A brief history of the future: Healthcare amid the pandemic

McAfee & Taft

McAfee & Taft

We want to share our perspective about various legal and regulatory issues and business challenges affecting the healthcare industry from COVID-19, along with a few anticipated changes in the legal and regulatory climate.

We are working with a variety of healthcare industry participants – particularly hospitals and health systems, physician groups, diagnostic testing facilities, long-term care facilities, medical research organizations, and health-related foundations – regarding a number of legal, regulatory, contractual, operational, business, professional, and risk management concerns that have arisen during the pandemic.

Initial client focus on COVID-19

Initially, the focus of clients’ concerns centered on issues relating to such matters as meeting patient demand, obtaining necessary supplies and equipment, cancelling patient appointments and elective procedures, adding bed capacity, providing emergency screenings, testing and treatment, assuring regulatory flexibility, workforce issues, applying for stimulus funds,  satisfying licensure requirements for previously retired and out-of-state professionals, complying with HIPAA privacy and security concerns, mandatory reporting requirements, reimbursement, and new coding.  Fairly quickly, the legal concerns changed.  New issues arose, including liability and immunity concerns, remote work arrangements for office staff, changes in business operations, telemedicine and patient scheduling changes resulting from distancing and stay-at-home orders, behavioral healthcare role of non-physician practitioners, staffing challenges with a fatigued and strained healthcare workforce, rapid testing, lost revenues, payment of rent and operational costs, and survival of struggling rural hospitals.

CMS made an early decision to accelerate payments to healthcare providers and suppliers by advancing payments in order to increase cash flow.  We advised a number of physicians and other providers about obligations with respect to the use of funds provided under this program as well as loans available under the CARES Act.

The Trump Administration took actions to assist healthcare providers in containing the spread of COVID-19 through Section 1135 waivers under the Social Security Act.  Clients were focused on specific waivers, such as waivers of EMTALA requirements and provisions that would allow hospitals to screen patients at offsite locations; verbal orders; hospital reporting requirements; patient visitation and other rights; medical staff credentialing processes; Patient Self Determination Act (advance directive) requirements; and specific requirements and conditions relating to telemedicine, anesthesia services, physicians’ services, and other requirements.

In Oklahoma, healthcare clients were attentive to Governor Stitt’s Executive Orders, including those addressing temporary licensure for out-of-state professionals and related licensure board application processes, closure of non-essential businesses, critical infrastructure, and a host of temporary measures ranging from the state medical emergency response to temporary provisions for open meetings of public bodies under the Open Meetings Act.  Additionally, the Oklahoma State Department of Health issued regulations and orders relating to hospital surge plans, annexation of beds from other facilities, and testing of residents, staff, volunteers and others working in long-term care facilities.

Coronavirus – Specific legal issues

Contracts and transactions – Force majeure and other excuses of performance.  In light of COVID-19, we undertook a review of the applicability of force majeure clauses in contracts and leases.  Force majeure provisions excuse a party from performance under a contract as a result of an unexpected event or circumstance beyond its control.  Typically, a force majeure provision defines or lists specific events that excuse performance, describe the standards to be established in order to be excused from performance of obligations, and provide any additional requirements to be satisfied.  The applicability of a force majeure provision frequently depends on the nature of the arrangement, the consequences to the parties, and other considerations.  Many clients evaluated their contractual obligations and the allocation of risk.  In situations involving contracts that were conspicuously force majeure-silent or lacking a force majeure provision, many clients increasingly sought excuses for nonperformance under alternative legal doctrines, such as frustration of purposes or impossibility or impracticability of performance resulting from an unexpected intervening event.

Personal injury and medical malpractice claims. Coronavirus-related personal injury and medical malpractice liability became a major topic of discussion with healthcare clients as Congress and the Oklahoma Legislature evaluated bills to provide limited immunity to healthcare providers, employers, and others.  Clients sought a clear understanding of the scope of the immunity protections, the standard applicable to grossly negligent conduct or willful misconduct, and concerns about failing to make reasonable efforts to comply with applicable public health guidelines.  Additionally, healthcare industry clients were interested in understanding the limitations on damages, such as pain and suffering, punitive damages, and caps on damages.

Healthcare business transactions.  Healthcare industry business transactions were in many cases deferred, delayed, restructured, abandoned, discontinued or terminated.  Healthcare providers, and particularly physicians, restructured loans with financial institutions to defer and extend payments, extend maturity dates, reduce collateral requirements, in some cases waive existing defaults, and eliminate or soften financial covenants.  Several healthcare providers walked away from business acquisitions and affiliation arrangements due to lack of capital, inability to obtain needed financing, or other business-related concerns.  M&A activity also declined because of the anticipated increase in the number of business failures.  Operationally, a number of healthcare providers renegotiated payment terms and contractual arrangements with vendors, suppliers, and landlords.  In some instances, due to a decline in patient volume, some physicians and hospitals closed satellite clinics.

Workforce financial concerns in light of COVID.  During the past decade, healthcare providers have seen continuous reductions in reimbursement rates, which in many instances created financial concerns.  The pandemic intensified financial anxieties by creating staffing and workforce challenges, increased operating costs, reduced revenues from cancellation of elective procedures, cancelled patient visits, low patient census, regulatory compliance issues, personal burdens and strains on staff, and financial distress.  With concerns about loss of patient volume and cancellation of procedures, healthcare providers and managers focused their attention on cost reductions, elimination of waste, minimization of unnecessary and extravagant conveniences, and simplification of operations.  In some cases, healthcare providers, and particularly physicians, have implemented stricter financial controls over coding, claims submission, and reimbursement by payers to assure that every dollar is accounted for.

Anticipation of increased litigation.  We anticipate increased litigation arising from decisions that were made in response to the pandemic.  Among other matters, we expect litigation resulting from employee layoffs and furloughs, postponements of surgeries, claims of contracting COVID-19 as a result of possible exposure due to failure to maintain a safe and healthy environment or compliance with recognized health and safety measures, noncompliance with contractual obligations, loan and lease defaults, and failed business transactions.  The economic harm will continue to affect the healthcare industry generally.  Temporary shutdowns became financially distressful for some healthcare providers – particularly rural hospitals and physicians’ offices.  Some are likely to close permanently if they are not able to recover.  However, patients who deferred care will eventually seek that care later.  Postponed primary care visits will be rescheduled, and in some cases, healthcare providers might be in a position to catch up on billings later.

Positive developments

Relaxed regulations; use of telemedicine.  The pandemic has generated a number of constructive changes, including relaxed regulatory requirements, staffing changes, HIPAA matters, efficiency measures, use of personal protective equipment, and consumerization of medical products.  The search for a global vaccine prompted a historic move toward combatting the shortcomings of cost, quality and access ingrained in American health care.  Government regulators are considering regulatory flexibility, elimination of barriers, the need for innovation, and access to underserved populations as they consider healthcare regulation.

Expanded use of telemedicine.  With concerns about spread of infection, PPE shortages, limitations of office hours, reductions in staff, stay-at-home orders, patient fears, and scheduling adjustments, both healthcare providers and physicians have found a realistic solution through the use of telemedicine/virtual patient visits.  The increased use of telemedicine has improved access to care, created patient convenience, and reduced costs of care.  It has become an essential way for physicians and other healthcare providers to deliver care.  Among other benefits, virtual visits using a telemedicine platform have assisted in eliminating the spread of disease among healthcare workers and patients, permitted continuity of care, eliminated patient delays and deferrals, and provided interactive assessment, treatment, and medical service options for patients and providers.

Behavioral health.  Providing prevention, treatment, and recovery support services in behavioral health has become a positive development arising out of the pandemic.  Behavioral health, mental health, and substance abuse prevention, treatment, and recovery support, which have been underfunded, are critical to improving patient care, reducing healthcare costs, preventing criminal justice involvement, promoting educational success, and stabilizing employment. The pandemic may create incentives to establish behavioral health as a policy priority.

Investing in healthcare.  Private investing remained relatively strong in particular segments of the healthcare industry despite, or as a result of, the pandemic.  Investments in telehealth and remote monitoring systems attracted interest, especially as clients noted that organizations with robust telehealth capabilities performed better than peers and were able to serve patients without direct provider contact.  Decreased regulation, parity in reimbursement, and improvements in technology also promoted investment in telehealth.  Clients re-evaluated investment in the nursing home industry, expressing fundamental concerns about reimbursement methodologies, quality of care, risk management concerns, and needed reforms.  A prevailing sentiment has been that over-regulation in the healthcare industry has stifled innovation and has created inflexibility in product development, including new digital technologies, electronic medical records, and drugs and vaccines.

What’s next

The pandemic will result in a myriad of legal claims during the next several years after the pandemic settles.  The claims will likely arise as a result of business closures, operational difficulties experienced by businesses, transaction terminations, disruption of business activity, claims related to financial distress, business failures, debt defaults, creditors’ claims, and removal of assets beyond the reach of creditors.  Businesses will likely rely on force majeure provisions of contracts in order to excuse performance.  The nature, types and extent of litigation claims cannot be predicted.  Class action litigation will likely emerge as an efficient means of litigation management and claims tracking in the post-COVID period.  Businesses should formulate COVID-specific risk management plans that address the specific types of risks that are applicable to their type of business and operations.  As part of the development of the risk management plan, they should evaluate and assess the potential for assertion of claims, possible claimants, damage potential, defenses, available insurance coverage, and other protections.

Among other matters, healthcare businesses should evaluate:

  • the scope and extent of all types of insurance coverage (including general, commercial, and comprehensive liability, property damage, professional liability, directors and officers liability, business interruption, and other insurance);
  • all business policies, practices and procedures relating to employment-related matters and employee benefits (including those relating to FMLA, ADA, OSHA, WARN Act, FLSA, non-discrimination, disability protection, unemployment insurance, FLSA, health insurance, ERISA, employee classification, time off, and other employment-related or employee benefits policies);
  • financial covenants in debt instruments, loan agreements and leases; and
  • contract provisions (including responsibilities, performance standards, indemnification, force majeure, representations and warranties, and any special covenants).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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