NEW YORK REAFFIRMS THAT THE CORPORATE PRACTICE OF MEDICINE DOCTRINE IS ALIVE AND KICKING

by Glenn P. Prives

The New York Court of Appeals recently issued an opinion on the State of New York’s corporate practice of medicine prohibition, holding that medical practices that give too much operational and financial control to Management Service Organizations (“MSOs”) are “fraudulently incorporated” and thus, no-fault automobile insurers have no obligation to reimburse such practices.

In the case of Andrew Carothers, M.D., P.C. v. Progressive Insurance Company 2019 N.Y. Slip Op. 04643, a MSO provided management services to a New York professional corporation that performed magnetic resonance imaging services. Several no-fault automobile insurance carriers stopped paying the practice’s no-fault claims claiming that the practice was fraudulently incorporated, and in response, the practice sued the insurance carriers for non-payment of the insurance claims. A jury found that the owners of the MSO controlled the practice, and that the practice was fraudulently incorporated such that the insurance companies could rightfully deny payment of claims.

The Court of Appeals agreed with the jury and found that, due to certain terms of the MSO arrangement, the practice ceded control of the practice to the MSO. In making its determination, the court pointed to several aspects of the arrangement including:  (i) the MSO leased equipment to the practice at above fair market value; (ii) the licensed physician had a limited role in the clinical and administrative aspects of the practice; (iii) the executive secretary of the practice with ties to the owners of the MSO ran certain clinical aspects of the practice including the discipline of providers and the handling of physician referrals to the practice; and (iv) the MSO had the right to terminate each lease without cause, regardless of payment, however no similar provision allowed the practice to terminate the leases without cause.  The court stated that “[a] material breach of the foundational rule for professional corporation licensure—namely that it be controlled by licensed professionals—[is] enough to render [that party] ineligible for reimbursement.” See Slip Op at 16. While the holding of this case is limited in scope to no-fault insurance reimbursement, the court’s examination of the relationship between the MSO and the practice is an indication that New York courts will continue to closely monitor these MSO-practice relationships to ensure that the spirit of the corporate practice of medicine remains intact.

New York’s Business Corporation Law prevents unlicensed persons from exercising control of professional corporations.  All shareholders, officers, and directors must be licensed in the profession the entity is being incorporated to practice.  Ceding too much control to non-physicians violates the Business Corporation Law.  Similar concepts apply to professional limited liability companies.

This decision does not mean that medical practices or other professional entities in New York cannot enter into arrangements with MSOs.  Instead, the decision reaffirms that these arrangements must be carefully crafted and implemented and operated with care to stay within the bounds of the law.

Dying with Dignity in New Jersey: New Jersey’s Aid in Dying for the Terminally Ill Act

by Melissa Miele Bracuti

New Jersey residents should be aware that on August 1, 2019, New Jersey’s Aid in Dying for the Terminally Ill Act went into effect.  The Aid in Dying for the Terminally Ill Act permits qualified terminally ill patients to self-administer medication to end their life in a humane and dignified manner. Both patients and physicians are protected by several safeguards built into the recently enacted New Jersey statute.

The patient must be a New Jersey resident who is at least 18 years of age and can document his or her residency with a driver’s license or identification card issued by the New Jersey Motor Vehicle Commission; a New Jersey resident gross income tax return filed for the most recent year; or other government record that demonstrates residency. The patient must be able to communicate health care decisions and be capable of making informed decisions. The patient’s attending physician and consulting physician will make the determination regarding a patient’s mental capacity.  Finally, the patient must be terminally ill, as defined in the statute. If a patient is in the terminal stage of an irreversibly fatal illness, disease, or condition with a prognosis, based upon reasonable medical certainty, of a life expectancy of six months or less, he or she will be considered “terminally ill” under the statute.

Some of the requirements for the attending physician include: (i) examining the patient and confirming that the patient is terminally ill; (ii) informing the patient of the feasible alternatives to taking the life-ending medication, including, but not limited to: concurrent or additional treatment opportunities, palliative care, comfort care, hospice care and pain control; (iii) referring the patient to a consulting physician for medical confirmation of the diagnosis and prognosis and a determination that the patient is capable of decision-making and is acting voluntarily; (iv) referring the patient to counseling with a mental health care professional; and (v) recommending the patient participate in consultation regarding the alternatives to self-administering the life-ending medication. 

Prior to providing a prescription for the medication, the physician is required to recommend that the patient notify their next of kin. Whether the patient decides to withhold notice to their next of kin is left entirely up to the patient. The patient must make two oral requests and one valid written request, in the written form set forth in the statute, to their attending physician to receive a prescription for the life-ending medication.

The State of New Jersey is now the 8th state in the United States to enact a compassionate death with dignity statute. Presently, each of California, Colorado, District of Columbia, Hawaii, New Jersey, Maine (will be effective in September 2019), Oregon, Vermont, and Washington have death with dignity statutes. The State of Montana relies on case law to permit physician-assisted deaths.

Should you wish to receive additional information, or if you have any questions relating to this topic, we invite you to contact our firm’s Private Clients Services and/or Health Care Practice Groups for further discussion.

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Recognized Complications of Treatment and Informed Consent – An Update

by John Zen Jackson

In a December 18, 2018 posting in this blog, the recent oral argument before the Pennsylvania Supreme Court in the case of Mitchell v. Shikora regarding exclusion of evidence of risks and complications of a surgical procedure was highlighted.  On June 18, 2019, a divided Pennsylvania Supreme Court filed its decision, 2019 WL 2504475, reversing the decision of the intermediate appellate Superior Court[1] which would exclude such evidence and reinstating the judgment entered on the jury verdict in favor of the defendant. The opinion helpfully illustrates how risk information can be presented at trial in support of a defense that the adverse outcome was a known complication of the procedure and not the result of negligence.

            The factual context of the case arose from a laparoscopic hysterectomy performed in 2016.  The operation began with the physician making an incision into the patient’s abdomen.  In the course of proceeding to separate the layers of tissue, the attending obstetrician-gynecologist detected fecal odor and realized the woman’s colon had been cut.  He discontinued the hysterectomy procedure and called for a general surgeon to evaluate the patient and promptly perform an operation to repair the bowel injury.  This was done with an emergency loop ileostomy during which a portion of the patient’s bowel was brought to the surface and connected to an external pouch.  The patient wore the colostomy bag for an unspecified time.

            In the opinion for the court, Justice Todd reiterated fundamental components of medical liability law.  She noted that ordinarily, a physician did not guarantee the result of treatment and that there was no presumption or inference of negligence merely because a medical procedure resulted in an unfortunate or adverse outcome.  “Indeed, the idea that complications may arise through no negligence of a physician is so ingrained in our jurisprudence that it is often included as part of the instructions to the jury.”  She emphasized, however, that an action for lack of informed consent as to possible risks and outcomes was distinct from a claim of medical negligence.  The justice emphasized a proposition that is widely accepted and had been adopted in the unanimous prior decision of Brady v. Urbas, 111 A.3d 1155 (Pa. 2015), that admitting evidence that a patient had been informed of certain risks in a pure negligence action could erroneously suggest to the jury that the patient consented to negligent care and could confuse the jury and cause it to stray from assessing the central question of whether the physician’s actions conformed to the applicable standard of care.  Nonetheless, evidence of risks and complications was properly admitted elucidating the standard of care issues.

Determining what constitutes the standard of care is complicated, involving considerations of anatomy and medical procedures, and attention to a procedure’s risks and benefits. Further, a range of conduct may fall within the standard of care. While evidence that a specific injury is a known risk or complication does not definitively establish or disprove negligence, it is axiomatic that complications may arise even in the absence of negligence. We emphasize that “[t]he art of healing frequently calls for a balancing of risks and dangers to a patient. Consequently, if injury results from the course adopted, where no negligence or fault is present, liability should not be imposed upon the institution or agency actually seeking to assist the patient.” …. As a result, risks and complications evidence may clarify the applicable standard of care, and may be essential to provide, in this area, a complete picture of that standard, as well as whether such standard was breached. Stated another way, risks and complications evidence may assist the jury in determining whether the harm suffered was more or less likely to be the result of negligence. Therefore, it may aid the jury in determining both the standard of care and whether the physician’s conduct deviated from the standard of care.

The court concluded that the testimony of the defense expert went beyond the specific injury and included the conduct of the physician and the circumstances surrounding that conduct to allow an evaluation of whether the defendant had met the standard of care and the reasons why the injury could occur in the absence of negligence.  This testimony provides a fine example of an expert providing the “whys and wherefores” that New Jersey courts have so frequently identified as essential to sustain expert testimony against a charge of being an inadmissible net opinion.[2]  It quoted this testimony at some length:

I think that really the only place in this case where one can find fault is in the initial incision into the abdomen, and during that incision is the one time during the surgery — I think you have seen pictures of how narrow a site you are going down — it is the one time in the surgery when you are making an incision into a space where you can’t really see where you are going.

You know, you are cutting through tissue that occasionally you can see through it, but very often you can’t see through it at all. Everybody is very different. Most of the time, especially going through a little incision, the more fat, the deeper the longer that incision is. That initial incision, I’ve done over 8,000 case[s] and every time I make that incision, I hold my breath[ ] because you never know 100 percent that that is going to be okay. I feel much better once you are inside and seeing, but that initial incision is when you can’t be sure.

The benefit of doing it that way is that the patient will recover faster, have less pain, sort of both the surgeons and patients are happy to take that risk because it is going to benefit them in the long run; but there is going to be those times where that incision is going to cause a problem like in this case.

Half the time that doesn’t work, half the time you just have to make sure you are pulling up the thinnest amount of tissue you possibly can after you make that cut and you are hoping that there isn’t anything on the other side.

I mean there’s always something behind the peritoneum there. There’s not like there is free space. There’s not gas in your abdomen naturally. There’s always bowel, there’s always something right on the other side of that, whether it is large intestine or small intestine. It is always an incision where there can be injury.

            It also noted this exchange during cross-examination:

Q. [Mitchell’s Counsel] I see. And, doctor, as far as the literature is concerned — well, strike that. I think you had indicated in your report that the injury that Miss Mitchell sustained was unavoidable. That’s what you said?

A. Correct.

Q. If it was unavoidable it would happen every time, wouldn’t it?

A. No.

Q. Well, I don’t understand if it is unavoidable, wouldn’t it happen every time?

A. Not necessarily. It is unavoidable in the sense that he did everything he could to avoid it, yet it still happened, so, therefore, it was unavoidable.

            In contrast, in her concurring and dissenting opinion, Justice Donohue had a different perception of this evidence: “Informing the jury that a particular injury is one that can occur during the procedure does not make it more or less likely that the injury occurred as a result of the doctor’s negligence, rendering it entirely irrelevant.”  She also emphasized that the plaintiff’s expert had identified “a crucial step” of transvisualization of the abdomen before making the cut that had not been done by the defendant.  While the defense expert acknowledged that there was no evidence that the operating surgeons had transvisualized the peritoneum before making the cut, he denied that this step was required by the standard of care.  Justice Donohue distilled the defense expert’s testimony to the following: if transvisualization is not possible (or simply not done), proceed with caution and hope for the best.  She framed the issue for the jury as whether transvisualization was required by the standard of care or not. “If so, the failure to do so was negligent; if not, it was not. These questions should have been decided exclusively on this evidence of what was expected of the surgeon in this case.”  

            There was another separate opinion in Mitchell with Justice Wechtconcurring in the result but highlighting four areas of concern.  These included an emphasis on the “imperative that judges carefully police the line between evidence of consent and evidence of risks and complications” and the exclusion of any possible use of the informed consent form that had been signed by the patient even if limited to reading the possible complications set forth in it.  He also noted that studies or literature should not be admissible “if they do not distinguish between complications that occurred as a result of negligence and those that resulted from some other cause.”  He agreed with the majority’s conclusion that this objection went to the weight rather than the admissibility of this evidence and that the parties should have the opportunity to challenge the studies in a Frye hearing.[3]    He ended with his opinion commenting on the inclusion in one submission of a report that had labeled Philadelphia as “The City of Unbrotherly Torts” and putting that city and its courts on a list of “Judicial Hellholes.”  In an admonition to those filing amicus brief, he wrote:

While amici, like parties, are free (and indeed duty-bound) to engage in zealous advocacy, it seems imprudent to rely for such advocacy upon unduly caustic or inflammatory materials that insult or cast aspersions upon the judicial system itself, or upon its component parts. Those filing briefs as friends of the court should consider this as they engage in their important work of informing and enriching the perspectives available to appellate jurists as the latter perform their jurisprudential duties.


[1]  In the blog piece, the citation for the intermediate opinion was stated incorrectly.  The correct citation is 161 A.3d 970 (Pa. Super. 2017).

[2]  The “why and wherefore” or “whys and wherefores” epigram can be found repeatedly in published and unpublished opinions.  However, the more expressive catchphrase would be the “why and therefore” for communicating the basis for the expert’s conclusion.

[3]  Pennsylvania has declined to adopt the standards for expert testimony developed in Daubert v. Merrill Dow and adheres to the test promulgated in Frye v. United States, 293 F. 1013 (D.C. Cir. 1923).  Betz v. Pneumo Abex, LLC, 44 A.3d 27, 53 (Pa. 2012).

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Legislation to Increase Financial Resources Provided through New Jersey Medicaid Program and to Establish County Option Hospital Fee Pilot Program Quietly Took Effect in April

by Parampreet Singh

On April 30, 2019, N.J.S.A. 30:4D-7r et seq., the County Option Hospital Fee Pilot Program Act (“Act”) establishing the County Option Hospital Fee Pilot Program (the “Pilot Program”), went into effect.  The bill was sponsored by Senators Joseph F. Vitale and M. Teresa Ruiz, and Assemblyman Craig J. Coughlin.  Governor Phil Murphy signed the bill on November 1, 2018.    

The Act creates a pilot program which will be overseen by the Commissioner of the New Jersey Department of Human Services (“DHS”).  The Act will initially allow seven qualified counties to participate in the Pilot Program, and grant them the authority to “impose a local health-care related fee on hospitals.”  The stated purpose of the Pilot Program is “to increase financial resources through the Medicaid program to support local hospitals and to ensure that they continue to provide necessary services to low-income citizens; and to provide participating counties with new fiscal resources.” 

In order to qualify for the Pilot Program, a county must have “a population greater than 250,000,” based on the most current federal census data available as of the effective date of the Act, with a municipality that is classified as a first or second class municipality, or a fourth class municipality with a population greater than 20,000, pursuant to N.J.S.A. 40A:6-4.  Furthermore, the municipality must have a Municipal Revitalization score greater than sixty, based on the New Jersey Department of Community Affairs’ calculations. 

Participating counties must submit proposed fees and expenditure reports to the Commissioner to ensure compliance with state and federal law.  Prior to submitting the fees and expenditure reports, the counties are required to “consult with affected hospitals within” their jurisdictions.  After submission, the Commissioner shall provide affected hospitals with twenty-one calendar days to provide comments.  The proposed fees must be “implemented in accordance with the provisions of 42 U.S.C.A. 1396b(w)(3)(A),” and subject to the limitations of 42 C.F.R. 433.68(f)(3).  42 U.S.C.A. 1396b(w)(3)(A) outlines the requirements for a fee to qualify as a “health care related tax,” and requires at least eighty-five percent of the burden of the tax to fall on health care providers.  42 C.F.R. 433.68(f)(3) sets forth the conditions under which a taxpayer will be considered to be held harmless. 

Additionally, a county may exempt a specific hospital from within its jurisdiction from the imposed fee, as long as “the exemption complies with the requirements of 42 C.F.R. 433.68.”  Furthermore, at least ninety percent of the funds collected must be used to benefit hospitals within the collecting county’s jurisdiction, and at least one percent of the fee must be transferred to DHS to cover administrative costs.  The Act is silent with respect to how the remaining nine percent of the collected funds can be utilized. 

The Act explicitly prohibits affected hospitals from passing on the costs of the fee to patients or insurers.  Notably, the Act acknowledges that “funds generated by the fee shall not supplant or offset any current or future State funds allocated to a county participating in the pilot program” and “payments distributed to hospitals . . . shall not supplant or offset any current or future funds paid to hospitals through other State or federal funding mechanisms or pools.”

Based on the requirements set forth in the Act, the counties most likely to be eligible for the Pilot Program are: Atlantic, Burlington, Camden, Gloucester, Essex, Hudson, Mercer, Middlesex, Monmouth, and Passaic.  According to Senator Vitale, “while Medicaid is the safety net that prevents low-income New Jerseyans from falling through the cracks, hospitals need to be well-funded and supported to properly deliver expert care to the community they serve.”  Furthermore, Senator Vitale believes the “pilot program will expand the resources for Medicaid and funnel funds into those facilities that ensure the disadvantaged continue to receive the quality care they need.”

It will be interesting to monitor the health care community and county legislators’ reactions to the actual implementation of this Act.  On the one hand, only seven out of ten potentially eligible counties will be authorized to participate in the Pilot Program, leaving at least three, if not more, counties unable to impose health-care related fees on hospitals within their jurisdictions to raise funds like their sister counties.  On the other hand, hospitals in seven counties will be subject to additional financial burdens, unlike the hospitals in the remaining fourteen counties not qualified or chosen for the Pilot Program.  Furthermore, the Act’s silence with respect to the remaining nine percent of the funds collected through the Pilot Program (requiring at least ninety percent to be distributed to hospitals within a county’s jurisdiction and at least one percent to be transferred to DHS for administrative costs) may become a point of contention for hospitals and counties alike.

DOH MEDICAL MARIJUANA EXPANSION SET FOR COLLISION COURSE WITH THE LEGISLATURE

by Fruqan Mouzon

These days we are reminded daily of the growing pervasiveness of the combat sport affectionately known as Trenton Politics.   These high level and demonstrably public squabbles include, but are most-assuredly not limited to, whether to impose additional taxes on those making over seven figures, the extent to which the identity of donors to so-called “dark money” groups should be disclosed, and whether the state should reduce spending on public employee benefits. Also tied up in the overtly quarrelsome atmosphere of Trenton politics is how to expand New Jersey’s Medical Marijuana Program to cover a shortening supply. 

Despite having previously kept the medical marijuana legislation closely tied to recreational use and liberal social justice reforms, the Legislature has recently agreed to remove the tether and allow these issues to be considered separately.  It endeavored to quickly move the medical marijuana legislation through both houses, and allow the public to vote on legalization for recreational use. 

The resulting bill is comprehensive.  Notably, the legislation calls for the creation of a five-member Cannabis Regulatory Commission in, but not of, the Department of Treasury.  This Commission would be charged with overseeing the licensing and regulation of cannabis for patients with diagnosed illnesses such as opioid use disorder, glaucoma, anxiety, inflammatory bowel disease, Tourette’s syndrome, post-traumatic stress disorder (PTSD), multiple sclerosis, muscular dystrophy and others. The bill establishes an Office of Minority, Disabled Veterans, and Women Medical Cannabis Business Development and contains an aspirational goal of having 30% of the market participants consist of members of those groups.  It also would make it unlawful to discriminate against medical marijuana prescription holders in employment, housing, education, and child custody.  Further, the bill sets clear testing standards for medical cannabis and cannabis products and requires the Commission to provide an annual report to the Governor and Legislature detailing, among other things, the number of applications received, the number of applications rejected, motor vehicle stops related to marijuana and statistics on the racial, gender, ethnic and age breakdown of those who continue to be arrested for marijuana offenses.      

After several technical amendments, the bill passed the Senate on May 30th.  The Assembly is set to vote on the bill Monday, June 10th and, by all indications, will pass it by a large margin.  It could therefore be on the Governor’s desk for his consideration as early as that same day.  The Governor and the Department of Health (DOH), however, chose not to wait until the bill made it through the Legislature before responding to the legislative initiative.  Rather than wait the extra week, on June 3rd, the DOH issued a Request for Applications (RFA) announcing plans to begin accepting applications on July 1st for thirty-eight new medical cannabis establishments in North Jersey, the same number in Central Jersey and thirty-two in the Southern part of the State.

Obviously, the DOH could not condense a massive 130-page piece of legislation into a 12-page RFA.  The question thus becomes: does the Governor go along with the clearly well-thought out plan of the Legislature and sign the bill or does he go it alone?   Will this bill just become yet another pawn in the chess match underway between the Governor and the Legislature?  And, if the Governor decides NOT to sign the bill, does the Legislature have the political will to muster up 27 votes in the Senate and 54 votes in the Assembly and override the veto?  Some would say, if there was ever an occasion for the Legislature to override the Governor, it is when the question before them is whether to allow the Governor to ignore their work.  

Weighing in favor of the Governor taking out his pen and affixing his John Hancock is the fact there are several provisions not mentioned in the RFA but included in the legislation that would be very attractive politically.   For example, the creation of an Office of Minority, Disabled Veterans, and Women Business Development along with the goal of having 30% of the permits awarded to disadvantaged groups will be difficult for the Governor to disregard. Also, the annual reports, testing standards and sheer comprehensive nature of the legislation may very well encourage the Governor to choose cooperation.

However, some Trenton insiders think the Governor would be inclined to veto the bill – choosing to favor having full power of the program in the hands of the Department of Health, rather than in an independent Commission with five members (two of which will be appointed by Legislative leaders Sweeney and Coughlin).  Still yet, might the Governor postpone his action and use consideration of this bill as leverage to encourage legislative approval of the millionaire’s tax? 

Signature, veto, and override are all possible.  Drama, however, is certain.   

Stay tuned.

NEW JERSEY SEEKS TO EXPAND MEDICAL MARIJUANA PROGRAM

by Paul L. Croce

After the New Jersey Legislature was unable to come to an agreement on the terms of a bill to legalize recreational marijuana, they have refocused their efforts to greatly expand New Jersey’s current medical marijuana program.

On May 23, 2019, the New Jersey Assembly overwhelmingly passed the “Jake Honig Compassionate Use Medical Cannabis Act” by a vote of 65-5.  The bill, if ultimately adopted by the New Jersey Senate and Governor, would greatly increase patient access to medical marijuana.  Key elements of the bill include expanding the number of permits for medical marijuana businesses, increasing the limits on the amount of medical marijuana a patient can purchase, limiting the number of appointments a patient must have with a physician before a formal recommendation for medical marijuana treatment and expanding the methods by which patients can obtain medical marijuana.

Under the bill, the number of permits for medical marijuana businesses would be increased from twelve to twenty-three. Additionally, it would break up the permitting system to allow businesses to seek permits for only one aspect of the medical marijuana business such as retail sales, growing or manufacturing.  Under the current system, businesses are required to engage in all aspects of the market including growing, packaging, processing and sales.

The amount of medical marijuana patients are permitted to purchase would also be increased from two to three ounces per month.  The bill would also eliminate the requirement that the patient have at least a year long history of regular visits with the prescribing physician, prior to a recommendation for medical marijuana treatment. Patients and advocates had previously criticized these limitations arguing they prevented or delayed certain patients from obtaining access to needed medication.

The bill also increases access for patients who may be unable to travel to a dispensary to pick up their medication by permitting deliveries and increases the number of designated caregivers who can pick up a patient’s medication from one to two.

Under the new bill, a five-member Cannabis Regulatory Commission (the “Commission”) in the New Jersey Department of Treasury would be set up to assume the oversight and regulatory powers previously designated to the New Jersey Department of Health (the “DOH”).  The Commission would include at least one “social justice” member representative from a national organization with a “stated mission of studying, advocating, or adjudicating against minority historical oppression, past and present discrimination, unemployment, poverty and income inequality, and other forms of social injustice or inequality.”

Other aspects of the proposed bill include a sales tax of 6.625% to be phased out on January 1, 2025, authorizing municipalities with a dispensary within their borders to impose a 2% transfer tax, permitting municipalities to enact ordinances creating consumption areas for patients, authorizing physician assistants and some advanced-practice nurses to recommend medical marijuana treatment, and permitting patients who have received medical marijuana cards in other states to receive their medication in New Jersey for a period of up to six months.

The bill passed the Senate on May 29, 2019 by a vote of 33-4.  However, the Senate’s bill included a last minute amendment which would allow cannabis industry employees to unionize.  Accordingly, the Assembly must re-vote on the amended bill before it is presented to the Governor for final approval.  That vote may come as soon as June 10, 2019.

The Governor has not indicated whether he would sign the bill in its current form.  However, the DOH, on June 3, 2019, announced plans to begin accepting applications for 108 new medical marijuana businesses.  That number contradicts, and is significantly higher, than that in the proposed legislation.  Under the DOH’s plan, the new licenses would be split by regions with thirty-eight licenses each in the North and Central Regions and thirty-two in the Southern Region.  The DOH indicated it wishes to see these licenses result in twenty-four new growers, thirty new processors and fifty-four new retailers.

It is clear New Jersey is ready to expand its medical marijuana program.  However, given the separate, and somewhat conflicting, efforts to do so, it remains unclear exactly what the final terms of that expansion will be.

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Is a Supergroup the Right Fit For You?

by Glenn P. Prives

As it gets harder and harder out there for an independent physician or a small, unaligned physician practice to survive, supergroups or group practices without walls continue to gain in popularity.  A supergroup is a group of physicians or physician practices coming together under a single employer identification number in the organization of a single legal entity.  Some supergroups focus on one specialty while others are multi-specialty.

Like everything in life, there are pros and cons to supergroups and whether or not a particular attribute is a pro or a con may vary from physician to physician.  This post reviews some of the most important advantages and disadvantages.

Pros

Supergroups allow physicians to share, and reduce, expenses.  This is most often done in the context of consolidating back office functions and non-clinical staff.  Sharing non-clinical staff can allow physicians to build a more sophisticated administrative operation and pool their resources to hire more experienced staff and executives.  It also generally allows physicians to further divest themselves from involvement in administrative services and focus more on clinical care, an aim of many physicians.  Moreover, physicians can utilize the existence of a centralized administrative office to reduce the amount of space that they lease in their individual offices.  Physicians can also gain greater power to negotiate with suppliers and purchase more supplies in bulk thereby saving more money.

Supergroups are generally, by their nature, large groups (hence the term “super”).  In this day and age, more physicians can translate into better leverage with payors which can translate into higher reimbursement rates.

Physicians can use their greater resources in a supergroup to invest in technology to keep up with the ever increasing burden of regulations and reporting systems that require extensive use of technology as well as hopefully deliver higher quality care by harnessing data.

Additionally, as reimbursement continues to plateau or decrease, many physicians are looking at ancillary revenue streams.  However, to gain a share of this revenue, generally, a not insignificant capital investment is necessary.  Supergroups, with their greater resources, are better positioned to invest this capital as well as achieve savings by purchasing equipment that can be shared by multiple physicians in the group, thereby keeping costs down.

Joining a supergroup can also allow a physician to affiliate with a hospital without giving up much in the way of independence.  There are supergroups that are managed by a health system, but which otherwise generally allow the physicians to practice as they always have been.  The health system is usually paid a fair market value management fee for the management services provided to the supergroup.  Also, the affiliation of a supergroup with a hospital may give the supergroup more leverage in negotiations with payors, thereby providing an additional benefit to its member physicians.

Being a part of a supergroup may also allow a physician to establish a channel with private equity firms.  Many physicians want to enter into deals with private equity firms, but either are too small to gain notice or do not have a sophisticated enough back-office operation in order to appear attractive.  Supergroups can work on establishing more robust administrative operations, add physicians to grow larger and then approach private equity as a more attractive target with additional negotiation power.  

Cons

Despite the relative independence of physicians and profit centers in supergroups, there will still be some loss of independence.  A physician will no longer be his or her only boss as it is inevitable that some decisions will be made by a centralized board.  The extent of those decisions does vary by group.  Even if every physician is a member of the board (not advisable), each physician will have only one vote, and one vote will not be enough to carry the day.

A clash of cultures is a possibility as well.  Different physicians and practices have different ways of doing things, and given the centralization of some aspects of the group, fights over cultures do occur from time to time.

There is also a cost in forming a supergroup.  Practices will incur expenses in coming together to form the entity, develop governing documents, contribute assets, merge benefit plans and hire new management.  While these costs will hopefully be dwarfed over time by savings and higher profit margins, this is not a guarantee.

There will also be business and legal obstacles in coming together.  Some practices may be more profitable than others.  Some may carry higher overhead than others.  Some may be more productive than others.  Additionally, Stark law compliance is paramount in forming a supergroup, particularly if there are ancillary services involved that are considered “designated health services” under the Stark law.

Forming or joining a supergroup is a big decision and can be a daunting task for physicians.  It is important to consider all of the issues involved and assess the ramifications carefully before jumping completely into the pool.

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New Jersey becomes Eighth State to Pass Death with Dignity Legislation

by Parampreet Singh

On March 25, 2019, both the New Jersey Assembly and the New Jersey Senate passed the Medical Aid in Dying for the Terminally Ill Act (the “Act”).  The final version of the bill was sponsored by Assemblyman John J. Burzichelli and Assemblyman Tim Eustace.  Governor Phil Murphy signed the bill into law on April 12, 2019 stating, “Today’s bill signing will make New Jersey the eighth state to allow terminally ill patients the dignity to make their own end-of-life decisions – including medical aid in dying.  We must give these patients the humanity, respect, and compassion they deserve.”

The Act “permits qualified terminally ill patient[s] to self-administer medication to end [their] live[s] in [a] humane and dignified manner.”  New Jersey is now only the eighth state in the country to allow competent, terminally-ill adults to exercise their “right to die.”  Under the Act, “terminally ill” is defined as a patient who “is in the terminal stage of an irreversibly fatal illness, disease, or condition with a prognosis, based upon reasonable medical certainty.” 

Furthermore, qualified patients choosing to exercise their rights under this Act will be required to submit their request in writing, stating, among other things, that they have been fully informed of any available alternatives.  Two individuals, one who must not be a relative, entitled to any portion of the patient’s estate, or the patient’s doctor, must witness and attest the voluntariness of the patient’s request. 

A “right-to-die” bill was first introduced in New Jersey in 2012.  Proponents of the Act believe it gives adults the right to control their lives, die with dignity if they so choose, and decrease their prolonged pain and suffering.  Proponents of the Act also believe that there are enough safeguards in place to protect vulnerable, elderly adults. For example, the Act requires a patient to make several requests prior to receiving a prescription.  Additionally, not all terminally-ill patients who request and receive the medication will actually end up self-administering the medication – some patients simply like having the option of requesting such medication. 

Opponents of the bill argue that once a “right-to-die” bill is passed, New Jersey will be unable to outlaw the practice.  Further, they argue that vulnerable adults may misuse the Act, while certain adults may feel pressured to end their lives, viewing themselves as burdens to their families.  A 2015 Rutgers-Eagleton poll found that sixty-three percent of New Jersey residents support the passing of a “right-to-die” bill. 

It will be interesting to monitor the effects of these statutes on physicians, psychologically and professionally.  It is debatable whether providing such medications to terminally ill patients in pain can be reconciled with a physician’s Hippocratic oath to do no harm.  It will also be interesting to see what, if any, pressure will be placed upon doctors to provide such services to patients given that many may have moral objections to administering such medications.

HHS Actually Takes Action to LOWER the Penalties For One Of Its Enforcement Laws

by John W. Kaveney

On April 29, 2019, the United States Department of Health and Human Services (“HHS”) announced in the Federal Register through a Notification of Enforcement Discretion that effective immediately, it would be exercising its discretion regarding the application of HHS regulations concerning the assessment of Civil Monetary Penalties (“CMPs”) under the Health Insurance Portability and Accountability Act (“HIPAA”) and the Health Information Technology for Economic and Clinical Health (“HITECH”) Act. Specifically, HHS has changed its uniform cumulative annual CMP limit across the four categories of culpability and replaced it with tiered annual CMP limits increasing as the categories of culpability increase in severity.

In 2009, HITECH established four tiers of culpability with increasing penalties based on increasing severity. Those categories included: (1) the person did not know (and, by exercising reasonable diligence, would not have known) that the person violated the provision; (2) the violation was due to reasonable cause, and not willful neglect; (3) the violation was due to willful neglect that is timely corrected; and (4) the violation was due to willful neglect that is not timely corrected.

At the time of enactment of the HITECH Act, discrepancies were identified in the descriptions of the penalty ranges and uncertainty existed surrounding whether the $1,500,000 annual cap on CMPs should be applied to all of the categories of culpability. In the final regulations implementing HITECH that were adopted by HHS in 2013, the $1,500,000 annual cap was confirmed by HHS to apply to all categories. And, ever since then, HHS has been issuing penalties under the following framework:

Culpability Min. Penalty per Violation Max. Penalty Per Violation Annual Limit
No Knowledge $100 $50,000 $1,500,000
Reasonable Cause $1,000 $50,000 $1,500,000
Willful Neglect  – Corrected $10,000 $50,000 $1,500,000
Willful Neglect – Not Corrected $50,000 $50,000 $1,500,000

However, in a sudden change of position, HHS’ guidance this past week states that upon further review of the statute, it believes a better reading of the statute is to provide a tiered annual limit. Thus, under HHS’ new interpretation, there are new maximum annual limits to HIPAA enforcement actions as follows:

Culpability Min. Penalty per Violation Max. Penalty Per Violation Annual Limit
No Knowledge $100 $50,000 $25,000
Reasonable Cause $1,000 $50,000 $100,000
Willful Neglect  – Corrected $10,000 $50,000 $250,000
Willful Neglect – Not Corrected $50,000 $50,000 $1,500,000

It is unclear how the “No Knowledge” category will work given that the maximum penalty per violation remains at $50,000 while the annual limit is only $25,000. A review of the Federal Register entry from HHS confirms these to be the numbers published by HHS, and thus, until HHS offers further guidance or begins applying these new figures to specific cases, there remains some uncertainty for this category of culpability.

Nevertheless, these changes should come as welcome news to providers and business associates trusted with protected health information (“PHI”) as a penalty for a HIPAA violation can add up quickly. Thus, these new annual limits will help to curb the financial sting of a violation, especially when the provider or business associate either is genuinely unaware of the violation or takes appropriate action in response to a violation. Only time will tell whether HHS’ clarification of its reading of the statute to require lesser annual CMP penalty caps marks a general shift toward lower penalties or fewer enforcement actions overall.

In the meantime, it would be wise for providers and business associates to continue demonstrating good faith compliance efforts to try and minimize the tier of culpability within which a particular penalty falls. Only through ongoing reviews, audits and assessments of privacy policies and procedures and general compliance programs will providers and business associates remain prepared and help to mitigate the penalty of a potential HIPAA violation.  Certainly with these new tiered annual CMP caps, those that handle PHI have an even greater incentive to remain focused on effective compliance efforts.

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HHS Announces New Payment Model for EMS Services

by Megan R. George

On February 14, 2019, the United States Department of Health and Human Services (“HHS”) announced the launch of a new payment model for emergency ambulance services, Emergency Triage, Treat, and Transport (“ET3”), with the goal of allowing emergency medicine services (“EMS”) and ambulance service providers to triage and treat Medicare beneficiaries more efficiently and effectively. According to HHS Secretary Alex Azar, “this model will create a new set of incentives for emergency transport and care; ensuring patients get convenient, appropriate treatment in whatever setting makes sense for them.”

Currently, Medicare regulations only allow EMS and ambulance service providers to obtain reimbursement for services only if the patient has been transferred to a hospital (including the emergency department), a critical access hospital, a skilled nursing facility or a dialysis center. Because of this restriction, Medicare patients that have dialed 911 for a medical emergency are transported to one of the aforementioned facilities even if that patient does not require the level of care that these destinations provide. For example, if a Medicare patient has a laceration on his or her wrist, the patient would likely be transferred to the closest emergency department for sutures or in some cases, a bandage.  Under the ET3 model, EMS providers and ambulance service providers will now have greater flexibility to address the health care needs of Medicare beneficiaries requiring medical transport for a medical emergency for which they have accessed 911 services. ET3 broadens the scope under which the Centers for Medicare and Medicaid Services (“CMS”) will reimburse the transportation provider by now paying for (i) patient transfer to a hospital emergency department, (ii) patient transfer to a primary care physician office or urgent care clinic, and (iii) any treatment provided by a qualified health care practitioner in place (i.e., emergency medical technician (“EMT”)) or via telehealth. In addition, ET3 will encourage the development of telephonic triage centers for low-acuity 911 calls in regions where Medicare enrolled ambulance suppliers and providers operate in an effort to improve the quality of care and lower costs by reducing unnecessary transports to hospital emergency departments and unnecessary hospitalizations. Along with lowering the cost to the government payor, the patient who received treatment at a lower acuity facility, on scene, or through telemedicine, may also save on out-of-pocket costs that are not covered by their Medicare plan. Using the prior example, under ET3, the patient with a laceration on his or her wrist could now be treated at an urgent care facility or receive sutures from a licensed EMT or paramedic, reducing the cost and also keeping a bed open in the emergency department for higher acuity patients needing such care.

The ET3 model will be available to all Medicare-enrolled ambulance service providers and hospital-owed ambulance providers.  As part of a multi-payor alignment strategy, CMS plans to encourage ET3 model participants to partner with other payors, including state Medicaid agencies to provide the benefit of the program to those not receiving Medicare fee-for-service benefits. CMS anticipates releasing a Request for Applications (“RFA”) in Summer 2019 to solicit Medicare-enrolled ambulance suppliers and providers.  Following the RFA, in Fall 2019, a Notice of Funding Opportunity (“NOFO”) will be issued as a tool to implement the triage lines for low-acuity 911 calls. This NOFO will be available to local governments, their designees, or other entities that operate or have authority over one or more 911 dispatches in geographic locations where ambulance suppliers and providers have been selected to participate. It is anticipated that there may be up to three rounds of RFAs/NOFOs issued to stagger start dates and allow for any improvements in the ET3 model. The anticipated start date for the first participants is January, 2020.

This change in payment structure signals that CMS is recognizing alternative models of patient care, including telemedicine, as it explores ways to decrease unnecessary costs while maintaining the quality of care offered to the patient.