliest possible year of transferee. A 20% penalty may apply for both direct payments and transfers where excessive payments have occurred.

Zero Emission Nuclear Power Production Credit

The Act includes a new PTC for the production of electricity from an existing nuclear facility that was placed in service before the date of enactment of the Act. To qualify, the electricity from the facility must be produced and sold to an unrelated person after December 31, 2023. The credit terminates on December 31, 2032. The base PTC amount is 3 cents per kWh, but is increased five times if wage and apprenticeship requirements are met (to 1.5 cents per kWh), in each case adjusted annually for inflation and reduced by a reduction amount to the extent electricity from the plant is sold at a price over $0.025/kWh.

Electric Vehicles and Hydrogen-Fueled Cars

The Act includes a $7,500 credit for taxpayers purchasing new electric vehicles and a $4,500 tax credit for used ones. The Act eliminates the previous “per-manufacturer” limits that applied to the new vehicle credit, but imposes new domestic content and assembly requirements, as well as caps on the retail price of new vehicles, and the income of the taxpayers purchasing the vehicle.

The Act also sets aside financing and credits to promote electric vehicle manufacturing. It calls for $2 billion in grants to help convert existing auto manufacturing factories into ones that make electric vehicles and $20 billion of loans for new clean vehicle manufacturing facilities. The Act extends the credits to hydrogen-fueled cars in addition to EVs.

Alternative Fuel Refueling Property Credit

The Act revives the expired credit for alternative fuel refueling property (i.e., electric vehicle chargers), allowing it for property placed in service before December 31, 2032. The base credit is 6% of the cost of property, and is increased to 30% if wage and apprenticeship requirements are met. The previous $30,000 cap is also increased to $100,000.

OFFSHORE WIND

The IRA puts in place a 10-year window in which a lease for offshore wind development cannot be issued unless an oil and gas lease sale has also been held in the year prior and is not less than 60 million acres. The Act also withdraws the Trump administration’s moratorium on offshore wind leasing in the southeastern U.S. and eastern Gulf of Mexico.

GREEN BANK

The Act includes $27 billion toward a clean energy technology accelerator to support deployment of emission-reduction technologies, especially in disadvantaged communities. The EPA Administrator would be permitted to disburse $20 billion to “eligible recipients,” which are defined as non-profit green banks that “provide capital, including by leveraging private capital, and other forms of financial assistance for the rapid deployment of low- and zero-emission products, technologies, and services.

Clean Fuel Production Credit

The Act creates a new tax credit for domestic clean fuel production starting in 2025 and expires for transportation fuels sold after December 31, 2027. The tax credit is calculated as the applicable amount multiplied by the emissions factor of the fuel. The base credit is $0.20 per gallon of transportation fuel produced at a qualified facility and sold, which increases to $1.00 if prevailing wage requirements are met. The base credit is $0.35/gallon for sustainable aviation fuel, $1.75 if labor and wage requirements are satisfied. The emissions factor of the fuel may reduce the credit amount. The credits are adjusted for inflation. The credit cannot be claimed if other clean fuel credits are claimed, including clean hydrogen production.

Article By Kris J. Eimicke and Merrill Kramer of Pierce Atwood LLP

For more energy and environmental legal news, click here to visit the National Law Review.

©2022 Pierce Atwood LLP. All rights reserved.

EPA Updates Safer Chemical Ingredients List, Adding 22 Chemicals and Changing the Status of One Chemical

The U.S. Environmental Protection Agency (EPA) announced on August 11, 2022, that it updated the Safer Chemical Ingredients List (SCIL), “a living list of chemicals by functional-use class that EPA’s Safer Choice program has evaluated and determined meet the Safer Choice Standard.” EPA added 22 chemicals to the SCIL. EPA states that to expand the number of chemicals and functional-use categories on the SCIL, it encourages manufacturers to submit their safer chemicals for review and listing on the SCIL. In support of the Biden Administration’s goals, the addition of chemicals to the SCIL “incentivizes further innovation in safer chemistry, which can promote environmental justice, bolster resilience to the impacts of climate change, and improve water quality.” According to EPA, chemicals on the SCIL “are among the safest for their functional use.”

EPA also changed the status for one chemical on the SCIL and will remove the chemical from the list in one year “because of a growing understanding of the potential health and environmental effects.” According to EPA, the chemical was originally listed on the SCIL based on data from a closely related substance that EPA marked with a grey square earlier this year. EPA’s process for removing a chemical from the SCIL is first to mark the chemical with a grey square on the SCIL web page to provide notice to chemical and product manufacturers that the chemical may no longer be acceptable for use in Safer Choice-certified products. A grey square notation on the SCIL means that the chemical may not be allowed for use in products that are candidates for the Safer Choice label, and any current Safer Choice-certified products that contain this chemical must be reformulated unless relevant health and safety data are provided to justify continuing to list the chemical on the SCIL. EPA states that the data required are determined on a case-by-case basis. In general, data useful for making such a determination provide evidence of low concern for human health and environmental impacts. Unless information provided to EPA adequately justifies continued listing, EPA then removes the chemical from the SCIL 12 months after the grey square designation.

According to EPA, after this update is made, there will be 1,055 chemicals listed on the SCIL. EPA is committed to updating the SCIL with safer chemicals on a regular basis. EPA states that the SCIL is a resource that can help many different stakeholders:

  • Product manufacturers use the SCIL to help make high-functioning products that contain safer ingredients;
  • Chemical manufacturers use the SCIL to promote the safer chemicals they manufacture;
  • Retailers use the SCIL to help shape their sustainability programs; and
  • Environmental and health advocates use the SCIL to support their work with industry to encourage the use of the safest possible chemistry.

EPA’s Safer Choice program certifies products containing ingredients that have met the program’s rigorous human health and environmental safety criteria. The Safer Choice program allows companies to use its label on products that meet the Safer Choice Standard. The EPA website contains a complete list of Safer Choice-certified products.

Article By Lynn L. Bergeson and Carla N. Hutton of Bergeson & Campbell, P.C.

For more environmental legal news, click here to visit the National Law Review.

©2022 Bergeson & Campbell, P.C.

Biden Administration Seeks to Clarify Patient Privacy Protections Post-Dobbs, Though Questions Remain

On July 8, two weeks following the Supreme Court’s ruling in Dobbs v. Jackson that invalidated the constitutional right to abortion, President Biden signed Executive Order 14076 (E.O.). The E.O. directed federal agencies to take various actions to protect access to reproductive health care services,[1] including directing the Secretary of the U.S. Department of Health and Human Services (HHS) to “consider actions” to strengthen the protection of sensitive healthcare information, including data on reproductive healthcare services like abortion, by issuing new guidance under the Health Insurance and Accountability Act of 1996 (HIPAA).[2]

The directive bolstered efforts already underway by the Biden Administration. A week before the E.O. was signed, HHS Secretary Xavier Becerra directed the HHS Office for Civil Rights (OCR) to take steps to ensure privacy protections for patients who receive, and providers who furnish, reproductive health care services, including abortions.[3] The following day, OCR issued two guidance documents to carry out this order, which are described below.

Although the guidance issued by OCR clarifies the privacy protections as they exist under current law post-Dobbs, it does not offer patients or providers new or strengthened privacy rights. Indeed, the guidance illustrates the limitations of HIPAA regarding protection of health information of individuals related to abortion services.

A.  HHS Actions to Safeguard PHI Post-Dobbs

Following Secretary Becerra’s press announcement, OCR issued two new guidance documents outlining (1) when the HIPAA Privacy Rule may prevent the unconsented disclosure of reproductive health-related information; and (2) best practices for consumers to protect sensitive health information collected by personal cell phones, tablets, and apps.

(1) HIPAA Privacy Rule and Disclosures of Information Relating to Reproductive Health Care

In the “Guidance to Protect Patient Privacy in Wake of Supreme Court Decision on Roe,”[4] OCR addresses three existing exceptions in the HIPAA Privacy Rule to the disclosure of PHI without an individual’s authorization and provides examples of how those exceptions may be applied post-Dobbs.

The three exceptions discussed in the OCR guidance are the exceptions for disclosures required by law,[5]  for purposes of law enforcement,[6] or to avert a serious threat to health or safety.[7]

While the OCR guidance reiterates that the Privacy Rule permits, “but does not require” disclosure of PHI in each of these exceptions,[8] this offers limited protection that relies on the choice of providers whether to disclose or not disclose the information. Although these exceptions are highlighted as “protections,” they expressly permit the disclosure of protected health information. Further, while true that the HIPAA Privacy Rule itself may not compel disclosure (but merely permits disclosure), the guidance fails to mention that in many situations in which these exceptions apply, the provider will have other legal authority (such as state law) mandating the disclosure and thus, a refusal to disclose the PHI may be unlawful based on a law other than HIPAA.

Two of the exceptions discussed in the guidance – the required by law exception and the law enforcement exception – both only apply in the first place when valid legal authority is requiring disclosure. In these situations, the fact that HIPAA does not compel disclosure is of no relevance. Certainly, when there is not valid legal authority requiring disclosure of PHI, then HIPAA prohibits disclosure, as noted as in the OCR guidance.  However, in states with restrictive abortion laws, the state legal authorities are likely to be designed to require disclosure – which HIPAA does not prevent.

For instance, if a health care provider receives a valid subpoena from a Texas court that is ordering the disclosure of PHI as part of a case against an individual suspected of aiding and abetting an abortion, in violation of Texas’ S.B. 8, then that provider could be held in contempt of court for failing to comply with the subpoena, despite the fact that HIPAA does not compel disclosure.[9] For more examples on when a covered entity may be required to disclose PHI, please see EBG’s prior blog: The Pendulum Swings Both Ways: State Responses to Protect Reproductive Health Data, Post-Roe.[10]

Notably, the OCR guidance does provide a new interpretation of the application of the exception for disclosures to avert a serious threat to health or safety. Under this exception, covered entities may disclose PHI, consistent with applicable law and standards of ethical conduct, if the covered entity, in good faith, believes the use or disclosure is necessary to prevent or lessen a serious and imminent threat to the health or safety of a person or the public. OCR states that it would be inconsistent with professional standards of ethical conduct to make such a disclosure of PHI to law enforcement or others regarding an individual’s interest, intent, or prior experience with reproductive health care. Thus, in the guidance, OCR takes the position that if a patient in a state where abortion is prohibited informs a health care provider of the patient’s intent to seek an abortion that would be legal in another state, this would not fall into the exception for disclosures to avert a serious threat to health or safety.  Covered entities should be aware of OCR’s position and understand that presumably OCR would view any such disclosure as a HIPAA violation.

(2) Protecting the Privacy and Security of Individuals’ Health Information When Using Personal Cell Phones or Tablets

OCR also issued guidance on how individuals can best protect their PHI on their own personal devices. HIPAA does not generally protect the privacy or security of health information when it is accessed through or stored on personal cell phones or tablets. Rather, HIPAA only applies when PHI is created, received, maintained, or transmitted by covered entities and business associates. As a result, it is not unlawful under HIPAA for information collected by devices or apps – including data pertaining to reproductive healthcare – to be disclosed without consumer’s knowledge.[11]

In an effort to clarify HIPAA’s limitation to protect such information, OCR issued guidance to protect consumer sensitive information stored in personal devices and apps.[12] This includes step-by-step guidance on how to control data collection on their location, and how to securely dispose old devices.[13]

Further, some states have taken steps to fill the legal gaps to varying degrees of success. For example, California’s Confidentiality of Medical Information Act (“CMIA”) extends to “any business that offers software or hardware to consumers, including a mobile application or other related device that is designed to maintain medical information.”[14] As applied, a direct-to-consumer period tracker app provided by a technology company, for example, would fall under the CMIA’s data privacy protections, but not under HIPAA. Regardless, gaps remain as the CMIA does not protect against a Texas prosecutor subpoenaing information from the direct-to-consumer app. Conversely, Connecticut’s new reproductive health privacy law,[15] does prevent a Connecticut covered entity from disclosing reproductive health information based on a subpoena, but Connecticut’s law does not apply to non-covered entities, such as a period tracker app. Therefore, even the U.S.’s most protective state privacy laws do not fill in all of the privacy gaps.

Alongside OCR’s guidance, the Federal Trade Commission (FTC) published a blog post warning companies with access to confidential consumer information to consider FTC’s enforcement powers under Section 5 of the FTC Act, as well as the Safeguards Rule, the Health Breach Notification Rule, and the Children’s Online Privacy Protection Rule.[16] Consistent with OCR’s guidance, the FTC’s blog post reiterates the Biden Administration’s goal of protecting reproductive health data post-Dobbs, but does not go so far as to create new privacy protections relative to current law.

B.  Despite the Biden Administration’s Guidance, Questions Remain Regarding the Future of Reproductive Health Privacy Protections Post-Dobbs

Through E.O. 14076, Secretary Becerra’s press conference, OCR’s guidance, and the FTC’s blog, the Biden Administration is signaling that it intends to use the full force of its authorities – including those vested by HIPAA – to protect patient privacy in the wake of Roe.

However, it remains unclear how this messaging will translate to affirmative executive actions, and how successful such executive actions would be. How far is the executive branch willing to push reproductive rights? Would more aggressive executive actions be upheld by a Supreme Court that just struck down decades of precedent permitting access to abortion? Will the Biden Administration’s executive actions persist if the administration changes in the next Presidential election?

Attorneys at Epstein Becker & Green are well-positioned to assist covered entities, business associates, and other companies holding sensitive reproductive health data understand how to navigate HIPAA’s exemptions and interactions with emerging guidance, regulations, and statutes at both the state and Federal levels.

Ada Peters, a 2022 Summer Associate (not admitted to the practice of law) in the firm’s Washington, DC office and Jack Ferdman, a 2022 Summer Associate (not admitted to the practice of law) in the firm’s Boston office, contributed to the preparation of this post. 

[1] 87 Fed. Reg. 42053 (Jul. 8, 2022), https://bit.ly/3b4N4rp.

[2] Id.

[3] HHS, Remarks by Secretary Xavier Becerra at the Press Conference in Response to President Biden’s Directive following Overturning of Roe v. Wade (June 28, 2022), https://bit.ly/3zzGYsf.

[4] HHS, Guidance to Protect Patient Privacy in Wake of Supreme Court Decision on Roe (June 29, 2022),  https://bit.ly/3PE2rWK.

[5] 45 CFR 164.512(a)(1)

[6] 45 CFR 164.512(f)(1)

[7] 45 CFR 164.512(j)

[8] Id.

[9] See Texas S.B. 8; e.g., Fed. R. Civ. Pro. R.37 (outlining available sanctions associated with the failure to make disclosures or to cooperate in discovery in Federal courts), https://bit.ly/3BjX4I2.

[10] EBG Health Law Advisor, The Pendulum Swings Both Ways: State Responses to Protect Reproductive Health Data, Post-Roe (June 17, 2022), https://bit.ly/3oPDegl.

[11] A 2019 Kaiser Family Foundation survey concluded that almost one third of female respondents used a smartphone app to monitor their menstrual cycles and other reproductive health data. Kaiser Family Foundation, Health Apps and Information Survey (Sept. 2019), https://bit.ly/3PC9Gyt.

[12] HHS, Protecting the Privacy and Security of Your Health Information When Using Your Personal Cell Phone1 or Tablet (last visited Jul. 26, 2022), https://bit.ly/3S2MNWs.

[13] Id.

[14] Cal. Civ. Code § 56.10, Effective Jan. 1, 2022, https://bit.ly/3J5iDxM.

[15] 2022 Conn. Legis. Serv. P.A. 22-19 § 2 (S.B. 5414), Effective July 1, 2022, https://bit.ly/3zwn95c.

[16] FTC, Location, Health, and Other Sensitive Information: FTC Committed To Fully Enforcing the Law Against Illegal Use and Sharing of Highly Sensitive Data (July 11, 2022), https://bit.ly/3BjrzNV.

Article By Alaap B. Shah, Allen R. Killworth, Marylana Saadeh Helou, and Devon Minnick of Epstein Becker & Green, P.C.

For more privacy-related legal news, click here to visit the National Law Review.

©2022 Epstein Becker & Green, P.C. All rights reserved.

U.S. Government Pursues More Aggressive Action to Curb Espionage at Universities

The U.S. Governmental Accountability Office (GAO) thinks the FBI and other agencies are not doing enough to address the espionage threat on U.S. university campuses. It issued a report, “Enforcement Agencies Should Better Leverage Information to Target Efforts Involving U.S. Universities” on June 14, 2022, urging the FBI, the Department of Homeland Security, and the Department of Commerce to step up their outreach efforts to address the threat. Commerce, DHS, and FBI have all concurred with GAO’s recommendations. As a result, U.S. colleges and universities to face yet another organizational risk: an increase in campuses visits by export control and law enforcement agents.

The threat: U.S. export control laws consider the disclosure to non-U.S. persons of technology, software, or technical data to be exports, even if the disclosure occurs in the United States.

The overwhelming majority of non-U.S. persons studying and working at U.S. universities are not security risks and are valued members of their academic organizations. But U.S. intelligence agencies have long warned that foreign state actors actively acquire sensitive national security data and proprietary technology from U.S. universities.

A lot of the technology flow abroad from U.S. universities is perfectly legal, for two reasons: First, most university research, even in cutting-edge technology, is exempt from export controls under an exemption known as “fundamental research.” Second, even in cases where the fundamental research exemption does not apply, it takes time for the U.S. government agencies to add new items to the export control lists they enforce; namely the U.S. Munitions List, administered by the U.S. Department of State, Directorate of Defense Trade Controls; and the Commerce Control List, administered by the U.S. Department of Commerce, Bureau of Industry and Security.

But at the same time, either through inadvertence or outright espionage, unlawful transfers of technology to foreign nationals take place. A 2006 report by the U.S. Office of the National Counterintelligence Executive found that a significant quantity of export controlled U.S. technology is released to foreign nationals in the United States unlawfully each year.

Clash of values: One important issue for higher education in addressing trade controls compliance is cultural in nature. U.S. universities value open, collaborative environments which drive and accelerate innovation. For those institutions, the idea of cutting off information flows conflicts with those cultural norms. By contrast, U.S. export controls aim to protect U.S. national security by hindering the flow of sensitive information to potential adversaries.

GAO’s recommendations: The GAO report recommends that U.S. trade control agencies take more aggressive steps to curb foreign access to sensitive technologies at U.S. universities. The recommendations include steps to enhance risk assessment and ranking of universities by risk, and steps to increase agency cooperation in planning and conducting outreach visits to universities. As a direct result of this report, U.S. universities are going to receive more visits from U.S. government agents.

Practical takeaways:

  • Universities: Consider reevaluating your risk. The threat has evolved, and the U.S. government response is also evolving. A risk evaluation using modern tools such as a premortem can help you know where to dedicate resources to update your export control policies, procedures, and training. Any unlawful escape of technology or technical data are much more likely to be detected and punished under the new regime, in part based on the GAO report. Organizations have to evolve with the threat.
  • Students, faculty, and administrators: Consider how to jealously guard your academic freedom, but be wary of the national security risks of sensitive technology falling into the wrong hands.
  • Research sponsors: More and more U.S. university research is sponsored by U.S. companies and government agencies. Research sponsorship agreements play a major role in striving for both national security and academic goals of the U.S. university system. Sponsors need to be sensitive to how these agreements are drafted. Sponsors must be aware of the espionage threat to their technology. But imposing too many restrictions in the contract may undermine the applicability of the fundamental research exemption and hinder the success of the project.

Conclusion: In the face of organizational threats, institutions do best when they heed their values. In the realm of protecting sensitive technology, we must constantly evolve with the threat. But we must also continue to carefully balance national security considerations with our bedrock values of academic freedom and openness.

Article By J. Scott Maberry of Sheppard, Mullin, Richter & Hampton LLP

For more government and administrative legal news, click here to visit the National Law Review.

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.

Medicare CERT Audits and How to Prepare for Them

CERT audits are an unfortunate part of doing business for healthcare providers who accept Medicare. Failing the audit can mean the provider has to pay back overcharges and be subjected to increased scrutiny in the future. 

The best way to be prepared for a CERT audit is to have a compliance strategy in place and to follow it to the letter. Retaining a healthcare lawyer to craft that strategy is essential if you want to make sure that it is all-encompassing and effective. It can also help to hire independent counsel to conduct an internal review to ensure the compliance plan is doing its job.

When providers are notified of a CERT audit, hiring a Medicare lawyer is usually a good idea. Providers can fail the audit automatically if they do not comply with the document demands.

What is a CERT Audit?

The Comprehensive Error Rate Testing (CERT) program is an audit process developed by the Centers for Medicare and Medicaid Services (CMS). It is administered by private companies, called CERT Contractors, which work with the CMS. Current information about those companies is on the CMS website.

The CERT audit compares a sampling of bills for Medicare fee-for-service (FFS) payments, which were sent by the healthcare provider to its Medicare Administrative Contractor (MAC), against medical records for the patient. The audit looks at whether there is sufficient documentation to back up the claim against Medicare, whether the procedure was medically necessary, whether it was correctly coded, and whether the care was eligible for reimbursement through the Medicare program.

Every year, the CERT program audits enough of these FFS payments – generally around 50,000 per year – to create a statistically significant snapshot of inaccuracies in the Medicare program.

The results from those audits are reported to CMS. After appropriately weighing the results, CMS publishes the estimated improper payments or payment errors from the entire Medicare program in its annual report. In 2021, the CMS estimated that, based on data from the CERT audits, 6.26 percent of Medicare funding was incorrectly paid out, totaling $25.03 billion.

The vast majority of those incorrect payments, 64.1 percent, were marked as incorrect because they had insufficient documentation to support the Medicare claim. Another 13.6 percent were flagged as medically unnecessary. 10.6 percent was labeled as incorrectly paid out due to improper coding. 4.8 percent had no supporting documentation, at all. 6.9 percent was flagged as incorrectly paid for some other reason.

The CERT Audit Process

Healthcare providers who accept Medicare will receive a notice from a CERT Contractor. The notice informs the provider that it is being CERT audited and requests medical records from a random sampling of Medicare claims made by the provider to its MAC.

It is important to note that, at this point, there is no suspicion of wrongdoing. CERT audits examine Medicare claims at random.

Healthcare providers have 75 days to provide these medical records. Failing to provide the requested records is treated as an audit failure. In 2021, nearly 5 percent of failed CERT audits happened because no documentation was provided to support a Medicare claim.

Once the CERT Contractor has the documents, its team of reviewers – which consists of doctors, nurses, and certified medical coders – compares the Medicare claim against the patient’s medical records and looks for errors. According to the CMS, there are five major error categories:

  • No documentation

  • Insufficient documentation

  • Medical necessity

  • Incorrect coding

  • Other

Errors found during the CERT audit are reported to the healthcare provider’s MAC. The MAC can then make adjustments to the payments it sent to the provider.

Potential Repercussions from Errors Found in a CERT Audit

CERT audits that uncover errors in a healthcare provider’s Medicare billings lead to recoupments of overpayments, future scrutiny, and potentially even an investigation for Medicare fraud.

When the CERT audit results are brought to the MAC’s attention, the MAC will adjust the payments that it made to the provider. If the claims led to an overpayment, the MAC will demand that money back.

But Medicare Administrative Contractors (MACs) can go further than just demanding restitution for overpayments. They can also require prepayment reviews of all of the provider’s future Medicare claims, and can even suspend the provider from the program, entirely.

Worse still, CERT audits that uncover indications of Medicare fraud may be reported to a law enforcement agency for further review. This can lead to a criminal investigation and potentially even criminal charges.

Appealing a CERT Audit’s Results

With penalties so significant, healthcare providers should seriously consider hiring a lawyer to appeal the results of a CERT audit.

Appeals are first made to the MAC, requesting a redetermination of the audit results. The request for redetermination has to be made within 120 days of receiving notice of the audit results. However, if the provider wants to stop the MAC from recouping an overpayment in the meantime, it has to lodge the request within 30 days.

Providers can appeal the results of the redetermination, as well. They can request a reconsideration by a Qualified Independent Contractor within 180 of the redetermination, or within 60 days to stop the MAC’s recoupment process.

Providers who are still dissatisfied can appeal the case to an administrative law judge, then to the Medicare Appeals Council, and finally to a federal district court for review.

How to Handle a CERT Audit

The best way to handle and to prepare for a CERT audit is to hire Medicare audit attorneys to guide you through the process. It would also help to start internal audits within the company.

For providers who have been notified that they are under an audit, getting a lawyer on board immediately is essential. An experienced healthcare attorney can conduct a thorough internal investigation of the claims being audited. This can uncover potential problems before the audit points them out, giving the healthcare provider the time it needs to prepare its next steps.

Providers who are not currently being audited can still benefit from an attorney’s guidance. Whether by drafting a compliance plan that will prepare the provider for an inevitable CERT audit or by conducting an internal investigation to see how well a current compliance plan is performing, a lawyer can make sure that the provider is ready for an audit at a moment’s notice.

Taking these preventative steps soon is important. CMS put the CERT audit program on halt for the coronavirus pandemic, but that temporary hold was rescinded on August 11, 2020. While the CMS has reduced the sample sizes that will be used for its 2021 and 2022 reports, it will likely go back to the original numbers after that. Healthcare providers should prepare for this increased regulatory oversight appropriately.

Article By Dr. Nick Oberheiden of Oberheiden P.C.

For more litigation legal news, click here to visit the National Law Review.

Oberheiden P.C. © 2022

Monkeypox Outbreak Declared a Public Health Emergency

On August 4, 2022, the Biden administration declared the monkeypox outbreak a public health emergency. This comes at a time where the number of cases in the United States are rapidly rising and with cases found in almost every state. This declaration primarily affects testing and vaccination. The government’s focus on vaccination has primarily been on health care workers treating monkeypox patients and men who have sex with men. The declaration follows the World Health Organization’s (WHO) declaration last month of monkeypox as a public health emergency of international concern.

The information affecting the workplace is still somewhat limited. The U.S. Centers for Disease Control and Prevention (CDC) recommends that people with monkeypox remain isolated at home or in another location for the duration of the illness, which typically can last two to four weeks.

It is still not known if monkeypox can be spread through respiratory secretions. Accordingly, a well-fitting mask and frequent handwashing are likely important preventive measures.

Monkeypox can spread to anyone through close, personal, often skin-to-skin contact, including:

  • via direct contact with monkeypox rash, scabs, or body fluids from a person with monkeypox;

  • by touching objects, fabrics (clothing, bedding, or towels), and surfaces that have been used by someone with monkeypox; and

  • possibly through contact with respiratory secretions.

Employers may wish to educate their employees about monkeypox, including that employees with concerns should consult their physicians or health department, and may wish to inquire about testing and vaccination. Employers may also wish to consider how they will handle absences of up to one month, if remote work is not a possibility and/or when remote work is a possibility. Knowledge is often a way to avoid panic in the workplace and both the CDC and WHO have excellent fact sheets on their websites. State health agencies are likely to have them as well.

It may also be worthwhile to consider how to protect employees who are required to handle linens used by other people, people who are frequently in close contact with others for extended periods, or who come into close physical contact with others. For example, in its monkeypox congregate settings guidelines, the CDC recommends that personal protective equipment (PPE) be worn when cleaning the area where an individual with monkeypox has spent time.

The CDC also stated in its monkeypox congregate settings guidelines that “[e]mployers must comply with [the Occupational Safety and Health Administration’s] standards on Bloodborne Pathogens…, PPE…, Respiratory Protection…, and other requirements, including those established by state plans, whenever these requirements apply.”

Public health officials are emphasizing the fact that anyone can get monkeypox. The current outbreak is most prevalent among men having sex with other men, but can spread to anyone. Employers may want to stay attuned to any harassment or discrimination in the workplace resulting from misinformation about the disease.

Ogletree Deakins will continue to monitor and report on developments with respect to monkeypox.

Article By Katherine Dudley Helms of Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

For more labor and employment legal news, click here to visit the National Law Review.

© 2022, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.

Threats of Antitrust Enforcement in the Supply Chain

With steep inflation and seemingly constant disruptions in supply chains for all manner of goods, the Biden Administration has turned increasingly to antitrust authorities to tame price increases and stem future bottlenecks. These agencies have used the myriad tools at their disposal to carry out their mandate, from targeting companies that use supply disruptions as cover for anti-competitive conduct, to investigating industries with key roles in the supply chain, to challenging vertical mergers that consolidate suppliers into one firm. In keeping with the Administration’s “whole-of-government” approach to antitrust enforcement, these actions have often involved multiple federal agencies.

Whatever an entity’s role in the supply chain, that company can make a unilateral decision to raise its prices in response to changing economic conditions. But given the number of enforcement actions, breadth of the affected industries, and the government’s more aggressive posture toward antitrust enforcement in general, companies should tread carefully.

What follows is a survey of recent antitrust enforcement activity affecting supply chains and suggested best practices for minimizing the attendant risk.

Combatting Inflation as a Matter of Federal Antitrust Policy

Even before inflation took hold of the U.S. economy, the Biden Administration emphasized a more aggressive approach to antitrust enforcement. President Biden appointed progressives to lead the antitrust enforcement agencies, naming Lina Kahn chair of the Federal Trade Commission (FTC) and Jonathan Kanter to head the Department of Justice’s Antitrust Division (DOJ). President Biden also issued Executive Order 14036, “Promoting Competition in the American Economy.” This Order declares “that it is the policy of my Administration to enforce the antitrust laws to combat the excessive concentration of industry, the abuses of market power, and the harmful effects of monopoly and monopsony….” To that end, the order takes a government-wide approach to antitrust enforcement and includes 72 initiatives by over a dozen federal agencies, aimed at addressing competition issues across the economy.

Although fighting inflation may not have been the initial motivation for the President’s agenda to increase competition, the supply disruptions wrought by the COVID-19 pandemic and persistent inflation, now at a 40-year high, have made it a major focus. In public remarks the White House has attributed rising prices in part to the absence of competition in certain industries, observing “that lack of competition drives up prices for consumers” and that “[a]s fewer large players have controlled more of the market, mark-ups (charges over cost) have tripled.” In a November 2021 statement declaring inflation a “top priority,” the White House directed the FTC to “strike back at any market manipulation or price gouging in this sector,” again tying inflation to anti-competitive conduct.

The Administration’s Enforcement Actions Affecting the Supply Chain

The Administration has taken several antitrust enforcement actions in order to bring inflation under control and strengthen the supply chain. In February, the DOJ and FBI announced an initiative to investigate and prosecute companies that exploit supply chain disruptions to overcharge consumers and collude with competitors. The announcement warned that individuals and businesses may be using supply chain disruptions from the COVID-19 pandemic as cover for price fixing and other collusive schemes. As part of the initiative, the DOJ is “prioritizing any existing investigations where competitors may be exploiting supply chain disruptions for illicit profit and is undertaking measures to proactively investigate collusion in industries particularly affected by supply disruptions.” The DOJ formed a working group on global supply chain collusion and will share intelligence with antitrust authorities in Australia, Canada, New Zealand, and the UK.

Two things stand out about this new initiative. First, the initiative is not limited to a particular industry, signaling an intent to root out collusive schemes across the economy. Second, the DOJ has cited the initiative as an example of the kind of “proactive enforcement efforts” companies can expect from the division going forward. As the Deputy Assistant Attorney General for Criminal Enforcement put it in a recent speech, “the division cannot and will not wait for cases to come to us.”

In addition to the DOJ’s initiative, the FTC and other federal agencies have launched more targeted inquiries into specific industries with key roles in the supply chain or prone to especially high levels of inflation. Last fall, the FTC ordered nine large retailers, wholesalers, and consumer good suppliers to “provide detailed information that will help the FTC shed light on the causes behind ongoing supply chain disruptions and how these disruptions are causing serious and ongoing hardships for consumers and harming competition in the U.S. economy.” The FTC issued the orders under Section 6(b) of the FTC Act, which authorizes the Commission to conduct wide-ranging studies and seek various types of information without a specific law enforcement purpose. The FTC has in recent months made increasing use of 6(b) orders and we expect may continue to do so.

Amid widely reported backups in the nation’s ports, the DOJ announced in February that it was strengthening its partnership with and lending antitrust expertise to the Federal Maritime Commission to investigate antitrust violations in the ocean shipping industry. In a press release issued the same day, the White House charged that “[s]ince the beginning of the pandemic, these ocean carrier companies have been dramatically increasing shipping costs through rate increases and fees.” The DOJ has reportedly issued a subpoena to at least one major carrier as part of what the carrier described as “an ongoing investigation into supply chain disruption.”

The administration’s efforts to combat inflation through antitrust enforcement have been especially pronounced in the meat processing industry. The White House has called for “bold action to enforce the antitrust laws [and] boost competition in meat processing.” Although the DOJ suffered some well-publicized losses in criminal trials against some chicken processing company executives, the DOJ has obtained a $107 million guilty plea by one chicken producer and several indictments.

Most recently, the FTC launched an investigation into shortages of infant formula, including “any anticompetitive [] practices that have contributed to or are worsening this problem.” These actions are notable both for the variety of industries and products involved and for the multitude of enforcement mechanisms used, from informal studies with no law enforcement purpose to criminal indictments.

Preventing Further Supply-Chain Consolidation

In addition to exposing and prosecuting antitrust violations that may be contributing to inflation and supply issues today, the Administration is taking steps to prevent further consolidation of supply chains, which it has identified as a root cause of supply disruptions. DOJ Assistant Attorney General Kanter recently said that “[o]ur markets are suffering from a lack of resiliency. Among many other things, the consequences of the pandemic have revealed supply chain fragility. And recent geopolitical conflicts have caused prices at the pump to skyrocket. And, of course, there are shocking shortages of infant formula in grocery stores throughout the country. These and other events demonstrate why competition is so important. Competitive markets create resiliency. Competitive markets are less susceptible to central points of failure.”

Consistent with the Administration’s concerns with consolidation in supply chains, the FTC is more closely scrutinizing so-called vertical mergers, combinations of companies at different levels of the supply chain. In September 2021, the FTC voted to withdraw its approval of the Vertical Merger Guidelines published jointly with the DOJ the year before. The Guidelines, which include the criteria the agencies use to evaluate vertical mergers, had presumed that such arrangements are pro-competitive. Taking issue with that presumption, FTC Chair Lina Khan said the Guidelines included a “flawed discussion of the purported pro-competitive benefits (i.e., efficiencies) of vertical mergers” and failed to address “increasing levels of consolidation across the economy.”

In January 2022, the FTC and DOJ issued a request for information (RFI), seeking public comment on revisions to “modernize” the Guidelines’ approach to evaluating vertical mergers. Although the antitrust agencies have not yet published revised Guidelines, the FTC has successfully blocked two vertical mergers. In February, semiconductor chipmaker, Nvidia, dropped its bid to acquire Arm Ltd., a licenser of computer chip designs after two months of litigation with the FTC. The move “represent[ed] the first abandonment of a litigated vertical merger in many years.” Days later Lockheed Martin, faced with a similar challenge from the FTC, abandoned its $4.4 billion acquisition of missile part supplier, Aerojet Rocketdyne. In seeking to prevent the mergers, the FTC cited supply-chain consolidation as one motivating factor, noting for example that the Lockheed-Aerojet combination would “further consolidate multiple markets critical to national security and defense.”

Up Next? Civil Litigation

This uptick in government enforcement activity and investigations may lead to a proliferation of civil suits. Periods of inflation and supply disruptions are often followed by private plaintiff antitrust lawsuits claiming that market participants responded opportunistically by agreeing to raise prices. A spike in fuel prices in the mid-2000s, for example, coincided with the filing of class actions alleging that four major U.S. railroads conspired to impose fuel surcharges on their customers that far exceeded any increases in the defendants’ fuel costs, and thereby collected billions of dollars in additional profits. That case, In re Rail Freight Fuel Surcharge Antitrust Litigation, is still making its way through the courts. Similarly, in 2020 the California DOJ brought a civil suit against two multinational gas trading firms claiming that they took advantage of a supply disruption caused by an explosion at a gasoline refinery to engage in a scheme to increase gas prices. All indicators suggest that this trend will continue.

Reducing Antitrust Risk in the Supply Chain and Ensuring Compliance

Given the call to action for more robust antitrust enforcement under Biden’s Executive Order 14036 and the continued enhanced antitrust scrutiny of all manner of commercial activities, companies grappling with supply disruptions and rampant inflation should actively monitor this developing area when making routine business decisions.

As a baseline, companies should have an effective antitrust compliance program in place that helps detect and deter anticompetitive conduct. Those without a robust antitrust compliance program should consider implementing one to ensure that employees are aware of potential antitrust risk areas and can take steps to avoid them. If a company has concerns about the efficacy of its current compliance program, compliance reviews and audits – performed by capable antitrust counsel – can be a useful tool to identify gaps and deficiencies in the program.

Faced with supply chain disruptions and rampant inflation, many companies have increased the prices of their own goods or services. A company may certainly decide independently and unilaterally to raise prices, but those types of decisions should be made with the antitrust laws in mind. Given the additional scrutiny in this area, companies may wish to consider documenting their decision-making process when adjusting prices in response to supply chain disruptions or increased input costs.

Finally, companies contemplating vertical mergers should recognize that such transactions are likely to garner a harder look, and possibly an outright challenge, from federal antitrust regulators. Given the increased skepticism about the pro-competitive effects of vertical mergers, companies considering these types of transactions should consult antitrust counsel early in the process to help assess and mitigate some of the risk areas with these transactions.

Article By Elizabeth A. N. Haas, Ian T. Hampton, and Kate E. Gehl of Foley & Lardner LLP

For more antitrust legal news, click here to visit the National Law Review.

© 2022 Foley & Lardner LLP

GAO Publishes Report on Technologies for PFAS Assessment, Detection, and Treatment

The U.S. Government Accountability Office (GAO) published a report on July 28, 2022, entitled Persistent Chemicals: Technologies for PFAS Assessment, Detection, and Treatment. GAO was asked to conduct a technology assessment on per- and polyfluoroalkyl substances (PFAS) assessment, detection, and treatment. The report examines the technologies for more efficient assessments of the adverse health effects of PFAS and alternative substances; the benefits and challenges of current and emerging technologies for PFAS detection and treatment; and policy options that could help enhance benefits and mitigate challenges associated with these technologies. GAO assessed relevant technologies; surveyed PFAS subject matter experts; interviewed stakeholder groups, including government, non-governmental organizations (NGO), industry, and academia; and reviewed key reports. GAO identified three challenges associated with PFAS assessment, detection, and treatment technologies:

  • PFAS chemical structures are diverse and difficult to analyze for health risks, and machine learning requires extensive training data that may not be available;
  • Researchers lack analytical standards for many PFAS, limiting the development of effective detection methods; and
  • The effectiveness and availability of disposal and destruction options for PFAS are uncertain because of a lack of data, monitoring, and guidance.

GAO developed the following three policy options that could help mitigate these challenges:

  • Promote research: Policymakers could support development of technologies and methods to more efficiently research PFAS health risks. This policy option could help address the challenge of limited information on the large number and diversity of PFAS, as well as a lack of standardized data sets for machine learning;
  • Expand method development: Policymakers could collaborate to improve access to standard reference samples of PFAS and increase the pace of method and reference sample development for PFAS detection. This policy option could help address the challenges of a lack of validated methods in media other than water, lack of analytical standards, and cost, which all affect researchers’ ability to develop new detection technologies; and
  • Support full-scale treatment: Policymakers could encourage the development and evaluation of full-scale technologies and methods to dispose of or destroy PFAS. This policy option could help address the challenges of cost and efficiency of disposal and destruction technologies and a lack of guidance from regulators.

GAO notes that these policy options involve possible actions by policymakers, which may include Congress, federal agencies, state and local governments, academia, and industry.

Article By Lynn L. Bergeson and Carla N. Hutton of Bergeson & Campbell, P.C.

For more environmental legal news, click here to visit the National Law Review.

©2022 Bergeson & Campbell, P.C.