A Publication of the
American Health Lawyers Association
Healthcare Liability and Litigation Practice Group
Healthcare
Liability & Litigation
Volume 14 • Issue 2 • May 2012
PPACA Raises Potential Liability
for Managed Care Organizations
Edwin Brooks, Esq.
Steven Hamilton, Esq.....................................5
From Private Practice to
Hospital Employment:
How Employing
Physicians Impacts
Hospital Liability for
Physician Malpractice
Managing the Liability
Risks of ICD-10
Victoria Vance, Esq........................................8
Starlett M. Miller, Esquire
McCumber Daniels Buntz Hartig & Puig PA
Tampa, FL
Table of Contents
From Private Practice to
Hospital Employment:
How Employing Physicians
Impacts Hospital Liability for
Physician Malpractice
Starlett Miller, Esq.........................................1
“Standing Room Only,” or How
Professional Associations Are
Filling Courts With Suits on
Behalf of Members
James Flynn, Esq.
Sheila Woolson, Esq.
Amy Hatcher, Esq.........................................10
Retention of Overpayments: New
Rules and New Responsibilities
David Honig, Esq.
Timothy Gutwald, Esq.................................13
Healthcare Liability & Litigation © 2012 is published by the American
Health Lawyers Association. All rights reserved. No part of this publication
may be reproduced in any form except by prior written permission from
the publisher. Printed in the United States of America.“This publication
is designed to provide accurate and authoritative information in regard to
the subject matter covered. It is provided with the understanding that the
publisher is not engaged in rendering legal or other professional services.
If legal advice or other expert assistance is required, the services of a
competent professional person should be sought.”
—from a declaration of the American Bar Association
A
cross the country, hospitals are on a buying binge, purchasing private
medical practices at a rapid rate and directly employing physicians in
a variety of specialties. According to the 2012 edition of the American
Hospital Association Hospital Statistics, the number of hospital-employed physicians has increased 32% since 2000.1 In 2010, for the first time, the number
of new physicians who joined hospital-owned practices exceeded the number
of first-year practitioners who became employees of medical groups owned
and operated by physicians. Hospital employment can be attractive to young
physicians faced with the burden of substantial student loan debt and lacking
the capital and managerial expertise to establish their own practice. Physicians
with years of experience in private practice are also drawn to hospital employment as an alternative to dealing with the uncertainty of Medicare reimbursement, shrinking private insurance reimbursements, the fast-paced progression
of new regulations, rising drug costs, and the expenses associated with the need
for improved technology, such as the use of electronic health record systems
encouraged by the federal government. Physicians across the spectrum of experience and specialties appreciate the benefits of hospital system employment:
economic certainty, reduced hours or a more-predictable schedule and therefore
a better quality of life, access to better resources and technological innovations,
and the capacity to allocate more time to direct patient care.
In addition to the reimbursement and efficiency benefits gained by employing
physicians, hospital systems’ broad scale decision to alter their traditional
independent contractor relationship with physicians may be viewed as a
reaction to a significant shift in the liability scheme for medical malpractice.
Historically, a hospital’s liability for the malpractice or negligence of physicians
has been limited to vicarious liability where the physician was the hospital’s
employee or agent. Where the physician against whom malpractice or negligence was alleged was an independent contractor, the hospital would only be
& Litigation
y
t
i
l
i
b
a
i
L
e
r
a
c
h
t
l
a
He
liability through the use of posted notices and statements in the
admissions documents. So long as patients were advised of the
independent contractor relationship and acknowledged this,
hospitals could often avoid ostensible agency and rely on the
barrier provided by staffing with independent contractors. The
determination of whether an independent contractor physician
is the ostensible agent of the hospital is usually a matter for the
jury, not the court, to decide.7 It is perhaps no surprise that these
outcomes are difficult to predict. Therefore, in the vast majority
of cases, hospitals cannot avoid the expense of litigation even
where the complaining patient only alleges that an independent
contractor staff physician committed malpractice.
found liable, in limited circumstances, through apparent agency
or ostensible agency theories of liability. Increasingly, some state
courts have created causes of action against a hospital for its direct
liability. The expansion and availability of this relatively new
species of claim is a significant contributing factor in the recent
increases in hospital liability costs and the anticipated continuing
upward trend of these costs.
Across the country, hospitals’ professional liability expenses are
increasing at a rate of 5% annually.2 Loss cost is a measurement
of the overall fiscal impact on hospitals resulting from liability
claim severity, including indemnity and defense costs, and liability
claim frequency. The statistics are generated by comparison to
the average number of occupied hospital beds. In 2011, Florida’s
hospitals experienced Loss costs of $7,200, more than double the
national average,3 and Pennsylvania’s hospitals incurred Loss costs
of $5,150 or one and one half times the national average.4 This
article focuses its examination of the impact of hospital-employed
physicians on the theories of hospital liability available in sample
states Florida and Pennsylvania. These states were selected
because hospitals in these states are contending with significant
increases in the severity of hospital professional liability claims
compared with the national average. However, the theories of
hospital liability discussed herein are generally consistent with the
theories of liability available against a hospital in other states.
In Pennsylvania, a plaintiff must establish two factors for a court
to impose liability on a hospital under ostensible agency: (1) that
the patient looks to the hospital, rather than the individual physician, for care; and (2) that the hospital “holds out” the physician as its employee by act or omission which gives the patient a
reasonable belief that he is being treated by the hospital or one of
its employees.8 Critically, Pennsylvania courts permit the subjective determination of whether the patient sought care from the
hospital instead of the physician to be established through inferences derived from the evidence.9 As the percentage of physicians
employed by hospitals increases and the number of independent
contractor physicians working in hospitals decreases, it will
be more reasonable for patients to assume that the physician
treating them is an employee of the hospital. With regard
to the second factor, a “holding-out” by the hospital
can be found when the evidence establishes that
the hospital acted or failed to act in a way that
would give the patient a “reasonable belief”
that she was receiving care from the
hospital or one of its employees.10
A Hospital’s Liability Under the Ostensible
Agency Theory
Historically, hospitals were not liable for the tortious acts of independent contractor physicians and were only vicariously liable for
the medical malpractice of their employed physicians.5 Hospitals may, however, be liable for the malpractice of independent
contractor physicians where the plaintiff proves that the physician is the apparent or ostensible agent of the hospital.6 Hospital
systems typically sought to insulate themselves from liability
under this traditional
theory of hospital
2
In states like Pennsylvania, hospitals will face logistical challenges
in any effort to preemptively disclose a physician’s independent
contractor status to patients once the migration of physicians to
hospitals reaches critical mass. Although not yet tested by courts,
when the number of employed physicians significantly outweighs
the number of independent contractor physicians, the general
knowledge of this fact may work to create an inherent “reasonable
belief.”
the patient’s safety and well-being while at the hospital.”15 In
order to establish corporate negligence in Pennsylvania, a plaintiff
must plead and prove that: (1) “the hospital deviated from the
standard of care”; (2) “the hospital had actual or constructive
notice of the defects or procedures that created the harm”; and
(3) “the hospital’s act or omission was a substantial factor in
bringing about the harm.”16
Pennsylvania’s hospitals currently have four non-delegable duties:
Florida’s requirements for establishing that an independent
contractor physician is the ostensible agent of a hospital are more
stringent than Pennsylvania and most other states. In Florida,
apparent agency may be found only where the plaintiff proves
all three of the following elements at trial: (1) a representation
by the hospital that the physician was its agent or employee;
(2) the plaintiff relied on that representation; and (3) the plaintiff changed her position in reliance on that representation.11
Apparent agency cannot be proven by the subjective understanding of the person dealing with the purported agent or from
appearances created by the purported agent.12 Although Florida
law generally requires some sort of affirmative representation by
the hospital that its physicians are employees or agents of the
hospital, facts such as the hospital exclusively utilizing a group
of independent contractor physicians and requiring each physician to comply with its medical staff rules and regulations, to
be on call, to wear a badge bearing the hospital’s name, and to
identify himself to patients as a member of the hospital’s medical
staff are sufficient to merit a jury’s determination of the impact of
the hospital’s representations.13 Where a hospital has a significant
number of employed physicians, it will likely have to undertake
significant measures to effectively distinguish its independent
contractor physicians from its employed physicians. The evidentiary nature of this burden will send most, if not all, such determinations to the jury, causing hospital systems to incur additional
Loss costs through legal expenses even where they prevail.
(1) a duty to use reasonable care in the maintenance
of safe and adequate facilities and equipment;
(2) a duty to select and retain only competent physicians; (3) a duty to oversee all persons who practice
medicine within its walls as to patient care; and
(4) a duty to formulate, adopt and enforce adequate
rules and policies to ensure quality care for the
patients.17
Trends in the development of corporate negligence in Pennsylvania
indicate a potential for a nearly limitless common law expansion of a hospital’s non-delegable duties. For example, evidence
of “systemic negligence,” such as a hospital’s failure to formulate
rules or policies for catheter care where that failure causes a patient
to suffer routine infections because nursing staff left catheters in
the same spot for too long, can constitute corporate negligence.18
If the theory evolves beyond systemic negligence, it is difficult to
envision how a hospital could oversee all persons who practice
medicine within its walls without employing them.
Florida first adopted a theory of direct liability against hospitals
in 2007.19 Surgical hospitals have a non-delegable duty to provide
non-negligent, competent surgical anesthesia services to patients
arising from the hospital’s statutory and contractual obligations.20
The court’s adoption of corporate negligence deliberately divested
hospitals of their ability to avoid vicarious liability for physicians’ malpractice by using independent contractor arrangements,
noting that Florida’s “twenty year experiment with the use of
apparent agency as a doctrine to determine a hospital’s vicarious
liability for the acts of various independent contractors has been
a failure.”21 The policy behind this theory is that because hospitals have the ability to ensure that “competent radiologists (for
example) work within an independent radiology department and
to bargain with those radiologists to provide adequate malpractice
protections for their mutual customers” and because patients do
not “usually have the option to pick among several independent
contractors,” the imposition of non-delegable duties would best
serve medical economics.22
A Hospital’s Liability Under Corporate Liability
Many states have adopted a direct cause of action against a
hospital, which is referred to as corporate liability or corporate
negligence. Through corporate liability, a hospital may be directly
liable to a patient for an independent contractor physician’s
malpractice if the court finds that the hospital breached one of
its non-delegable duties, e.g., the duty to provide non-negligent
anesthesia services. A major challenge created by this emerging
doctrine is that hospitals have increased liability for the actions
of non-employee physicians, but no greater control over the
conduct of the independent contractor physicians. Under the
new model where hospital systems are integrated with employed
physicians, at least hospitals will benefit from having more
control over employee physicians.
The evolution of hospital liability through the common law, as
opposed to legislative reform, poses significant risk management challenges. The non-delegable duties imposed on hospitals
are inherently vague standards that create significant burdens
on hospital systems, healthcare providers, risk managers, and
insurers because the possibilities for expansion are nearly
immeasurable. Most troubling is the fact that courts may expand
Pennsylvania adopted the theory of corporate negligence for
hospital defendants in 1991.14 This direct theory of liability is
extremely broad and a “hospital is liable if it fails to . . . ensure
3
& Litigation
y
t
i
l
i
b
a
i
L
e
r
a
c
h
t
l
a
He
a hospital’s liability after the alleged negligence has already
occurred. Hospital systems are responding to these challenges
by directly employing the physicians and utilizing these physicians’ increased engagement in hospital risk management to
improve care coordination and quality initiatives. For example,
Lourdes Health System in New Jersey recently hired forty-seven
cardiologists.23 Two of the cardiologists became co-managers at
Lourdes and worked to standardize cardiac care.24 The benefits
of the standardized care included a fifteen-minute decrease in
the time to perform a catheterization because the cardiologists
pushed the hospital to use equipment that diagnoses a heart
attack before a patient leaves home.25 The doctors also established
units that included nurses who are proficient in heart failure and
heart failure surgery which worked to reduce hospital stays and
improve patient satisfaction.26
hospital’s and physician’s defense can be a particularly meaningful benefit where the physician’s individual defense may be at
odds with the hospital’s defense of corporate negligence claim.
Through the use of joint counsel, hospitals, physicians, and
insurers should also benefit from a reduction in legal expenses.
1 American Hospital Association, AHA Hospital Statistics, vii (5th ed. 2012).
2 2011 ASHRM/Aon Hospital Professional Liability and Physician Liability Benchmark Analysis, 5 (11 ed. 2011).
3 Id. at 39.
4 Id. at 47.
5 Guadagno v. Lifemark Hospitals of Florida, Inc., 972 So. 2d 214, 218 (Fla. 3d
DCA 2007); McDonough v. U.S. Steel Corporation, 228 Pa. Super. 268, 274
(2003).
6 Roessler v. Novak, 858 So. 2d 1158, 1162 (Fla. 2d DCA 2003); Goldberg ex rel.
Goldberg v. Isdaner, 780 A. 2d 654, 660 (Pa. Super. 2001).
7 Roessler, 858 So. 2d at 1162; Goldberg, 780 A.2d at 660-61.
8 Goldberg, 780 A. 2d at 660.
9 Id. at 661, citing Capan v. Divine Providence Hospital, 430 A.2d 647, 649 (1980)
and Simmons v. St. Clair Memorial Hospital, 481 A.2d 870, 874 (1984).
10Capan, 430 A. 2d at 649.
11Roessler v. Novak, 858 So. 2d 1158, 1161 (Fla. 2d DCA 2003).
12Stone v. Palms West Hospital, 941 So. 2d 514, 519 (Fla. 4th DCA 2006).
13Jones v. Tallahassee Memorial Regional Healthcare, Inc., 923 So. 2d 1245, 124647 (Fla. 1st DCA 2006), rev. dismissed, 935 So. 2d 500 (Fla. 2006).
14Thompson v. Nason Hospital, 591 A. 2d 703, 708 (Pa. 1991).
15Id. at 707.
16Kennedy v. Butler Memorial Hospital, 901 A. 2d 1042, 1045 (Pa. Super. Ct.
2006).
17Thompson, 591 A. 2d at 707 (citations omitted).
18Edwards v. Brandywine Hospital, 652 A. 2d 1382, 1387 (Pa. Super. 1995).
19Wax v. Tenet Health System Hospitals, Inc., 955 So. 2d 1, 10 (Fla. 4th DCA
2007).
20Id.
21Wax, 955 So. 2d at 10 n3, citing Judge Altenbernd’s concurring opinion in
Roessler v. Novak, 858 So. 2d 1158, 1163 (Fla. 2d DCA 2003).
22Roessler, 858 So. 2d at 1163.
23Alicia Caramenico, Heart docs leave practices for hospital employment, transform
care (2012), available at www.fiercehealthcare.com/story/heart-docs-leavepractices-hospital-employment-transform-care/2012-01-27 .
24Id.
25Id.
26Id.
272011 ASHRM/Aon Hospital Professional Liability and Physician Liability Benchmark Analysis, 10 (11 ed. 2011).
The Practical Impact on the Defense of
Liability Claims
Hospital systems face a number of challenges in the defense of a
direct liability claim, especially where the hospital’s exposure as
the traditional “deep pocket” defendant is increased by taking on
the physician’s individual exposure. Hospital chains are faceless
institutional defendants. Unlike a physician who can take the
stand and explain his or her conduct to the jury, sometimes even
successfully generating sympathy, hospitals can be more easily
portrayed by plaintiff’s attorneys as a corporation that focuses on
its profits instead of caring for its patients.
Given that 73% of health systems will self-insure the combined
hospital-physician malpractice risk,27 hospitals will benefit by
gaining control over this increased risk by increasing control
over the physician’s legal defense in the event of a lawsuit. In
contrast, where the hospital is sued under a vicarious liability
theory for the conduct of an independent contractor physician,
the physician usually has separate coverage and separate counsel
from the hospital. Where counsel for the hospital must coordinate with counsel for the independent contractor physician, it is
often challenging to present a consistent defense theme, particularly in states that prohibit ex parte communications between
the hospital’s defense counsel and the co-defendant physician.
Shared counsel and the ability to control the joint defense of the
4
PPACA Raises Potential
Liability for Managed Care
Organizations
gies for Calculation of the Medical Loss Ratio for Plan Years 2011,
2012 and 2013 per Section 2718(b) of the Public Health Service
Act,” which HHS adopted in the implementing regulations that
became effective in January 2012.4
Pursuant to these regulations, “clinical services provided to
enrollees” means the sum of direct claims paid to providers, unpaid
reserves associated with claims incurred during the MLR reporting
year, change in contract reserves, reserves for contingent claims,
the claims portion of lawsuits, and any refunds paid (except those
under PPACA), but not including any claims recovered as a result
of fraud or abuse programs.5 Likewise, the regulations identify
relevant factors to whether the conduct qualifies as improving
healthcare quality, as well as specific conduct that falls within the
purview of qualifying activity (including wellness visits and health
coaching) and what does not qualify as activities that improve
healthcare (including provider credentialing and marketing
expenses, costs associated with administering enrollee incentives,
and fraud prevention activities beyond any activities that recover
incurred claims).6 While the regulation identifies some conduct
that qualifies as improving healthcare quality and some conduct
that does not qualify, there remains room for interpretation with
respect to any conduct that is not specifically identified.
Edwin E. Brooks, Esquire
Steven D. Hamilton, Esquire
McGuireWoods LLP
Chicago, IL
Introduction
The Patient Protection and Affordable Care Act of 2010 (PPACA
or Act) faces intense political and legal scrutiny, and its continued
viability rests in the judicial balance. The federal government,
however, continues to implement its provisions and issue regulations that further define the contours of the Act. As a result,
in-house counsel, risk managers, and compliance officers of
managed care organizations (MCOs) and other health insurers
need to be cognizant of the liability issues that they currently
face, and will face, as a result of PPACA. Although PPACA
contains many liability concerns for health insurers, this article
focuses on: (1) medical loss ratio reporting and rebate requirements; (2) emergency services rendered by non-participating
providers; and (3) quality of care and wellness program implementation and reporting requirements.
PPACA requires health insurers to monitor and report their
medical loss ratios (MLR) to the U.S. Department of Health and
Human Services (HHS). MLR reporting is not new to health
insurers as at least thirty-four states have MLR reporting requirements. Like many of these prior state laws, PPACA requires
health insurers to calculate the MLR expressed as a percentage
and report that information to HHS. To calculate the MLR, the
insurer must add the amount the health insurer spends: (1) on
reimbursement for clinical services provided to enrollees; and
(2) on activities that improve healthcare quality, and then divide
that number by the total premium revenue.1 The health insurer
cannot have a smaller MLR than 85% for large group markets and
80% for small group markets.2
Once a health insurer calculates the MLR, it must then determine how to issue rebates if the insurer has too low of a MLR
(i.e., lower than 85% for large group markets and 80% for small
group markets).7 Like reporting in general, rebates are not novel.
Indeed, Maine, New Jersey, New Mexico, New York, North
Carolina, and South Carolina all require rebates or premium
credits in some form if a health insurer’s MLR is too low.8 While
the statute states that the rebate must be issued to “each enrollee
. . . on a pro rata basis,” the regulations recognize that is not
practicable because enrollees often do not actually pay for all of
their premiums.9 For instance, in most group plans the employer
usually pays some or all of the premiums for the enrollees—thus,
it would be unfair to allow the enrollees of that group plan to
reap windfalls by receiving the rebates even though they did not
pay for those premiums. Likewise, in group plan settings, the
employer and not the insurer is in a better position to determine
which employees paid a portion of the premiums. To address
that inequity, the regulations allow a health insurer to enter into
an agreement with the group policy holder that delegates rebate
distribution; however, the health insurer remains liable for its
obligations to ensure that each enrollee receives the rebate.10
As one can quickly tell, the statutory MLR calculation leaves a lot of
room for interpretation and questions for health insurers in implementation. For instance, the statute does not define what “clinical
services” must be part of the annual calculation, or what constitutes
“activities that improve health care quality.” To help provide clarity,
PPACA requires the National Association of Insurance Commissioners (NAIC) to establish uniform definitions and standardized
methodologies for calculating the reported activities, as well as a
definition of what activities “improve health care quality.”3 Pursuant
to that requirement, NAIC issued its model regulation entitled
“Regulation for Uniform Definitions and Standardized Methodolo-
Now that the August 1, 2012, deadline to issue MLR rebates is
near, health insurers need to be acutely aware of the potential
liability they will face for improperly calculating MLRs and issuing
rebates. First and foremost, the PPACA regulations contain civil
penalties for potential violations of Section 2718, including for
failing to: (1) submit a report to HHS by the deadline; (2) submit
an accurate report; (3) timely and accurately pay rebates;
(4) respond to HHS inquiries regarding non-compliance;
(5) maintain records for auditing; (6) allow access to any aspect of
the data relied upon to report to HHS; and (7) comply with corrective actions.11 If HHS determines that a violation has occurred, it
Medical Loss Ratio Reporting and Rebate
Requirements
5
& Litigation
y
t
i
l
i
b
a
i
L
e
r
a
c
h
t
l
a
He
tion manifesting itself by acute symptoms of sufficient severity to
cause the prudent layperson “who possesses an average knowledge of health and medicine” to believe that death or serious
injury may result absent immediate care.16 In addition, PPACA
prohibits preauthorization for emergency services and requires
health insurers to impose the same cost-sharing requirements
as if those services were rendered in-network.17 Thus, PPACA
largely places emergency services provided by non-participating
providers on the same level as if the services were rendered by
participating providers.
Furthermore, PPACA prescribes the payment methodology for
emergency services rendered by non-participating providers.
In particular, health insurers must reimburse out-of-network
providers by paying the greatest of: (1) the median amount
negotiated with in-network providers “for the emergency service
furnished, excluding any in-network copayment or coinsurance”;
(2) the amount “for the emergency service calculated using the
same method the plan generally uses to determine payments for
out-of-network services . . . without reduction for out-of-network
cost sharing that generally applies under the plan . . . with respect
to out-of-network services”; and (3) the Medicare amount for the
emergency service.18
may impose a civil monetary penalty in an amount not to exceed
“$100 for each day, for each responsible entity, for each individual
affected by the violation.”12 Interestingly, HHS stated when it
proposed the regulations that the civil penalties “strike[] a balance
between penalties that are severe enough so as to encourage
compliance with the requirements of the regulations but not so
severe as to be punitive.” But a simple example shows otherwise.13
Assume that a health insurer has 25,000 enrollees under coverage
and the insurer is five days late in issuing a rebate. Under the
current regulations, this insurer would face the threat of a civil
penalty of up to $12.5 million—hardly a mere incentive.
Operationally, this payment methodology will have its obstacles
as each claim for emergency services must be calculated to ensure
that the “greatest” amount is being paid. Practically, however, the
likely result is that any health insurer that provides any coverage
for out-of-network services will be paying under option two
because it would be rare that the median negotiated rate would
be less than the out-of-network rate without a reduction for outof-network cost sharing. In other words, many health insurers
will find themselves paying the usual and customary rate for
emergency services rendered by out-of-network providers.
In addition to the government-imposed civil penalties, the MLR
reporting and corresponding rebates create the potential for
consumer claims. For instance, consumers may continue to point
to MLR calculations (as they have done in the past) to bring securities class action complaints against health insurers—claiming
that the insurer improperly calculated the MLR and misrepresented that information to the market.14 Likewise, classes of
enrollees may attempt to create a private right of action for alleged
violations of PPACA’s MLR reporting and rebate requirements,
including claiming that the insurer incorrectly calculated the MLR
and that a larger rebate is owed to the enrollee-class members. In
addition, although not new as a result of the PPACA in context
of the Medicare Advantage and Medicaid managed care spheres,
whistleblowers may attempt to bring claims based upon improper
calculation of MLR and reimbursements to the government.
Moreover, from a liability standpoint, health insurers can expect
this regulation to provide fodder for non-participating providers.
The most likely claim will be that the health insurer did not
pay the “greatest” reimbursement under the Act, which can
have numerous nuances depending on how insurers calculate
and negotiate in-network rates or reimburse out-of-network
providers. In addition, because the Act defines “emergency
services” using the “prudent layperson standard,” substantial
questions remain whether a non-participating provider is entitled
to reimbursement for services rendered to an individual who
presents at an emergency room with symptoms that do not
meet the prudent layperson standard. In most instances, policy
suggests that providers are not entitled to reimbursement for such
services because they should refer the patient to their primary
care physician as providing treatment is not an efficient use of
emergency room resources.
Reimbursement for Emergency Services
Rendered by Non-Participating Providers
Another area of potential liability for health insurers is reimbursement to non-participating providers that render emergency
services to enrollees. Under PPACA, any health insurer that
“provides or covers any benefits with respect to services in an
emergency department of a hospital” must cover “emergency
services” rendered by non-participating providers.15 Notably,
PPACA defines “emergency services” using the prudent layperson
standard—meaning generally services to treat a medical condi-
Quality of Care and Wellness Program
Implementation and Reporting
One proclaimed focal point of PPACA is to “ensure the quality of
care” through the implementation and reporting of quality of care
and wellness programs. To attempt to accomplish that, PPACA
6
Conclusion
requires HHS to establish regulations within two years of PPACA’s
enactment (March 23, 2012) that set forth reporting requirements
for plan benefits and provider reimbursement for quality-of-care
and wellness programs.
While the viability of PPACA literally hangs in the balance, health
insurers need to be cognizant of its provisions that create areas of
potential liability, including the requirements for MLR reporting,
reimbursement for non-participating providers that render
emergency services, and wellness program implementation
and reporting. These provisions not only provide for statutory
penalties, they may also give rise to claims by consumers and
providers.
Under the Act, health insurers must report to HHS coverage
benefits and provider reimbursement structures that: (1) “are
intended to improve healthcare through the implementation of
activities such as quality reporting, effective case management,
care coordination, chronic disease management, and medication and care compliance initiatives”; (2) “implement activities to
prevent hospital readmissions through a comprehensive program
for hospital discharge that includes patient-centered education
and counseling, comprehensive discharge planning, and post
discharge reinforcement by an appropriate health care professional”; (3) “implement activities to improve patient safety and
reduce medical errors through the appropriate use of best clinical
practices, evidence based medicine, and health information technology under the plan or coverage”; and (4) “implement wellness and health promotion activities.”19 Furthermore, the health
insurer’s report shall set forth whether the health insurer’s plan
satisfies these elements.20
1
2
3
4
5
6
7
8
42 U.S.C. § 300gg-18(b)(1)(A).
Id.
42 U.S.C. § 300gg-18(b)(1)(A)(2).
Available at www.naic.org/documents/committees_ex_mlr_reg_asadopted.pdf.
45 C.F.R. § 158.140(a).
45 C.F.R. § 158.150.
See 42 U.S.C. § 300gg-18(b)(1)(A); see also 45 C.F.R. § 158.210.
See, e.g., N.Y. Ins. Law § 3231(e)(2)(B) (requiring credits to premiums when
the MLR falls below 82%).
9 See 42 U.S.C. § 300gg-18(b)(1)(A); see also 45 C.F.R. § 158.242.
10Id.
1145 C.F.R. § 158.602.
1245 C.F.R. § 158.606.
13See 75 Fed. Reg. 74890 (December 1, 2010).
14See, e.g., Wade v. WellPoint, Inc., Case No. 08-cv-00357-SEB-DML (S.D. Ind.);
see also Eastwood Enterprises, LLC v. Farha, 07-cv-1940-T-33EAJ (M.D. Fla.).
15See 42 U.S.C. § 300gg-19a(b); see also 45 C.F.R. § 147.138(b).
16See 42 U.S.C. § 300gg-19a(b)(2)(A)-(B); see also 45 C.F.R. § 147.138(b)(4)
(i)-(ii).
17See 42 U.S.C. § 300gg-19a(b)(1)(C)(ii)(II); see also 45 C.F.R. § 147.138(b)(3).
18See 45 C.F.R. § 147.138(b)(3).
19See generally 42 U.S.C. § 300gg-17(a).
20See 42 USCS § 300gg-17(2)(a).
21See 42 U.S.C. § 300gg-17(2)(D).
As is evident, this section contains not only an express reporting
requirement, but also a mandate to implement programs
designed to address the issues outlined in the Act. Like the MLR
reporting obligations, this provision does not provide much guidance for health insurers as to how to comply with these obligations. Coupling the lack of guidance with the fact that PPACA
allows HHS to “develop and impose appropriate penalties for
non-compliance with such requirements,” health insurers need to
closely follow the regulations to ensure compliance.21
Healthcare Liability and Litigation
Practice Group Leadership
James W. Boswell
Chair
King & Spalding LLP
Atlanta, GA
(404) 572-3534
jboswell@kslaw.com
Cavender C. Kimble, Vice Chair –
Membership
Balch & Bingham LLP
Birmingham, AL
(205) 226-3437
ckimble@balch.com
Edwin E. Brooks, Vice Chair –
Research & Website
McGuireWoods LLP
Chicago, IL
(312) 849-3060
ebrooks@mcguirewoods.com
George B. Breen, Vice Chair –
Publications
Epstein Becker & Green PC
Washington, DC
(202) 861-1823
gbreen@ebglaw.com
William H. Jordan, Vice Chair –
Strategic Activities
Alston & Bird LLP
Atlanta, GA, and Washington, DC
(404) 881-7850
bill.jordan@alston.com
Rebekah N. Plowman, Vice Chair –
Educational Programs
Nelson Mullins Riley & Scarborough LLP
Atlanta, GA
(404) 322-6111
Rebekah.Plowman@nelsonmullins.com
7
& Litigation
y
t
i
l
i
b
a
i
L
e
r
a
c
h
t
l
a
He
Managing the Liability Risks
of ICD-10
underpinning of data analysis and reporting for internal healthcare management functions, quality and outcomes research,
and public health reporting. In January 2009, the U.S. Department of Health and Human Services ordered the transition to
ICD-10 and mandated the use of ICD-10 in HIPAA transactions
(by health plans, providers, and clearinghouses) for all diagnoses and inpatient procedures effective October 1, 2013.1 The
ICD-9-CM Volume 1 and 2 will be replaced by ICD-10-CM to
report diagnoses in all clinical settings; ICD-9-CM Volume 3 will
be replaced by ICD-10-PCS to report hospital inpatient procedures only. To the rest of the world, this conversion in the U.S.
healthcare industry is long overdue. The United States is one of
the last developed countries in the world still clinging to ICD-9,
a code set that is widely viewed as flawed and outdated since it
does not reflect advances in medical terminology and technology,
and is running out of space to accommodate new procedure
codes. The conversion to the more-robust ICD-10 is mandatory for providers, payors, and clearinghouses. The magnitude
of the process cannot be underestimated, as the conversion
will affect such business areas as billing and claim payment,
financial reporting, underwriting, disease/case management,
payor contracting, provider relations, quality management, and
customer service.
Victoria L. Vance, Esquire
Tucker Ellis LLP
Cleveland, OH
Introduction
The healthcare industry in the United States is on the brink of a
massive upheaval to its operational infrastructure that will impact
every business function throughout the organization. The conversion to ICD-10 is not just an information technology (IT) issue
and it is surely not just a coding issue. Furthermore, it is not just
a Medicare issue as all payors and providers covered by Health
Insurance Portability and Accountability Act of 1996 (HIPAA) are
affected. The conversion from ICD-9 to ICD-10 will increase both
the number and complexity of billing codes and will necessitate
changes in software systems, documentation standards, and workflows. Meeting the challenges, recognizing the risks, and minimizing disruption of this massive conversion will require careful
planning, meticulous execution, and comprehensive training and
support to employees throughout the organization. This article
will highlight potential liability risks associated with the conversion to, and utilization of, the highly specific ICD-10 code set.
Conversion Process—Goals and Benefits
The HHS Final Rule mandated that all services and discharges
on or after October 1, 2013, must be coded using the ICD-10
code set, or else transactions will not be processed. The Final
Rule implementing ICD-10 identified five major benefits that are
expected to come about as a result of the transition from ICD-9 to
ICD-10:
Background
The International Classification of Diseases Clinical Modification version 9 coding system (ICD-9-CM) is the standardized
system for categorizing diseases and patient conditions as well as
surgical, diagnostic, and therapeutic procedures. The ICD-9-CM
system has been the currency for healthcare billing and claims
processing systems in the United States for thirty years and is the
1. More-accurate payments for new procedures;
2. Fewer rejected claims;
3. Fewer improper claims;
4. Better understanding of new procedures; and
5. Improved disease management.
Costs and Risks of Conversion
This is an extremely costly undertaking—both in terms of the
cost to convert and the cost of failing to convert accurately,
timely, and properly. The conversion costs include both hard
and soft costs, new systems, personnel, training, increased
claims-processing costs, and loss of productivity, and have been
estimated to be on the order of magnitude of implementing
HIPAA and Y2K programs. There is also a price to be paid for
failure to convert. Delays or complications with the transition to
ICD-10 may result in rejected claims, lengthy claims adjudication processes, and major disruptions of cash flow. Providers have
been advised to have credit lines or backup financing plans in
place to meet operational demands.
8
The ICD-9 system has approximately 13,000 diagnosis codes and
3,000 procedure codes, whereas ICD-10 has more than 68,000
diagnosis codes and 87,000 procedure codes. Further, the design
of ICD-10 codes includes more characters and alphanumeric
values, intended to provide flexibility to add codes in the future
without disrupting the existing code structure. The conversion
from old to new codes is not a simple matter of 1:1 mapping or
crosswalking from ICD-9 to ICD-10. To the contrary, the majority
of ICD-9 codes do not have an ICD-10 counterpart. In some
situations, conditions that fit under a single ICD-9 code must
now be scrutinized and assigned to the correct ICD-10 code from
a list of extremely granular, anatomically precise code choices.
It is the coding equivalent of taking a multiple choice test now
with dozens of seemingly comparable answers. Selecting an
appropriate new ICD-10 code will require a strong command of
anatomy and a solid understanding of the medical care at issue.
The new coding terrain creates risk of disagreement or honest
mistakes in judgment about the most appropriate code to assign
to a given claim. But, more ominously, the novelty of the new
coding structure and inexperience of personnel and processes
to recognize suspicious ICD-10 coding may create a breeding
ground for fraudulent and abusive claim transactions.
• Catalog all places where ICD-9 codes are used and develop a
comprehensive strategic plan and timetable for implementing
the conversion. Be sure all reporting tools, forms, and reports
are compliant.
In a healthcare setting, evidence of provider fraud and abuse can
include submitting a claim for services not rendered, demonstrating a pattern of rendering nonmedically necessary services,
and overutilization of services. Additionally, abusive practices
include upcoding, duplicate billing, bill padding, and misuse of
modifiers. In a 1998 survey, physicians admitted to manipulating
reimbursement rules by exaggerating the severity of a patient’s
condition to help them avoid early hospital discharges, changing
a patient’s billing diagnosis, and reporting signs or symptoms that
patients did not actually have to help them secure coverage for
needed care. The physicians justified “gaming the system” as a
covert form of patient advocacy and even a professional obligation.3
On February 16, 2012, bowing to pressure from the provider
community, HHS announced that it would delay the October 1,
2013, ICD-10 conversion deadline. HHS cited its commitment
to reducing regulatory burdens on providers, a not-so-veiled
reference to other ongoing and costly compliance initiatives
that providers are facing, and reaffirmed its commitment to the
ICD-10 program. On April 9, HHS announced it would delay
required compliance by one year–from October 1, 2013, to
October 1, 2014.
• Invest in training and educating everyone who documents in
the medical record and acquaint them with the exacting level
of anatomical and procedural detail required to support and
justify the ICD-10 codes that will be assigned.
• Staff must be admonished not to embellish or retroactively
revise the medical documentation to justify codes that do not
apply to the medical circumstances or the care provided. Such
alterations will be easily discovered in the emergency medical
record and will not only raise questions about the accuracy
and integrity of the medical record, but will be fodder for a
billing investigation.
• Budget for postimplementation costs. Some consultants
estimate that the residual ICD-10 conversion cleanup, include
refining the organization’s ICD-9 – ICD-10 mapping strategies,
will persist for twelve to eighteen months.4
Current Status and Conclusion
This reprieve should provide HIPAA-covered entities valuable time to marshal and prioritize resources for eventually
completing the transition to ICD-10 in an orderly fashion. Rather
than celebrating this announcement as a derailment of ICD-10,
the provider communities are well advised to take advantage of
the continuance by: (1) emphasizing the importance of accurate
and detailed medical documentation practices, not only to justify
entitlement to the more exacting ICD-10 codes and thereby safeguard reimbursement streams, but also to improve clinical care;
(2) practice coding protocols with well-trained administrative and
coding professionals, and rehearse and self-audit data exchanges
between payors and providers; (3) introduce new contracts,
reporting templates, and business documents to accommodate
the ICD-10 scheme where necessary; and (4) instill awareness
among stakeholders to the need to protect the integrity of the
new coding algorithms to guard against costly, fraudulent, and
abusive practices.
The gravity of an error in coding—whether intentional or not—is
heightened by the fact that a single ICD-9 code may now “translate” to a list of conditions that carry a wide range of reimbursement rates. The temptation to correlate an old ICD-9 code with a
new ICD-10 code at the high end of the reimbursement range is
obvious. Fraud detection systems have become very sophisticated
and are programmed to look for nonconforming billing patterns
in claims. But with the advent of ICD-10, every claim will appear
non-conforming. Simply put, the complexity of the ICD-10
coding scheme will make it difficult even for computer-based
detection systems to recognize improperly coded diagnosis and
treatment, at least for a while. This creates a vulnerability for the
commercial and government payors.
Risk Management
Navigating the ICD-10 conversion will be a daunting exercise for
even the most-sophisticated organization. Survival tips include:
• Coordinate upgrades with vendors, billing services, payors,
and clearinghouses, and conduct both internal and external
tests of the systems to assure smooth transaction processing,
both sending and receiving, well in advance of the ICD-10
effective date.
1 74 Fed. Reg. 3328.
2 Centers for Medicare and Medicaid Services ICD-10 website, available at
www.cms.gov/ICD10/.
3 Wynia MK et al., Physician Manipulation of Reimbursement Rules for Patients,
JAMA 2000; 283(14): 1858-1865.
4 Kasey J. et al., ICD-10: Industry Perceptions and Readiness, Millman White Paper,
January 2010.
9
& Litigation
y
t
i
l
i
b
a
i
L
e
r
a
c
h
t
l
a
He
“Standing Room Only,”
or How Professional
Associations Are Filling
Courts With Suits on Behalf
of Members
routinely find associations lack standing to assert claims for
damages that accrue solely to their members.4 This is because
such claims require individual participation of the association
members in order to establish the actual damages.5
In contrast, associations have been found to have standing to
assert claims of declaratory judgment and injunctive relief even
if the claims would require some participation by some of the
members,6 rather than all of the members. In such cases, courts
have held that the use of sample testimony may be appropriate
when the association is challenging the methods used by healthcare providers, rather than actual coverage determinations.7
James P. Flynn, Esquire
Sheila A. Woolson, Esquire
Amy E. Hatcher, Esquire
Epstein Becker & Green PC
Newark, NJ
Derivative Standing
In addition to asserting claims by members, an association may
also seek to assert claims on behalf of third parties, usually the
patients of association members. This requires another three-part
analysis. To establish third-party or derivative standing, the association must demonstrate that: (1) it suffered an injury; (2) has a
close relationship with the third party; and (3) obstacles prevent
the third party from pursuing his/her own claims.8 This is in
addition to, not in lieu of, establishing the requisites for associational standing.9 Derivative standing cases are less common than
associational standing cases, no doubt because the additional
requirements create a high burden.
A
n increasing trend in healthcare litigation involves medical
professional associations or medical societies suing on
behalf of their members, attempting to challenge healthcare contracts, services, benefit determinations, and/or other
practices by payors and other institutions. Such suits, whether
in state or federal court, seek to protect plaintiffs from the
demands and prerequisites for maintaining class actions, while
still enjoying the economies of scale that stem from aggregating
numerous individual claims into one suit. Much of the utility
of such suits, however, hinges on a threshold issue—does the
association itself have standing to bring suit on behalf of its
members and/or third parties. This requires an analysis of associational standing and, if in federal court, constitutional Article III
standing. The issue of associational standing is one that is always
contested and often complicated by the nature of the claims and
the remedy sought. Moreover, even when an association is found
to have standing, it does not always result in benefit for the association’s members.
In Pennsylvania Psychiatric, the court found that because the
members of a psychiatric association may have had standing to
assert claims on behalf of patients who were allegedly injured
by defendants’ policies, the association may have had derivative
standing to assert those claims on behalf of its members. It then
remanded the issue to the district court for reconsideration.
Associational Standing as an Alternative or
Adjunct to Class Actions
Class actions are yet another type of representational standing.
The showing required to maintain a class action is significantly
more onerous than that required to establish associational
standing. To sustain a class action, the plaintiff usually must satisfy
multiple requirements. By way of example, Federal Rules of Civil
Procedure requires a putative class representative to show that:
Standing to Represent Members
To establish standing an association must demonstrate that:
(1) its members would otherwise have standing to sue in their
own right; (2) the interests the association seeks to protect are
germane to the association’s purpose; and (3) neither the claims
asserted nor the relief requested would require the participation
of the individual members.1 The association itself need not assert
that it has suffered an injury in order to redress the alleged injuries of its members.2
1. The class is so numerous that joinder is impracticable;
2. Commons questions of law or fact related to the class exist;
3. The claims or defenses of the class representatives are
typical of those of the class; and
Where the individual members lack standing, the association
also lacks standing. For example, healthcare providers and their
associations generally cannot sue to enforce rights pursuant to a
contract between an insured and insurer. The providers are merely
incidental beneficiaries to the contract, and as such lack standing.3
4. The class representative will fairly and adequately protect
the class’s interests.
Fed. R. Civ. Proc. 23 (a)
The putative representative must also satisfy one of the prongs of
sub-part b:
In addition, the nature of the injury alleged and the remedy
sought on behalf of the members also plays a role in determining
whether the association has standing. For example, courts
10
require a detailed analysis of all of the assignments. Moreover,
the Providers’ claim of standing was undercut by the fact that
Subscribers were also seeking to recoup payments under ERISA
in the same litigation. Thus, the court found that the Providers
did not have derivative standing to sue on behalf of their patients
based upon the allegations in the complaint.11
1. Prosecuting separate actions would create the risk of inconsistent adjudications among the class members that would
establish incompatible standards of conduct for the defendants or that the adjudications of one class member would
dispositive of the interests of the rest of class and would
therefore substantially impair or impede the class’ ability to
protect their interests;
The court then rejected the Associations’ claim of standing.
The Providers were not suing for injuries that they sustained,
but rather were suing for injuries that their patients allegedly
sustained. There was no need for the court to even review the
elements of derivative standing, because the Providers had no
standing, the Associations similarly had no derivative standing.
2. The party opposing the class has acted or refused to act
based upon grounds that apply to the entire class; or
3. Common questions of law or fact predominate over any
individual issues and a class action is superior to other available methods.10
Thus, only the Subscribers were found to have standing following
the Defendants’ motion to dismiss.12 They will then need to
satisfy the requirements of Fed. R. Civ. Proc. 23 to maintain a
class action on behalf of the other subscribers.
Obviously such an analysis is far more involved than that
required to maintain associational standing. No doubt this is why
association members now often choose to have their association
file the lawsuit and assert standing for them, rather than file suit
individually and then seek to have a class certified.
An About Face When Faced With ERISA
Preemption
However, in the healthcare arena—particularly as it relates to the
Employee Retirement Income Security Act (ERISA)—plaintiffs are
attempting to combine class action and representational standing,
presumably to increase the likelihood that the court allows some
sort of representational action to proceed. For example, Franco
v. Connecticut General Life Ins. Co., 2011 WL 4948908 (D.N.J.
2011), consisted of three consolidated actions, each of which
pled as a putative class action, alleging claims against CIGNA and
others under ERISA, Racketeer Influenced and Corrupt Organizations Act (RICO), and the Sherman Antitrust Act. The plaintiffs
contended that the defendants manipulated data to artificially
reduce out-of-network payments and shift the burden to the
subscribers to pay the providers the balance. The plaintiffs in the
first complaint consisted of two subscribers (Subscribers), several
out-of-network providers (Providers) and associations whose
members consisted of physicians and others who had provided
out-of-network services to CIGNA patients (Association).
Borreo v. United Healthcare, 610 F. 3d 1296, concerned claims
asserted by three physicians and four associations that United
breached its contracts to them by failing to pay the full contract
rate.13 The primary issue in the case was whether the claims of
the individuals and the associations were preempted by ERISA.
The associations had initially argued that they had standing
to assert their claims on behalf of their members. However,
following the initial briefing in Borreo, the Eleventh Circuit issued
its opinion in Connecticut State Dental Ass’n. v. Anthem Health
Plans, Inc., 591 F. 3d 1337 (11th Cir 2009). The Connecticut
State Dental decision held associations lacked standing to sue
in a representative capacity for damages because the claims
would have required excessive participation by the associations’
members.
In order to avoid ERISA preemption, the associations in Borreo
changed their arguments and asserted that pursuant to the
Connecticut State Dental decision, they lacked standing to assert
claims on behalf of their members in federal court. Absent
standing in federal court, their claims could not be preempted.
However, unlike the association in Connecticut State Dental, the
associations in Borreo asserted only claims for injunctive and
declaratory relief, not damages. The Eleventh Circuit found that
no excessive participation by the associations’ members was
required to obtain injunctive or declaratory relief. Therefore, the
associations did have standing to assert claims on behalf of their
members, but those claims were preempted by ERISA.
The Providers claimed that they had standing to challenge the
defendants’ billing practices based upon an assignment of rights
of their patients. The court, however, found that the Providers
had not established that they had assignments from patients
to pursue ERISA litigation. To make that determination would
No Standing on the Pyramid
Physicians Committee for Responsible Medicine v. Vilsack, 2011 WL
6225220 (D.D.C. 2011), concerned a challenge to the “MyPyramid” food diagram and related dietary guidelines. The plaintiff
was a national nonprofit public health organization representing
more than 10,000 physicians and more than 100,000 other
medical professions, scientists, and lay persons. The plaintiff
11
& Litigation
y
t
i
l
i
b
a
i
L
e
r
a
c
h
t
l
a
He
Challenging a “Bum” Deal
sought to advance preventive medicine through proper nutrition. Plaintiff sought to enjoin the use of the U.S. Departments
of Agriculture and Health and Human Sciences food pyramid,
and to have its own “Power Plate” food diagram adopted. The
district court dismissed the complaint finding that plaintiff lacked
standing pursuant to Article III.
New Jersey Dental Association v. Beach Bum Tanning, Docket No.
A-4521-10T1, Slip Op. (App. Div. February 14, 2012) (Beach
Bum), addressed a claim of unfair competition brought by the
association against a tanning company for allegedly providing
services without a dental license. In Beach Bum, the NJDA sued
a tanning service that advertised a one-hour teeth whitening
service—“Don’t overpay at the dentist.”17 The NJDA alleged the
defendant was engaged in the unauthorized practice of dentistry,
which it claimed was unfair competition. Consequently, the
NJDA sought to enjoin the defendant from offering teeth whitening services.
Article III standing requires: (1) an actual or imminent injury;
(2) caused or fairly traceable to defendants’ actions; (3) that is
redressable by the court.14 The court found that neither the Association nor its members had suffered a concrete or particularized
injury, actual or imminent. Absent such an injury, the association
and its members lacked standing to sue.
The lower court dismissed NJDA’s complaint for lack of standing.
The Appellate Division reversed, simply stating that professional
associations have standing to assert unfair competition claims on
behalf of their members.18 The court then transferred the matter
to the State Board of Dentistry, which had the primary authority
and expertise to determine whether the defendant was engaged in
the unlicensed practice of medicine. If the State Board so found,
the NJDA could then pursue its common law claim of unfair
competition.
Freedom to Contract Trumps Association
New Jersey Dental Association v. Metropolitan Life Ins. Co. & Aetna
Life Ins. Co., 2012 WL 469056, Docket No. A-2916-10T2, Slip
Op. (App. Div. February 15, 2012) concerned a challenge to
ancillary programs for dental service not covered by the defendants’ health insurance plans. The insurers had a program that
allowed subscribers to receive dental services not covered by
the insurance plans. The price was fixed by the insurers with a
network of dentists. The program was approved by the Commissioner of the Department of Banking and Insurance. The New
Jersey Dental Association (NJDA) filed suit seeking to invalidate
and enjoin the provisions of its members’ contracts related to
the ancillary dental program. Specifically, the NJDA claimed that
the state’s insurance laws did not authorize the insurers to offer
the ancillary dental programs in connection with health benefits
plans. The insurers argued that the Association lacked standing to
enforce insurance law in a private action. The trial court agreed
with the insurers and dismissed the complaint.
As the above cases demonstrate, associational standing is always
in dispute. However, even where the association overcomes the
threshold issues and is said to have standing, the court may
find the association’s claims are preempted by law, diverted
by primary jurisdiction, or unsupported by facts. Thus, while
cases brought by associations on behalf of their members are an
increasing trend, they do not always provide the efficiencies and
economies of scale craved.
1 Hunt v. Wash. State Apple Adver. Comm’n, 432 U.S. 333, 343 (1977).
2 Borrero v. United Healthcare of New York, Inc., 610 F. 3d 1296 (11th Cir. 2010).
3 Parkway Ins. Co. v. New Jersey Neck & Back, 330 N.J. Super. 172, 168-187 (Law
Div. 1998).
4 See Pennsylvania Psychiatric v. Green Spring Health, 280 F. 3d 278, 284 (3d Cir.
2002) citing United Food & Comm. Workers Union Local 751 v. Brown Group, Inc.,
517 U.S. 544 (1996).
5 Id. See also Connecticut State Dental Ass’n. v. Anthem Health Plans, Inc., 591 F. 3d
1337 (11th Cir 2009) (holding an association did not have standing to seek
damages on behalf of its members).
6 Hospital Council of Western Pennsylvania v. City of Pittsburgh, 942 F. 2d 83, 86
(3d Cir. 1991).
7 See Borreo, 610 F. 3d at 1306.
8 Pennsylvania Psychiatric, 280 F. 3d at 289-91.
9 Id. at 291.
10Id. (b).
11The court similarly rejected the Providers’ standing to pursue RICO and antitrust claims.
12The court dismissed one of the three complaints in its entirety and allowed
subscribers to proceed in a third class action complaint with some of their
claims.
13Id. at 1300.
14Id. at *2.
15Id. at 3.
16See Parkway Ins. Co., 330 N.J. Super. at 168-187.
17Id. at 2.
18Id. at 4.
On appeal, the Appellate Division held that the NJDA was
seeking a determination regarding the legality of the ancillary
programs, not to enforce insurance law. The right to bring that
challenge was available not only to the “direct parties of the
administrative action” but also to “anyone who is affected or
aggrieved in fact by that decision.”15 It further stated that because
the NJDA had members who suffered economic detriment
because of the ancillary programs, the NJDA had standing to
challenge the programs.
Having found that NJDA had standing however, the Appellate
Division rejected its claims on the merits, stating that the ancillary programs were simply a matter of contract between the
patients and dentists or the carriers and the participating dentists.
Those entities were free to contract as they wish without regard
to the NJDA or its members. Given that the issue boiled down
to simply the right to contract, the Appellate Division could
conceivably have also found that the NJDA and its members
lacked standing to challenge those contracts as set forth above.16
12
Retention of Overpayments:
New Rules and New
Responsibilities
active effect of a statute in Landgraf v. USI Film Products.6 The first
is whether Congress spoke directly on whether it intended the
statute to act retroactively. If not, the default application should
be prospective only.7
The question of Congress’ specific direction on retroactivity
is of particular interest when considering FERA, for Congress
did specifically make part of FERA retroactive, but not the part
relating to retention of overpayments. In other words, Congress
knowingly made part of FERA retroactive, but specifically did not
make the “retention of overpayments” portion retroactive. This is
more than a mere absence of language. It is an affirmative decision by Congress to not make the new definition retroactive.
David B. Honig, Esquire
Timothy C. Gutwald, Esquire
Hall Render Killian Heath & Lyman
Indianapolis, IN, and Troy, MI
T
he Fraud Enforcement Recovery Act of 2009 (FERA) was
enacted on May 20, 2009.1 Among other things, FERA
significantly amended the False Claims Act (FCA) to make
it easier for whistleblowers to bring claims against Medicare and
Medicaid providers and other government contractors. It also
created an entirely new type of “false claim,” improper retention,
where none previously existed. The improper retention theory
was further clarified by the Patient Protection and Affordable
Care Act of 2010 (PPACA), and the proposed rule published
on February 16, 2012, and required that an overpayment be
reported and returned within sixty days after it is identified.2
The second portion of the Landgraf test is applied only where
Congress has not clearly spoken.8 Application of the second
portion should not be necessary as Congress clearly made an
intentional decision not to make the “retention of overpayments”
language retroactive. However, as an analysis of the second half of
the Landgraf test reaches the same conclusion, there is no conflict
in applying the test. The second half of Landgraf asks whether
retroactivity “would impair rights a party possessed when he
acted, increase a party’s liability for past conduct, or impose new
duties with respect to transactions already completed.”9 The
triggering act for consideration of “retention of overpayments”
is not the claim itself. Rather, it is identification of the overpayment.10 This is made clear by PPACA, which required return of
an overpayment within sixty days of its identification. There is
no question that retroactive application of FERA and PPACA for
retained overpayments would increase a party’s liability for past
conduct.11 Based upon this reasoning, as well as the government’s
own guidance, any overpayment identified prior to May 22,
2010, should not create liability under the FCA as amended by
FERA and PPACA.
The new theory created by FERA and PPACA is one of violation of the FCA through retention of known overpayments. This
theory is an expansion of the previously recognized “reverse false
claim” theory, see e.g., United States ex rel. Lamers v. City of Green
Bay.3 The expansion comes first from the portion of FERA that
amends the FCA to define “obligation,” in relevant part, to mean
“an established duty, whether or not fixed, . . . from the retention of any overpayment.”4 The timing of what might constitute a
violation under the new theory is addressed in PPACA.
The questions that must be considered, in light of the two new
statutes, are the date when knowledge of an overpayment could
trigger an FCA claim and the retroactivity of the two statutes.
One theory is that, once an overpayment is known, it creates
an ongoing obligation and a whistleblower can therefore reach
back in perpetuity to find a FCA case. Such a theory argues that
retention of a known overpayment is an ongoing transgression
and therefore becomes a violation of the FCA upon the effective
date of FERA. Defendants, on the other hand, would argue that
such a retroactive application of FERA and PPACA would violate
the Constitution’s prohibition of ex post facto laws and that the
earliest a claim could be false under the new theory would be
sixty days after the passage of PPACA.
Further impacting liability under the FCA, on February 16, 2012,
the Centers for Medicare & Medicaid Services (CMS) published
a proposed rule addressing the “60 Day Rule.”12 Although it does
not address whether an overpayment constitutes a false claim
prior to the expiration of sixty days, the proposed rule alters the
FCA landscape. Those hoping the proposed rule would provide
clarity are likely disappointed as any clarity is overshadowed by
the specter of significant new burdens.
One of the largest problems with the Sixty-Day Rule has been
the uncertainty about when an overpayment is “identified” and,
by extension, when the clock starts ticking on the sixty-day
deadline. Under the proposed rule, “a person has identified an
overpayment if the person has actual knowledge of the existence
of an overpayment or acts in reckless disregard or deliberate ignorance of the overpayment.”13 In cases where a provider becomes
aware of a potential overpayment, a “reasonable inquiry” must
be conducted and performed “with all deliberate speed.” Failure
to do so could result in a finding that the provider knowingly
retained an overpayment.14 Although the proposed rules clarifies
that the sixty-day period does not begin upon the discovery of a
potential overpayment, uncertainty still exists as to exactly when
an overpayment has been “identified” and how to carry out a
“reasonable inquiry . . . with all deliberate speed.”
Prior to the date of PPACA, the FCA as amended by FERA identified retention of an overpayment as a violation but gave no time
limit when such retention would trigger the Act. Congress apparently noted the omission and created the sixty-day deadline in
PPACA. As the sixty-day deadline could run, at the very earliest,
from May 22, 2010, sixty days after the passage of PPACA, should
liability be pinned down to that date? That is exactly the finding
of the only court to date that has addressed the issue, in U.S. ex
rel. Stone v. Omnicare, Inc.5
The Omnicare court began its analysis by noting that the U.S.
Supreme Court established a two-part test to determine the retro13
& Litigation
y
t
i
l
i
b
a
i
L
e
r
a
c
h
t
l
a
He
CMS proposes providers use the “self-reported overpayment
refund process” when reporting and refunding overpayments.
This requires providers include nine pieces of information along
with any refund. The required information includes, among other
things, how the overpayment was discovered and a description of
any corrective action plan.15 The reporting and refunding requirements also vary depending on whether a provider is participating
in the Stark Self-Referral Disclosure Protocol or the U.S. Department of Health and Human Services, Office of Inspector General
Self-Disclosure Protocol.16
Practice Groups Staff
Trinita Robinson
Vice President of Practice Groups
(202) 833-6943
trobinson@healthlawyers.org
Arguably the most significant proposed change is the ten-year
look-back period.17 The period was selected to match the FCA
statute of limitations, but marks a drastic expansion in several
respects. The FCA statute of limitations is six years, with a threeyear extension upon filing by a whistleblower, but no more than
ten years. Because violations of the Sixty-Day Rule are prosecuted
under the FCA, the proposed change effectively amends the FCA’s
statute of limitations. In addition, current regulations generally
permit shorter look-back periods for overpayments. Should the
rule go into effect, providers would be faced with significantly
increased liability for overpayments.
Magdalena Wencel
Senior Manager of Practice Groups
(202) 833-0769
mwencel@healthlawyers.org
Crystal Taylor-Julius
Practice Groups Coordinator
(202) 833-0763
ctaylor@healthlawyers.org
Brian Davis
Practice Groups Editorial Coordinator
(202) 833-6951
bdavis@healthlawyers.org
Any clarity provided by the proposed rule is largely overshadowed by the increased burden imposed on providers. Additionally, providers face a substantial increase in potential liability
under the new ten-year look-back period. It will be interesting to
see how CMS responds to the inevitable flood of comments to the
proposed rule and whether or not Omnicare is followed by courts
in other jurisdictions.
Ramon Ramirez
Practice Groups Coordinator
(202) 833-0761
rramirez@healthlawyers.org
1 Fraud Enforcement Recovery Act (FERA), Pub. L. No. 111-21, 123 Stat. 1617
(2009).
2 Patient Protection and Affordable Care Act (PPACA), Pub. L. No. 111-149,
§ 6402(d), 124 Stat. 119 (2010), Medicare Program; Reporting and Returning
of Overpayments, 77 Fed. Reg. 9179 (proposed Feb. 16, 2012) (to be codified
as 42 C.F.R. pt 401 and 405).
3 United States ex rel. Lamers v. City of Green Bay, 168 F.3d 1013 (7th Cir.
Feb. 22, 1999).
4 31 U.S.C § 3729(b)(3).
5 U.S. ex rel. Stone v. Omnicare, Inc., 2011 WL 2669659 (N.D. Ill. Case
No. 09-C-4319, July 7, 2011).
6 Id. at 3 (citing Landgraf v. USI Film Products, 511 U.S. 244, 280 (1994)).
7 Omnicare, 2011 WL at 3.
8 Id.
9 Landgraf, 511 U.S. at 280.
10Omnicare, 2011 WL at 4.
11Id. The reasoning of the Omnicare case has been cited in the Government
Contract Compliance Handbook, reviewing the decision and observing that
a finding of liability based upon continued retention of funds after the passage of PPACA “would impermissibly make those amendments retroactive to
actions that took place prior to the enactment of the amendments.” Steven l
Briggerman, The Government Contract Compliance Handbook, § 1:15 (4th Ed.
2010 & Supp. 2011).
1277 Fed. Reg. 9179.
13Id. at 9182.
14Id.
15Id. at 9181.
16Id. at 9183.
17Id. at 9184. CMS also proposes to amend the reopening rules at 42 C.F.R.
§ 405.980(b) to provide for a ten-year reopening period. Id.
Tazeen Dhanani
Practice Groups Web Assistant
(202) 833-0840
tdhanani@healthlawyers.org
Graphic Design Staff
Mary Boutsikaris
Creative Director
(202) 833-0764
mboutsik@healthlawyers.org
Ana Tobin
Graphics Assistant
(202) 833-0781
atobin@healthlawyers.org
14
Joint Annual Luncheon: Healthcare Liability and
Litigation, Hospitals and Health Systems, and
Regulation, Accreditation, and Payment Practice Groups
Title: Understanding the Business/Legal Implications of Integrated Delivery
Systems From the Perspective of the Health Plan
Tuesday, June 26, 2012
This luncheon presentation will address the business/legal implications of integrated delivery models through the prism of the health plan. An in-house counsel will offer his insight on the interactions and business/legal interplay required
to coordinate the various players toward providing quality care cost effectively.
The following topics will be addressed:
❖ Legal relationships and structures as well as their opportunities and
challenges;
❖T
he role of physicians and health plans in assuring both quality and
cost-effective care is delivered;
❖T
he financial and regulatory issues inherent in sharing risk as well as
carrots and sticks; and
❖ Help lawyers prepare their clients on how to navigate the challenges and
opportunities.
Presenter:
Kirkland A. McGhee, Esquire
Vice President and Regional General Counsel
Kaiser Permanente
Atlanta, GA
Learn more about the 2012 Annual Meeting and register for the program and
the luncheon.
15
Soar to greater heights
find A mentor
Create your mentee profile at
www.healthlawyers.org/mentoring
1620 Eye Street, NW
6th Floor
Washington, DC 20006-4010