Month: October, 2019

THIRD CIRCUIT CALLS wRVU COMPENSATION INTO QUESTION

Recently, the United States Court of Appeals for the Third Circuit issued a decision calling into question the work relative value unit (“wRVU”) compensation structure commonly utilized by hospitals.

In U.S. ex rel. Bookwalter v. UPMC, the University of Pittsburgh Medical Center’s (“UPMC”) subsidiary physician practice entities employed neurosurgeons who performed procedures at UPMC’s affiliated hospitals. The neurosurgeons’ employment agreements provided them with a base salary based upon an annual wRVU threshold.  If a neurosurgeon exceeded the threshold, the neurosurgeon would be paid a productivity bonus of $45.00 per wRVU.  Also, if a neurosurgeon failed to achieve the annual wRVU threshold during a contract year, UPMC had the right to reduce the physician’s future base salary accordingly.

The relators argued that the wRVU compensation structure violated the Stark Law because it was an indirect compensation arrangement that did not meet any exception under the Stark Law. There were additional allegations that the Third Circuit looked at closely.  First, it was alleged that the neurosurgeons claimed to assist on surgeries when they did not, that they billed for parts of surgeries that were never performed and that they performed medically unnecessary procedures.  Second, some of the neurosurgeons recorded wRVUs that were two to three times the 90th percentile nationally.  Third, some of the neurosurgeons were compensated at or above the 90th percentile nationally, including one whose bonus alone exceeded the 90th percentile.  The Third Circuit also noted that the neurosurgical department at UPMC was among the leaders in gross revenue nationally.

The federal government previously settled with UPMC on physician billing claims for $2.5 million, but did not intervene as to allegations of false claims on the hospital side. Below, the United States District Court for the Western District of Pennsylvania dismissed the complaint for failure to state a claim, and the relators consequently appealed to the Third Circuit.

In reversing the District Court’s decision, the Third Circuit ruled in favor of the relators adopting an interpretation of the Stark Law previously utilized by the U.S. Court of Appeals for the Fourth Circuit in U.S. ex rel. Drakeford v. Tuomey. The Third Circuit held that the relators had provided enough evidence to plausibly allege a violation of the Stark Law to allow the case to move forward to the discovery phase. The relators argued that because a neurosurgeon’s aggregate compensation varied with the volume or value of the surgeon’s referrals to UPMC’s hospitals, each time the surgeon performed a procedure at a UPMC hospital, the surgeon generated a referral for the associated hospital services that could potentially constitute a violation of the Stark Law.

The Third Circuit also noted that in some instances, the compensation paid exceeded collections received by UPMC and, in fact, in other instances, the wRVU conversion factor exceeded what UPMC collected. The court opined that a healthcare provider would not want to pay a physician compensation for the physician’s professional services that exceeded collections unless the provider was making up the revenue in another way, namely, referrals for hospital services.

The decision in this case would appear to contradict previous guidance issued by the Centers for Medicare and Medicaid Services (“CMS”) that stated that productivity-based compensation is permitted under the Stark Law.

Given the Third Circuit’s decision that the relators pled a plausible cause of action, the case will now proceed to discovery to allow the relators to more fully develop their claims.

Hospitals should not necessarily rush to discontinue the use of the wRVU compensation model.  This decision allows the case to proceed to discovery, but is not a final decision on the merits of whether the conduct in question constituted a Stark Law violation.  Additionally, it should not be ignored that this decision contravenes CMS guidance and that any ultimate ruling would likely be rendered moot if the current proposed rule from CMS to amend the Stark Law becomes final.  Nonetheless, hospitals must be careful to ensure that all compensation is fair market value, that documentation of fair market value is clear and that commercial reasonableness in all such arrangements exists as well.  Hospitals should not hesitate to obtain opinions on commercial reasonableness.

CMS Rule Reducing Medicare Payments for Off-Campus Hospital Based Clinics Vacated

In November 2018, the Centers for Medicare & Medicaid Services (“CMS”) issued a final rule (the “Rule”) reducing payments for evaluation and management services provided at off-campus hospital based clinics, to the same rates as when provided in a physician’s office.  The Rule, which CMS described as a method to control what it viewed as unnecessary increases in the volume of outpatient services at off-campus hospital based clinics, became effective on January 1, 2019.

Prior to adoption, the Rule went through the formal notice-and-comment rulemaking process during which CMS received nearly 3,000 comments. Many of the comments suggested that CMS lacked statutory authority to implement the Rule.  CMS considered and rejected those arguments.

Almost immediately following the publishing of the Rule, the American Hospital Association, the Association of American Medical Colleges and various hospital systems from across the country filed suit seeking to vacate the Rule.  The suit was filed in the United States District Court for the District of Columbia and was captioned The American Hospital Association, et al. v. Azar, Case No. 1:18-CV-2841.

The plaintiffs in the case argued that, pursuant to 42 U.S.C. § 1396l(t)(9)(A)-(B), if CMS wanted to reduce payment rates for a particular outpatient service, it should have changed the relative payment weights and adjustments through the annual review process in a budget neutral manner. The Rule did not take budget neutrality into account.

Conversely, CMS argued that it has authority to develop a “method” for controlling unnecessary increases in volume under 42 U.S.C. § 1396l(t)(2)(F), without regard for budget neutrality. CMS further argued that the term “method” is not explicitly defined in the statute, that its approach satisfied the generic definitions of the term and deference should be given to that approach.

The plaintiffs moved for summary judgment, and the Court addressed these issues in its September 17, 2019 opinion.  Therein, the Court reviewed the context of the statutory reference to “method” and found “[t]hat context does not make clear what a ‘method’ is, but it does make clear what a ‘method’ is not:  it is not a price setting tool, and the government’s effort to wield it in such a manner is manifestly inconsistent with the statutory scheme.”  Thus, the Court found the Rule was ultra vires, vacated the applicable portions of the Rule and remanded the matter for further proceedings consistent with its opinion.

While the decision certainly benefits hospital systems across the country, this battle appears to be far from over.  Since the issuing of the Court’s opinion, CMS has filed a motion to modify the order to a remand without vacatur, or in the alternative, for the Court to stay the portion of its order vacating the Rule for sixty days to allow the Solicitor General time to determine whether to authorize an appeal.  That appeal is likely to be filed and the battle will wage on.

New Jersey Supreme Court Plows the Field for Implementation of the Medical Aid in Dying for the Terminally Ill Act

This post is intended to update our prior article printed in the summer edition of Garden State Focus, where we wrote about the newly enacted Medical Aid in Dying for the Terminally Ill Act (the “Act”).

The Act “permits qualified terminally ill patient[s] to self-administer medication to end [their] live[s] in [a] humane and dignified manner.”  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,” with a life expectancy of six months or less.   Qualified patients choosing to exercise their rights under the 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 to the voluntariness of the patient’s request.  With the passage of the Act, New Jersey became the eighth state in the country to allow competent, terminally-ill adults to exercise their “right to die.”

The Act was set to go into effect on August 1, 2019 when Yosef Glassman, a medical doctor, filed an order to show cause and verified complaint seeking to enjoin the implementation of the Act. Dr. Glassman’s eleven-count verified complaint alleged that the Act violated: (1) “the fundamental right to defend life”; (2) the equal protection clauses of the state and federal constitutions and the Fifth Amendment’s right to due process; (3) religious physicians’ and religious pharmacists’ First Amendment rights under the United States Constitution; (4) the “canon of common law” which prohibits killing oneself and aiding and abetting another’s death; (5) state and federal law prohibiting the felonious possession of narcotics; (6) a physician’s right to practice medicine and a pharmacist’s right to practice pharmacy by involving unwilling participants “to be involved in the machinery of death”; (7) the duty to warn; (8) the Administrative Procedure Act by failing to promulgate rulemaking, “thereby rendering its entire process of death wholly and dangerously unregulated, leaving ambiguities and contradiction in statutory language”; (9) Article Ten of the United States Constitution forbidding the institution of state action that impairs existing contracts between physicians and their patients; and (10) a physician’s obligation not to falsify records. Finally, Dr. Glassman sought declaratory relief deeming the Act unconstitutional and invalid.

 On August 14, 2019, the Chancery Court entered an order preliminarily enjoining the enforcement of the Act, concluding that the failure to promulgate regulations would cause Dr. Glassman “immediate and irreparable injury” based on the significant change in the law when “dealing with individuals who are terminally ill.” That preliminary injunction held in abeyance the effective date of the Act.

At the behest of the State Attorney General to dissolve the preliminary injunction, the Appellate Division ordered expedited briefing, to be completed by August 23, 2019, but declined to dissolve the injunction. On August 20, 2019, the New Jersey Supreme Court entered an order denying the Attorney General’s request to dissolve the preliminary injunction and declined to take any further action concerning “an issue of this magnitude” until the Appellate Division addressed the issue with “thoughtful consideration.” The Supreme Court also requested the Appellate Division to “resolve the matter expeditiously.”

Dr. Glassman raised a number of hard-hitting arguments attacking the lack of standards in the Act and potential disparate impacts on terminally ill patients. He argued that the Act:

  • Sets forth no age or literacy qualifications for witnesses of a request for medication;
  • Permits witnesses to make viatical agreements or will provisions immediately after witnessing a terminally ill patient’s request;
  • Sets forth no due diligence requirements for attending physicians to verify witness signatures;
  • Does not disqualify physicians who determine a terminally ill patient’s capacity by virtue of being a blood relative or beneficiary in a will;
  • Permits an employee or director of a facility in which a patient resides to witness a request;
  • Does not require that a check be made of the Prescription Monitoring Program before writing a prescription for a lethal drug;
  • Permits life or medical insurance agents, or insurance beneficiaries to be a witness to the terminally ill patient’s request;
  • Does not recognize the lack of uniformity in lethal medications which may involve varying degrees of pain and suffering;
  • Does not recognize that non-specialist health care professionals might apply different standards for decision-making capacity;
  • Does not recognize the potential disparate treatment of patients based on economic status and ability to pay for costly lethal pharmaceuticals;
  • Does not recognize that some medications are faster-acting than others; and
  • Does not recognize that terminally ill patients may be of sound mind when they make the request for medication, but may later become incompetent at the time of administration.

Finding that the Chancery Court “abused its discretion in awarding preliminary injunctive relief,” on August 23, 2019, the Appellate Division dissolved the restraints imposed in the Chancery Court’s August 14, 2019 order. In doing so, the Appellate Division applied the well-settled standards for injunctive relief set forth in Crowe v. DeGioia, 90 N.J. 126 (1982). First, the Court found that Dr. Glassman failed to establish that injunctive relief was necessary to prevent irreparable harm. The only harm identified, said the Court, was the Executive Branch’s failure to adopt enabling regulations, but there was no showing that the absence of such regulations harmed Dr. Glassman. At that point, no party had sought medical advice or assistance from Dr. Glassman to implement any provision in the Act. Other than a blanket assertion that there was a “material change in the law” regarding terminally ill patients, neither Dr. Glassman nor the Chancery Court identified a single provision of the Act that lacked clarity necessary for a patient or any affected individual or entity to effectuate the Act’s purpose. Moreover, the Act makes participation by physicians like Dr. Glassman entirely voluntary. “The only requirement the Act imposes on health care providers who, based upon religious or other moral bases, voluntarily decide not to treat a fully-informed, terminally-ill patient interested in ending their lives, is to transfer any medical records to the new provider selected by the patient.” Characterizing the transfer of medical records from one physician to another as a purely “administrative function,” the Appellate Division found that function to have no constitutional import, nor did it run contrary to a physician’s professional obligations.

Second, Dr. Glassman failed to demonstrate that he had a likelihood of succeeding on the merits of the claims he asserted in his complaint. The Appellate Division disagreed with the Chancery Judge’s conclusion that an injunction was necessary because the Executive Branch failed to implement enabling regulations prior to the Act’s effective date, finding that ruling to be contrary to the clear, plain and unambiguous language of the Act. Pointing out that the Act permitted but did not require the relevant administrative agencies with a vested interest in the Act’s implementation to adopt regulations, the Appellate Division stated, “[h]ad the Legislature intended the Act to remain in a period of perpetual quiescence, thereby keeping all interested parties in limbo until a half-dozen administrative bodies decided to engage in their rule-making functions, it could have clearly said so.” In fact, the “absence of agency action here,” said the Court, “may imply . . . that regulations were not necessary to implement the Act.” Further, the Court found that Dr. Glassman did not have standing to assert claims on behalf of other physicians, patients or interested family members. In addition, his claims ignore the voluntary nature of his participation under the Act and his “already existing obligation under relevant regulations to provide a patient with his or her medical records.”

Finally, the Appellate Division weighed the relative hardships that granting injunctive relief would have on the parties and concluded that the Chancery Court failed to adequately consider “the interests of qualified terminally-ill patients, who the Legislature determined have clearly prescribed rights to end their lives consistent with the Act.” Consequently, the Appellate Division dissolved the preliminary injunction.

By order entered on August 27, 2019, the New Jersey Supreme Court likewise found that Dr. Glassman failed to satisfy the Crowe v. DeGioia standards for emergent injunctive relief and determined that the Act could be implemented without further delay. By doing so, the New Jersey Supreme Court has averted a head-on collision between the Medical Aid in Dying for the Terminally Ill Act and the State and Federal Constitutions – at least for the moment…