Healthcare Law Update: September 2018

by Holland & Knight LLP

Holland & Knight LLP


CMS Contemplating Telemedicine Changes

By Shannon B. Hartsfield

The Centers for Medicare & Medicaid Services (CMS) recently published what it described as a "major proposed rule" that covers a number of topics that could have significant effects on providers, once finalized. CMS is soliciting comments from the public, which are due by Sept. 10, 2018. Much of the proposed rule focuses on revising the physician fee schedule, but there are also provisions dealing with a wide variety of other topics, including the Medicare Shared Savings Program, the Quality Payment Program, the Medicare and Medicaid Promoting Interoperability Program and the federal physician self-referral prohibitions, commonly known as the "Stark Law." A topic of particular interest that could be affected by the proposed rule relates to telemedicine.

Under Section 1834(m) of the Social Security Act, payment for telehealth services using "store-and-forward" technology, or asynchronous transmission of recorded images, is allowed only under federal demonstration programs conducted in Alaska and Hawaii. CMS is proposing to allow codes that would describe remote professional evaluation services using store-and-forward technology that would not be subject to the restrictions in 1834(m) of the Social Security Act. The services would likely be used to decide whether or not the patient needs to come to the office for an in-person visit. If the patient does come into the office after the remote consultation, the payment for the telehealth service would be bundled into the reimbursement for the office visit and would not be separately billable. Similarly, if a remote service relates to an in-office evaluation and management service provided within the prior seven days by the same physician or health professional, it also would not be separately billable.

If the telehealth service is not related to an office visit within the past seven days and does not result in a future evaluation and management office visit, CMS proposes a separate payment for the service, effective Jan. 1, 2019. CMS believes this would result in "increased access to services for Medicare beneficiaries." CMS is asking for comments regarding whether these services should be limited to established patients, or whether they would be appropriate for new patients in certain situations, such as new dermatology or ophthalmology patients.

In the proposed rule, CMS also would make separate payments for consultations between professionals performed via communications technology, such as telephone or internet, regarding a patient's treatment. CMS believes that paying for such consultations is "consistent with [its] ongoing efforts to recognize and reflect medical practice trends in primary care and patient-centered care management...." CMS believes that making payments for these consultations "will contribute to payment accuracy for primary care and care management services." CMS is seeking comment on how these services may be distinguished from consultation services that are primarily for the practitioner's benefit, such as consultations relating to continuing education or professional courtesy. CMS also is proposing to create a new modifier that would allow the identification of "acute stroke telehealth services." Under the proposed rule, a mobile stroke unit would be a permissible originating site for acute telehealth services relating to stroke.

Expanded Medicare reimbursement is likely to serve as a catalyst for telemedicine expansion. The proposed rules, if finalized, could result in further utilization and development of telemedicine technology.


Former Employee Brings Qui Tam Action, Alleging Violations Under AKS and FCA

By Kaitlyn Downs

In United States of Am. ex rel. Derrick v. Roche Diagnostics Corp., No. 1:14-cv-04601, 2018 WL 2735090 (N.D. Ill. June 7, 2018), the district court denied motions to dismiss filed by Roche Diagnostics (Roche) and Humana in a qui tam action. Roche contracted with Humana to make certain of Roche's products available on Humana's formularies; however, Humana later notified Roche that this contract would be terminated. Shortly thereafter, the relator, a Roche national accounts manager, discovered that Roche had overpaid rebates to Humana, which Roche's finance department valued at $45 million. After extensive negotiations, Roche and Humana agreed that Humana would pay Roche an amount not to exceed $11 million and Roche products would once again be available on Humana's formularies. Furthermore, the parties agreed that competing brand products would be excluded from Humana's formularies.

The relator, who was terminated by Roche, alleged that Roche and Humana engaged in a scheme that violated the Anti-Kickback Statute (AKS), that Roche and Humana violated the False Claims Act (FCA) and that Roche fired her in retaliation for her questioning the lawfulness of Roche and Humana's dealings. The court found unconvincing Humana and Roche's arguments that the relator's complaint failed to meet particularity and plausibility standards because the relator's allegations (1) supported an inference that Humana submitted claims resulting from an AKS violation, (2) provided evidence that Humana and Roche knew the arrangement was unlawful and (3) plausibly supported an inference that Roche's acceptance of an amount less than was owed by Humana was "remuneration" under the AKS. The court further ruled that Roche's motion to dismiss the relator's retaliation claim was not persuasive because the relator had a reasonable belief that Roche's actions could violate the AKS and, in turn, violate the FCA, and because the relator was not tasked with pleading specific violations when reporting the suspected fraud to Roche internally.

Vitality of Employee Exemption to the Anti-Kickback Statute Reaffirmed

By Benjamin T. Tso

In Carrel v. AIDS Healthcare Found., Inc., No. 17-13185, 2018 WL 3734278 (11th Cir. Aug. 7, 2018), the Eleventh Circuit affirmed the dismissal of a whistleblower case brought under the federal FCA. The court found that the employee exemption to the AKS applied to payments that the defendant, the AIDS Healthcare Foundation (foundation), made to employees (linkage coordinators) to refer HIV patients to healthcare services offered by the foundation. The whistleblowers were three former employees of the foundation who sued the foundation under the FCA, alleging that the bonuses paid to the linkage coordinators were illegal kickbacks. The foundation is a nonprofit group that receives part of its revenue from federal healthcare programs, including Medicare and Medicaid. The foundation provides HIV testing, clinic and pharmacy services to patients with HIV/AIDS and matches HIV positive patients with healthcare providers.

In short, the whistleblowers alleged that the foundation paid some of its linkage coordinators a bonus on a per referral basis to refer HIV/AIDS patients to the foundation for healthcare service, and that these payments are prohibited "referral" payments under the AKS. The whistleblowers unsuccessfully tried to argue that referrals had to be made in a nondiscriminatory fashion, and that payments made solely for referrals were unprotected. The court held that under both the statutory exemption (42 U.S.C. §1320a-7b(b)(3)(B)) and the regulatory safe harbor (42 C.F.R. §1001.952(i)) regarding payments to employees in connection with providing goods or services covered by federal healthcare programs, the foundation was entitled to pay bonuses to its employees for referring patients to the foundation for healthcare services.

While the employee exception/safe harbor to the AKS traditionally has been applied to the model of compensating a sales force for a pharmaceutical or medical device company, the court's holding makes it clear that the employee exception/safe harbor has vitality in a much broader context. The court explained that the exemption covers "any amount paid by employer to an employee," even when certain practices were "unwise or improper."

HHS OIG Issues Another Advisory Opinion Regarding Common Ownership of GPOs and Members

By Courtney A. Groh

The U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) has posted Advisory Opinion No. 18-07, a favorable opinion with respect to the addition of members in a group purchasing organization (GPO) that are wholly owned by the same parent organization as the GPO. This advisory opinion is the third opinion issued by the OIG that permits deviation from the "prohibition of common ownership" prong of the AKS safe harbor for GPOs. The safe harbor excludes certain fees paid by vendors to GPOs from the definition of "remuneration." The proposed arrangement analyzed in Advisory Opinion No. 18-07 satisfies the GPO safe harbor requirements, with the exception of a requirement that GPO members be wholly owned by the GPO or subsidiaries of a parent corporation that wholly owns the GPO.

The GPO is indirectly owned by a parent company that also owns 31 hospitals (affiliated facilities). Currently, the GPO, which has provided group purchasing services to hospitals for more than 20 years, does not provide such services to affiliated facilities. Instead, the GPO's current members include 134 non-affiliated hospitals and healthcare facilities. Under the proposed arrangement, the GPO wishes to include the affiliated facilities as members to its existing GPO structure. Both currently and under the proposed arrangement, the GPO negotiates discounts for its members on specialized products and services, which include information technology platforms, emergency department services and staffing, physician recruitment, telemedicine physician consults and refurbished equipment. The individual members, not the GPO, enter into contracts directly with the relevant vendors for goods and services.

The OIG concluded that this proposed arrangement would not materially increase the risk of fraud and abuse under the AKS. In deciding not to impose administrative sanctions with respect to the proposed arrangement, the OIG identified several factors such as the following: (1) the more than 100 unaffiliated facilities that the GPO currently serves and the fact that more facilities would increase the GPO's ability to lower prices; (2) the affiliated entities would constitute only 35 percent of the members of the GPO and 20 percent of total sales volume; (3) all members would be subject to the same GPO contract terms and conditions; (4) the parent company is an independent, public company that owns several hospitals and other healthcare-related organizations as separate legal entities; and (5) the GPO has been in existence for more than 20 years and will continue to provide GPO services to unaffiliated members. This advisory opinion confirms that with safeguards such as equal treatment of affiliated and non-affiliated members, a GPO can potentially have common ownership with its members.

Patients Fail to State Claim for Reimbursement of Medical Expenses Related to Kickbacks

By Nathan A. Adams IV

In S.B. v. Tenet Healthcare Corp., No. 17-141-2, 2018 WL 1836029 (11th Cir. April 18, 2018) (per curiam), the Eleventh Circuit affirmed dismissal of S.B.'s complaint for fraud, negligent misrepresentation, money had and received, unjust enrichment, breach of contract, and breach of the implied duty of good faith and fair dealing. In 2016, Tenet agreed to pay $513 million to resolve criminal and civil litigation involving kickbacks that Tenet hospital paid Clinica de la Mama (Clinica) to refer pregnant immigrants who were eligible for emergency Medicaid coverage to Tenet-owned hospitals for labor and delivery services, but the settlement did not compensate Clinica or Tenet patients. S.B. sought, on behalf of herself and other Hispanic women, reimbursement for travel and medical expenses allegedly incurred as a result of the agreement between Tenet and Clinica. The district court ruled and court of appeals affirmed that S.B. failed to state claims for negligent misrepresentation or fraud because she provided no factual allegations to show that Tenet held out Clinica as its agent in order to hold Tenet liable for Clinica's alleged misrepresentations; that S.B. failed to state a claim for money had and received or unjust compensation due to the statute of frauds not tolled for lack of allegations that Tenet knowingly or willfully concealed material facts about its wrongdoing; and that she failed to state claims for breach of contract or the implied duty of good faith because she failed to allege a contract that Tenet breached.


Hospital Fails to State Antitrust Claim Against Competitor

By Kaitlyn Downs

In SCPH Legacy Corp. v. Palmetto Health, 724 F. App'x 275, 276 (4th Cir. 2018), the court of appeals affirmed a motion to dismiss filed by Palmetto Health (Palmetto). Providence Hospital (Providence) alleged that Palmetto conspired to eliminate competition by hiring Providence's orthopedic surgeons secretly and "en masse." As a result, Providence suffered a $50 million loss in value (as calculated by the reduction in price that another company was willing to pay to acquire Providence). The court found that Providence failed to state a claim on which relief could be granted. The court explained that no matter what entity bought the orthopedic practice, Providence would have suffered the same loss. Although Palmetto's hiring of the surgeons decreased competition and adversely affected Providence, the acquisition did not necessarily result in anticompetitive effects. Furthermore, the court ruled that Providence did not have standing to sue under the antitrust laws because it was not directly injured; instead, patients and patient employers would bear any resulting harm since these individuals would be the ones directly responsible for paying higher prices as a result of the damage to competition.

Debt Collection

Class Action "Flat Rating" FDCPA Claim Dismissed

By Nathan A. Adams IV

In Echlin v. PeaceHealth, 887 F. 3d 967 (9th Cir. 2018), the Ninth Circuit affirmed summary judgment of a putative class action lawsuit filed under the Fair Debt Collection Practices Act (FDCPA) for alleged violation of its "flat rating" prohibition. PeaceHealth Southwest Medical Center referred delinquent patient accounts to Computer Credit Inc. (CCI). For a fixed fee, CCI (1) independently screened accounts for barriers to collection; (2) drafted and mailed the collection letters that invited debtors to contact CCI; (3) received roughly 500 calls a week from debtors; (4) provided a variety of information about debts and how to repay them; (5) maintained a website where debtors could access individualized information about their debts and submit documents to CCI; and (6) sometimes received and forwarded payments it received from debtors. CCI would mail up to two collection letters for each delinquent account, then refer the debt back to PeaceHealth for additional action if not collected. CCI did not have authority to negotiate or process payments from debtors. The debtor plaintiff sued on the theory that CCI's letters "created a false or misleading belief that defendant CCI was meaningfully involved in the collection of [her] debt prior to the debt actually being sent to collections" in violation of 15 U.S.C. s. 1692j (which prohibits flat-rating). The plaintiff argued that CCI must do more than mail form letters to "participate" sufficiently in debt-collection efforts. The district court and Ninth Circuit disagreed that more was necessary than CCI undertook. According to the Ninth Circuit, "The key is whether, in consideration of all that an entity does in the collection process, it genuinely contributes to an effort to collect another's debt, or instead does little more than act as a mailing service for the creditor."


Florida Legislature Considers But Fails to Pass Telemedicine Legislation

By Morris H. Miller

During its 2018 session, the Florida Legislature considered, but did not pass, Senate Bill 280, which would have provided that a physician may perform a patient evaluation via telemedicine and that, if the physician is able to conduct such an evaluation that is sufficient to diagnose and treat the patient, the physician is not required to research the patient's medical history or conduct a physical examination of the patient before using telemedicine to provide services to the patient.

Under the Florida Patient Self-Referral Act of 1992, Section 456.053, Florida Statutes (Florida Act), a physician who has an ownership interest in a group practice is prohibited from referring a patient to another provider within his or her own group practice unless an exception to the referral prohibition applies. A violation of this statute can result in significant civil monetary penalties, and a physician who violates the statute may be subject to disciplinary action by the Florida Board of Medicine. Generally, physicians who are partners in a group practice depend on an exception to the referral prohibition that permits referrals within a group practice if certain conditions are met. One of those conditions is that a physician's referrals must be for healthcare items or services that are prescribed or provided solely for the group practice's own patients. In order for a person to be a "patient of a group practice," the group practice must provide the person a physical examination, evaluation, diagnosis and development of a treatment plan (if medically necessary) by a physician who is a member of the group practice. This requirement presents a dilemma for a group practice if a person who is not yet an established patient of the group practice contacts, or is referred to, the group practice via telemedicine technology. The issue is whether the "physical examination" requirement means that a person must be physically located in the same place as the physician when the physician conducts the initial physical examination.

The Florida Board of Medicine's telemedicine rule (Rule 64B8-9.0141, Florida Administrative Code) states that a physician-patient relationship can be established via telemedicine, but the rule does not state whether a physician must perform a physical examination in order to establish a patient-physician relationship. However, the rule prohibits a physician from providing treatment recommendations via electronic or other means, unless certain conditions have been satisfied, including a documented patient evaluation that includes a history and physical examination to establish the diagnosis for which any legend drug is prescribed. The telemedicine rule also states that the same standard of care applies to the diagnosis and treatment of a patient, regardless of whether the physician examines and treats the patient through telemedicine or in person. The rule arguably implies that, if a physician is able, via telemedicine, to observe, evaluate and communicate with a patient sufficiently to meet the standard of care for the diagnosis and treatment of the patient's particular condition, then the physician should be permitted to conduct and act upon an examination of the patient via telemedicine. However, absent the adoption of clarifying legislation such as Senate Bill 280, the resolution of this issue is uncertain.

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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