health care Archives - Page 5 of 8 - The National Law Forum

As 2019 Approaches, Private Equity Investment in Health Care Shows No Signs of Slowing Down

As the year draws to a close, it’s clear that 2018 was another record year for private equity investment in health care. In its report on the top health industry issues of 2019, PWC’s Healthcare Research Institute recently highlighted the continued prevalence of private equity in health care transactions, and predicted even more private equity investment in the coming year. Below is an overview of the current and expected trends, as well as a few key considerations for private equity deals in the health care space.

Corporate health care buyers are likely to continue seeing steep competition from private equity firms…

According to the PWC report, since 2009 the number of health care deals involving private equity buyers or sellers has tripled, and the number of deals is projected to increase further in 2019. Private equity investment in health care remains diversified and frequent, with deals ranging from health care technology to the management of physician practices. Because the health care industry is expected to continue to grow — with CMS projecting national health spending to rise to 20 percent of GDP by 2026 — investment in health care is a relatively safe bet for private equity when compared to more volatile fields like technology. Further, private equity firms tend to be more aggressive in the bid process and more willing to move deals ahead quickly. As such, traditional health care companies seeking to acquire new lines of business face increased competition from private equity.

…but 2019 may bring additional opportunities for traditional health care companies to partner with private equity in acquisitions.

By partnering with private equity firms, health care companies can diversify their businesses while also mitigating some of the financial and operational risks that come with any deal. Partnerships between private equity and health care companies benefit from the strengths of both parties, enabling further growth while capitalizing on the health care companies’ existing expertise. Private equity firms’ willingness to invest in health care could also mean opportunities for health care companies to divest their non-core assets and refocus on their core business.

Regulatory Considerations for PE Health Care Deals

As with any highly-regulated industry, health care deals present regulatory hurdles for any prospective buyer, some of which may provide additional challenges in the private equity context.

Private equity deals often need to be structured to accommodate corporate practice of medicine (CPOM) issues. In states with CPOM prohibitions, private equity buyers cannot directly acquire medical practices. Instead, the prospective buyer would need to invest in or create a management company through which they manage the practice for a fee, which in many states is capped at a certain percentage of the practice’s revenue.

Regulatory filing requirements and the need for review and approval of deals by regulatory bodies often drive transaction timelines much longer than those to which private equity firms are accustomed. Some states can require up to 120 days’ notice prior to a change in ownership in certain health care companies. Involving regulatory counsel at the beginning of deal negotiations can help set reasonable expectations for timing while also letting the parties get a head start on the sometimes cumbersome filing requirements.

State licensing boards also often require disclosure of detailed information about the prospective ownership and management of licensed health care entities. This information can range from basic background checks to detailed financial information. While many states only require information about individuals who will be actively involved in the day-to-day operations of the health care business, some states require information about anyone with a five percent or greater ownership in the business, which sometimes requires an examination of ownership held by controlling entities, including parent, grandparent and great grandparent companies. Private equity firms should take this into consideration and consult with regulatory counsel about potential disclosure requirements and the feasibility of providing the required information when structuring deals.

Private equity activity in the health care industry presents many evolving opportunities and challenges, but one thing remains clear as 2018 winds down: growth in health care investment is full speed ahead.

This post was written by Cassandra L. Paolillo of Mintz.

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.

Nurse Staffing Ratios May Be Coming to a Hospital Near You

On November 6, 2018, when Massachusetts voters go to the polls to select a new Governor and other key elected officers, they will also consider Ballot Question 1, which will mandate rigid registered nurse staffing ratios for hospitals across the Commonwealth effective as of January 1, 2019. This proposal would make Massachusetts the second state in the United States to have specific staffing ratios mandated in all units. This initiative follows only California, which passed a less comprehensive law through the legislative process in 1999 and provided over five (5) years for hospitals to implement by 2004.^[1] The Massachusetts ballot initiative process, like that of some other states, allows the voters to write entirely new law into books. Question 1 appears to be the most heavily-fought ballot initiative in Massachusetts in recent memory. While Massachusetts seems to be the only state this year with a nurse staffing ratio as a referendum ballot initiative,^[2] unions nationally will focus on the results of this year’s effort.

What is Question 1?

Question 1, if passed, would mandate highly-prescriptive and specific nurse-to-patient ratios based on the type of patients/units in hospitals, regardless of market, acuity of the patient, physician orders, or nursing judgement. Hospitals are required to implement a written plan detailing the maximum number of patients to be assigned to a registered nurse by unit at all times, while also “concurrently detailing the facility’s plans to ensure that it will implement such limits without diminishing the staffing levels of its health care workforce.”

Hospitals would also be required to develop a “patient acuity tool” for each unit to be used to determine whether the maximum number of patients that may be assigned should be lower than the assignment limits in the law. Notices regarding the patient assignment limits must be posted in conspicuous places, including each unit, patient room, and waiting area.

What are the Ratios?

The specific ratios mandated are summarized as follows (nurse:patient):

Step-down/intermediate care 1:3
Post anesthesia care (PACU) 1:1; PACU post-anesthesia 1:2
All units with operating room (OR) patients 1:1; OR patients post-anesthesia 1:2
Emergency Services Department: 1:1, 1:2,1:3, or 1:5 depending on the emergent or urgent nature of a patient which often changes by the minute
Maternal child care patients:
- Active labor, intermittent auscultation for fetal assessment, and patients with medical or obstetrical complications 1:1
- During birth and for up to two hours immediately postpartum 1:1 for mother and baby; when the condition of the mother and baby are determined to be stable and the critical elements are met, 1 nurse may care for both the mother and the baby(ies)
- During postpartum for uncomplicated mothers or babies 1:6 (either 6 mothers or babies, 3 couplets of mothers and babies, or, in the case of multiple babies, not more than a total of 6 patients
- Intermediate care or continuing care babies is 1:2 for babies
- Well-babies 1:6
Pediatric 1:4
Psychiatric 1:5
Medical, surgical and telemetry patients 1:4
Observation/outpatient treatment 1:4
Rehabilitation units 1:5
All others 1:4

How Would the New Law be Enforced?

Question 1 also requires the state’s Health Policy Commission (HPC) (as opposed to the Department of Public Health, which is the state authority to license and regulate hospitals and other health care providers) to promulgate regulations and conduct inspections governing the implementation of the initiative. The HPC is a six year old independent state agency charged with monitoring health care spending growth, it does not have the staff or infrastructure to conduct routine hospital surveys to monitor internal facility management and operations. It is also important to note that the proposed ballot would restrict the HPC by preventing it from issuing any delays, temporary or permanent waivers, or modifications of the ratios. Thus, even if the HPC believed that the January 1^st implementation date was unfeasible, it may be prohibited from offering waivers.

The HPC may report violations to the State Attorney General, who could file suit to obtain injunctions as well as civil penalties of up to $25,000 per violation and up to $25,000/day for continued violations.

The Impact if Question 1 Passes

Coalitions have lined up on both sides of Question 1. Each side has painted dramatically-different pictures of a future for the industry with mandated nurse staffing ratios. The supportive nursing union has cast the initiative as being relatively small dollars for the industry, costing only $47 Million for all hospitals in the state in total according to their study.^[3],[4] The Massachusetts Health and Hospital Association and a broad-based coalition of health care providers and other nursing organizations opposed to the initiative point to studies estimating that the cost will be in excess of $1 Billion to the industry.^[5] Increased costs are based on the need to recruit new nurses, as well as the across-the-board increases in pay. There will be a need to hire 5,911 registered nurses within 37 business days to comply with January 1^st deadline and this is in a state that already has a shortage of approximately 1,200 registered nurses.^[6] Individual community hospitals are reporting projected additional expenditures that amount to more than the $30 Million per year, with teaching hospitals anticipating increased expenditures higher than that.^[7]

On October 4, 2018, the HPC issued its independent report on the estimated costs of Question 1, essentially validating the opposition’s concerns, and projecting annual increased costs of $676 Million to $949 Million, and noted that the projections were “conservative.” The HPC study undercounted costs as it only looked at increased costs in certain units, and excluded costs associated with increased staffing in emergency departments, observation units, outpatient departments, or any costs for implementation or to non-acute hospitals.^[8] Wage increases of 4 – 6% are predicted in the HPC study, based on the California experience with across-the-board staffing requirements in place, and estimated increases of total health expenditures in Massachusetts of 1.1 – 1.6%, with increases of 2.4 – 3.5% for hospital spending alone, again, based on a conservative and partial analysis. Thus, it appears that the industry fears of greater than $1Billion in annual increased expenses are valid.

Ancillary adverse impacts anticipated by the HPC included reduced access to emergency care, increased wait times, decreased patient flow, increased “boarding,” and more ambulance diversions.

The HPC also compared Massachusetts to California hospitals and concluded that there was “no systematic improvement in patient outcomes post-implementation of ratios.”

What Should Hospitals be Doing Now?

Question 1, if passed, would only apply to Massachusetts licensed hospitals. But hospitals and health systems in other jurisdictions should be prepared for similar efforts in their states. The following are some initial steps hospitals should be considering

Access Management. Access problems will be common starting in January if Question 1 passes. Elective procedures, non-emergent appointments and other services may need to be curtailed effective January 1, 2019. Hospitals will need to meet staffing levels on that day with respect to then-current inpatients and outpatients. Avoiding new admissions in December may be necessary to assure the hospital is not in instant violation on New Year’s Day. Early patient contact to warn about the possibility of rescheduling procedures will prudent.

Payer Contract “Reopeners.” Payer contracting “reopeners” should be added to managed care contracts now. The hospital community has been watching the interest of the unions in pushing nurse staffing ratios in Massachusetts and other states for a number of years. Health systems and hospitals negotiating long-term contracts with payers have often included “reopeners” to permit the hospital to revisit contract rates even during the term of an agreement if certain extreme events come to pass. Hospitals in all jurisdictions are encouraged to consider adding such reopeners to their agreements today.

Massachusetts hospitals should review their payer contracts now to confirm if they have the right to a mid-term reopening and, if so, provide notice immediately upon passage to their payers that the hospital will need to renegotiate rates to address the increased costs. Charge masters will also need to be reviewed immediately.

Union status? Based on their efforts to rally public support around Question 1, the Massachusetts Nurses Association is trying to do an end-run around the collective bargaining table where their past efforts on the issue of staffing ratios have failed. Health systems and hospitals should review their collective bargaining agreements to determine whether they are in a position to trigger a reopener during the term of the contract to address the numerous monetary and non-monetary consequences of rigid staffing ratios contemplated by Question 1.

Unit Closure Plans. If passed, hospitals in Massachusetts will likely need to immediately assess whether and how they could comply with these new ratios. Units that already operate at a loss, or for which meeting the staffing requirements is impossible, should be closed or reduced to the smallest possible patient compliment. Closure plans and negotiations will need to commence immediately.

Massive Recruitment Efforts. While there are believed to be a few hospitals that may already meet these staffing levels (at some times), most hospitals will need to recruit many more registered nurses, as well as have additional nurses standing by for fluctuations in patient loads on various units on a daily basis. As noted above, the law will require hiring nearly 6,000 RNs in the fourth quarter of this year.^[9]

Conclusion

If Question 1 passes, conservative projections estimate extreme new costs will be incurred by Massachusetts hospitals, which will result in both reductions in levels of service, and increased costs to payers and patients. It is important to note that the dire circumstances of the ballot has led to an increasing large number of nursing organizations and physician groups in Massachusetts to all oppose Question 1. While Massachusetts hospitals are making plans akin to natural disaster preparedness, hospitals in other states should watch carefully these events to be ready should similar initiatives arise locally.

———————————

[1] A few other states have limited ratios in certain special types units (like intensive care units), but Question 1 applies to all hospital units.

[2] See http://www.ncsl.org/research/elections-and-campaigns/ballot-measures-database.aspx(June 6, 2018); downloaded on October 8, 2018.

[3] See https://www.massnurses.org/news-and-events/p/openItem/11083

[4] See https://safepatientlimits.org/wp-content/uploads/Shindul-Rothschild-Esti…

[5] See https://www.protectpatientsafety.com/get-the-facts/

[6] See Mass Insight Global Partnership, Protecting the Best Patient Care in the Country, Local Choices v Statewide Mandates in Massachusetts (April, 2018) http://www.bwresearch.com/reports/bwresearch_mha-nlr-report_2018Apr.pdf (“Mass Insight Study”)

[7] See Financial impact of nurses ballot question? Depends who’s counting, Priyanka Dayal McCluskey, Boston Globe (Sept. 17, 2018). https://www.bostonglobe.com/metro/2018/09/17/financial-impact-nurses-ballot-question-depends-who-counting/mlS4yZa5IB8hcDaFZ7ojXM/story.html

[8] See Analysis of Potential Cost Impact of Mandated Nurse-to-Patient Staffing Ratios, October 3, 2018, https://www.mass.gov/doc/presentation-analysis-of-potential-cost-impact-…

[9] Mass Insight Study.

This post was written by Lawrence W. Vernaglia and Donald W. Schroeder of Foley & Lardner LLP.

Trump Administration Proposes Requiring Disclosure of Drug Prices in TV Ads

The Trump Administration is moving full speed ahead with its proposals under the Blueprint to Lower Drug Prices (the “Blueprint”). Earlier this week, the Centers for Medicare & Medicaid Services (“CMS”) released a proposed rule that would require pharmaceutical manufacturers to disclose the list price of their pharmaceutical products in direct-to-consumer (“DTC”) television ads (the “Proposed Rule”). This comes only a week after the President signed legislation prohibiting “gag clauses” in pharmacy agreements and allowing pharmacists to tell patients that they can obtain a product for less by paying the cash price instead of their insurance company’s negotiated rates.

This recent Proposed Rule is relatively straightforward: any prescription drug or biologic with a list price of more than $35 that may be directly or indirectly covered by Medicare or Medicaid must include the following statement in DTC television ads:

“The list price for a [30-day supply of] [typical course of treatment with] [name of prescription drug or biological product] is [insert list price]. If you have health insurance that covers drugs, your cost may be different.”

CMS proposes that the “list price” in the above statement should be the product’s Wholesale Acquisition Cost (“WAC”); however, CMS is seeking comment on whether WAC best reflects the “list price.” WAC is the published price that pharmaceutical manufacturers charge wholesalers for their products. WAC does not include any prompt pay or other discounts, rebates or reductions in price. It is also different from the usual and customary price that a cash paying patient pays at the pharmacy.

CMS further proposes that the only “enforcement mechanism” under the Proposed Rule would be the annual publication of a list of manufacturers that have not complied with the disclosure requirements. CMS believes violations of the regulation would be enforced as unfair and deceptive marketing through the Lanham Act, which allows competitors to bring causes of action against each other. In other words, CMS is anticipating that the industry will self-police compliance with the regulation. However, CMS is also seeking comment on other approaches to enforce compliance with the Proposed Rule.

Notwithstanding the straightforward nature of the Proposed Rule, it is clear that CMS is bracing itself for legal challenges. CMS spends a significant portion of the preamble defending its rationale for requiring list price to be disclosed and its authority to issue this Proposed Rule, as well as attempting to preempt potential First Amendment challenges.

The stated purpose of the Proposed Rule is to reduce the price “that consumers pay for prescription drugs and biological products.” CMS’ rationale is that by providing beneficiaries with “relevant information about the costs of prescription drugs and biological products,” beneficiaries can make informed decisions that minimize their out-of-pocket costs and reduce costs to Medicare and Medicaid. CMS believes that requiring pricing information in ads allows beneficiaries to “price shop,” so that the prescription drug market can be similar to other commodities. CMS points to market research among other commodities finding that when pricing information is available, competition increases resulting in price reductions. One interesting note is that out-of-pocket costs only impact non-dual-eligible Medicare beneficiaries. States can only charge Medicaid beneficiaries a nominal prescription drug copay that is identified in the Medicaid State Plan or in regulation. Dual-eligible beneficiaries have a copayment that ranges from $0 to $8.35, regardless of the drug’s WAC.

CMS states that it has legal authority to promulgate this Proposed Rule because the Social Security Act requires that the Secretary administer the Medicare and Medicaid programs in a manner that minimizes unreasonable expenditures. Further, it explains that Congress explicitly directs HHS to operate the Medicare and Medicaid programs efficiently. CMS argues that promoting pricing transparency promotes efficient markets and can reduce unnecessary expenditures. It is interesting to note the Administration determined that this rule should be issued by CMS, rather than FDA or Federal Trade Commission, which otherwise regulate the advertisement of prescription drugs and market competition, respectively. Statements from Secretary Azar and HHS officials indicate that HHS did not use FDA’s authority because such authority is limited to drug claims and side effects.

Additionally, CMS tries to preempt any First Amendment challenges against its proposal, stating that this price disclosure “consists of purely factual and uncontroversial information about a firm’s own product.” CMS argues that prescription drug price disclosure is no different from requiring the disclosure of calories on menus or an insurer’s financial interest in PBMs, which have been upheld by either the United States Supreme Court or circuit courts.

CMS will accept comments on this rule for 60 days following its publication to the Federal Register. Given the speed in which the Administration is tackling the proposals in its Blueprint, we will continue to track developments.

This post was written by Lauren M. Moldawer of Mintz.

Compliance With Florida’s “Generator” Laws

Earlier this year, Florida Governor Rick Scott signed into law HB7099and SPB7028 (collectively referred to as the “Bills”), ratifying emergency rules that require nursing homes and assisted living facilities to acquire alternative power sources– such as generators- and fuel in preparation of the upcoming hurricane season. See Rule 59A-4.1265 and Rule 58A-5.036. These rules were enacted after 14 residents died from heat-related illnesses and complications during Hurricane Irma last year when a Florida nursing home lost power to its air conditioning units for three days.

The Bills went into effect on March 28, 2018, and required qualifying facilities to come into compliance by June 1, 2018, unless granted an extension by the Governor whereby compliance is expected by January 2019. Facilities that can show delays caused by necessary construction, delivery of ordered equipment, zoning, or other regulatory approval processes are eligible for an extension if the facility can provide residents an area that meets the ambient temperature requirements for 96 hours. Extensions are granted on a case-by-case basis, although so far a majority of Florida facilities have been granted an extension. Indeed, it appears that over 77% of nursing homes received an extension in the first week of June. Additionally, facilities located in an evacuation zone pursuant to Chapter 252, F.S., must either evacuate its residents prior to the arrival of any emergency event, or have an alternative power source and no less than 96 hours of fuel stored onsite at least within 24 hours of the issuance of a state of emergency. Failure to comply with any provision may result in the revocation or suspension of a facility’s license and/or the imposition of administrative fines.

Nursing Homes and Assisted Living Facilities Must Develop Emergency Plans that Provide for Alternative Power Sources and Fuel Capable of Maintaining an Ambient Temperature of No Greater Than 81 Degrees Fahrenheit for At Least 96 Hours.

Nursing Homes and Assisted Living Facilities must prepare a detailed plan (“Plan”) that provides for the acquisition and maintenance of alternative power sources- such as generators- and fuel. The Plan will supplement a facility’s Comprehensive Emergency Management Plan and must be submitted to and approved by the requisite agency. While the Bills do not require facilities to maintain a specific type of power system or equipment; the alternative power sources utilized by a facility must be capable of maintaining an ambient temperature of no greater than 81 degrees Fahrenheit for at least 96 hours after the loss of primary electrical power. This temperature must be maintained in areas of sufficient size to shelter residents safely. Alternative power sources and fuel should be maintained in accordance with local zoning restrictions and the Florida Building Code.

Moreover, the Bills set forth additional requirements for nursing homes and assisted living facilities in evacuation zones, as well as for single campus and multistory facilities.

Facilities in Evacuation Zones – A facility in an evacuation zone pursuant to Chapter 252, F.S. must provide in their Plan for the maintenance of an alternative power source and fuel at all times when the facility is occupied but may utilize mobile generators to facilitate evacuation.
Single Campus – Single campus facilities under common ownership may share alternative power sources and fuel space if such resources are sufficient to maintain the ambient temperature required under the rules.
Multistory Facilities – Multistory facilities, whose Comprehensive Emergency Management Plan comprises of moving residents to a higher floor during flood or surge events, must place their alternative power source and all additional equipment in a location protected from flooding or storm surge damage.

Fuel Storage Requirements Vary by Facility Size and Location.

The Bills require facilities to provide for storage of a certain amount of fuel based on their size and location. Assisted living facilities with 16 beds or less must store a minimum of 48 hours of fuel, while assisted living facilities with 17 beds or more a required to store a minimum of 72 hours of fuel. All nursing homes must store a minimum of 72 hours of fuel. Nursing homes and assisted living facilities located in a declared state of emergency area pursuant to Section 252.36, F.S., that may impact primary power delivery, must secure 96 hours of fuel; these facilities may utilize portable fuel storage containers for the remaining fuel necessary for 96 hours during the period of a declared state of emergency.

Emily Budicin, a 2018 Summer Associate in the firm’s Washington, DC office, contributed significantly to the preparation of this post.

This post was written by Kathleen M. Premo and Olivia Seraphim of Epstein Becker & Green, P.C.

When Nursing Homes Feed Into Corporate Web, Patient Care Fails

According Kaiser Health News, an analysis of nursing home financial records revealed that nearly three-quarters of all nursing homes in the U.S. are owned by people who also have vested interest in companies that in turn sell services and goods to these same nursing homes.

These business dealings are known as “related party transactions.” These transactions enable a nursing home owner to arrange contracts with their related businesses above a more competitive price, allowing them to turn around and siphon off the extra profit.

As an additional benefit, creating these corporate “webs” provides a layer of legal protection to nursing home owners. When a nursing home is sued, it is often very difficult for victims and their families to collect from the other related companies an owner holds stake in, thereby allowing them to “shore” away money.

Unfortunately, nursing homes which deal in “related party transactions” tend to have significant shortcomings which specifically affect their patients. The Kaiser Health News analysis showed that nursing homes which outsource to related organizations “have fewer nurses and aides per patient, have higher rates of patient injuries and unsafe practices, and are the subject of complaints almost twice as often as independent [nursing] homes.”

In order for related companies to be brought into a nursing home lawsuit, the client’s attorney needs to convince the judge that all the companies acted together as “one entity,” meaning that the nursing home was unable to make standalone decisions. This is a complicated and often time and money intensive decision, as it often requires obtaining evidence like company documents and emails to prove the connections.

This post was written by Sherri Warfel of Stark & Stark.

More health news is available on the National Law Review’s Health Page.

New OCR Checklist Outlines How Health Care Facilities Can Fight Cyber Extortion

As technology has advanced, cyber extortion attacks have risen, and they will continue to be a major security issue for organizations. Cyber extortion can take many forms, but it typically involves cybercriminals demanding money to stop or delay their malicious activities, which include stealing sensitive data or disrupting computer services. Health care and public health sector organizations that maintain sensitive data are often targets for cyber extortion attacks.

Ransomware is a form of cyber extortion where attackers deploy malware targeting an organization’s data, rendering it inaccessible, typically by encryption. The attackers then demand money in exchange for an encryption key to decrypt the data. Even after payment is made, organizations may still lose some of their data.

Other forms of cyber extortion include Denial of Service (DoS) and Distributed Denial of Service (DDoS) attacks. These attacks normally direct a high volume of network traffic to targeted computers so the affected computers cannot respond and are otherwise inaccessible to legitimate users. Here, an attacker may initiate a DoS or DDoS attack against an organization and demand payment to stop the attack.

Additionally, cyber extortion can occur when an attacker gains access to an organization’s computer system, steals sensitive data from the organization and threatens to publish that data. The attacker threatens revealing sensitive data, including protected health information (PHI), to coerce payment.

On January 30, 2018, the HHS Office for Civil Rights (OCR) published a checklist to assist HIPAA covered entities and business associates on how to respond to a cyber extortion attack. Organizations can reduce the chances of a cyber extortion attack by:

Implementing a robust risk analysis and risk management program that identifies and addresses cyber risks holistically, throughout the entire organization;
Implementing robust inventory and vulnerability identification processes to ensure accuracy and thoroughness of the risk analysis;
Training employees to better identify suspicious emails and other messaging technologies that could introduce malicious software into the organization;
Deploying proactive anti-malware solutions to identify and prevent malicious software intrusions;
Patching systems to fix known vulnerabilities that could be exploited by attackers or malicious software;
Hardening internal network defenses and limiting internal network access to deny or slow the lateral movement of an attacker and/or propagation of malicious software;
Implementing and testing robust contingency and disaster recovery plans to ensure the organization is capable and ready to recover from a cyber-attack;
Encrypting and backing up sensitive data;
Implementing robust audit logs and reviewing such logs regularly for suspicious activity; and
Remaining vigilant for new and emerging cyber threats and vulnerabilities.

If a cyber extortion attack does happen, organizations should be prepared to take the necessary steps to prevent any more damage. In the event of a cyber-attack or similar emergency an entity:

Must execute its response and mitigation procedures and contingency plans;
Should report the crime to other law enforcement agencies, which may include state or local law enforcement, the Federal Bureau of Investigation (FBI) and/or the Secret Service. Any such reports should not include protected health information, unless otherwise permitted by the HIPAA Privacy Rule;
Should report all cyber threat indicators to federal and information-sharing and analysis organizations (ISAOs), including the Department of Homeland Security, the HHS Assistant Secretary for Preparedness and Response, and private-sector cyber-threat ISAOs.
Must report the breach to OCR as soon as possible, but no later than 60 days after the discovery of a breach affecting 500 or more individuals, and notify affected individuals and the media unless a law enforcement official has requested a delay in the reporting. An entity that discovers a breach affecting fewer than 500 individuals has an obligation to notify individuals without unreasonable delay, but no later than 60 days after discovery; and OCR within 60 days after the end of the calendar year in which the breach was discovered.

Jenna Moran and Matthew S. Arend and Sydney N. Pahren of Dinsmore & Shohl LLP.

FDA Issues Final Regulations Easing the Path for Direct-to-Consumer Genetic Testing

New regulations issued on November 7, 2017 by FDA will make it easier for companies to offer certain types of genetic tests directly-to-consumers, without a health-care provider intermediary.

The first regulation finalizes a new medical device classification for “autosomal recessive carrier screening gene mutation detection systems.” This regulation essentially codifies classification already established by FDA in response to a request by 23andMe, and enables other laboratories to offer their DTC tests according to the criteria specified in the classification regulation. These tests may be offered without the need for FDA premarket review.

Similarly, the second regulation finalizes a new medical device classification for DTC “genetic health risk assessment” (GHR) (i.e., predictive) tests. The classification specifies the conditions under which these tests may be marketed, and includes the requirement for a 510(k) premarket notification to FDA. However, in a Federal Register Notice, also issued yesterday, FDA proposes to exempt GHR tests from the 510(k) premarket submission requirement after a lab has successfully obtained FDA clearance of its first GHR assay. Comments to this proposed exemption are being accepted by FDA until January 8.

For more Health Care legal analysis, go to The National Law Review

Nursing Home Residents Deprived of Right to Sue for Abuse and Neglect

The current administration has set its sights on another federal rule, seeking to eliminate the ban on pre-dispute arbitration agreements for nursing home residents. Pre-dispute arbitration agreements require elderly adults and individuals with disabilities, as well as their families, to waive their right to file a lawsuit in the courts – before admission to a nursing home. As a condition to entering the nursing home, the prospective resident and his or her representative would be required to submit any dispute, including claims of egregious abuse or neglect, to mandatory arbitration proceedings.

The Current Rule

As the rule currently stands, a nursing home resident cannot be required to waive his or her right to access to the court system. This rule preserves the right of vulnerable nursing home residents to sue for injuries caused by nursing home negligence, abuse, and neglect, including pressure sore infections, suffocation caused by restraints, choking, dehydration-related conditions, gangrene, and even sexual assault.

Decision-making at the Nursing Home Door

Nursing home admission is a stressful and emotional time for the prospective resident and his or her family. Requiring a waiver of rights as a condition of admission, as occurs with pre-admission arbitration agreements, puts the person and his or her family in a time-sensitive quandary, literally at the nursing home door. Under the new amendments, if they refuse to sign away their right to go to court, they can be denied admission to the facility.

Imagine after months of discussions, the decision is finally reached to admit an elderly or disabled individual to a nursing home. This decision often involves the heartache of giving up one’s home and freedom, many possessions, and even treasured pets. The decision is often motivated by a desire to keep the individual safe and ensure that he or she receives required medical care.

But, are nursing home residents safe when they are required to sign away any right to legal accountability for mistreatment or harm in the facility?

How Arbitration is Different than a Lawsuit

Arbitrations take place in private meetings and are confidential. Because arbitrations are not public proceedings like lawsuits and trials, nursing homes have little to fear in terms of lost business or reputation, even if the arbitrator rules against them. To make matters worse, usually the pre-admission arbitration agreements give all the decision-making about the process to the nursing home, including selecting the arbitrator, location, and rules that will govern the proceedings. That removes other safeguards provided by the original rule such as choosing a neutral arbitrator.

Background on the Rule and Proposed Amendment

On October 4, 2016, the Centers for Medicare & Medicaid Service (CMS) published a final rule entitled “Reform of Requirements for Long-Term Care Facilities.” The 2016 final rule amended 42 CFR 483.70(n), prohibiting long-term care (LTC) facilities from entering into pre-dispute arbitration agreements with residents or their representatives. The final rule also prohibited any requirement that a resident sign an arbitration agreement as a condition of admission to a LTC facility.

That final rule sought to preserve the right of vulnerable nursing home residents to sue in court if they suffered injury or abuse.

The American Health Care Association and a group of nursing homes sued for preliminary and permanent injunction to stop CMS from enforcing that requirement. The court granted a preliminary injunction on November 7, 2016. Thereafter, CMS reviewed and reconsidered the arbitration requirements in the 2016 final rule.

In proposed amendments to the rule under the current administration, CMS now seeks to strip nursing home residents of that right by removing the provisions prohibiting binding pre-dispute arbitration in LTC facilities. CMS provides as a reason for this action that a ban on pre-dispute arbitration agreements would “likely impose unnecessary or excessive costs on providers.”

CMS’s Proposed Revisions to Arbitration Requirements

This proposed rule focuses on the transparency surrounding the arbitration process and includes proposes that:

The prohibition on pre-dispute binding arbitration agreements is removed.
All agreements for binding arbitration must be in plain language.
If signing the agreement for binding arbitration is a condition of admission into the facility, the language of the agreement must be in plain writing and in the admissions contract.
The agreement must be explained to the resident and his or her representative in a form and manner they understand, including that it must be in a language they understand.
The resident must acknowledge that he or she understands the agreement.
The agreement must not contain any language that prohibits or discourages the resident or anyone else from communicating with federal, state, or local officials, including federal and state surveyors, other federal or state health department employees, or representatives of the State Long-Term Care Ombudsman.
If a facility resolves a dispute with a resident through arbitration, it must retain a copy of the signed agreement for binding arbitration and the arbitrator’s final decision so it can be inspected by CMS or its designee.
The facility must post a notice regarding its use of binding arbitration in an area that is visible to both residents and visitors.

This post was written by Denise Mariani of Stark & Stark.

Better Care Reconciliation Act – Key Takeaways for Employers and Plan Sponsors

On June 22, 2017, the Senate released its much anticipated health care reform legislation – the Better Care Reconciliation Act (“BCRA”) (linked to amended version released June 26, 2017). In many respects the BCRA is similar to the House of Representatives’ American Health Care Act (which was described in our March 9, 2017 and May 4, 2017 blog entries). However, the BCRA differs from the AHCA in several important respects.

As of the date of this blog entry, the BCRA does not have sufficient support to pass a vote in the Senate and House GOP members have indicated that they would reject the bill. Therefore, Senate leadership has delayed a vote on the BCRA until after the July 4^th holiday recess. Nevertheless, as we provided for the AHCA, below are key takeaways for employers and plan sponsors and a few comparisons between the AHCA and BCRA. A more detailed comparison between key provisions of the Affordable Care Act (“ACA”), the AHCA, and the BCRA is provided at the end of this blog.

1. Individual and Employer Mandates. Like the AHCA, the BCRA would essentially repeal the ACA’s individual and employer mandates effective after December 31, 2015. Both bills do this by “zeroing-out” the penalties for not having minimum essential coverage (individual mandate) or for not offering adequate minimum essential coverage to full-time employees (employer mandate). Outside of the effective repeal of the employer mandate, the AHCA’s and BCRA’s impact on group health plans appears to be minimal. However, if either the AHCA’s 30% surcharge or the BCRA’s 6-month waiting period becomes law, it is likely that plan sponsors will be required to provide notices similar to the certificates of creditable coverage required in the pre-ACA era

In the absence of an individual mandate, the AHCA and BCRA have different methods of incentivizing individuals to maintain continuous health coverage. Under the AHCA method, insurance carriers would be required to charge a 30% premium surcharge to those who fail to have continuous coverage (i.e., a break in coverage of 63 days or more would trigger the surcharge). The BCRA would require insurance carriers to apply a 6-month blanket coverage waiting period to any individual with a 63-day or more break in continuous coverage during the prior 12 months.

Outside of the effective repeal of the employer mandate, the AHCA’s and BCRA’s impact on group health plans appears to be minimal. However, if either the AHCA’s 30% surcharge or the BCRA’s 6-month waiting period becomes law, it is likely that plan sponsors will be required to provide notices similar to the certificates of creditable coverage required in the pre-ACA era.

2. BCRA Retains ACA’s Subsidy and Tax Credit Program. The Senate appears to have rejected AHCA’s elimination of cost-sharing subsidies and premium tax credits available only for coverage purchased on the Marketplace. The AHCA would have replaced the ACA’s program with an advance tax credit program available to individuals purchasing individual market insurance (not just Marketplace coverage) or enrolled in unsubsidized COBRA coverage. Under the AHCA, the amount of the tax credit would be based on age and would be available only to individuals with income less than $75,000 (individual) or $150,000 (jointly with a spouse).

The BCRA, however, maintains the ACA’s cost-sharing subsidies and premium tax credit program, albeit with some modifications. Under the BCRA, cost-sharing subsidies and premium assistance would be determined based on age, with younger individuals getting more assistance than older individuals, and income. Household income in excess of 350% of the federal poverty line would disqualify an individual from cost-sharing subsidies and premium assistance, in contrast to the ACA’s 400% threshold. Additionally, under the BCRA, the premium tax credit would be based on a benchmark plan that pays 58% of the cost of covered services (in contrast to the ACA’s use of the second-lowest cost silver (70%) plan). This lower value of coverage effectively reduces the amount of premium assistance an individual can get.

3. Employer Reporting Obligations to Continue. Although the individual and employer mandates would be repealed, it is likely that the ACA reporting obligations (Forms 1094-B/C and 1095-B/C) would remain in place, at least in some forms. As noted above, the BCRA retains the ACA’s cost-sharing subsidies and premium assistance, the availability of which is conditioned on an individual not being enrolled in employer-sponsored coverage. Therefore, the IRS would likely still need to obtain coverage information from employers.

4. Cadillac Tax Repealed Subject to Reinstatement. Like the AHCA, the BCRA effectively delays the so-called Cadillac Tax until 2025. The Cadillac Tax was originally slated to be effective in 2018, but it was delayed until 2020 in prior budget legislation.

5. Most ACA-Related Taxes Repealed. The BCRA would also repeal most of the tax reforms established under the ACA. Most relevant to employers and plan sponsors would be the elimination of the contribution limit on health flexible spending accounts (HFSAs), the ability reimburse over-the-counter costs under HFSAs and health savings accounts (HSAs), the increase in HSA contribution limits, and elimination of the Medicare surcharge applied to high-earners.

6. Popular ACA Reforms Remain. As was the case under the AHCA, the BCRA would keep many popular ACA market reforms and patient protections in place. These include:

• The requirement to cover dependent children until age 26;

• The prohibition on waiting periods in excess of 90 days;

• The requirement for individual and small group plans to cover essential health benefits;

• The prohibition against lifetime or annual dollar limits on essential health benefits;

• The annual cap on out-of-pocket expenditures on essential health benefits;

• Uniform coverage of emergency room services for in-network and out-of-network visits;

• Required first-dollar coverage of preventive health services;

• The prohibition of preexisting condition exclusions;

• Enhanced claims and appeals provisions; and

• Provider nondiscrimination.

7. ERISA Preemption for “Small Business Health Plans.” The BCRA would add a new Part 8 to ERISA for “small business health plans.” Currently, some states have enacted insurance laws that prohibit small employers from risk-pooling their employees in a single, large group insurance plan. New Part 8 of ERISA would preempt these state laws and allow the formation of “small business health plans,” which, generally, are plans sponsored by an association on behalf of its employer members. Small business health plans must meet certain organizational and financial control requirements and apply to the Department of Labor for certification.

8. Employee Tax Exclusion Remains Intact. Like the AHCA, the BCRA does not currently include a limitation on the employee tax exclusion that would result in imputed taxes to employees if the value of health coverage exceeds a certain amount. This absence, however, does not necessarily mean that such a limit will not eventually be imposed. It is possible that Congress will consider limiting tax incentives for both retirement and health and welfare plans when broader tax reform is considered.

9. HFSA/HSA Expansion. As mentioned above, the BCRA includes the same modifications to the HFSA and HSA rules as the AHCA. The BCRA would remove the annual contribution cap on HFSAs. Additionally, HFSAs and HSAs would now be able to reimburse on a non-taxable basis over-the-counter medication without a prescription. The annual contribution limit to HSAs would be equal to the out-of-pocket statutory maximum for high-deductible health plans. Spouses would both be able to make catch-up contributions to the same HSA.

It is still too early to tell whether the BCRA will fare better than the AHCA. In any event, we will continue to monitor legislative efforts and will provide updates as substantive developments occur.

Health Care Reform Legislation Comparison
Shared Responsibility	ACA	AHCA	BCRA
Employer Mandate	Applicable large employers (those with 50 or more full-time employees and equivalents) face penalties if minimum essential coverage not offered to 95% of full-time employees (and dependents) or if coverage is not minimum value or affordable.	No penalties for failing to provide adequate coverage.	No penalties for failing to provide adequate coverage.
Individual Mandate	Individuals subject to tax if not enrolled in minimum essential coverage unless exception applies.	No tax for failing to enroll in minimum essential coverage. However, effective for plan years beginning in 2019, a 30% premium surcharge would be charged by insurance carriers to an individual who purchases insurance coverage following a lapse in coverage of 63 days or more.	No tax for failing to enroll in minimum essential coverage. However, individuals who have a lapse in coverage of 63 or more days in the prior 12-month period will be subject to a 6-month coverage waiting period.
Reporting	IRC §§ 6055 and 6056 require reporting from issuers of minimum essential coverage and applicable large employers.	No change to ACA reporting requirements under IRC §§ 6055 and 6056. Additional Form W-2 reporting required.	No change to ACA reporting requirements under IRC §§ 6055 and 6056.
Market Reforms	ACA	AHCA	BCRA
Dependent Coverage	If dependent children covered, coverage must continue until age 26.	No change.	No change.
Essential Health Benefits	Small group and individual market plans must cover 10 essential health benefit categories, as defined by benchmark plan established by state.	No change, but states can apply for waiver to establish separate definition of essential health benefit.	No change, subject to relaxed waiver rights under ACA § 1332 (State Innovation Waivers).
Annual/Lifetime Dollar Limits	No annual or lifetime dollar limits can be applied to essential health benefits.	No change, but states can apply for waiver to establish separate definition of essential health benefit.	No change, subject to relaxed waiver rights under ACA § 1332 (State Innovation Waivers).
Out-of-Pocket Maximums	Out-of-pocket maximum applied to essential health benefits.	No change, but states can apply for waiver to establish separate definition of essential health benefit.	No change, subject to relaxed waiver rights under ACA § 1332 (State Innovation Waivers).
Preexisting Condition Exclusions	Preexisting condition exclusions prohibited.	No change, but insurance providers must apply a 30% premium surcharge if individual has a gap in coverage of 63 days or more.	No change, but 6-month waiting period applied if individual has a gap in coverage of 63 days or more.
Preventive Care	Preventive care covered without cost-sharing.	No change.	No change.
Emergency Coverage	Emergency room visit at an out-of-network hospital must be covered at in-network rate.	No change.	No change.
Rescissions	Coverage cannot be retroactively terminated except in cases of fraud or misrepresentation or for premium nonpayment.	No change.	No change.
Summaries of Benefits and Coverage	Short (8-page) disclosure of plan terms and glossary distributed on an annual basis.	No change.	No change.
Enhanced Claims Procedures	Claims procedures now require additional claims procedures and voluntary external review.	No change.	No change.
Provider Nondiscrimination	Cannot discriminate against a health care provider acting pursuant to state license.	No change.	No change.
Section 105(h) Nondiscrimination	Fully-insured employer-sponsored health plans cannot discriminate in favor of highly compensated individuals (not yet effective).	No change.	No change.
Medical Loss Ratio	Individual and small group plans must spend 80% of premium income on claims and quality improvement. Large group insurance plans must spend 85% of premium income on claims and quality improvement.	No change.	Applicable ratio determined by the state (effective for plan years beginning on or after January 1, 2019).
Tax Reforms	ACA	AHCA	BCRA
Cadillac Tax	40% excise tax applied to cost of group health coverage exceeding threshold (effective January 1, 2020).	Delayed until January 1, 2025.	Repealed effective December 31, 2019, but to be reinstated effective January 1, 2025,
Small Business Tax Credit	Tax credit for premiums paid toward group health coverage available to small businesses.	Not available for plans that cover abortion for plan years beginning on or after January 1, 2017; repealed for plan years beginning on or after January 1, 2020.	Same as AHCA.
Health FSA Limit	Maximum contribution to health FSA set at $2,500 (subject to annual increases for inflation).	Repealed effective January 1, 2017.	Repealed effective January 1, 2018.
HSA Distribution Penalty	Penalty for HSA distributions used for non-qualifying medical expenses increased to 20%.	Repealed effective January 1, 2017. Penalty would go back to 10% for HSAs and 15% for Archer MSAs.	Same as AHCA.
HSA Contribution Limits	No change.	Increased to match statutory out-of-pocket maximum for high-deductible health plans (effective January 1, 2018).	Same as AHCA.
FSA/HSA Over-the-Counter	Health FSAs and HSAs cannot reimburse over-the-counter products without a prescription (excluding purchase of insulin).	Repealed effective January 1, 2017.	Same as AHCA.
Medical Expense Deduction	Itemized deduction under IRC § 223 available for medical expenses in excess of 10% of adjusted gross income.	Repealed effective January 1, 2017. Threshold would return to 7.5% adjusted gross income.	Same as AHCA.
Medicare Surcharge	Additional 0.9% hospital insurance (Medicare) tax applied to high-earners.	Repealed effective January 1, 2023.	Same as AHCA.
Medicare Investment Income Tax	Medicare tax of 3.8% applied to unearned income.	Repealed effective January 1, 2017.	Same as AHCA.
Health Insurance Tax	Tax applied to insurance carriers based on premiums collected.	Repealed effective January 1, 2017.	Repealed effective January 1, 2018.
Health Insurer Compensation Deduction	No compensation deduction available to certain health insurance providers for compensation in excess of $500,000 paid to applicable individuals.	Repealed effective January 1, 2017.	Same as AHCA.
Medical Device Tax	Excise tax of 2.3% imposed on manufacturer, producers and importers of medical devices.	Repealed effective January 1, 2017.	Repealed effective January 1, 2018.
Branded Prescription Drug Fee	Manufacturers and importers of branded prescription drugs are subject to an annual fee.	Repealed effective January 1, 2017.	Repealed effective January 1, 2018.
Retiree Drug Subsidy	Amount received under Retiree Drug Subsidy must be taken into consideration when determining prescription drug cost business deduction.	Repealed effective January 1, 2017.	Same as AHCA.
Marketplace	ACA	AHCA	BCRA
Marketplace Structure	Individuals can purchase insurance coverage on risk-pooled Marketplace established by Federal or state government. Individuals purchasing coverage on the Marketplace may be eligible for cost-sharing subsidies and premium assistance. Plans available on Marketplace (“qualified health plans”) must meet certain cost-sharing and actuarial value levels (i.e., gold, silver, bronze plans). Qualified health plans must cover essential health benefits.	Effective January 1, 2020, cost-sharing subsidies and premium assistance are repealed. Additionally, Marketplace plans are no longer required to meet cost-sharing and actuarial value requirements. Limited-scope, or catastrophic plans would be available.	No structural changes from ACA. Marketplaces, including cost-sharing subsidies and premium assistance, remain intact with modifications.
Cost-Sharing Subsidies and Premium Assistance	Available to individuals with household income between 100% and 400% of federal poverty line. Age is not a factor in amount of subsidies or assistance available.	For plan years beginning in 2018 and 2019, basic structure remains the same except that age and income are factors in the amount of cost-sharing subsidies and premium assistance that is available. No subsidies or assistance is available for qualified health plans that cover abortion. Cost-sharing subsidies and premium assistance repealed for plan years beginning in 2020. Instead, advance tax credit available based solely on age.	Available to individuals with household income between 100% and 350% of federal poverty line. Age is a factor in amount of subsidies or assistance available.
Premium Rate Setting	Small group and individual insurance markets may vary rates based only on certain factors, including individual or family coverage, community rating, age (3:1 ratio) and tobacco use.	Age ratio increases to 5:1 beginning January 1, 2018. States may apply to waive ACA requirements and base premiums on health factors.	Age ratio increases to 5:1 beginning January 1, 2018. State Innovation Waiver Program (ACA § 1332) requirements relaxed, giving states ability to waive many of the ACA’s market reforms.

This post was written by Damian A. Meyers and Steven D. Weinstein of Proskauer Rose LLP.

Tag: health care