Tag: Price Gouging

Health Care Providers on Alert: Two Hospitals Penalized for Continuous Noncompliance with the Hospital Price Transparency Rule

We previously discussed the requirements of the Hospital Price Transparency Rule (“Rule”) on health care providers and health plans, as well as CMS’s proposal to increase penalties for a hospital’s failure to comply with the Rule.  About a year and a half after the Rule became effective, CMS has now imposed its first set of civil monetary penalties (“CMPs”) on Northside Hospital Atlanta and Northside Hospital Cherokee, which have been fined $883,180 and $214,320, respectively.

The Rule requires, in part, hospitals to make public a machine-readable file containing a list of all standard charges for all items and services, such as, e.g., supplies, room and board, and use of the facility, among other items.  See 45 C.F.R. § 180.40(a); id. at § 180.20.  The Rule also requires hospitals to display shoppable services in a consumer-friendly manner.  See id. at § 180.60(d)(2); id. at § 180.60(b).  The goal of these specific requirements, in addition to those set forth in the remainder of the Rule, is to provide consumers with sufficient information about the charges for certain items and services by requiring health care providers and health plans to be publicly transparent about such charges.

Based on CMS’s CMP letters, dated June 7, 2022, Northside Hospital Atlanta and Northside Hospital Cherokee were non-compliant with the aforementioned specific requirements of the Rule.  The chronology of events is important to understand how CMS ended up issuing its CMP letters.

Northside Hospital Atlanta

For Northside Hospital Atlanta:

  • CMS documented the hospital’s non-compliance since March 24, 2021.
  • CMS issued a Warning Letter, dated April 19, 2021, to the hospital and provided it the opportunity to respond and to provide supporting documentation to CMS.
  • Northside Hospital Atlanta did not respond.
  • On September 2, 2021, CMS reviewed the hospital’s website and determined that the non-compliance persisted.
  • On September 30, 2021, CMS issued a Request for Corrective Action Plan (CAP) to the hospital, stating that it was non-compliant with the aforementioned specific requirements of the Rule.
  • On November 15, 2021, in response to the Request for CAP, the hospital stated that patients could request specific price estimate quotes by calling or emailing Northside Hospital Atlanta, which CMS determined was insufficient in response to its Request for CAP and to comply with the Rule.
  • On December 20, 2021, CMS requested a revised CAP from the hospital.
  • Northside Hospital Atlanta did not respond.
  • On January 11, 2022, CMS conducted a technical assistance call with the hospital, during which the hospital confirmed that it was non-compliant with the Rule and explained that it had intentionally removed all previously posted pricing files.
  • On January 24, 2022, CMS, again, requested a revised CAP from the hospital.
  • Northside Hospital Atlanta did not respond.

Based on the foregoing, CMS imposed an $883,180 CMP on Northside Hospital Atlanta, calculated as follows, pursuant to 45 C.F.R. § 180.90:

  • $36,300
    • $300 per day of non-compliance times 121 days.
    • 121 days represents the number of calendar days during 2021 that Northside Hospital Atlanta was non-compliant with the Rule (September 2, 2021 through December 31, 2021), pursuant to 45 C.F.R. § 180.90(2)(i).

 plus

  • $846,880
    • $10 per bed per day times 536 beds times 158 days.
    • 158 days represents the number of calendar days during 2022 that Northside Hospital Atlanta was non-compliant with the Rule (January 1, 2022 through the date of CMS’s CMP letter, June 7, 2022), pursuant to 45 C.F.R. § 180.90(2)(ii).

Northside Hospital Atlanta has until 60 calendar days from the date of CMS’s CMP letter to pay.  Until the hospital notifies CMS that all non-compliance has been corrected, CMPs will continue to accrue.

Northside Hospital Cherokee

For similar reasons as Northside Hospital Atlanta, Northside Hospital Cherokee was fined $214,320.  CMS noted that Northside Hospital Cherokee was non-compliant since April 16, 2021, and notified the hospital by Warning Letter, dated May 18, 2021.  CMS reviewed the hospital’s website on September 9, 2021, and issued a Request for CAP on October 27, 2021—to which the hospital did not respond.  Similar to Northside Hospital Atlanta, CMS held a technical assistance call on January 11, 2022, during which Northside Hospital Cherokee notified CMS that it had intentionally removed all previously posted pricing files.  CMS requested a Request for CAP on January 24, 2022—to which the hospital did not respond.

Similar to Northside Hospital Atlanta, Northside Hospital Cherokee was penalized $214,320, calculated as follows:

  • $34,200
    • $300 per day of non-compliance times 114 days.
    • 114 days represents the number of calendar days during 2021 that Northside Hospital Cherokee was non-compliant with the Rule (September 9, 2021 through December 31, 2021), pursuant to 45 C.F.R. § 180.90(2)(i).

plus

  • $180,120
    • $10 per bed per day times 114 beds times 158 days.
    • 158 days represents the number of calendar days during 2022 that Northside Hospital Cherokee was non-compliant with the Rule (January 1, 2022 through the date of CMS’s CMP letter, June 7, 2022), pursuant to 45 C.F.R. § 180.90(2)(ii).

Similar to Northside Hospital Atlanta, CMS noted that Northside Hospital Cherokee continues to be non-compliant and, thus, CMPs will continue to accrue.

Takeaways

These fines reflect CMS’s willingness to take material enforcement action where the Rule’s regulatory requirements are largely ignored and CMS’s subsequent efforts to obtain compliance are rejected.  Non-compliance carries heavy fines that are calculated, in part, by the number of days of non-compliance and by bed count.  Health care providers should take notice and ensure that they are compliant or, at least, making efforts towards compliance with the Rule’s requirements.  Critically, CMS will not accept a refusal to comply, as reflected in CMS’s responses to Northside Hospital Atlanta’s and Northside Hospital Cherokee’s refusals to submit CAPs.  As noted in CMS’s CMP letters to these providers, CMS is scanning websites and subsequently notifying providers that appear to be non-compliant with the Rule—which are ignored at the provider’s peril.

Article By Edward S. Kornreich and Matthew J. Westbrook of Proskauer Rose LLP

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

© 2022 Proskauer Rose LLP.

States Target Infant Formula Price Gouging

There has been a nationwide shortage of infant formula following a recall and temporary closure of a major infant formula manufacturing facility in February 2022. This facility supplied as much as 40% of the nation’s infant formula. In the wake of these events, state attorneys general are on the lookout for unlawful price gouging of infant formula. Sellers of infant formula should make sure that they do not inadvertently run afoul of state price gouging restrictions.

State price gouging laws prohibit price increases above certain thresholds during a period of emergency. Several state governments have recently issued declarations or proclamations that trigger price increase limitations for infant formula, including in California (CA Exec. Order N-10-22, 6/7/2022), Oregon (OR Exec. Procl., 5/13/2022), Colorado (CO Exec. Order D-2022-021, 5/25/2022), New Jersey (NJ Exec. Order No. 296, 5/17/2022), and Kentucky (KY Exec. Order 2022-321, 6/9/2022). Each of these states has a different price gouging restriction. For instance, infant formula sold in California cannot exceed the February 17, 2022 price by more than 10% except in certain limited circumstances. Other states may have a different price increase threshold or a different benchmark date. Multi-state sellers must take care to comply with the restrictions in each state.

Several states, such as Colorado and Nevada, enacted new price gouging laws in the wake of the COVID-19 pandemic. See Colo. Rev. Stat. § 6-1-730; NRS § 598.09235. Enforcers have not had much experience enforcing these statutes, which may mean greater uncertainty for sellers in those states.

Most, but not all states have a price gouging law. In states that do not have a price gouging law, attorneys general will often seek to enforce their state’s unfair or deceptive trade practices act against reports of price gouging. For example, the attorney general of New Mexico, a state without a price gouging law, issued a press release on May 31, 2022 announcing that he is investigating complaints regarding infant formula price gouging. Similar to the COVID-19 pandemic, the infant formula shortage is triggering a variety of different price gouging restrictions in different states at the same time. Navigating the differences from state-to-state can be challenging, particularly in light of the new laws and amended laws that have been recently enacted. Sellers should review their normal pricing practices and make necessary changes to avoid inadvertently running afoul of the restrictions in a particular state.

Article By Leo Caseria and Thomas L. Tyson of Sheppard, Mullin, Richter & Hampton LLP

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

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.

Sellers Beware – The COVID-19 Pandemic Has Opened the “Price-Gouging” Pandora’s Box

As the Covid-19 emergency goes on, both federal and New Jersey authorities have begun to enforce anti-price gouging and anti-hoarding provisions of federal and state law. A wide range of businesses, including but going beyond the sellers of medical equipment, should be aware of the limits imposed by these statutes and the dangers posed by enforcement.

A.        The New Jersey Consumer Fraud Act

As has been widely reported in the media, the State of New Jersey is aggressively enforcing the anti-price gouging provisions of the Consumer Fraud Act, N.J.S.A. 56:8-107 through 109, during the current coronavirus emergency. Enforcement of the statute by the Division of Consumer Affairs or by private civil action under the Consumer Fraud Act poses a risk to the sellers of a broad variety of goods. However, it also poses a potential remedy for business purchasers for end use whose ordinary supply chain has been disrupted by the emergency.

During a state of emergency declared by the Governor, N.J.S.A. 56:8-109 declares it to be an “unlawful commercial practice” for any person to sell or offer for sale “any merchandise which is consumed or used as a direct result of an emergency or which is consumed or used to preserve, protect, or sustain the life, health, safety or comfort of persons or their property for a price that constitutes an excessive price increase.”  In turn N.J.S.A. 56:8-108 defines an “excessive price increase” as more than 10 percent greater than the seller’s price in the usual course of business immediately before the declaration of emergency, unless the price increase is attributable either to the seller passing through increased prices from its supplier or costs imposed by the emergency. In that case, the statute defines an excess price increase as an increase of more than 10 percent beyond the seller’s customary pre-emergency markup.

The statutory language sweeps broadly and may be applied to price increases of almost any product where demand has increased or the supply chain has been disrupted by the coronavirus emergency. A recent news story reports that more than 3,600 complaints of alleged price-gouging have been made to the Attorney General’s Division of Consumer Affairs, against more than 2,100 business, involving not only medical supplies but food and commodities in short supply like toilet paper and disinfectants. The Division is urging the public to remain “vigilant” and is actively soliciting complaints on its website. As it investigates complaints, the Division is issuing subpoenas for the seller’s pre-emergency and current cost, price and markup information. The defense of passing through increased costs requires the seller to document both higher charges from suppliers and other costs, such as hazard pay for employees, imposed by the emergency.

Penalties for violation of the Consumer Fraud Act include civil penalties of up to $10,000 for a first offense. There are additional penalties if the violation was directed against senior citizens or persons with disabilities. In addition, the Attorney General may obtain an injunction against future violations. The courts may order restitution to consumers of money obtained in violation of the Act, and twice the amount obtained in the case of senior citizens. Failure to make restitution as ordered is punishable as contempt of court.

In addition to the enforcement powers of the Attorney General, N.J.S.A. 56:8-19 gives any person who has suffered an “ascertainable loss of moneys or property . . . as a result of any practice declared unlawful” under the Consumer Fraud Act as amended or supplemented a private right of action to recover treble damages and attorneys’ fees, either directly or as a counterclaim in a suit by the seller. No reported decision decides whether this private right of action would apply to a violation of the Act’s anti-price gouging provisions, but it is reasonable to anticipate that creative counsel are contemplating private class actions on behalf of retail purchasers.

The private right of action under the Consumer Fraud Act extends not only to individual consumers but to businesses that purchase supplies or equipment for use in the business. Hospitals, medical practices and other large scale purchasers of supplies and equipment affected by the coronavirus emergency may wish to explore that possibility.

B.        The Federal Defense Production Act

The Korean War vintage Defense Production Act (“DPA”) gives the President broad powers to direct the production of essential goods and to prioritize their distribution during periods of declared national emergency. Section 101 of the DPA, 50 U.S.C. § 4511, authorizes the President or his delegate to designate goods as scarce materials critical to the national defense. Section 102 of the Act, 50 U.S.C.§ 4512, the anti-hoarding provision, prohibits any person from accumulating “1) in excess of the reasonable demands of business, personal, or home consumption, or (2) for the purpose of resale at prices in excess of prevailing market prices, materials which have been designated by the President as scarce materials or materials the supply of which would be threatened by such accumulation.”  Designations are required to be published in the Federal Register. Section 103 of the DPA, 50 U.S.C. § 4513 makes the violation of § 102 a federal crime subject to a $10,000 fine and one year imprisonment. In addition § 706, 50 U.S.C. § 4556, authorizes the federal courts to enjoin violations of the DPA at the suit of the government. Other provisions, not relevant here, authorize the government to provide incentives and subsidies to increase production of essential goods.

The DPA is based on the War Powers Acts of World War II. It is designed to authorize the kind of command economy in place during that war, in which the armed forces were the sole end user, the government controlled production by placing contracts, fixing priorities and allocating raw materials, and the government directly controlled prices in the civilian market. It empowers the federal government to become the sole buyer and allocator of materials critical to the national defense. However, the President has chosen not to take the responsibility for centralized purchasing and allocation of critical medical supplies. Instead, the federal government has decided to allow states and other end users to compete for limited resources while using the DPA’s criminal provisions to try to curb the more egregious examples of exploitation.

On March 23, 2020, the President issued Executive Orders 13909 and 13910, which invoke his authority under DPA § 101 to declare ventilators and medical personal protective equipment as scarce materials critical to the national defense. Under authority designated by the Executive Orders, on March 25, 2020 the Secretary of Health and Human Services designated a variety of masks, gloves, gowns, face shields and other personal protective equipment, as well as respirators, sterilization materials, and ventilators as scarce materials subject to the anti-hoarding section of the DPA.  The designation was published in the Federal Register at 85 FR 17592 (Mar. 30, 2020). It enumerates the types of short-supply equipment but does not provide guidance as to what constitutes accumulation in excess of reasonable demand for consumption or what prices are considered in excess of the prevailing market price.

The Department of Justice has created a joint federal-state anti-hoarding task force under the leadership of the United States Attorney for the District of New Jersey, and several criminal prosecutions of alleged hoarders have been instituted. However, the prohibitions in DPA § 102 of accumulation “in excess of reasonable demands” for the holder’s consumption or for resale at a price “in excess of prevailing market prices” appear to impose a rather vague standard of criminal liability, and there do not appear to be any reported decisions interpreting them. Unlike the New Jersey statute, there is no definite markup that would be allowed.

DPA § 104, 50 U.S.C. §4514, prohibits the President from imposing wage or price controls without Congressional authorization. Perhaps for that reason, the government has not set permissible prices for short-supply equipment at any time since the HHS designation. Instead, the government is taking the position that prevailing prices are either prices in effect in January and February of 2020, before the coronavirus crisis began in the United States, or that they are “benchmark” prices of a major private manufacturer. Whether either of those standards provides fair advance notice sufficient to support criminal liability is, to say the least, contestable.

In addition, the government’s position appears to criminalize what may be entirely legitimate economic activity. Experience has shown that there were large amounts of masks and other designated short-supply medical equipment scattered in pockets of inventory around the United States and abroad. Middlemen perform the valuable service of finding these supplies, marshaling them and making them available to end users. That takes effort, which will not be undertaken without the prospect of compensation. Unlike the New Jersey statute, the DPA does not on its face recognize the costs incurred by accumulators to obtain otherwise unavailable goods, either those passed through from upstream sellers, the expenses of search, or reasonable compensation for the effort involved.

In conclusion, the government has not used the Defense Production Act to set prices directly. Its criminal anti-hoarding provisions  are a very blunt instrument for regulating economic activity in a time of shortage, especially because the federal government is not acting as the sole buyer or allocator of goods or fixing prices but is instead requiring end users of short-supply equipment to compete against each other. These criminal provisions have never been tested in court, and they leave open the possibility of vigorous defense based on the lack of a clear standard of criminal liability, on the need to attract scarce goods into the market, and on the pass-through of legitimate costs incurred to do so, including a reasonable profit.

© Copyright 2020 Sills Cummis & Gross P.C.

For more on COVID-19 related price issues, see the National Law Review Coronavirus News legal section.

Update to Price Gouging Prohibitions in Disaster Zones in California

California’s 2017 wildfire season – which caused at least 47 deaths, and destroyed approximately 1.4 million acres of land and 11 thousand structures – was unprecedented at the time, both in scope and destruction. Following the 2017 wildfire season, the pricing of consumer goods and services – which is normally best left to the marketplace under ordinary conditions – experienced abnormal market disruptions, both at the state and local-levels. This led to increased complaints of unlawful “price gouging” for goods and services offered in markets affected by wildfires, including rental housing.

As a result, in January, 2018, the California Committee on Public Safety introduced Assembly Bill (AB) 1919, which amends §396 of the CA Penal Code (California’s price gouging statute).

AB 1919 went into effect on January 1, 2019, and applies to owners/landlords of residential homes, as well as owners of multifamily and hotel properties. Following is a summary of a number of significant restrictions on residential landlords’ ability to increase rents following a disaster under the new law.

PRIOR LAW DID NOT COVER NEW RENTAL UNITS

Under prior law, following a declared state of emergency (either at the State or local level), an owner/landlord could not increase an existing tenant’s rent by more than 10% for a period of 30 days following the declared state of emergency. The prior law did not, however, cover new rental units coming on line during or immediately following a declared state of emergency, nor did it address when (i) a declared state of emergency was extended, or (ii) the Governor or another local authority extended the prohibition on price gouging during a declared state of emergency (both of which happened in each of the past two California wildfire seasons).

Following the 2017 wildfires, these “loopholes” resulted in numerous complaints of unlawful price gouging, with owners of residential housing exploiting the marketplace/displaced residents by increasing existing tenants’ rents by up to 35% following the expiration of the initial 30-day period, or relocating from their homes and offering the same as rental housing at well-above market rent prices. AB 1919 seeks to close such loopholes.

NEW LAW LIMITS THE INCREASE OF RENT ON NEW AND EXISTING UNITS

Under the new law, following a declared state of emergency, an owner/landlord cannot (i) increase an existing tenant’s “rental price” by more than 10% of the then-current rent, or (ii) increase the “rental price” advertised or offered to prospective tenants by more than 10% of the “rental price” advertised or offered to prospective tenants prior to the declared state of emergency, in each case for a period of 30 days following the declared state of emergency or for any period of time that such declaration is extended.

The statutory definition of “Rental Price”, which provides guidance on the various caps on rent increases, is as follows:

  1. For housing rented within one year prior to the declaration of emergency, the “Rental Price” is the actual rent paid by the existing or prior tenant.
  2. For housing not rented at the time of the declaration, but rented, or offered for rent, within one year prior to the declaration, the “Rental Price” is the most recent rent offered before the declaration.
  3. For housing rented at the time of the declaration but which (i) becomes vacant during the declaration, and (ii) is subject to any local ordinance/rule that establishes a maximum amount that a landlord may charge a tenant [e.g., rent control], the “Rental Price” is the greater of (A) the actual rent paid by the prior tenant, or (B) 160% of the “Fair Market Rents” (FMRs) established by the U.S. Department of Housing and Urban Development (FMRs for all counties are posted on the HUD website).
  4. For housing not rented and not offered for rent within one year prior to the declaration, the “Rental Price” is 160% of fair market rent per HUD.

Note that the new law allows owners/landlords to increase the cap on rent increases from 10% to 15% under certain circumstances, including if such owners/ landlords incur costs for furnishing previously un-furnished rental units.

Note also that the new law prohibits vendors or suppliers of building materials (i.e., lumber, construction tools, windows, and anything else used in the building or rebuilding of property) from increasing the cost of such materials by more than 10% for a period of 30 days following a declared state of emergency (with certain exceptions for actually-incurred costs).

In addition, the new law prohibits contractors working on residential or commercial projects from increasing prices for any repair or reconstruction services (i.e., any services performed by a licensed contractor for repairs to residential or commercial property of any type that is damaged as a result of a disaster) by more than 10% for a period of 180 days following a declared state of emergency (again, with certain exceptions for actually-incurred costs).

PENALTIES

Failure to comply with §396 of the Penal Code is a misdemeanor offense and can result in various penalties, including fines of up to $10,000 and up to one year’s imprisonment, in addition to injunctive relief and civil penalties.

CONCLUSION

Given the recent increase in wildfires throughout the state, commercial landlords and investors/developers of multifamily or hotel properties that are active and/or interested in becoming active in wildfire-prone California markets (e.g., Napa, Sonoma, Butte, Lake, Mendocino, Nevada and Yuba Counties, based off of prior declared states of emergency), should be cognizant of the new limits imposed on rent increases by AB 1919.

© 2010-2019 Allen Matkins Leck Gamble Mallory & Natsis LLP
Read more legal news from California on our California Jurisdiction page.