Month: June, 2017

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

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?

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.