Tag: Health Law

What the FTC’s Rule Banning Non-Competes Means for Healthcare

The FTC unveiled its long-awaited final rule banning most non-compete agreements during a live broadcast of a Commission meeting on April 23, 2024. The proposed rule, which was first announced in January 2023, underwent an extensive public comment process in which approximately 26,000 comments were received. According to the FTC, approximately 25,000 of these comments supported a total ban on non-competes. While there was some expectation that the final rule would be less aggressive than the proposed rule, that turned out not to be the case. By late summer 2024, most employers, except for non-profit organizations, will not be able to enforce or obtain non-competes in the U.S. except in extremely narrow circumstances. The new rule will take effect 120 days after it is published in the Federal Register. Assuming the rule is published this week, we can expect it to take effect by late August. That is, of course, if a court does not enjoin the rule first. Shortly after the rule was announced on April 23, the U.S. Chamber of Commerce stated its intention to sue the FTC. U.S. Chamber to Sue FTC Over Unlawful Power Grab on Noncompete Agreements Ban | U.S. Chamber of Commerce (uschamber.com) The first lawsuit challenging the new rule was filed on April 23, Ryan, LLC v. Federal Trade Commission, Case No. 3:24cv986 (N.D. Tex. Apr. 23, 2024). Among other relief, the Ryan suit seeks to have the rule vacated and set aside. There are significant legal questions concerning whether the FTC has the authority to take this action by rulemaking or whether this is best left to the legislative process. While some U.S. states have banned non-competes, many U.S. states have not banned them.

As written, the rule will have profound effects on virtually every industry, especially health care, where non-competes are common in physician and mid-level practitioner employment agreements. As several Commissioners indicated during the April 23 meeting, they are particularly concerned about non-competes in health care and believe this rule will save approximately $74-194 billion in reduced spending on physician services over the next decade.

Following is Nelson Mullins’ quick take on what health care employers need to know:

  1. The rule does not apply to non-profits. The basis for the rule making is Section 5 of the FTC Act, which doesn’t apply to non-profits. So, a non-profit health system that has non-competes with physicians or other workers is not impacted by the rule. Be aware, though, that the FTC may be looking to test whether some non-profit health systems are really operating as true non-profits. Tax exempt status alone will not be enough. We believe, however, that given significant and quantifiable charitable benefits that most non-profit systems provide, the FTC may be hard pressed to find a good test case within the non-profit health care industry.
  2. For all others, the rule bans all non-compete agreements for any worker, regardless of title, job function, or compensation, after the effective date. Thus, a for-profit health system or for-profit physician practice that uses non-competes will be significantly limited. The only non-competes that will be allowed to remain in force are non-competes for “Senior Executives” that were entered into before the rule becomes effective.
  3. The rule will take effect 120 days after it is published in the Federal Register. This will likely occur this week, so we expect the effective date to be approximately August 20, 2024.
  4. The rule rescinds existing non-competes for all workers who are not “Senior Executives.”
  5. “Senior Executive” is a narrowly-defined term meaning:
    1. a person in a policy making position; and
    2. who was paid at least $151,164 in the prior year.
  6. Existing non-competes for Senior Executives are not rescinded. New non-competes with Senior Executives entered into prior to the effective date are still allowed. However, no new non-competes with Senior Executives may be entered into after the effective date.
  7. “Policy-making position” means: President, CEO, or equivalent, or other person who has policy making authority, i.e., decisions that control a significant aspect of a business entity. Most clinicians will not meet the definition of “Senior Executive.”
  8. Non-senior executives who are now under a non-compete must be given notice by the effective date that their non-compete will not be, and cannot legally be, enforced. Model language for the notice is in the rule.
Copyright ©2024 Nelson Mullins Riley & Scarborough LLP
by: Denise M. Gunter, Carrie A. Hanger, Candace S. Friel of Nelson Mullins
For more news on the Implications of the FTC Noncompete Ban on Healthcare, visit the NLR Health Law & Managed Care section.

10 Market Predictions for 2024 from a Healthcare Lawyer

As a healthcare lawyer, 2023 was a pretty unusual year with the sudden entrance of a number of new players into the healthcare marketplace and a rapid retrenchment of others. With innovation showing no signs of slowing down in the year ahead, healthcare providers should consider how to adapt to improve the patient experience, increase their bottom line, and remain competitive in an evolving industry. Here are 10 personal observations of the past year that may help you plan for the year ahead.

  1. Health tech will continue to boom. Without a doubt, in my practice, health tech exploded, and understandably. In the face of tight margins, healthcare technology may offer the promise of immediate returns (think revenue cycle). But it is also important to understand the context. Health tech offers the promise of quick implementation relative to construction of clinical space, and it can be accomplished without additional clinical staff or regulatory oversight, potentially resulting in a prompt return on investment. Advancing technologies and AI will enable real-time, data driven surgical algorithms and patient-specific instruments to improve outcomes in a variety of specialties.
  2. Value-based care is here to stay. Everyone is interested in value-based care. In the past, value-based care was simply aspirational. Now, there are significant attempts to implement it on a sustained basis. It is not a coincidence that there has also been significant turnover in healthcare leadership in the past few years, and that has likely led to more receptivity.
  3. Expansion of value-based care models. There has been considerable activity around advanced primary care and single-condition chronic disease management. We are now starting to see broader efforts to manage care up and down the continuum of care, involving multi-specialty care and the gamut of care locations. Increased pressure to lower costs will result in increased volumes in lower cost, ambulatory settings.
  4. Regulatory scrutiny will continue to increase. For most, this is a given. In 2023, we saw increased scrutiny up and down the continuum, whether related to pharmaceutical costs, regulation of pharmacy benefit managers, healthcare transaction laws, or innovations in thinking around healthcare from the Federal Trade Commission. With the impending election, it is likely healthcare will receive considerable attention and scrutiny.
  5. Private equity (“PE”) will resume the march – with discipline. In my practice, PE entities rethought their growth strategies to focus on how to bring acquisitions to profitability quickly, from a “growth at all costs” mind set. Now there appears to be an increasing focus on operations and an emphasis on making realistic assumptions to underly growth. This has led to a more realistic pricing discipline and investment in management teams with operational experience.
  6. Partnerships. There is an increasing trend towards partnerships between PE entities and health systems. Health systems are under considerable financial stress, and while they do not universally welcome PE with open arms, some systems do appear open to targeted partnerships. By the same token, PE entities are beginning to realize that they require clinical assets that are most readily available at health systems. This will continue in 2024.
  7. The rise of independent physician groups. There is increasing activity among freestanding physician groups. Some doctors are leery of PE because they believe it is solely focused on profits. Similarly, many physicians are reluctant to be employed by health systems because they believe they will simply become a referral source. While we are not likely to see a return to 2002, where many PE and health system physician deals were unwound, we will see increasing growth by independent physician groups.
  8. Continued consolidation. The trend towards consolidation in healthcare is nowhere near ending. To assume risk (the ultimate goal of value-based care), providers require scale, both vertically and horizontally. While segments of healthcare slowed in 2023, a resumption of growth is inevitable.
  9. Increased insolvencies. Most healthcare providers have very high fixed costs and low margins. Small swings in accounts receivable collections, wages, and managed care payments can have a large impact on entities that are just squeezing by.
  10. New entrants. Last year saw several new entrants to the healthcare marketplace nationally. Who in 2023 would have thought Best Buy would enter the healthcare marketplace? There is still plenty of room for new models of care, which we will see in 2024.

2024 promises to be an interesting year in the healthcare industry.

© 2023 Blank Rome LLP
For more news on 2024 Healthcare Industry Laws, visit the NLR Health Law & Managed Care section.

CMS Takes Steps to Lower SNF Medicare Payment Error Rates

With the Medicare Comprehensive Error Rate Testing program projected error rate for skilled nursing facilities (SNFs) showing a significant increase in 2022 (15.1%, up from 7.9% in 2021), the Centers for Medicare and Medicaid Services (CMS) has instructed each of its Medicare Administrative Contractors (MACs) that review SNF Medicare claims to initiate a five-claim probe and educate medical review for each SNF in the MAC’s jurisdiction.

CMS surmises that the source of the increase in improper payments may lie with the change from resource utilization group (RUG) IV to the patient driven payment model (PDPM) and has noted that the primary root cause of SNF errors is missing documentation.

MACs are instructed to implement the five-claim probe on a rolling basis beginning with the top 20% of SNFs that show the highest risk. If any improper payments are identified, the MAC will adjust (or deny) the claim(s) and offer either widespread education or 1:1 individualized education depending on the error rate. 1:1 education will include claim specific information and allow the SNF to review the claim decision, ask questions and receive feedback.

Beginning June 5, 2023, SNFs nation-wide should be on the lookout for a prepayment probe and educate record request from the MAC and be prepared to respond within 45 days.

Copyright © 2023, Sheppard Mullin Richter & Hampton LLP.

For more Healthcare Legal News, click here to visit the National Law Review.

No More Surprise Medical Bills: Providers Score More Victories in First Year of No Surprises Act Arbitrations, But Claims Backlog Otherwise Complicates Implementation

In the year following the implementation of the arbitration process established under the federal No Surprises Act (NSA), more than 330,000 disputes have been submitted for resolution. This figure far outpaces the predictions of the US Departments of Health and Human Services (HHS), Labor, and the Treasury (the Departments), and complicates the implementation of the NSA.

*This is the eighth article in a series analyzing the No Surprises Act and its implementation. To view the entire series, click here.

As background, Congress passed the NSA in 2020, effective in 2022, to curb so-called “surprise” medical bills — balance bills received by patients in situations where they have no control over who is involved in their care. Frequently, patients incur these bills when they obtain emergency care from out-of-network facilities or non-emergency services at in-network facilities where at least one member of the care team is out-of-network. In these situations, the NSA forbids out-of-network providers from balance billing the patients to collect the difference between billed charges and what the patient’s health insurance actually paid. Instead, to protect patients and ensure that reasonable payments are made to providers, the NSA establishes an alternative dispute resolution process, allowing eligible parties to submit disputed claims to independent dispute resolution entities (IDREs) to determine appropriate out-of-network payment rates.

Dispute resolution was intended to be streamlined and efficient, but IDREs have been inundated with submissions in the year since the NSA became effective. The volume of claims has created a significant backlog, hindering providers’ ability to obtain timely and appropriate reimbursement for the services they rendered. In an effort to promote transparency, the Departments recently issued a “status update” on the arbitration process. The report revealed several key findings regarding the volume, eligibility, and outcomes of claims submitted under the NSA to date.

Key Findings of the Status Update Report

First, the report provided insight into the overall numbers of claims that have been filed since the NSA became effective. Since the federal claims submission portal first went live in April 2022, disputing parties have initiated more than 330,000 arbitration submissions. This figure is nearly 14 times greater than the Departments’ initial estimates. The sheer volume of claims has drastically slowed the adjudication of claims submitted under the NSA.

Second, the report states that IDREs have rendered determinations in favor of one party or the other in only a small fraction of cases, with approximately 42,000 disputes decided as of March 31, 2023. Of these, initiating parties (typically health care providers) have prevailed approximately 71% of the time.

Third, to date, IDREs have closed more cases than they have decided. Overall, more than 100,000 claims,  – more than four times the amount anticipated by the Departments, have been closed. There are various reasons for this. Some claims were closed following successful negotiations between the parties. Others were closed due to one or both parties failing to submit the required fees mandated under the NSA. A large number — nearly 40,000 — were closed for eligibility reasons. Non-initiating parties have challenged the eligibility of more than a third of claims submitted for arbitration, balking at approximately 120,000 disputes. Non-initiating parties frequently object that claims are not eligible for arbitration under the NSA for multiple reasons, including lack of timely negotiation or arbitration submission, or because the disputed claims involve insurance programs outside the scope of the NSA.

In addition to the objections lodged by non-initiating parties, the IDREs have an independent duty to confirm that all claims submitted for arbitration are eligible under the NSA. These determinations require IDREs to engage in what can be a complex and time-consuming analysis of each claim, frequently requiring the submission of additional information from the parties. The report finds that these eligibility determinations represent the primary cause for the delays in processing arbitration submissions.

Finally, in an effort to help resolve delays, the status update includes that the Departments have begun to require initiating parties to submit additional information to assist IDREs in evaluating the eligibility of claims. The Departments have also modified the arbitration portal to require the input of additional information to enable non-initiating parties to identify disputed claims. These are among the “ongoing technical and operational improvements” the report states the Departments have been making over the last year.

Looking Ahead: Additional Legislation and Ongoing Court Challenges

The report highlights a series of problems that have hampered the implementation of the NSA, including larger-than-expected dispute volume, complex eligibility determinations, and technical issues. Collectively, these problems have left many parties awaiting arbitration awards and payment.

Meanwhile, the legal challenges to the Departments’ implementing regulations under the NSA continue, and HHS Secretary Xavier Bacerra recently testified before Congress regarding the implementation of the NSA. These developments have fueled speculation that Congress may step in and pass additional legislation to streamline the arbitration process. While these events play out, providers should continue to submit timely open negotiation notices and IDR initiation forms to preserve their rights under the NSA.

A copy of CMS’s report can be found here.

© 2023 ArentFox Schiff LLP

For more Healthcare Legal News, click here to visit the National Law Review.

Will CMS’s Proposed Rule on “Identified Overpayments” Increase Reverse FCA Cases?

On December 27, 2022, the Centers for Medicare & Medicaid Services (CMS) published a proposed rule which, in part, seeks to amend the existing regulations for Medicare Parts A, B, C, and D regarding the standard for when an “identified” overpayment must be refunded, pursuant to the Affordable Care Act (ACA) and the False Claims Act (FCA) reverse false claims provision. As written, the proposed rule would remove the existing “reasonable diligence” standard for identification of overpayments, and add the “knowing” and “knowingly” FCA definition. As a result, an overpayment would be “identified” when the entity has actual knowledge of an identified overpayment, or acts in reckless disregard or deliberate ignorance of an identified overpayment. And, a provider is required to refund overpayments it is obliged to refund within 60 days of such identified overpayment.

If this proposed rule is finalized, the Department of Justice (DOJ) and Health and Human Services (HHS) Office of Inspector General’s (OIG) should be applying the same intent standard to their evaluation of potential reverse false claims and Civil Monetary Penalty liability.

The Lay of the Land

Currently, the applicable overpayment regulations state:

A person has identified an overpayment when the person has, or should have through the exercise of reasonable diligence, determined that the person has received an overpayment and quantified the amount of the overpayment. A person should have determined that the person received an overpayment and quantified the amount of the overpayment if the person fails to exercise reasonable diligence and the person in fact received an overpayment.

42 C.F.R. § 401.305(a)(2). In the 2016 Final Rule, CMS agreed “the 60-day time period begins when either the reasonable diligence is completed or on the day the person received credible information of a potential overpayment if the person failed to conduct reasonable diligence and the person in fact received an overpayment.” This reasonable diligence standard allows entities to not only determine credibility of allegations, or issues relating to, a potential overpayment but also, when credible, to conduct a properly scoped internal investigation, during which an entity also accurately quantifies any associated overpayment due for refund.

In the proposed rulemaking, CMS is suggesting instead the following standard:

A person has identified an overpayment when the person knowingly receives or retains an overpayment. The term “knowingly” has the meaning set forth in 31 U.S.C. 3729(b)(1)(A).

31 U.S.C. 3729(b)(1)(A) defines “Knowingly” as any circumstance in which “a person, with respect to information—(i) has actual knowledge of the information; (ii) acts in deliberate ignorance of the truth or falsity of the information; or (iii) acts in reckless disregard of the truth or falsity of the information.”

The currently proposed provision has similar effect to the language CMS proposed in 2012 and, after consideration of comments, ultimately rejected in the 2014 Final Rule (Medicare Advantage and Part D) and 2016 Final Rule (Medicare Part A and Part B). In that final rulemaking, CMS removed the “actual knowledge,” “reckless disregard,” and “deliberate ignorance” terms in favor of the reasonable diligence standard, leaving practitioners to argue that CMS had lowered requisite intent to a standard less than required by the FCA.

Potential Impact

The FCA is a fraud statute, requiring intent. If a company investigating the credibility, issue, and scope of a matter (i.e., exercising reasonable diligence) also diligently determines the scope of a possible refund obligation, it would be difficult for DOJ to credibly claim an entity has acted recklessly, or with deliberate indifference to repayment under the FCA. DOJ’s general practice has been to bring reverse FCA cases when a provider does not investigate credible allegations and does not refund associated overpayments, after identifying them. For example, in a 2015 case, DOJ attorneys stated in a court conference, “[T]his is not a question … of a case where the hospital is diligently working on the claims and it’s on the sixty-first day and they’re still scrambling to go through their spreadsheets, you know, the government wouldn’t be bringing that kind of a claim.” United States ex rel. Kane v. Healthfirst, Inc., 120 F. Supp. 3d 370, 389 (S.D. N.Y. 2015).

It remains to be seen whether this change will result in an increased pursuit of reverse FCA cases. The proposed rule would eliminate an explicit diligence period (generally not to exceed six months, except in particularly complicated analyses, such as under the Physician Self-Referral or “Stark” Law) to ascertain the validity and amount of a potential obligation to refund an overpayment. The proposed rule does not explain whether providers, suppliers, and others still will have an opportunity to conduct a reasonably diligent inquiry into whether any obligation to refund exists at all, prior to the ACA 60-day clock starting to run. Ideally CMS would make clear in any preamble that the government still expects reasonable and professional efforts be undertaken before making refunds, even if that process may take some time to complete

Absent such clarity, the fact remains that it is difficult to “identify” an obligation to refund, much less any refundable amounts, without first validating the alleged overpayment and quantifying any obligation.

Additionally, this standard may prompt entities to submit an HHS-OIG self-disclosure before all facts are known. While OIG requires a disclosing party to conduct an internal investigation prior to submission, it is near impossible to thoroughly investigate issues and identify any refund 60 days from learning of a possible issue that might result in a refund (especially when multiple payors are involved). Even if a disclosing party notes within a self-disclosure that an investigation is ongoing, the disclosing party must certify that it will complete its investigation within 90 days of the submission date – which still may not be enough time based on the complexity of the allegations or claims review required. The resulting back-and-forth of incomplete information likely would create unnecessary delays in reaching a resolution and frustration among all parties involved.

We encourage all providers, suppliers, Medicare Advantage organizations, Part D participants, and other stakeholders to submit comments on this proposed rule. The public has until 5 p.m. ET on February 13, 2023 to submit comments, which are accepted, electronically or by mail.

Article By Kara (Schoonover) Sweet, Lisa M. Noller, and Lawrence W. Vernaglia of Foley & Lardner LLP

For more healthcare and health law legal news, click here to visit the National Law Review.

© 2023 Foley & Lardner LLP

Colorado Legalizes Therapeutic Psychedelics – Now What?

Ten years after Coloradans voted for their state to be one of the first to legalize recreational cannabis, Colorado is again making history as the second state in the country to legalize therapeutic psychedelics for adults.

Colorado voters narrowly approved Proposition 122 with nearly 53% of the votes (as of the morning of November 14th 97% of the votes have been counted). Their vote thus enacted the Natural Medicine Health Act of 2022 (NMHA) which legalizes supervised or facilitated therapeutic sessions for adults twenty-one years and older using certain psychedelic plants and fungi. Click here for our initial takeaways and a high-level summary of key provisions of the NMHA.

Now that therapeutic psychedelics are legal in Colorado, what should be expected next? Below are key dates and next steps as Colorado navigates implementation of the NMHA.

  • The Colorado Department of Regulatory Agencies (DORA) must establish the Natural Medicine Advisory Board (Board) and appoint initial members to the Board by January 31, 2023. The Board must have 15 members who will be appointed by the Governor with the consent of the Colorado Senate. The primary role of the Board is to advise DORA as to implementation of the NMHA program.
  • By September 30, 2023, and annually thereafter, the Board must make recommendations to DORA on certain areas related to natural medicine, such as recommendations related to product safety, herm reduction, and cultural responsibility, training programs, educational and experiential qualifications for facilitators, regulatory considerations for each type of natural medicine and the rules to be promulgated by DORA.
  •  DORA has until January 1, 2024 to adopt rules and establish the qualifications, education and training requirements that facilitators must meet prior to providing natural medicine services to participants.
  • By September 30, 2024, DORA must adopt rules to implement the NMHA program and begin accepting applications for licensure of facilitators, healing centers, entities to test natural medicines, and any categories of licensure as determined by DORA.
  • Once applications are accepted, DORA must make decisions on licensure applications within 60 days of receiving an application.
  • From the launch of the NMHA program until June 1, 2026, “natural medicines” are limited to psilocybin and psilocyn. After June 1, 2026, upon recommendation by the Board, DORA may add one of more of the following to types of natural medicines that can be provided under the NMHA program: dimethyltryptamine, Ibogaine, and Mescaline (excluding peyote).

A notable takeaway and something to watch for in the forthcoming rules is a focus on social equity. Seemingly applying lessons learned from the rollout of the state’s cannabis program, the NMHA expressly requires DORA to prioritize equity and inclusivity as it establishes rules to implement the NMHA program. Specifically, DORA is required to adopt rules which: (i) establish procedures, policies and programs to ensure the NMHA program is equitable and inclusive; (ii) promote the licensing of and provision of natural medicine services to (a) persons from communities that have been disproportionally harmed by high rates of controlled substances (including cannabis); (b) persons who face barriers to access to health care; (c) persons who have traditional or indigenous history with natural medicines; and (d) persons who are veterans by, offering, at a minimum reduced fees for licensure and training, incentivizing the provision of natural medicine services at a reduced cost to low income individuals, and incentivizing geographic and cultural diversity in licensing and the provision of and availability of natural medicine services.

In addition, DORA is prohibited from imposing unreasonable financial or logistical barriers that would prevent individuals with lower income from applying for a license and individuals are limited to having a financial interest in five healing centers. Currently, the definition of “individuals” does not include corporations. However, DORA could establish a rule which includes corporations in this limitation and would arguably level the playing field in this budding market.

We will continue to monitor developments and closely follow the rulemaking process as Colorado designs and implements this historical new program.

Article By Lauren P. Carboni of Foley & Lardner LLP

For more biotech, food, and drug legal news, click here to visit the National Law Review.

© 2022 Foley & Lardner LLP

Buying, Selling, and Investing in Telehealth Companies: Navigating Structural and Compliance Issues

A multi-part series highlighting the unique health regulatory aspects of Telemedicine mergers and acquisitions, and financing transactions

Investors in the telehealth space and buyers and sellers of telehealth companies need to account for a set of health regulatory considerations that are unique to deals in this sector. As all parties to potential telehealth transactions analyze their long term role in the telehealth marketplace, two of the central issues to any transaction are compliance and structure – both in terms of structuring the telehealth transaction itself and due diligence issues that arise related to a target’s structure.

The COVID-19 pandemic, combined with strained health care staffing and provider availability, have accelerated the growth of the telehealth, and start-ups and traditional health systems alike are competing for access to patient populations in the telehealth space. However, as we adjust to life with COVID-19 as the norm, the expiration of the federal Public Health Emergency (PHE) looms, and the national economy contracts, we expect that the remainder of 2022 and into 2023 will see consolidation as the telehealth market begins to saturate and the long-term viability of certain platforms are tested. Telehealth companies, health systems, pharma companies and investors are all in potential positions to take advantage of this consolidation in a ripening M&A sector (while startups in the telehealth space continue to seek venture and institutional capital).

This is the first post in a series highlighting the unique health regulatory aspects of telehealth transactions. Future installments of this series are expected to cover licensure and regulatory approvals, compliance / clinical delivery models, and future market developments.

Telehealth Transaction Structure Considerations

The structure of any given telehealth transaction will largely depend on the business of the telehealth organization at play, but also will depend on the acquirer / investor. Regardless of whether a party is buying, selling or investing in a telehealth company, structuring the transaction appropriately will be important for all parties involved. While a standard stock purchase, asset purchase or merger may make sense for many of these transactions, we have also seen a proliferation of, affiliation arrangements, joint ventures (JV), alliances and partnerships.  These varieties of affiliation transactions can be a good choice for health systems that are not necessarily looking to manage or develop an existing platform, but instead are looking to leverage their patient populations and resources to partner with an existing technology platform. An affiliation or JV is more popular for telehealth companies operating purely as a technology platform (with no core business involving clinical services being provided). For parties in the traditional healthcare provider sector that provide clinical services, an affiliation or JV, which is easier to unwind or terminate than a traditional M&A transaction, can allow the parties to “test the waters” in a new, combined business venture. The affiliation or JV can take a variety of forms, including technology licensing agreements; the creation of a new entity to house the telehealth mission, which then has contractual arrangements with the both the JV parties; and exclusivity arrangements relating to use of the technology and access to patient populations.

While an affiliation or JV offers flexibility, can minimize the need for a large upfront investment, and can be an attractive alternative to a more permanent purchase or sale, there can be increased regulatory risk. Entrepreneurs, investors, and providers considering any such arrangement should bear in mind that in the wake of the COVID-19 pandemic and proliferation of telehealth, the Office of Inspector General of the Department of Health and Human Services (HHS-OIG) has expressed a heightened interest in investigating so called “telefraud” and recently issued a special fraud alert regarding suspect arrangements, discussed in this prior post. Further, the OIG’s guidance on contractual joint ventures that would run afoul of the federal Anti-Kickback Statute (AKS) should be front of mind and parties should strive to structure any affiliation or JV in a manner that meets or approximates an AKS safe harbor.

Target Telehealth Company Structure Compliance

Where telehealth companies are providing clinical services, and are not purely technology platforms, structuring and transaction diligence should focus on whether the target is operating in compliance with corporate practice of medicine (CPOM) laws. The CPOM doctrine is intended to maintain the independence of physician decision-making and reduce a “profits over people” mentality, and prevent physician employment by a lay-owned corporation unless an exception applies. Most states that have adopted CPOM impose similar restrictions on other types of clinical professionals, such as nurses, physical therapists, social workers, and psychologists. Telehealth companies often attempt to utilize a so-called “friendly PC” structure to comply with CPOM, whereby an investor-owned management services organization (“MSO”) affiliates with a physician-owned professional corporation (or other type of professional entity) (a “PC”) through a series of contractual agreements that foster a close working relationship between the MSO, PC, and PC owner and whereby the MSO provides management services, and sometimes start-up financing. The overall arrangement is intended to allow the MSO to handle the management side of the PC’s operations without impeding the professional judgment of the PC or the medical practice of its physicians and the PC owner.

CPOM Compliance Considerations and Diligence for Telehealth Companies

A sophisticated buyer will want to confirm that the target’s friendly PC structure is not only formally established, but is also operationalized properly and in a manner that minimizes fraud and abuse risk. If CPOM compliance gaps are identified in diligence this may, at worst, tank the deal and, at best, cause unexpected delays in the transaction timeline, as restructuring may be required or advisable. The buyer may also request additional deal concessions, such as a purchase price reduction and special indemnification coverage (with potentially a higher liability limit and an escrow as security). Accordingly, a telehealth company anticipating a sale or fund raise would be well served to engage in a self-audit to identify any CPOM compliance issues and undertake necessary corrective actions prior to the commencement of a transaction process.

Below are nine key questions with respect to CPOM compliance and related fraud and abuse issues that a buyer/investor in a telehealth transaction should examine carefully (and that the target should be prepared to answer):

  1. Does target have a PC that is properly incorporated or foreign qualified in all states where clinical services are provided (based on the location of the patient)?
  2. Does the PC owner (and any directors and officers of the PC, to the extent different from the PC owner) have a medical license in all states where the PC conducts business (to the extent in-state licensure is required)? To the extent the PC has multiple physician owners and directors/officers, are all such individuals licensed as required under applicable state law?
  3. Does the PC(s) have its own federal employer identification number, bank account (including double lockbox arrangement if enrolled in federal healthcare programs), and Medicare/Medicaid enrollments?
  4. Does the PC owner exercise meaningful oversight and control over the governance and clinical activities of the PC? Does the PC owner have background and expertise relevant to the business (e.g., a cardiologist would not have appropriate experience to be the PC owner of a PC that provides telemental health services)?
  5. Are the physicians and other professionals providing clinical services for the business employed or contracted through a PC (rather than the MSO)? Employment or independent contractor agreements should be reviewed, as well as W-2s, and payroll accounts.
  6. Is the PC properly contracted with customers (to the extent services are provided on a B2B basis) and payors?
  7. Do the contractual agreements between the MSO and PC respect the independent clinical judgment of the PC owner and PC physicians and otherwise comply with state CPOM laws.
  8. Do the financial arrangements between the MSO, PC, and PC owner comply with AKS, the federal Stark Law, and corollary state laws and fee-splitting prohibitions, to the extent applicable?
  9. Is the PC owner or any other physician performing clinical services for the PC an equity holder in the MSO? If so, are these equity interests tied to volume/value of referrals to the PC or MSO (i.e., if the MSO provides ancillary services such as lab or prescription drugs) or could equity interests be construed as an improper incentive to generate healthcare business (e.g., warrants that can only be exercised upon attainment of certain volume)?

Telehealth companies considering a sale or financing transaction, and potential buyers and investors, would be well served to spend time on the front end of a potential transaction assessing the above issues to determine potential risk areas that could impact deal terms or necessitate any friendly PC structuring.

Article By Hannah E. Zaitlin, Mitchell D. Lindstrom, David S. Sanders, and Natasha Allen of Foley & Lardner LLP

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

© 2022 Foley & Lardner LLP

Feds Announce More Aggressive Enforcement of Poor Performing Nursing Homes

In February of 2022, during his State of the Union Address, President Biden announced an action plan to improve the safety and quality of care in the nation’s nursing homes.[i] On October 21, 2022, Centers for Medicare and Medicaid Services (CMS) announced new requirements to help with oversight of facilities selected to the Special Focus Facilities (SFF) Program.[ii]

The SFF Program was created to help and oversee the poorest performing nursing homes in the country and improve nursing homes that have a history of noncompliance.  The goal is to improve safety and quality of care. The facilities selected for the SFF Program must be inspected no less than once every six months and if severe enforcement is needed, it is at the discretion of the state surveyors. The main objective for the SFF Program is for facilities to show exponential improvement, graduate from the program, and then maintain compliance and better quality of care and safety.

The new CMS requirements, outlined below, are aimed at facilities that continuously fail to improve and remain in the SFF Program for a prolonged period of time. Health and Human Services Secretary Xavier Becerra stated, “Let us be clear: we are cracking down on enforcement of our nation’s poorest-performing nursing homes. As President Biden directed, we are increasing scrutiny and taking aggressive action to ensure everyone living in nursing homes gets the high-quality care they deserve. We are demanding better because our seniors deserve better.”

CMS announced the following revisions to the SFF Program:

  • Effective immediately, CMS will use escalating penalties for violations for deficiencies cited at the same level in subsequent surveys. This can include possible discretionary termination from Medicare and/or Medicaid funding for facilities that are cited with immediate jeopardy deficiencies on any two surveys while participating the in the SFF Program.
  • CMS will consider facilities’ efforts to improve when considering discretionary termination from Medicare and/or Medicaid programs.
  • CMS will impose more severe escalating enforcement remedies for SFF Program facilities for noncompliance and no effort to improve performance.
  • Increased requirements that nursing homes in the SFF Program must meet to graduate from the SFF Program.
  • For three years after graduation from the SFF Program, CMS will ensure nursing homes consistently maintain compliance with safety requirements by continuing to closely monitor these facilities.
  • CMS is offering more support resources to facilities selected for the SFF Program.

Additionally, the Biden administration released a fact sheet with the steps they are taking to in improve the quality of nursing homes. [iii] Some of the steps mentioned include more resources to support union jobs in nursing home care, establishing minimum staffing requirements, incentivizing quality performance through Medicare and Medicaid funding, and enhanced efforts to prevent fraud and abuse.

  1. https://www.whitehouse.gov/briefing-room/statements-releases/2022/02/28/…
  2. https://www.cms.gov/files/document/qso-23-01-nh.pdf
  3. https://www.whitehouse.gov/briefing-room/statements-releases/2022/10/21/…

Article By Thomas W. Hess, Kelly A. Leahy, Sydney N. Pahren, and Bryan L. Cockroft of Dinsmore & Shohl LLP

For more health law and managed care legal news, click here to visit the National Law Review.

© 2022 Dinsmore & Shohl LLP. All rights reserved.

Fair Market Value Defensibility Analysis: Why is It Different from a Fair Market Value Opinion?

Fair market value is a pinnacle issue for compliance under the Stark Law and Anti-Kickback Statute. Compensation arrangements that are required to be representative of fair market value under Stark/AKS include employment, independent contractor, medical directorships, exclusive service arrangements, call coverage, quality reviews, medical staff officer stipends, etc.

Many consulting firms provide fair market value opinions relying extensively on the application of benchmark data. Based upon CMS’s statements in the Stark Law Final Rules, although application of benchmark data is a resource that can be utilized, fair market value can and should include the application of market/service area issues (i.e., deficiency of specialty) or physician-specific issues (i.e., expertise, productivity).

Commercial reasonableness is a separate concept from fair market value under Stark/AKS. Commercial reasonableness also entails whether the application of benchmark/market factors are defensible.

When analyzing the defensibility of compensation arrangements, it is important to view fair market value and commercial reasonableness as if advocating the facts and circumstances of the proposed compensation arrangement before a governmental entity (i.e., CMS, OIG, DOJ). When an attorney is rendering a fair market value defensibility analysis, not only will the analysis be protected under the attorney-client privilege, but the analysis will also include references and attachments to all of the applicable documentation and relevant information in case the compensation arrangement is ever required to be defended.

Article By Bob Wade of Nelson Mullins

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

Copyright ©2022 Nelson Mullins Riley & Scarborough LLP

EMTALA in the Post-Dobbs World

The Emergency Medical Treatment and Labor Act (EMTALA) requires hospitals with emergency departments and participating in Centers for Medicare and Medicaid Services (CMS) programs to provide medical screening, treatment and transfer for patients with emergency medical conditions (EMCs) or women in labor.1 EMTALA, which was enacted in 1986 to address concerns about patient dumping, went unnoticed for many years, but has garnered heightened attention as a result of the COVID-19 pandemic, and more recently, the Supreme Court’s decision in Dobbs v. Jackson Women’s Health Organization (Dobbs).2

EMTALA is a federal law and expressly preempts state laws with which it directly conflicts. After the Dobbs decision was officially published in June, a number of states implemented laws that prohibited or restricted access to reproductive care. Many of these laws include potential civil sanctions and criminal liability for healthcare providers offering or performing these services regardless of the circumstances, including emergency situations. The Biden Administration, in contrast, has taken action to preserve access to reproductive care through a number of executive and federal agency actions. These actions are intended by the federal government to apply in all states, including those states where restrictions have been put in place. Following this activity, litigation between the federal government and several states has ensued to address potential conflicts between federal laws requiring the provision of access and state laws that prohibit or restrict access to reproductive health services. A summary of the current EMTALA landscape is set forth below.

EMTALA Requirements

Under EMTALA, hospitals with emergency departments (EDs) must provide a medical screening examination to any individual who comes to the ED, regardless of insurance status. EMTALA prohibits hospitals with EDs from refusing to examine or treat individuals with an EMC. Upon provision of a medical screening examination, hospitals must provide necessary stabilizing treatment for EMCs and labor within the hospital’s capability. If the hospital is unable to properly treat or stabilize the patient, the hospital must provide an appropriate transfer to another medical facility.

Under EMTALA, an EMC includes “a medical condition manifesting itself by acute symptoms of sufficient severity (including severe pain) such that the absence of immediate medical attention could reasonably be expected to result in:

(i) placing the health of the individual (or, with respect to a pregnant woman, the health of the woman or her unborn child) in serious jeopardy,

(ii) serious impairment to bodily functions, or

(iii) serious dysfunction of any bodily organ or part…”3

Many common pregnancy-related complications, such as preeclampsia or ectopic pregnancies, qualify as EMCs. However, certain state anti-abortion laws prohibit or criminalize abortions regardless of the existence of an EMC under federal law, which creates a potential conflict when an abortion is necessary to stabilize an EMC under EMTALA. As a result of this friction between state and federal law, EMTALA has received renewed attention at a federal and state level in recent months.

Executive Order on Protecting Access to Reproductive Healthcare Services

On July 8, 2022, after the Dobbs decision was officially issued, President Biden issued Executive Order 14076 (Executive Order), which directed the Department of Health and Human Services (HHS) to submit a report identifying steps to ensure all patients, including pregnant women and women experiencing pregnancy loss, receive the full protections offered by EMTALA. The Executive Order also directed HHS to consider updates to guidance on obligations under EMTALA.

CMS Memorandum and HHS Letter to Healthcare Providers

On July 11, 2022, in response to the Executive Order, CMS published a memorandum to State Survey Agency Directors to restate existing guidance for hospital staff and physicians in light of new state laws that prohibit or restrict access to abortion (Memorandum). The Memorandum reinforced CMS’ view that:

  • EMTALA mandates that all patients who come to a EDs and request examination or treatment must receive an appropriate medical screening examination, stabilizing treatment, and transfer regardless of any state law restrictions about specific procedures,

  • Only physicians and qualified medical personnel may make the determination of an EMC,

  • Hospitals should ensure that all staff who interact with patients presenting to the ED are aware of the hospital’s obligations under EMTALA,

  • Hospitals may not cite state law or practice as the basis for transfer,

  • Physicians’ professional and legal duties under EMTALA preempt any conflicting state law or mandate,

  • If a physician believes that abortion is the stabilizing treatment necessary to resolve an EMC, the physician must provide that treatment, and

  • State law is preempted by EMTALA when it prohibits abortion and does not include an exception for the life and health of the pregnant person or has a more restrictive definition of EMC.

The Memorandum also clarified that pregnant patients may experience EMCs including, but not limited to, ectopic pregnancy, complications of pregnancy loss, or emergent hypertensive disorders, such as preeclampsia with severe features and that stabilizing treatment encompasses both medical and surgical interventions, such as methrotrexate therapy or dilation and curettage.

The Secretary of HHS also published on July 11, 2022 a letter to healthcare providers reminding them of their obligation to provide stabilizing medical treatment to their pregnant patients in accordance with EMTALA, regardless of the state in which the provider practices (Letter). The Letter also reiterated that:

  • any state laws or mandates which employ a more restrictive definition of EMC are preempted by EMTALA statute, and

  • the course of necessary stabilizing treatment is under the physician’s or other qualified medical personnel’s purview.

The State of Texas Sues the Biden Administration

On July 14, 2022, the Texas Attorney General brought suit against HHS and CMS to challenge the Memorandum and Letter relating to federal law obligations for pregnant patients.4 The complaint alleged that EMTALA does not preempt state law when state law prohibits abortion and does not include an exception for the life of the pregnant person or draws the exception more narrowly than the definition of EMC under EMTALA. Specifically, Texas sought to enforce a state statute, the Human Life Protection Act, which would ban and criminalize abortions unless a woman “has a life-threatening physical condition arising from pregnancy that places her ‘at risk of death or poses a serious risk of substantial impairment of a major bodily function unless the abortion is performed”(emphasis added).5 The complaint also alleged that EMTALA does not require a healthcare provider to perform an abortion if it is the stabilizing treatment necessary to resolve an EMC. On August 23, 2022, the United States District Court for the Northern District of Texas (Lubbock Division) blocked enforcement of the Memorandum and Letter in the State of Texas on the basis that federal guidance did not preempt state law, exceeded the authority of EMTALA, and was issued without a proper notice and comment period. The Court found that, because EMTALA is silent regarding abortion and “how stabilizing treatments must be provided when a doctor’s duties to a pregnant woman and her unborn child possibly conflict,” “there is no direct conflict” between federal and Texas law with the end result that “EMTALA leaves it to the states”.6

The Biden Administration Sues the State of Idaho

On August 2, 2022, the Department of Justice (DOJ) sued the State of Idaho, alleging violation of EMTALA. Under Idaho’s proposed abortion law, which was slated to go into effect on August 25th, the performance of all abortions are criminalized regardless of the reason for which they may be performed including to prevent the death of the pregnant woman.7 Instead, the law permits physicians to raise two affirmative defenses to avoid criminal liability:

(i) The physician determined, in h/her good faith medical judgment and based on the facts known to the physician at the time, that the abortion was necessary to prevent the death of the pregnant woman, and

(ii) Prior to the performance of the abortion, the pregnant woman reported the act of rape or incest to a law enforcement agency and provided a copy of such report to the physician.8

The DOJ’s complaint alleged that  Idaho’s law does not provide a defense when the health of the pregnant patient is at stake, which is considered to fall within the definition of an EMC under EMTALA. In addition, the DOJ asserted that the fear of criminal prosecution may lead providers to avoid performing abortions even when it is a medically necessary treatment to prevent severe risk to the patient’s health. On August 24, 2022, the United States District Court for the District of Idaho found that Idaho’s law conflicted with EMTALA and granted the federal government a preliminary injunction blocking the enforcement of Idaho’s proposed abortion law.9 In contrast to the Northern District of Texas Court’s interpretation of the conflict between state law and EMTALA, the District Court of Idaho noted that found that Idaho’s criminal abortion statute deterred abortions given that it provided for an affirmative defense rather than an exception for the provision of emergency care and, therefore, obstructed EMTALA’s purpose.10

Looking to the Future

While EMTALA has been in place for decades, its applications in the post-Dobbs world continue to evolve and will be at the forefront in states with abortion restrictions, particularly where the scope of federal law obligations to provide stabilizing treatment for conditions that threaten the health of the pregnant patient conflict with state law exceptions or affirmative defenses.

The law, policy and regulatory climate surrounding the Dobbs decision is complex and quickly developing. The information included in this article is current as of writing, but it does not address all potential legal issues or jurisdictional differences, and the information presented may no longer be current. Readers should consult counsel regarding their specific situation.

FOOTNOTES

1 42 U.S.C. §1395dd.

2 For additional information regarding the Dobbs decision, please refer to the following resources: Supreme Court Decision in Dobbs v. Jackson Women’s Health Organization Overturns 50 Years of Precedent on Abortion Laws and Rights | Healthcare Law Blog (sheppardhealthlaw.com), WHLC Dobbs Series Part 1 Where are we now?: Sheppard Mullin Webinar.

3 42 U.S.C. §1395dd(e)(1).

4 State of Tex. v. Becerra, et al., No. 5:22-cv-185 (N.D. Tex. Jul. 14, 2022).

5 Tex. Health & Safety Code § 170A.

6 State of Tex. v. Becerra, et al., No. 5:22-cv-185 (N.D. Tex. Jul. 14, 2022), Memorandum Opinion and Order at 49.

7 Idaho Code § 18-622.

8  Idaho Code § 18-622(3).

9 U.S. v. Idaho, No. 1:22-cv-00329-BLW.

10 U.S. v. Idaho, No. 1:22-cv-00329-BLW, Memorandum Decision and Order at 26-31.

Article By Amy J. Dilcher and Arushi Pandya of Sheppard, Mullin, Richter & Hampton LLP

For more health and health law legal news, click here to visit the National Law Review.

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.