New Jersey Proposes Enhanced Limitations on Payments From Pharmaceutical Companies to Health Care Providers

by Glenn P. Prives

The New Jersey Division of Consumer Affairs recently proposed enhanced limitations on payments from pharmaceutical companies to health care providers.  Those licensees affected by the proposed rules are the following:  physicians, podiatrists, physician assistants, advanced practice nurses, dentists and optometrists.

With limited exceptions, providers would not be able to accept any of the following from pharmaceutical manufacturers or their agents:

  • gifts
  • payments
  • stock
  • stock options
  • grants
  • scholarships
  • subsidies
  • charitable contributions
  • entertainment or recreational items, such as tickets to theater or sporting events, or leisure or vacation trips
  • meals
  • any item of value that does not advance disease or treatment education, including:
  • pens, note pads, clipboards, mugs or other items with a company or product logo
  • items intended for the personal benefit of the prescriber or staff, such as floral arrangements, sporting equipment, artwork, or items that may have utility in both the professional and non-professional setting, such as electronic devices
  • any payment in cash or cash equivalent, such as a gift certificate
  • any payment or direct subsidy to a non-faculty prescriber to support attendance at, or as remuneration for time spent attending, or for the costs of travel, lodging, or other personal expenses associated with attending any continuing education event or a promotional activity

There are some exceptions to the proposed limitations:

  • items designed for educational purposes for patients
  • a manufacturer subsidized registration fee at a continuing education event if that fee is available to all event participants
  • modest meals provided through the event organizer at a continuing education event, provided the meals facilitate the educational program to maximize prescriber learning and are capped at the fair market value of $15.00 per prescriber
  • modest meals provided to non-faculty prescribers through promotional activities no more than four times in a calendar year from the same manufacturer, each of which is capped at the fair market value of $15.00 per prescriber
  • fair market value compensation for providing bona fide services as a speaker or faculty organizer or academic program consultant for a continuing education event (subject to disclosure to attendees), plus reasonable payment and remuneration for travel, lodging, and other personal expenses associated with such services and continuing education credit if permitted by the licensee’s licensing board
  • fair market value compensation (capped at $10,000 per year from all pharmaceutical manufacturers) for providing bona fide services as a speaker or faculty organizer or academic program consultant for a promotional activity (subject to disclosure to attendees), plus reasonable payment or remuneration for travel, lodging, and other personal expenses associated with such services, but no continuing education credit
  • fair market value compensation for participation on advisory bodies or under consulting arrangements, but subject to the aforementioned $10,000 per year cap (together with payments for services for a promotional activity)

A provider can still receive samples from manufacturers, provided that the licensee does not charge patients for the samples and dispenses samples in accordance with the licensee’s licensing board.

The New Jersey Board of Medical Examiners, Board of Dentistry and Board of Optometry already have regulations that govern the relationships between their respective licensees and pharmaceutical companies, but the proposed regulations will both clarify and strengthen the existing rules.

While restrictions on payments to providers exist in other states, New Jersey’s proposed rules appear to be particularly stringent.  Pharmaceutical companies will need to carefully review their policies on all interactions with providers and, if the rules are passed, revise them accordingly as well as educate and monitor their employees and contractors for compliance.  Providers will also need to carefully track their relationships with pharmaceutical companies.  The regulations, if passed, will burden both parties.

Beware CMS’ Ability to Preemptively Suspend or Revoke a Provider’s License

by John W. Kaveney

Most providers primarily worry about the financial impact of fraud and abuse and other compliance issues. However, as occurred recently in Dallas Texas, federal and state agencies can also come for a provider’s license either via a limitation, suspension or revocation causing far greater long-term and permanent damage to the institution. And, what is most troubling, is that the authority to take such action does not necessarily require the right of the provider to receive a hearing or even an opportunity to refute the allegations.

On August 18th a Dallas laboratory filed suit against federal and state officials and agencies seeking to temporarily restrain them from suspending or revoking the company’s federal laboratory licenses. This lawsuit was prompted as a result of federal inspectors allegedly finding regulatory violations in the way the laboratory operated and conducted business. It is believed that the federal and state investigations came as a result of a lawsuit filed by the private insurer, UnitedHealthcare, against the laboratory. In that lawsuit UnitedHealthcare claims that there were bribes and kickbacks to doctors and other providers during a five year period for overpriced and unnecessary drug and genetic tests.

According to a letter sent on May 10th from CMS to the laboratory’s officials, there were “systemic and pervasive problems throughout the laboratory which [] led to the findings of immediate jeopardy.” A finding of immediate jeopardy provides CMS with the authority under federal law to suspend, limit or even revoke a laboratory’s license to operate arguably without any right to a hearing or opportunity for the laboratory to refute the allegations.

These events demonstrate the broad authority held by CMS to pull licenses if it is believed that the ongoing actions are likely to cause patients injury, harm, impairment or death. This further underscores the critical importance of maintaining an effective compliance program and having proper protocols in place to perform internal audits/investigations and to respond to and remediate any outside audits/investigations. Furthermore, this laboratory is just the latest example of situations where claims and disputes with a private payer can quickly pivot to investigations and claims by the federal or state governments. Providers must be diligent in addressing the allegations of private payers and always be mindful of how those allegations may impact on federal or state health care programs. Failing to do so can place a provider in a detrimental position. And, for most providers, having their licenses suspended or revoked, even if just for the period of time the investigation is occurring, can be catastrophic to their business.

The Senate Continues to Shape Its Version of A Health Care Insurance Bill

by Megan R. George

Recently Republican Senate Majority Leader Mitch McConnell released the Senate’s updated version of the Better Care Reconciliation Act (“BCRA”). Although a similar version of the bill passed in the House, the BCRA failed to obtain the necessary support in the Senate, leaving Republican leaders and the American people asking the question of “what next?” A summary of the key provisions of the BCRA are below. While this list is not exhaustive, it serves as the Republican party “wish list” of changes to the Affordable Care Act. Any further legislation will most likely have all, if not many, of the below provisions included.

  • The BCRA eliminates Employer and Individual Mandate Penalties enacted under the Affordable Care Act (“ACA”). The Individual Mandate Penalty has been a hot topic since the ACA was enacted.
  • The BCRA repeals taxes that were enacted under the ACA such as the excise tax on medical devices, the health insurance tax, the Medicare surcharge tax, the net investment tax, the branded prescription tax, the health insurance executive tax, the Medicare tax on high income taxpayers and the tanning tax. The bill would also temporarily repeal the “Cadillac tax” through 2026.
  • The BCRA ends the exclusion of coverage for over-the-counter medications from HSA or FSA funds, allows individuals to use HSA funds to pay insurance premiums, allow individuals to use HSA funds to cover health care related expenses incurred up to 60 days before HSA coverage becomes effective, and increase the amount that an individual can contribute annually to an HSA.
  • The BCRA eliminates the ACA’s small business tax credit by the year 2020.
  • The BCRA amends the IRS code to allow small business health plans to be treated as a group health plan.
  • The BCRA provides $45 million in federal funding to combat the current opioid crisis.
  • The BCRA will restructure the premium tax credits beginning in year 2020. Subsidies will be available to those below 350% of poverty. Subsidies are geared to a plan with an actuarial value of 58%, just below a bronze-level plan. The current subsidies are tied to the silver plans, which cover 70% of costs for most customers.
  • Cost Sharing Reduction (“CSR”) payments will be fully repealed by year 2020.
  • An additional $70 billion in stabilization funding will be provided to insurers as a way of reducing premiums and reducing out of pocket costs. This is an increase from the first version of the Senate’s BCRA, which provided for $112 billion dollars in stabilization funding.
  • The BCRA begins to phase out the enhanced federal match for Medicaid expansion over a three year period beginning in calendar year 2021.
  • Medicaid payments to beneficiaries will be capped for each Medicare beneficiary beginning the calendar year 2020. Blind and disabled children are not subject to the cap.
  • BCRA provides safety-net funding over a five years period to states that did not expand Medicaid under the ACA.
  • The BCRA has an incentive program in the form of a bonus payment for states in if states can demonstrate that on a set of child and adult quality measures, they were able to achieve results while also showing lower-than-expected aggregate Medicaid expenditures during an annual performance year.
  • The BCRA, like the AHCA will impose more frequent eligibility redeterminations. Although the BCRA makes this an optional exercise, the Senate bill would increase by 5 percentage points the federal contribution to state costs in connection with a more frequent eligibility redetermination process.
  • The BCRA allows the states to impose work requirements on non-disabled, nonelderly, and non-pregnant adults using the TANF work rules as the basis of a new Medicaid work policy.
  • The BCRA allows states to offer Medicaid coverage of “qualified inpatient psychiatric hospital services” to persons age 21 through 65. Under this provision, qualifying stays cannot exceed 30 consecutive days in a month or 90 total days in any calendar year.
  • As with the AHCA, the BCRA prohibits using tax credits to purchase health plans that cover abortion.
  • Also the same as the AHCA, the BCRA prohibits for one year any Medicaid, CHIP, Maternal and Child Health Services Block Grant, and Social Services Block Grant funding for Planned Parenthood.
  • The BCRA loosens 1332 waiver requirements.

Ted Cruz’s amendment to the BCRA will allow consumers to buy health insurance plans that do not meet the current requirements for health plans under the ACA. In essence, these plans would be cheaper and offer less coverage. Insurers could offer these plans if the insurer also offers a plan that does include all of the current ACA requirements, allowing those with pre-existing conditions to obtain coverage at a reasonable rate. This is a heated topic in the discussions surrounding the passage of the BCRA. One of the most population functions of the ACA is that individuals with pre-existing conditions can obtain affordable health insurance.  Because all Americans are currently required to purchase health insurance, risk shifting takes place between those with preexisting conditions and those who are generally healthy but still paying high premiums. Opponents of the Cruz legislation argue that all Americans will purchase the bare bones plan, essentially making health insurance costs rise for those purchasing the more comprehensive plans. With less being collected by insurance companies in the form of premiums, the funds will have to be recaptured elsewhere.

After the failure of the BCRA, Senate Republicans attempted a “skinny repeal” of the Affordable Care Act, repealing only some of the provisions of the ACA, allowing further legislation to be passed in the future. The skinny repeal would have included repealing the unpopular individual mandate, defund planned parenthood while diverting funds to community health centers, eliminate the medical device tax for three (3)  years, allow for increased contribution to Health Savings Accounts, allow states to have more flexibility in determining waivers for essential health benefits, and eliminate the employer mandate for eight (8) years. The hot button topic of Medicaid was not discussed in the skinny repeal. Even without some of the more controversial topics being included, the skinny repeal of the ACA did not pass. Again, Republicans and the American people are asking themselves the question of what will happen next. Regardless of what side of the political spectrum you fall, health care and health insurance affects every American.

There is great uncertainty surrounding the Republican effort to repeal and replace the Affordable Care Act. Thus, it is unclear whether the Republican “wish list” outlined above or any other version can ultimately muster up sufficient votes to make it through both chambers of Congress to get to the President’s desk.

Changes to MACRA to Hopefully Lessen the Burdens

by Glenn P. Prives

The Centers for Medicare & Medicaid Services (“CMS”) recently published a proposed rule, which included modifications to the final rule that implemented the Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”) in 2017.  Some of the changes are detailed in this blog post.

The proposed rule increases the required participation threshold for providers from Medicare Part B annual charges of $30,000 to $90,000 and 100 or less Medicare patients annually to 200 or less Medicare patients annually.

CMS also finally provided proposed guidance on how to participate in virtual groups.  A virtual group is a combination of two or more federal tax identification numbers (“TIN”), with each TIN consisting of ten or fewer eligible clinicians.  The virtual group must form itself and provide written notice of this election to CMS by December 1 of the calendar year preceding the performance period.  Clinicians can only participate in one virtual group.  All eligible clinicians in a TIN must participate in the virtual group except for those who participate in the Alternative Payment Model (“APM”) scoring.  Virtual groups can opt to receive a determination as to whether the participants qualify to form a virtual group and will then be required to establish a formal agreement amongst the members.  Virtual groups will be subject to the same reporting and performance standards as non-virtual Merit-Based Incentive Payment System (“MIPS”) track groups.

Another part of the proposed rule is the creation of a new partial group reporting option.  Under this option, some clinicians under a TIN could use the APM reporting standard while the remaining participants would collectively report under MIPS.

CMS also proposed a Facility Based Measurement for the 2018 MIPS performance year.  Facility-based clinicians who have at least seventy-five percent of their professional services furnished in the emergency department or other hospital inpatient setting would qualify for this option.  The hospital Total Performance Score from the facility where the clinician treats the highest number of Medicare beneficiaries during the measurement period would be converted into the MIPS quality performance category and cost performance category score.

By proposing these changes and others, CMS has indicated a willingness to continually examine the impact of MACRA on providers and make adjustments to help with compliance while preserving the goals of the program. While 2017 is the transition year, 2018 is fast approaching, and providers need to be prepared for a full year of MACRA implementation.  Providers of all sizes, including institutional providers that employ clinicians, should continue to ramp up their readiness for full MACRA performance.

Breach of Medical Confidentiality and Privacy Claims

by John Zen Jackson

On July 12, 2017, the New Jersey Appellate Division issued an opinion in the case of Smith v. Datla, which involved the question of how much time a party has to file a lawsuit arising out of the unauthorized disclosure of private medical information. The court ruled that the appropriate statute of limitations period was two years.  In the opinion the court reiterated New Jersey’s adherence to the widely held rule that there is no private right of action under the Federal HIPAA rule but clarified that conduct that violates HIPAA regulatory provisions provides a state law claim for disclosure of the patient’s protected health information. While the decision is currently binding precedent in New Jersey, it could be appealed to the New Jersey Supreme Court for further review.

The appeal was presented on a somewhat limited factual record.  The plaintiff, identified by the pseudonym of John Smith, was a hospitalized patient.  The physician, a board-certified nephrologist, was treating the patient for acute kidney failure.  During an emergency bedside consultation with John Smith in his private hospital room, the doctor discussed his medical condition including the patient’s HIV-positive status.  It is not clear if this was an established diagnosis or newly conveyed information. The conversation took place while “an unidentified third party” was in the room.  In a footnote the court stated that “[t]he record does not reveal the third party’s identity nor his or her relationship to plaintiff.” Plaintiff claimed that the HIV disclosure was without his consent. The plaintiff further claimed that the disclosure caused him to endure pain and suffering, emotional distress, other emotional injuries and insult, and permanent injury with physiological consequences.

That third-party’s identity and relationship to the patient may become an important factor in the eventual outcome of this case.  The HIPAA Privacy Rule specifically permits covered entities to share information that is directly relevant to the involvement of a spouse, family members, friends, or other persons identified by a patient, in the patient’s care or payment for health care. If the patient is present, or is otherwise available prior to the disclosure, and has the capacity to make health care decisions, the covered entity may discuss this information with the family and these other persons if the patient agrees or, when given the opportunity, does not object. The covered entity may also share relevant information with the family and these other persons if it can reasonably infer, based on professional judgment that the patient does not object.

On an admittedly “limited record,” the court evaluated the consequences of this disclosure which took place on July 25, 2013 and with the lawsuit being filed on July 1, 2015.

Ultimately, following motion practice, the plaintiff’s amended complaint asserted three causes of action: (1) invasion of privacy based on public disclosure of private facts; (2) medical malpractice based on the improper disclosure; and (3) violation of the AIDS Assistance Act, N.J.S.A. 26:5C-1 to -14.

Defendant filed a new motion to dismiss on the grounds that all three claims were barred by the one-year statute of limitations found in N.J.S.A. 2A:14-3 where the complaint had been filed nearly two years after the incident.  Arguing that all three claims were predicated on the public disclosure of private facts, defendant contended that they should be subject to the same statute of limitations.  Defendant noted that there was no specific statute of limitations for the public disclosure of private facts, but analogized that type of invasion of privacy claim to claims for placing plaintiff in a false light in the public eye and defamation.  This motion was denied by the trial court with leave to appeal granted.

The Appellate Division engaged in an extended analysis leading to the rejection of defendant’s contention.  It invoked the classic comments of Professor William Prosser regarding invasion of privacy being “not one tort, but a complex of four.”

The law of privacy comprises four distinct kinds of invasion of four different interests of the plaintiff, which are tied together by the common name, but otherwise have almost nothing in common except that each represents an interference with the right of the plaintiff to “be left alone.” [Quoting William L. Prosser, The Law of Torts § 112 (3d ed. 1964).]

The four braches of Prosser’s taxonomy of the privacy tort included (1) intrusion, (2) public disclosure of private facts, (3) placing a person in a false light in the public eye, and (4) appropriation of the plaintiff’s name or likeness for the defendant’s benefit.  The court observed that the limitations period for the public disclosure of private facts was an “unresolved issue” in New Jersey.  In Rumbauskas v. Cantor, 138 N.J. 173 (1994), the Supreme Court had held that the limitations period for the intrusion on seclusion type of privacy tort was two years and approved the use of a six-year period for actions based on appropriation of a person’s name or likeness for the benefit of the defendant. In commenting on varying limitations periods for the different types of privacy torts, it had stated:

The limitation periods applicable to actions involving other types of invasion of privacy are not before us. … Regarding actions for public disclosure of private facts or placing one in a false light, case law in other jurisdictions indicates that such actions are subject to the limitations period for defamation claims, which is one year in New Jersey. [Id. at 183.]

 In rejecting the defense contention in Smith v. Datla for use of the one-year limitations period for public disclosure of private facts, the key factor in the court’s analysis is that the essential element of a defamation action is the dissemination of false information.  Here the private facts that were disclosed were true.  The court emphasized the heightened protection afforded to a person’s HIV and AIDS status in various contexts including the New Jersey Law Against Discrimination (LAD), the New Jersey Civil Rights Act, and actions under Section 1983 for deprivation of federally protected civil rights.  All of these claims were subject to a two-statute of limitations.

This heightened protection was also embodied in the AIDS’ Assistance Act which required that records regarding this infection were to be kept confidential and disclosed only with a person’s “prior written informed consent” in limited circumstances.  The Act provided for a private cause of action including compensatory and punitive damages as well as attorneys’ fees.  The Act did not set forth a particular statute of limitations but the court concluded that this statutory-based action was analogous to the public disclosure of private facts tort for which it had determined there was a two-year statute of limitations.

The court went through a similar analysis with regard to the medical malpractice claim.  Describing such a claim generally as a deviation from an accepted standard of care, it referred to the HIPAA requirements that health care providers protect personal medical information from unauthorized disclosure as well as the mandate of the AIDS’ Assistance Act.  Aside from these statutorily-based obligations, the court referred to “the common law duty “to maintain the confidentiality of patient records and information.”  It cited several prior cases involving breaches of physician-patient confidentiality.  Curiously, the court did not refer to Crescenzo v. Crane, 350 N.J. Super. 531, 541-44 (App. Div.), certif. denied, 174 N.J. 364 (2002) which had involved a physician releasing patient records to a lawyer in response to an improperly issued subpoena.  In concluding that there was “a viable cause of action” against the physician, the Crescenzo court had referred to the Board of Medical Examiners’ regulations mandating confidentiality of patient records.

In concluding that this claim also was within the two-year statute of limitations in N.J.S.A. 2A:14-2, the court stated:

The breach of a physician’s duty to maintain the confidentiality of his patient’s medical records is a deviation from the standard of care, giving rise to a personal injury claim based upon negligence, not defamation or placing plaintiff in a false light.

 In addition, plaintiff’s claim for medical malpractice is most analogous to the category of invasion of privacy claims that are grounded on an allegation that defendant improperly disclosed private facts concerning the plaintiff to a third party.

 The court affirmed the denial of the motion to dismiss.

The Appellate Division in its comprehensive opinion nonetheless placed too much emphasis on the categorization of the privacy tort as articulated by Professor Prosser. Prosser’s contributions to the development of tort law regarding privacy are widely acknowledged.  However, his “taxonomy” of the privacy tort has been criticized as too restrictive and omitting other important interests.  Neil M. Richards & Daniel J. Solove, Prosser’s Privacy Law: A Mixed Legacy, 98 Calif. L. Rev. 1887, 1891 (2010).  One of these omissions is the tort of breach of confidence.  “This tort provides a remedy whenever a person owes a duty of confidentiality to another and breaches that duty.” Id. at 1909. See generally Daniel J. Solove & Neil M. Richards, Privacy’s Other Path: Recovering the Law of Confidentiality, 96 Geo. L.J. 123 (2007).  This tort is well recognized in a variety of professional settings.

At the end of the day, this case is a further illustration of the importance of sensitivity to a patient’s right of privacy.  It is difficult to accept that the defendant was informing the patient for the first time that he had AIDS and presumably the patient was already aware of that diagnosis as a backdrop for the discussion of his current condition. A brief time-out in which the physician either asked the third party to leave the room or during which the patient was asked if he wanted that person to remain during the discussion could have avoided this litigation.

New Jersey Bill Limits Exchange of Information between Insurers and Behavioral Health Providers

by Paul L. Croce

On November 21, 2016, Senator, Robert M. Gordon, proposed Senate Bill No. 2805 which is intended to limit the scope of information which can be exchanged between behavioral health providers and insurance carriers. Following recent testimony earlier this month on the bill, it passed the Senate Subcommittee on Commerce and appears primed to makes it way before the full Senate and Assembly in the near future.

The bill specifically prohibits a behavioral health provider from providing, and insurance carriers from requesting, any information regarding a behavioral health patient except the following:

  1. the patient’s name, age, sex, address, educational status, identifying number with in the insurance program, date of onset of difficulty, date of initial consultation, dates of sessions, whether the sessions are individual or group sessions and fees;
  2. diagnostic information defined as therapeutic characterizations of the type found in the current version of the Diagnostic and Statistical Manual of Mental Disorders or in another professionally recognized diagnostic manual;
  3. status of the patient as voluntary or involuntary and inpatient or outpatient;
  4. the reason for continuing behavioral health care services, limited to an assessment of the patient’s current level of functioning and level of stress, to be describes only as “none,” “mild,” “moderate,” “severe,” or “extreme;” and
  5. prognosis, limited to an estimate of the minimal time during which treatment might continue.

In the statement proposing the Bill, Senator Gordon stated that “in certain circumstances health insurance carriers have requested, as part of utilization management, information from mental health care providers that the providers are prohibited from disclosing pursuant to the rules and regulations of the providers professional licensure.” The statement did not identify the specific information that has been requested but went on to explain that the Bill is intended to reconcile that conflict by clearly limiting the information that is permitted to be shared between those parties.

On June 1, 2017, the New Jersey Senate Subcommittee on Commerce took testimony from several individuals in favor of the Bill.  Several other individuals had submitted statements in favor of the Bill with only one individual submitting opposition to the proposed Bill.   The individual opposing the Bill did not testify before the subcommittee.

The subcommittee unanimously voted in favor of the Bill.  The only concern was raised by Senator Cardinale who indicated the Bill did not provide any penalty for insurers who request information beyond the scope of that permitted by the Bill.  He suggested that he would speak to Senator Gordon about adding a provision related to same.

It appears this Bill has a great deal of momentum behind it.  Absent additional revisions to the Bill based on Senator Cardinale’s concerns, it will likely go before the full Senate and Assembly in the near future and eventually be presented to the Governor.

New Proposed Legislation Seeks To Restore Tax Exempt Status to Non-Profit Acute Care Hospitals In New Jersey and Implement Instead a Community Service Contribution Payment

by John W. Kaveney

In the wake of the 2015 court case challenging the tax exempt status of a nonprofit hospital here in New Jersey, the fight continues over this issue with many of the non-profit hospitals in New Jersey currently engaged in litigation before the Tax Courts and various bills having been proposed and debated in the Legislature. This past week a bill (A4985) was introduced in the Assembly of the New Jersey Legislature that seeks to restore the property tax exemption for nonprofit hospitals that operate with on-site for-profit providers. The bill was sponsored by Assemblyman Troy Singleton. The Statement to the bill makes clear that the bill “would establish a clear and predictable system in which nonprofit hospitals make a reasonable contribution to their host communities.”

In addition to restoring the tax exempt status, the proposed bill requires these hospitals to pay community service contributions to host municipalities and it establishes a Nonprofit Hospital Community Service Contribution Study Commission.

With regard to the contribution, the community service contribution would be equal to $2.50 a day for each licensed bed at the exempt acute care hospital property except in the case of a satellite emergency care facility in which case the contribution would be equal to $250 a day. Following 2018, and for each subsequent tax year, the per day amount utilized for the calculation will be increased by two percent over the prior tax year.

Up to 75% of that annual community service contribution can be reduced by the amount of payments remitted to the municipality in which the acute care hospital or satellite emergency care facility is located pursuant to a voluntary agreement operative in the prior tax year to compensate for public safety services.  Similarly, up to 25% of the annual community service contribution can be reduced pursuant to any agreement to provide compensation for the provision of affordable housing in the municipality.

The municipalities will be required to utilize a portion of these contribution funds for police or fire protection; first aid, emergency, rescue, or ambulance services; any other public safety purpose; or to reduce the property tax levy and the remainder for affordable housing.

Acute care hospitals are permitted to apply to the New Jersey Health Care Facilities Financing Authority in the Department of Health for a certificate of exemption for a given tax year in the event the hospital is either in financial distress or at risk of being in financial distress. Such an application would require significant information including audited financial records. A response from the government will be promptly required within 60 days of receipt of the records.

Beyond the financial requirement, the bill also proposes the creation of the Nonprofit Hospital Community Service Contribution Study Commission. The Commission would consist of nine members made up of agency heads, members of the Senate and Assembly, mayors of municipalities and chief executive officers of nonprofit hospitals. The Commission will be tasked with studying the implementation of this bill and reporting on its financial impact on both nonprofit hospitals and the municipalities receiving the contributions. The report shall also include any recommendations to improve the administration, equity or other aspect of the nonprofit community service contribution system including the adequacy of the amount of the contribution.

Finally, the bill contemplates having exemptions for a large number of properties including buildings used for colleges, schools, academies, public libraries, asylums or schools for those with developmental disabilities, religious sites and many others.

While this bill will not eliminate the financial obligation nonprofit acute care hospitals are now faced with following the 2015 ruling, this legislation appears to at least help to alleviate the amount that will need to be remitted by these hospitals and provides oversight on how the money will be utilized by the municipalities. Time will tell whether this newest legislative effort will have more success than its predecessors and whether the Tax Courts will act prior to it having a chance to work its way through the Legislature.

Has the DOJ Investigation Into eClinicalWorks Opened a Can of Worms?

by Megan R. George

eClinicalWorks, a provider of electronic health record software (“Software”) to physician offices and hospitals nationwide, recently reached a settlement with the United States government for its alleged involvement in falsely certifying the capabilities of its Software.  After Brendan Delaney, a former employee of the New York City Division of Health Care Access and Improvement alerted the government of perceived issues with the Software, the Department of Justice brought suit against eClinicalWorks for violating the False-Claims Act, more specially for allegedly misrepresenting the capabilities of the software and for allegedly paying kickbacks to customers in exchange for those customers certifying its product.

The American Recovery and Reinvestment Act of 2009 established the Electronic Health Record Incentive Program, which offered incentive payments to health care providers that switched from traditional paper medical records to an electronic health record system. In order to obtain an incentive payment, the health care provider was required to switch from paper records to an electronic medical record system that had been certified as having met certain technological specifications.

eClinicalWorks has held itself out as having certification for its Software under the requirements set forth in the American Recovery and Reinvestment Act. The Department of Justice stated that when obtaining such certification for its Software, eClinicalWorks did not disclose all information to the certifying body, ultimately rending the certification null and void. By creating and selling non-compliant Software, it is also alleged that eClinicalWorks knowingly caused health care providers who purchased its software to submit unknowingly fraudulent claims seeking incentive payments under the Electronic Health Records Incentive Program. 

In explaining the deficiency with the Software, the Department of Justice alleges that the Software does not comply with data portability requirements. Data portability is essential in patient care because it allows health care providers to exchange data. The Department of Justice gave the following example of a deficiency in the Software, “in order to pass certification testing without meeting the certification criteria for standardized drug codes, the company modified its software by ‘hardcoding’ only the drug codes required for testing. In other words, rather than programming the capability to retrieve any drug code from a complete database, [eClinicalWorks] simply typed the 16 codes necessary for certification testing directly into its software. [eClinicalWorks’s] software also did not accurately record user actions in an audit log, and in certain situations did not reliably record diagnostic imaging orders or perform drug interaction checks.”

So what now? As part of the settlement, eClinicalWorks entered into a five-year Corporate Integrity Agreement, which requires that the company retain an independent software quality overseer, and provide semi annual compliance reports to the Office of the Inspector General. eClinicalWorks must also provide free software updates to the Software to all current customers. Current customers will also have the opportunity to transfer their patient data to another electronic health record provider. This data transfer will be free of charge to customers who make this choice. Customers choosing this option must be cautioned, while switching vendors free of charge may appear on its face to be the best solution, the provider has to consider the pitfalls associated with switching to a different electronic health record system, including but not limited to time and capital spent on training staff and physicians on the new system, any hardware or software upgrades to ensure compatibility with the new electronic medical record system, and the resources that will be needed to back up the current system prior to migration.

The investigation into eClinicalWorks also raises the question of whether other electronic health record software vendors will undergo heightened scrutiny when submitting for certification or if those vendors will be required to submit for recertification under a heightened set of security standards. If it is found that other vendors are also non-compliant, health care providers could be at risk of unknowingly violating HIPAA.

 

NJ Gainsharing Legislation Signed Into Law

by Glenn P. Prives

New Jersey Governor Chris Christie recently signed into law S-913/A-3404, which took effect on May 1, 2017.  This new legislation permits New Jersey hospitals to establish commercial gainsharing programs that meet certain requirements and amends the Codey Law accordingly.

A New Jersey acute care hospital may now establish a hospital and physician incentive plan, with a physician or physician group.  The hospital must contract with an independent party to administer the plan and establish a hospital steering committee, with physicians making up at least half of the committee membership.

The committee will be charged with establishing institutional and specialty-specific goals related to patient safety, quality of care and operational performance.  The committee must ensure that:

  1. no payments are made for reducing or limiting medically necessary care;
  2. the appropriate course of treatment for each patient is determined, in consultation with the patient or the patient’s representative, by the attending physician or surgeon of record;
  3. safeguards are in place to ensure that there are no incentives to avoid difficult or complex medical cases, or to withhold, reduce or limit quality care;
  4. no payment is made for exceeding best practice standards established under the plan;
  5. overall payments to individual physicians under a plan shall not exceed 50 percent of the total professional payments for services related to the cases for which that physician receives incentive payments under the plan;
  6. individual physician performance is objectively measured, taking into account the severity of the medical issues presented by an individual patient;
  7. payments objectively correlate with physician performance and are applied in a consistent manner to all physicians participating in the plan;
  8. participating physicians are treated uniformly relative to their respective individual contributions to institutional efficiency and quality of patient care;
  9. performance and best practice standards established under the plan are based primarily on local and regional data;
  10. the methodology recognizes both individual physician performance, including a physician’s utilization of inpatient resources compared to the physician’s peers, and improvements in individual physician performance, including a physician’s utilization of inpatient resources compared with the physician’s own performance over time; and
  11. the elements of the methodology are properly balanced to meet the needs of physicians, hospitals and patients.

The plan can include multiple hospital participants, provided that the plan utilizes a facilitator-convener who will coordinate with the plan administrator and the hospital steering committee to facilitate plan administration, disseminate information concerning best practices and serve as the point of contact for the New Jersey Department of Health (“NJDOH”).

Except for plans limited to specific clinical specialties or diagnosis related groups, the plan must apply to all admissions and all inpatient costs related to those admissions in a given program.  Plans are to be open to all surgeons and attending physicians of record and may, at the discretion of the hospital, include other physicians involved in the provision of inpatient care.  A physician must have been on the medical staff of the hospital for at least one year to participate in the plan, except for hospitalists and physicians who are new to the hospital’s geographic area.  The plan must include a mechanism to limit incentives attributable to year-to-year increases in patient volume for physicians on staff with multiple admitting privileges. Patients are to be notified of the plan in advance of admission to the hospital.

The plan must be filed with NJDOH by the hospital or facilitator-convener prior to the anticipated start date of the plan.  The filing must include the incentive methodology, institutional and specialty-specific goals, quality and cost performance standards, and any standards, programs or protocols designed to ensure that the plan meets the requirements of the legislation.  Annual reports must be submitted to NJDOH setting forth the distributions made to physicians, quality and cost performance standards, proposed revisions to the plan, if any, and such other information as NJDOH may require.  NJDOH will review the plan and shall notify the hospital if its plan does not meet the requirements of the legislation.  NJDOH will provide the hospital with a reasonable opportunity to remedy any deficiencies in the plan, and may terminate a plan that continues to fail to meet the requirements of the legislation.

With respect to the amendment to the Codey Law, the definition of “significant beneficial interest” now excludes “payments made by a hospital to a physician pursuant to a hospital and physician incentive plan.”  It is important to note that the definition under the Codey Law of a “hospital and physician incentive plan” is limited to a plan that meets the requirements of this legislation.

While gainsharing programs are not new to New Jersey, it is clear that the state government has recognized the trend of the expansion of such programs in health care and is supportive.  Providers may wish to seize this opportunity to explore affiliations that align their visions for health care, but preserve some independence between hospitals and physicians, which appears to have become a mutual goal after the most recent spate of acquisitions of physician practices.  Hospitals should also review their physician employment agreements and professional service agreements to ensure that such agreements allow the hospitals to develop these incentive plans with their physicians or prepare amendments for the next round of renewals.  Beware, though, of simply following the requirements of this new legislation, while ignoring federal law restrictions, which will still be applicable.

Corporations Cannot Practice Medicine in New Jersey, Part II – Is It A Sham Operation?

by Cecylia K. Hahn

Given the recent Supreme Court opinion in Allstate Insurance Company v. Northfield Medical Center, P.C., an update to our prior post on why “Corporations Cannot Practice Medicine in New Jersey” was timely and appropriate. In that prior blog post, we discussed the regulation guiding this prohibition, N.J.A.C. 13:35-6.16 (the “CPOM Regulation”).  The Supreme Court’s recent decision provides further guidance to providers and reemphasizes the care with which such arrangements must be structured.

Control, Ownership, and Direction of a Medical Practice

Under the CPOM Regulation, a plenary licensed health care professional and a lesser-licensed (allied) health care professional cannot together own a medical practice that results in its control and direction by the lesser-licensed health care professional.  Moreover, an unlicensed individual cannot own a medical practice with a health care professional.  The objective behind these prohibitions pertains to the medical judgment involved in the practice of medicine.  Essentially, cost considerations of a corporate partner should not interfere with a health care professional’s medical judgment and patient interactions.

For similar reasons, a general business corporation cannot employ or otherwise engage (e.g., through an independent contractor relationship) a health care professional.

One way that health care professionals and non-professional owners have structured relationships in an effort to stay within the parameters of the CPOM Regulation is to create two separate entities.  One entity is a management company that is owned by a lesser-licensed or unlicensed individual.  The other entity is a professional corporation with a sole shareholder who is a medical doctor.  A management services contract runs between the two entities.  The key question is: What do the terms of that management services contract and its implementation entail?

Following Allstate, especially, we caution interested stakeholders: Do not try to fit a square peg in a round hole.  In other words, if the purpose of the CPOM Regulation is to prevent control by a lesser-licensed or unlicensed individual over medical judgment, do not inject such control through a structure of interconnected contracts between a management company and a medical practice.

Some fear that, following Allstate, the management company/medical practice structure in and of itself is too risky and may even be illegal, but, if written and implemented properly, a clear delineation of roles may be achieved and would likely be upheld.  Indeed, the regulations permit administrative contracts between management companies and professional practices.  N.J.A.C. 13:35-6.17.

A Question of Fact

Allstate sued an attorney and a chiropractor involved in promoting a multi-disciplinary structure that resulted in payment by Allstate for patient services rendered.  The structure included three key types of contracts: (1) space rental leases, (2) equipment leases, and (3) management contracts.  The purpose of these contracts was to prevent a nominal doctor-owner of a medical practice from seizing control of the practice from the real investor, the chiropractor.  The contracts permitted the chiropractor-owned management company to extract profits from and maintain control over the affiliated medical practice through various means.

Although the majority of stock in the medical practice was owned by the doctor, the doctor did not participate in day-to-day patient care (other doctors would be employed by the medical practice to provide the care).  Profits made by the medical practice would be turned over to the management company in exchange for the provision of management services, leased space, and leased equipment.  The doctor-owner of the medical practice would be asked to sign an undated (1) resignation letter and (2) affidavit of non issued or lost certificate bearing an unexecuted notary attestation for the doctor’s signature and date; this would permit the chiropractor to remove the doctor from his or her position and have it appear that the controlling interest in stock certificates previously held by the doctor were being transferred by the departing physician to another physician.  Finally, the leases between the management company and the medical practice included a “break fee” of $100,000 to penalize the medical practice’s doctor-owner for breaking the lease.

Following a bench trial, the trial court found the defendants violated the Insurance Fraud Prevention Act (IFPA), N.J.S.A. 17:33A-1 to -30, by knowingly assisting a New Jersey chiropractor in the creation of an unlawful multi-disciplinary practice, which submitted medical insurance claims to Allstate.  The trial court found that the practice structure, which the defendants promoted and assisted to create, was designed to circumvent regulatory requirements with respect to the control, ownership, and direction of a medical practice.

The Appellate Division reversed the trial court’s ruling, finding a lack of evidence of intent.  The Supreme Court, however, disagreed with the Appellate Division, finding that a fact finder could reasonably conclude the structure was “little more than a sham intended to evade well-established prohibitions and restrictions governing ownership and control of a medical practice by a non-doctor.”  The Court stated that considering the broad anti-fraud liability imposed by the IFPA, defendants should have anticipated being held responsible for “promoting and assisting in the formation of an ineligible medical practice” which was created to obtain reimbursement for the care provided at the practice.  Indeed, the Court reasoned that the defendants knew what the laws were and their purposes but nonetheless, in order to protect the investment, developed a structure to circumvent the law and cover up the circumvention.

Accordingly, the Supreme Court upheld the trial court’s finding of intent to circumvent the CPOM Regulation and remanded the case to the Appellate Division for further evaluation.

Factors to Consider in Future Arrangements

Below are some factors to consider when structuring future arrangements between plenary licensed and lesser or unlicensed individuals.  The factors are meant to place with the licensee complete discretion of his or her judgment in rendering health care services.  The list is not meant to be exhaustive nor applicable to every scenario.  Attorney advice should always be sought when assessing these factors and developing these types of arrangements.

  1. The physician owner of the medical practice should contribute startup capital to the entity.
  2. Any voting rights / shares in a medical practice should be divided with a majority of rights / shares to the physician.  (This factor would apply only if ownership in the medical practice was split between a physician and a lesser-licensed health care professional.  Direct ownership in a medical practice by an unlicensed individual is prohibited.)
  3. The physician owner of the medical practice should not be paid a salary (versus a profit distribution) while the management company sweeps the practice’s accounts of all remaining profits.
  4. A management company should not make above-market loans to the medical practice.
  5. The physician owner of a medical practice should have the right to terminate the management contract with a management company.
  6. The management contract should contain no provision (nor require the execution of documents) which would allow for the termination and replacement of the physician/medical director should there be a conflict of interests, e.g., medical judgment v. cost considerations.
  7. A medical practice should not contract with a management company that also leases space and equipment to the medical practice.
  8. The physician owner of the medical practice should either participate or oversee the day-to-day treatment of practice patients.  Supervision within the medical practice should not run to the management company.
  9. The medical practice should pay fair market value for services performed by the management services company.
  10. Monies earned for the provision of patient services should be kept within the medical practice to pay salaries, bills, etc.

In conclusion, when structuring a multi-disciplinary practice, do not try to fit a square peg into a round hole.  Control and direction over a medical practice and patient care must stay with the licensee at all times.