The National Law Forum

Social Security Administration ‘No Match’ Letters to Employers Make Another Comeback

Social Security Administration (SSA) has begun notifying employers that the information reported on an individual employee’s W-2 form does not match the SSA’s records with “Request for Employer Information” letters, known as “No-Match” letters.

SSA started sending these controversial informational requests in 1993, but the practice has waxed and waned in part due to litigation. In 2011, SSA resumed the practice of notifying employers of social security number mismatches. But in 2012, the Obama Administration decided to simply stop the practice.

Now, the letters are back! In July 2018, probably in response to President Donald Trump’s Buy American, Hire American Executive Order, SSA re-started the practice by sending “informational notifications” to employers and third party providers telling them of mismatches on their 2017 Forms W-2 and explaining where to find helpful resources. The plan was to send 225,000 of these notices every two weeks. Starting in Spring 2019, notices will be sent regarding 2018 Forms W-2s, but these letters, unlike the “informational” letters, will tell employers that corrections are necessary.

A mismatch does not necessarily mean that there is any wrongdoing. It can be caused by an administrative error: numbers can be reversed, names might be misspelled or changed, for instance, due to marriage. But once a letter is received, in determining how to respond, employers find themselves caught between agencies. SSA wants to maintain accurate records of earnings. ICE wants to ensure compliance with employment verification laws. And the Immigrant and Employee Rights Section of the Department of Justice (IER) wants to ensure that employers are not discriminating on the basis of citizenship, nationality or by pursuing unfair documentary practices in violation of the INA.

What is an employer to do?

Don’t take any adverse action against an employee based on a No-Match letter alone.
Compare the SSA information with the individual’s employment records.
If the employer’s records match, ask the employee to check the name and number on his or her Social Security card.
If there is a mistake on the card or the card needs to be changed or corrected, ask the employee to reach out to SSA to resolve the issue.

There are no “safe harbors.” Each case is different and must be analyzed individually to avoid missteps and penalties from either SSA, ICE, or IER.

This post was written by Sean G. Hanagan of Jackson Lewis P.C.

Now I Get It!: Using the FCC’s Order Keeping Text Messages as “Information Services” to Better Understand the Communications Act

Little known fact: the TCPA is just a tiny little part of something much bigger and more complex called the Communications Act of 1934, as amended by Telecom Act of 1996 (which the FCC loves to just call the “Communications Act.”) And yes, I know the TCPA was enacted in 1991 but trust me it is still part of the Communications Act of 1934.

The Communications Act divides communications services into two mutually exclusive types: highly regulated “telecommunications services” and lightly regulated “information services.”

So let’s look at some definitions:

A “telecommunications service” is a common carrier service that requires “the offering of telecommunications for a fee directly to the public, or to such classes of users as to be effectively available to the public, regardless of the facilities used.”

“Telecommunications” is “the transmission, between or among points specified by the end user, of information of the user’s choosing without change in the form or content of the information as sent and received.”

By contrast, an “information service” is “the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications, and includes electronic publishing, but does not include any use of any such capability for the management, control, or operation of a telecommunications system or the management of a telecommunications service.”

Make sense so far? Basically a telecommunications service is something that telecommunications companies–who are common carriers– can’t tinker with and have to automatically connect without modifying. For instance, if I want to call my friends from law school and wish them well Verizon can’t say–wait a minute, Eric doesn’t have any friends from law school and refuse to connect the call. Verizon must just connect the call. It doesn’t matter who I am calling, how long the call will be, or why I’m making the call, the call must connect. The end.

Information services are totally different animals. Carriers can offer or not offer and tinker and manipulate such messages all they want–see also net neutrality.

So if text messages are a telecommunication then they must be connected without question. But if text messages are an information service then carriers can decide which messages get through and which don’t.

It might seem like you’d want text messages to be information services–after all why would we want the carriers determining how and when we can text each other? Well the FCC has an answer– automatic spam texts.

If text messages are subject to common carrier rules then people can blast your phone with spam text messages and the carriers can’t stop them. True the TCPA exists so you can sue the texter but–as we know–the vast majority of spammers are shady fly-by-nights or off-shore knuckleheads that you can’t find. So the FCC believes that keeping text messages categorized as “information services”–as they are currently defined–will keep spammers away from your SMS inbox. It issued a big order today accomplishing just that.

And to be sure, the carriers are monitoring and block spam texts as we speak. As the FCC finds: “wireless messaging providers apply filtering to prevent large volumes of unwanted messaging traffic or to identify potentially harmful texts.” The FCC credits these carrier efforts with keeping text messages relatively spam free:

For example, the spam rate for SMS is estimated at 2.8% whereas the spam rate for email is estimated at over 50%. Wireless messaging is therefore a trusted and reliable form of communication for many Americans. Indeed, consumers open a far larger percentage of wireless messages than email and open such messages much more quickly.

So from a policy perspective keeping text messages as information services probably makes sense, but let’s review those definitions again.

A telecommunication service is essentially the transmission of information of the user’s choosing.

An information service is “the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications.”

So is a text message the transmission of information of my choosing or is it the use of Verizon’s ability to store and retrieve information I am sending? (And is there really even a difference?)

Well the FCC says texts are absolutely information services and here’s why:

SMS and MMS wireless messaging services provide the capability for “storing”
and “retrieving” information. When a user sends a message, the message is routed through servers on mobile networks. When a recipient device is unavailable to receive the message because it is turned off, the message will be stored at a messaging center in the provider’s network until the recipient device is able to receive it.
SMS and MMS wireless messaging services also involve the capability for “acquiring” and “utilizing” information. As CTIA explains, a wireless subscriber can “ask for and receive content, such as weather, sports, or stock information, from a third party that has stored that information on its servers. SMS subscribers can ‘pull’ this information from the servers by making specific requests, or they can signal their intent to have such information regularly ‘pushed’ to their mobile phone.
SMS and MMS wireless messaging services involve “transforming” and
“processing” capabilities. Messaging providers, for example, may change the form of transmitted information by breaking it into smaller segments before delivery to the recipient in order to conform to the character limits of SMS.

Yeah…I guess. But realistically when I send a text I just want it to get there there the way I sent it. Maybe there’s some storing and utilizing and processing or whatever but not very much.

And that was Twilio’s point. It asserted: “the only offering that wireless carriers make to the public, with respect to messaging, is the ability of consumers to send and receive messages of the consumers’ design and choosing.” That sounds right.

Well the FCC disagrees: “These arguments are unpersuasive.”

The FCC’s point is that “what matters are the capabilities offered by the service, and as we explain above, wireless messaging services feature storage, retrieval, and other information-processing capabilities.”

Hmmm. ok. I guess I’m ok with that if you are.

But let’s get to the good stuff from a TCPA perspective. Recall that a text message is a “call” for purposes of the TCPA. Well if a text isn’t even a telecommunication how can it be a call? Asks Twilio.

Yeah, FCC, how can it be a call? Asks the Czar.

The Commission answers:

the Commission’s decision merely clarified the meaning of the undefined term “call” in order to address the obligations that apply to telemarketers and other callers under the TCPA. That decision neither prohibits us from finding that wireless messaging service is an information service, nor compels us to conclude that messaging is a telecommunications service.

Ok. Well. Why not?

The Commission answers further:

The TCPA provision itself generally prohibits the use of a facsimile machine to send
unsolicited advertisements, but that does not constitute a determination that an individual’s sending of a fax is a telecommunications service, just as the application to an individual’s making “text calls” does not reflect a determination that wireless messaging is a telecommunications service. In any event, for purposes of regulatory treatment, there is a significant difference between being subject to Commission regulation and being subject to per se common carrier regulation. Only the latter requires classification as a telecommunications service. We clarify herein that SMS and MMS wireless messaging are Title I services, and thus, will not be subject to per se common carrier regulation.

Umm FCC, no disrespect intended, but I kind of feel like that doesn’t really answer the question.

But in any event, the FCC plainly believes that text messages are a “call” for purposes of the TCPA but are not a “telecommunication” for purposes of common carrier regulation.

From a policy perspective I’m fine with the conclusion the Commission reached–it makes sense to keep text messages free from spam. But we have to be honest with ourselves here, the Commission just did legal somersaults to get there. Maybe its time for Congress to take another look at the Communications Act hmmm?

In any event, now you get it!

This post was written by Eric Troutman of Womble Bond Dickinson (US) LLP.

Read more news about the TCPA at the National Law Review.

No vaccine? No job! Court affirms employer’s ability to condition employment upon vaccinations

On December 7, 2018, the U.S. Eighth Circuit Court of Appeals held that an employee who was terminated for refusing to take a rubella vaccine was not discriminated or retaliated against, under the Americans with Disabilities Act, as amended (“ADA”). See Hustvet v. Allina Health System, Case No. 17-2963.

In this case, Janet Hustvet worked as an Independent Living Skills Specialist. In May 2013, Hustvet completed a health assessment, during which she stated she did not know whether she was immunized for rubella. Subsequent testing confirmed she was not. Her employer — Allina Health Systems — then told Hustvet she would need to take one dose of the Measles, Mumps, Rubella vaccine (“MMR vaccine”). Hustvet stated to an Allina representative that she was concerned about the MMR vaccine because she had previously had a severe case of mumps and had “many allergies and chemical sensitivities.” Later, Hustvet refused to take the MMR vaccine, and was terminated for failure to comply with Allina’s immunity requirements. Hustvet then sued Allina, alleging discrimination, unlawful inquiry, and retaliation claims under the ADA and Minnesota state law. The district court granted Allina’s motion for summary judgment, and Hustvet appealed.

On appeal, the Eighth Circuit first addressed Hustvet’s unlawful inquiry claim; specifically, Hustvet alleged that Allina violated the ADA when it required her to complete a health screen as a condition of employment. When affirming the district court’s grant of summary judgment, the court explained that the information requested and the medical exam, which tested for immunity to infectious diseases, were related to essential, job related abilities. Indeed, Allina sought to ensure their patient-care providers would not pose a risk of spreading certain diseases – such as rubella – to its client base. Thus, the inquiry was job-related and consistent with business necessity.

The court then did away with Hustvet’s discrimination claim based upon failure to accommodate because Hustvet was not disabled and, thus, she could not state a prima facie case of disability discrimination. There was simply no record evidence to support the conclusion that Hustvet’s purported “chemical sensitivities” or allergies substantially limited any of Hustvet’s major life activities. She was never hospitalized due to an allergic or chemical reaction, never saw an allergy specialist, and was never prescribed an EpiPen. Rather, Hustvet suffered from “garden-variety allergies,” which was not enough to conclude she was disabled.

Finally, the court affirmed the district court’s grant of summary judgment regarding Hustvet’s retaliation claim. In pertinent part, the court reasoned that Hustvet could not show that Allina’s proffered reason for terminating her employment – her refusal to take an MMR vaccine – was a pretext for discrimination. The record evidence demonstrated that Allina terminated Hustvet’s employment because her job required her to work with potentially vulnerable patient populations, and she refused to become immunized to rubella, an infectious disease.

This decision comes as welcome news to employers that provide healthcare-related services, and confirms that healthcare providers may condition employment upon taking certain vaccinations, so long as the vaccination is job-related and consistent with business necessity. Employers with questions regarding implementing or enforcing such policies would do well to consult with able counsel.

This post was written by Cary Burke of Polsinelli PC.

Japan’s Labor Reform Caps Overtime in a Bid to Curb Karoshi

From low productivity to the death of citizens by overwork, Japan’s labor practices have long maintained a complicated relationship with the country’s workforce. The problem of death by overwork is so prevalent the Japanese have created a word for it: karoshi. On June 29, 2018, Japan passed the “Work Style Reform Law” (the Law) to address some of these issues.

Currently, Japanese law permits employers to enter into special agreements with employees that require them to work an unlimited number of overtime hours. The Law however, generally will limit overtime work to 45 hours per month with a maximum of 360 hours in a year. During busy periods, the overtime limit will be relaxed allowing for up to 100 hours of overtime not to exceed a maximum of 720 hours in a year. In addition, employees may not work, on average, more than 80 hours of overtime per month. This figure will be averaged over a period of two, three, four, five, and six consecutive months. These overtime provisions will go into effect in April 2019 for large employers and April 2020 for small and mid-sized employers. Violation of these provisions will subject employers to financial penalties.

Highly skilled professional workers, however, are exempt from the protection of these overtime provisions. Under the law, highly skilled professional workers must: (i) work a job requiring specialized skills, and; (ii) earn an annual salary of ¥10.75 million or more (roughly $95,000 USD). Labor reform supporters have sharply criticized this exemption as a license to continue the practice of overwork. Meanwhile, supporters of the Law have characterized the exemption as a nod to the working style of professionals where hours and results do not necessarily correlate. Future administrative guidelines will provide employers insight as to what jobs fall into the exemption. The exemption will take effect in April 2019.

In addition, the Law will require employers to treat regular and fixed-term employees equally. Although further administrative guidelines will be issued regarding this provision, employers should: (i) prepare to provide increased compensation and benefits for fixed-term and other non-regular employees; and (ii) begin reviewing the compensation differences between their regular and fixed-term employees to identify any disparities. Enforcement of this provision will likely involve disclosure requirements for employers. This provision will take effect in April 2020 for large employers and April 2021 for small and mid-sized employers.

The Law also contains provisions mandating the use of paid time off. Japanese labor culture has long led to a chronic and voluntary under-usage of paid time off by employees. The Law addresses this issue by requiring that employees entitled to 10 days of annual paid leave or more use at least five of those days each year.

The use of a work-interval system is also encouraged under the law. The law notes that employers should “make efforts” to ensure that there is a minimum interval between the end of a day’s working hours and the beginning of the next day’s working hours. This provision will take effect in April 2019.

This post was written by Erika C. Collins,Daniel Ornstein and Tony S. Martinez of Proskauer Rose LLP.

Intentional Accidents: California Supreme Court Announces that General Commercial Liability Policies Apply to Negligent Hiring, Training, and Supervising Claims for Failing to Prevent Intentional Torts

In a recent decision, the U.S. Court of Appeals for the Ninth Circuit observed that under California law, there was an unresolved question as to whether a commercial general liability (“CGL”) insurance policy covers an employer-insured for negligently failing to prevent an employee’s intentional misconduct. In essence, it was unclear whether such an incident constituted an “occurrence” that only covers “accidents,” as an intentional act cannot, by definition, be an accident. Through a certified question from the U.S. Ninth Circuit Court of Appeals, the California Supreme Court answered that such insurance policies indeed cover negligent hiring, training, and supervision claims because the crux of inquiry is the insured’s negligence—not the employee’s intent.

In Liberty Surplus Insurance Corporation, et al. v. Ledesma and Meyer Construction Company, Inc., No. 14-56120 (9th Cir. Oct. 19, 2018), the insured construction company was sued because its employee sexually abused a minor. Ledesma and Meyer Construction Company, Inc. (“L&M”) had been retained by a school district to oversee the construction of a middle school. During the course of construction, an employee sexually abused a 13-year-old student. The student sued L&M alleging claims of negligent hiring, training, and supervision of the employee that committed the intentional tort.

L&M’s CGL carrier filed a declaratory judgment action in federal district court, alleging that the claim against L&M was not covered by the insurance policy because it was premised on an intentional act. The district court granted summary judgment in favor of the plaintiff insurer. It reasoned that, because the policy covered “bodily injury” that was “caused by an occurrence,” and because an “occurrence” is defined as an “accident,” the claims for negligent hiring, training, and supervision were too attenuated from the intentional injury-causing conduct to trigger coverage.

On appeal, the Ninth Circuit certified the question of coverage to the California Supreme Court. The Supreme Court rephrased the question as follows: “When a third party sues an employer for the negligent hiring, training, and supervision of an employee who intentionally inured that third party, does that suit allege an ‘occurrence’ under the employer’s commercial general liability policy?” The Supreme Court answered in the affirmative, reasoning that, “[b]ecause the term ‘accident’ includes negligence, a policy which defines ‘occurrence’ as an ‘accident’ provides ‘coverage for liability resulting from the insured’s negligent acts.’” (internal citations omitted). On the basis of this answer, the Ninth Circuit reversed the district court’s decision and remanded for further proceedings.

This decision solidifies what amounts to an expansion of insurance coverage in the Ninth Circuit over an employer-insured’s employee’s intentional acts, where the claims are premised on the employer-insured’s negligent hiring and supervision of the employee. Underwriters should take note and consider appropriate exclusions and/or pricing of premiums of insured risks in California and elsewhere in the Ninth Circuit.

This post was written by D. Barret Broussard of Carlton Fields Jorden Burt, P.A

The Illinois Constitution and Taxes

The Illinois Constitution was adopted on December 15, 1970. The constitution sets forth the taxing powers of home rule units and describes the exclusive power of the General Assembly to raise revenue. Because the constitution creates the framework for how Illinois’ taxing system functions, this post will discuss the constitution’s general structure and the impact it has on Illinois taxes.

Background

In 1968, the people of Illinois called a constitutional convention to “modernize, shorten, and liberalize” its 1870 constitution. One of the advocates for the convention was Chicago mayor, Richard J. Daley, who sought two primary goals: (1) obtain constitution home rule power for the City of Chicago, and (2) to allow for classification of real property for ad valorem taxation purposes.^[1] Another important motivating factor for revising the constitution was to abolish the state’s personal property tax, which was generally seen as disproportionately affecting downstate taxpayers as compared to those located in Chicago.^[2] At the end of the convention, the state voted to adopt the constitution.

The Illinois Constitution of 1970 is composed of fourteen articles. Article VII relates to “Local Government,” Section 6 of which is dedicated to describing the powers of home rule units. Article IX describes the General Assembly’s revenue power. These two sections are the most important in understanding the constitutional constraints on Illinois tax.

Powers of Home Rule Units

As we have discussed with respect to Chicago and Cook County, the Illinois constitution grants home rule authority to counties and municipalities which have a population of more than 25,000.^[3] Other municipalities may elect by referendum to become home rule units or, alternatively, home rule units may by referendum elect not to be a home rule unit. To the extent home rule county ordinances conflict with municipality ordinances, the municipal ordinance will prevail.^[4]

Although home rule units appear to have plenary authority, the constitution does limit their powers. Home rule units only have the power granted by the General Assembly “to license for revenue or impose taxes upon or measured by income or earnings or upon occupations.”^[5] Moreover, the General Assembly may limit home rule power to tax where the General Assembly approves such preemption by a three-fifths vote.^[6] Otherwise, home rule units may exercise and perform concurrently with the state any power or function of a home rule unit to the extent the General Assembly does not specifically limit the home rule unit’s exercise of such powers or specifically declare the state’s exercise of a similar power to be exclusive.^[7]

These constitutional revisions “drastically altered the balance of power between [Illinois] state and local governments, giving local governments greater autonomy.”^[8] Indeed, the Illinois Supreme Court has explained that these provisions were “drafted with the intent to give home rule units the broadest power possible under the constitution.”^[9] Nonetheless, the three most meaningful limitations on home rule units contained in the constitution are that home rule units may not license for revenue, impose income taxes, or impose occupation taxes without the explicit grant of authority from the General Assembly.

While Illinois courts have been somewhat hesitant to strike down home rule taxes on the basis that such taxes are impermissible occupation taxes, the Illinois Supreme Court, in 1982, struck down a City of Chicago tax which taxed certain services.^[10] The court explained that delegates from the constitutional convention “saw the occupation tax as a corollary to the sales tax which would extend that tax to services, and […] equated the occupation tax with a tax on services.”^[11] Thus, generally speaking, home rule units may only impose taxes on services to the extent permitted by the General Assembly.

State Revenue Power

The General Assembly has the exclusive power to raise Illinois revenue except as limited or otherwise provided by the Constitution. The General Assembly may not surrender, suspend, or contract the power to tax away.^[12] Similar to many other states, Illinois has a “Uniformity Clause,” which states that “[i]n any law classifying the subjects or objects of non-property taxes or fees, the classes shall be reasonable and the subjects and objects within each class shall be taxed uniformly. Exemptions, deductions, credits, refunds and other allowances shall be reasonable.”^[13]

The Illinois Constitution also dictates that any income taxes must be at one set rate and may not be graduated. Moreover, income taxes may only be imposed once on individuals and corporations, but tax rates imposed on corporations may differ from tax rates on individuals, so long as corporations are not taxed at a ratio greater than 8 to 5 when compared to individual tax rates.^[14]A number of constitutional amendments have recently been proposed to amend the constitution to allow for a progressive income tax.^[15]

Another important aspect of the Illinois Constitution is that counties with a population of more than 200,000 may classify real property for purposes of taxation.^[16] These classifications must be reasonable and assessment of tax must be uniform within each class. Moreover, real property used in farming in a county may not be assessed at a higher level of assessment than single family residential real property in the county.^[17]

Finally, the constitution provides that the “General Assembly by law may classify personal property for purposes of taxation by valuation, abolish such taxes on any or all classes and authorize the levy of taxes in lieu of the taxation of personal property by valuation.”^[18] The constitution required, on or before January 1, 1979, the General Assembly to abolish all ad valorem personal property taxes and to replace all revenue lost as a result by imposing statewide taxes on those classes relieved of the burden of paying ad valorem personal property taxes. To the extent such taxes are measured by income, “such replacement tax shall not be considered for purposes of the limitations of one tax and the ratio of 8 to 5” regarding personal and corporate income taxes. The resulting “replacement income tax” is imposed on corporations at a rate of 2.5% of the taxpayer’s net income and for S corporations, partnerships, and trusts, is imposed at a rate of 1.5% of the taxpayer’s net income.^[19] The Illinois Supreme Court has confirmed that the constitution’s prohibition on personal property tax is permanent, and such taxes may not be resurrected in the absence of a constitutional amendment.^[20]

Conclusion

The Illinois General Assembly retains a substantial amount of authority to structure the state revenue system as it desires. However, the 1970 Constitution provides home rule localities significant power to do the same absent preemption by the General Assembly. Understanding this unique balance provides useful insight into how to navigate Illinois state and local revenue laws.

_{[1] Ann M. Lousin, Where are we at? The Illinois Constitution after Forty-Five Years, 48 J. Marshall L. Rev. 1 (2014).}

_{[2] Id; see also Client Follow-Up Co. v. Hynes, 75 Ill. 2d 208 (1979).}

_{[3] Ill. Const. Art. VII, Sec. 6.}

_{[4] Id. at (c).}

_{[5] Id. at (e).}

_{[6] Id. at (g).}

_{[7] Id. at (i).}

_{[8] Blanchard v. Berrios, 410 Ill. Dec. 923, 923 (2016) (internal quotation removed); City of Chicago v. StubHub}_,Inc._{, 366 Ill. Dec. 43 (2011).}

_{[9] Id. (internal quotations omitted).}

_{[10] Commercial Nat’l Bank v. Chicago, 89 Ill. 2d 45 (1982).}

_{[11] Id. at 54-55 (internal quotations omitted).}

_{[12] Ill. Const. Art. IX, Sec. 1.}

_{[13] Id. at Sec. 2.}

_{[14] Id. at Sec. 3.}

_{[15] See Senate Joint Resolution Constitutional Amendments 1, 16, and 39.}

_{[16] Ill. Const. Art. IX, Sec. 4.}

_[17] Id.

_{[18] Id. at Sec. 5.}

_{[19] 35 ILCS 5/201(d).}

Preliminary approval of class action settlement for Experian data breach exceeds $47M

Remember Experian’s massive data breach of 15 million customers in 2015? The resulting consolidated class action is nearly resolved. On December 3, 2018, a California federal judge granted preliminary approval to a proposed class settlement valued at over $47 Million.

Forty lawsuits against Experian were consolidated in the U.S. District Court for the Central District of California. The class members, all T-Mobile USA customers, may have had their names, addresses, Social Security numbers, birth dates and passport numbers compromised in the breach.

Strictly speaking, this is no longer a FCRA case. In December 2016, the court granted in part Experian’s motion to dismiss, agreeing with Experian that it did not furnish a consumer report in violation of the FCRA because “[t]heft victims don’t ‘provide’ a thief with stolen goods.”

The settlement includes a $ 22 million nonreversionary settlement fund, which will be used to provide two years of credit-monitoring and insurance services to class members who submit valid claims, cash payments for out-of-pocket costs and documented time spent due to the data breach, $2,500 service awards for each class representative, as well as attorneys’ fees and costs, not to exceed $10.5 million. In addition, $11.7 million must be set aside for remedial and enhanced security measures at Experian.

This post was written by John C. Hawk IV of Womble Bond Dickinson (US) LLP.

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A Year-End Estate and Financial Planning Checklist: Make Your List and Check it Twice

During the holidays, it can be hard to find the time (or desire) to review your finances and estate plan. To help with that effort, here is a short list of things that you can easily accomplish before the ball drops on New Years’ Eve.

1. Review required minimum distributions (“RMDs”). If you’re 70½ or older, you must take RMDs from certain retirement accounts by December 31 or face a penalty equal to 50% of the sum you failed to withdraw. If you turned 70½ this year, you have until April 1, 2019, to take your first RMD without penalty. (However, note that deferring your first RMD to 2019 will mean taking two RMDs in the same tax year, which could bump you into a higher income tax bracket). These rules also apply in the case of an inherited or “stretch” IRA. Generally, you must begin taking RMDs for inherited IRA assets by December 31 of the year after the year of the original owner’s death, but certain exceptions may apply. The IRS provides some helpful worksheets here.

2. Reduce taxable income and rebalance investments. Work with your financial advisors to sell losing positions in taxable investment accounts as necessary to offset gains. Then review your asset allocation and, if necessary, rebalance your investment portfolio.

3. Max out company retirement plan contributions. In 2018, you can contribute up to $18,500 in your employer-sponsored retirement plan (i.e., 401(k), 403(b), most 457 plans, and the Federal government’s Thrift Savings Plan). Employees aged 50 or older who participate in such plans can contribute an additional $6,000 in “catch-up” contributions. If you are not able to contribute the maximum, try to contribute enough to qualify for any matching contributions by your employer.

4. Review insurance coverage. Make sure you have adequate policies in place insuring your life, health, disability, business, and assets (home and auto), which can help protect you and your family from unforeseen liabilities and expenses.

5. Review estate plans and beneficiary designations. Estate planning should be reviewed holistically and periodically to be sure that the plan you have in place accomplishes your goals. See “So You Think You’re Done With Your Estate Plan” for a more in-depth discussion.

6. Make gifts. The 2018 annual gift tax exclusion is $15,000. This exclusion is the amount of money you can give away per person per year, tax-free. In addition, married couples can elect to “split gifts”. By utilizing this strategy, married taxpayers can gift up to $30,000 to an individual in 2018 before a gift tax return is required. On top of annual exclusion gifts, an unlimited gift tax exclusion is available for amounts paid on behalf of a person directly to an educational organization, but only for amounts constituting tuition payments. Amounts paid to health care providers for medical services on behalf of a person also qualify for an unlimited gift tax exclusion. Annual gifting is an excellent way to reduce the value of your gross estate over time, thereby lowering the amount subject to estate tax upon your date of death. Charitable and philanthropic gifts (whether outright, in trust, or through a donor advised fund or similar vehicle) should also be considered.

7. Fund your Health Savings Account (“HSA”). In 2018, those in high-deductible health-insurance plans can save as much as $3,450 in pre-tax dollars in a health savings account. For families, the figure is $6,900, and those aged 55 and older can contribute an additional $1,000. Unlike a Flexible Spending Account, your HSA balance rolls over from year to year, so you never have to worry about losing your savings. If you are over age 65 and enrolled in Medicare, you can no longer contribute to an HSA, but you can still use the money for eligible out-of-pocket medical expenses.

8. Use your flexible spending dollars. Unused funds in a Flexible Spending Account (“FSA”) are typically forfeited at year’s end, so make sure to spend them for eligible health and medical expenses by December 31. Some plans offer a “grace period” of up to 2 ½ months to use FSA money. Other plans may allow you to carry over up to $500 per year to use in the following year. Bottom line, check with your employer to confirm your plan’s deadlines.

9. Check your credit and identity. Under the Fair Credit Reporting Act, each of the national credit-reporting agencies is required to provide you with a completely free copy of your credit report, upon request, once every 12 months. Get yours at www.annualcreditreport.com.

10. Organize your records for 2019. Now is the time to gather and organize the documents and 2018 records that will be needed to prepare your tax returns in 2019. As part of that process, shred documents that no longer need to be retained.

ARTICLE BY

Lisa P. Staron

Murtha Cullina

New Medicare Advantage and Part D Drug Pricing Proposed Rule

On November 26, 2018 the Centers for Medicare and Medicaid Services (CMS) issued a proposed rule, Modernizing Part D and Medicare Advantage to Lower Drug Prices and Reduce Out-of-Pocket Expenses.This proposed rule is the Trump Administration’s latest action to curb prescription drug prices. The proposed rule outlines a number of provisions to for lowering drug prices and reducing out-of-pocket costs in the Part D program that build off the Administration’s Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs. Below details the major provisions within the proposed rule.

Six Protected Classes

One of the most significant changes the proposed rule details involves increasing flexibility for Part D sponsors in their coverage of drugs in the six protected classes. As background, current Part D policy requires Part D plans to include on their formularies all drugs in the following six classes: (1) antidepressants; (2) antipsychotics; (3) anticonvulsants; (4) immunosuppressants for treatment of transplant rejection; (5) antiretrovirals; and (6) antineoplastics. Together these drugs are commonly referred as the six protected classes.

This rule does not change or remove any of the six protected classes. Instead, it proposes three exceptions that would allow Part D sponsors to not cover a protected class drug. Specifically, it would allow Part D sponsors to: (1) implement broader use of prior authorization and step therapy for protected class drugs; (2) exclude a protected class drug from a formulary if the drug represents only a new formulation of an existing single-source drug or biological product, regardless of whether the older formulation remains on the market; and (3) exclude a protected class drug from a formulary if the price of the drug increased beyond a certain threshold over a specified look-back period.

In 2014, the Obama Administration proposed removing three of the protected classes (antidepressants, antipsychotics, and immunosuppressants). This rule was never finalized due to criticism by Congress as well as drugmakers and beneficiary advocates. We can expect similar criticism of this new proposal. CMS is seeking comment on considerations that would be necessary to minimize (1) interruptions in exiting therapy, and (2) increases in overall Medicare spending from increased utilization of service due to interruptions in therapy.

Gag Clauses

In October, the President signed the Know the Lowest Price Act of 2018 (P.L. 115-262) into law. This law prohibits Part D sponsors from including in their contracts with their network pharmacies “gag clauses.” Gag clauses restrict the ability of pharmacies to discuss the availability of prescriptions at a cash price when it is less than the amount that would be charged when receiving the prescription through insurance. This measure will go into effect January 1, 2020. The proposed rule amends Part D regulations to be consistent with this statutory change.

Real-Time Benefit Tool

The proposed rule is also requiring that Part D sponsors implement an electronic Real Time Benefit Tools (RTBT) for providers beginning on or before January 1, 2020. The tool should have capability to inform prescribers when lower-cost alternative therapies are available under the beneficiary’s prescription drug benefit.

Part D Explanation of Benefits

The proposed rule also requires Part D plans to include the following information in each members’ Explanation of Benefits: (1) the inclusion of drug pricing information and (2) lower cost therapeutic alternatives.

Step Therapy

In August, CMS published a memo announcing that MA plans could use step therapy as a utilization management tool for Part B drugs. This proposed rule formally codifies that change. Step therapy can only be applied to new prescriptions or for enrollees who are not actively receiving the affected medication. MA plans would also be required to use a Pharmacy and Therapeutics committee to review and approve step therapy programs. Additionally, determination and appeals processes for Part B drugs will be subject to shorter adjudication times that mirror Part D timeframes.

Pharmacy Price Concession in the Negotiated Price

The final provision in the proposed rule would re-define “negotiated price.” Negotiated price is the price reported to CMS at point of sale. Under current law, Part D sponsors can generally choose whether to reflect in the negotiated price the various price concessions they or their intermediaries receive. Beneficiary cost-sharing is generally calculated as a percentage of the negotiated price. When pharmacy price concessions and other price concessions are not reflected in the negotiated price at the point of sale, beneficiary cost-sharing increases. The proposed rule is considering to revise the definition of the negotiated price to include all pharmacy price concessions and any dispensing fees, and exclude additional contingent amounts in the negotiated price. This would re-define negotiated price as the baseline, or lowest possible, payment to a pharmacy. Implementation of this change is not certain. However, CMS noted the policy could be implemented as early as 2020.

Next Steps

Comments to the proposed rule can be submitted until January 25, 2019. We can expect significant industry and stakeholder feedback on the proposed rule. Policy changes related to drug pricing are sure to be controversial. What remains to be seen is which changes are so controversial as to lead to sufficient public outcry that it brings down parts of the proposed regulation or all of it.

ARTICLE BY

Katie Weider

Rodney L. Whitlock

Mintz

Medical Products & FDA: What to Watch for in 2019

Major legislation impacting FDA often accompanies user fee reauthorizations every 5 years. However, Congress has acted to address public health issues between user fee cycles. FDA regulates 20¢ of every U.S. consumer dollar spent on products ranging from heart valves to insulin to breakfast cereal, so there’s always something Congress can do in the realm of FDA’s statutory authorities. Many FDA-related bills are often bipartisan, too, which suggests action despite different parties in power in the House and Senate. Here are a few key medical product issues we’ll be tracking in 2019.

Laboratory Developed Tests (LDTs)

An LDT is a type of in vitro diagnostic test that is designed, manufactured, and used within a single laboratory. In recent years, FDA has attempted to more actively regulate LDTs, claiming they are more complex now than when the agency was granted authority to regulate devices in the 1970s (FDA had, until recently, generally ignored LDTs using a policy known as enforcement discretion). A few years ago, the agency published a proposed approach that caused a stir in Congress and the lab industry and after years of debate Congress seems ready to act on LDTs, which some are now calling In Vitro Clinical Tests (IVCTs). However, New Jersey Democrat Frank Pallone, the likely incoming chairman of the House Energy & Commerce Committee has expressed concern with FDA’s proposed approach to IVCT regulation, especially its heavy reliance on review by accredited persons (i.e., third party review) and pre-certification. FDA’s position was outlined by Commissioner Scott Gottlieb, who in a September 2018 speech stated that FDA envisions reviewing only 10% of IVCTs, 40% would use the pre-certification model, and the remainder would not be subject to FDA premarket review.

Who blinks first? Based on my experience at FDA, the agency is likely to wait for Congress to make the first move largely because FDA went all in by submitting 59 pages of “technical assistance”—essentially a draft bill—to Congress in August 2018. A Democrat-controlled E&C may push for more oversight or a phased-in approach, which is something FDA has resisted. Sure to further complicate discussions is the role of user fees in funding an IVCT regulatory program. Among the questions that need to be answered: how much IVCT oversight will FDA have relative to third parties, how much will that cost, and who’s paying the bill? As a former user fee negotiator for FDA, I can tell you those conversations are not going to be easy.

Digital Health

FDA’s exploration of a new regulatory paradigm for digital health products hit a bump in the road on October 10 when Senators Warren, Murray, and Smith (all Democrats) sent a letter to FDA asking, among other things, what the legal basis is for the digital health pre-cert program. Because FDA does not have the staff capacity or expertise to review all digital health products (including software), part of its solution is to rely on certifications that a product developer has a culture of quality and organizational excellence. FDA also says the current review paradigm is not well-suited to software and similar products that have fast, iterative development cycles. This idea has merit but the details need to be hammered out—likely in statute. And while 2019 is too early to expect legislation, the October 10 letter foreshadows intense scrutiny from HELP Committee Democrats. The agency is still collecting comments on its proposed framework.

Medical Device Cybersecurity

FDA recently made a splash with its cybersecurity playbook and a recently updated premarket cybersecurity guidance. However, while I was at FDA we responded to a lot of requests for technical assistance from both sides of the aisle on legislative language that would: mandate convening stakeholders to recommend guidelines for improving cybersecurity of devices, mandate software bills of materials, or provide basic cybersecurity operational standards for Internet-connected devices, among other ideas. The jury is out on how much any of these ideas would meaningfully improve the nation’s cybersecurity infrastructure at least as it pertains to medical devices. Considering cybersecurity is a hot topic in other contexts (e.g., election security, personal computing), the 116th Congress will likely continue to look for legislative wins in this space and we’ll be watching closely to see what the impacts could be on medical products.

Device Servicing

FDA continues to look for a solution to problematic device servicing and will be holding another public meeting in December 2018. While we’re optimistic FDA will come out of that meeting with a draft policy (the agency said it plans to issue a draft guidance document before October 2019), we see challenges with some of the ideas mentioned in a discussion paper the agency released in October 2018. Even as FDA reviews public comments and publishes guidance, there could be a role for Congress, such as to ensure appropriate oversight of servicing through mandated inspections. We’re looking forward to seeing how interaction between OEMs, servicers, and FDA at the December workshop could influence the draft guidance.

OTC Monograph Reform

As noted in our Lame Duck Preview for health issues, OTC monograph reform legislation passed the House but awaits action in the Senate, where it’s stuck in committee. An OTC monograph is like a recipe for an over-the-counter drug that, once approved by FDA, can be used by any drug manufacturer without FDA pre-approval of the manufacturer’s specific drug. The bill would speed up the regulatory process for OTC monographs by allowing use of administrative orders rather than rulemaking. Both bills authorize FDA to grant exclusivity for the monograph developer, which would protect market access, though the amount of exclusivity differs (18 months in the House bill; 24 months in the Senate bill). Likely incoming House E&C Chairman Pallone is—again—who we’re looking to regarding action on this. Despite voting for the House version, it is well-known that Rep. Pallone has concerns about the exclusivity provision. The OTC monograph process has not changed since 1972 and reform efforts have been brewing for a while; if this does not move in the lame duck, this could be in play in 2019.

Opioids

Congress passed major opioids legislation in September 2018 so while Congress may shift its focus to other issues, we’ll be keeping an eye on how the administration is implementing its mandates. FDA in particular has as full plate with:

Holding a public meeting to address challenges of developing non-addictive medical products for acute or chronic pain;
Issuing new or updating existing guidance documents addressing, among other topics, how FDA considers pain, pain control, or pain management in assessing whether a disease or condition is serious or life-threatening and how FDA may require postmarket studies to assess reductions in effectiveness of a drug that change the drug’s benefit-risk profile;
Issuing prescribing guidelines for the indication-specific treatment of acute pain;
Developing a list of controlled substances to refer to Customs and Border Protection and other import controls; and
Implementing new authority to require unit dose packaging (aka blister packs).

This list is not exhaustive, yet it’s clear FDA will be busy. We’ll be keeping a close eye on administration and congressional actions related to these and other important public health issues in 2019.

ARTICLE BY

Aaron L. Josephson

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