Healthcare Newsletter: Volume 6, Number 1

by Dickinson Wright
Contact

Dickinson Wright

Recent Developments in Mental Health Benefit Denials

The Mental Health Parity and Addiction Equity Act (Parity Act) requires health plans to provide the same coverage for mental health conditions as they provide for physical conditions, and that financial requirements and treatment limitations applicable to mental health and substance use disorder benefits be no more restrictive than those that apply to medical and surgical benefits.

But can a mental health provider directly challenge an insurer’s benefit denial of coverage for a patient’s mental health treatment under the Parity Act or ERISA? The 2nd U.S. Circuit Court of Appeals recently said “no.”

In American Psychiatric Association v Anthem Health Plans, the 2nd Circuit ruled that individual physicians and physician associations lacked standing to sue health plans under the Parity Act and ERISA. Ultimately, this ruling could affect the future legal avenues available to providers who desire to advocate on behalf of their mental health patients and challenge allegedly unfair or illegal benefit denials.

In the case, two Connecticut psychiatrists, together with the American Psychiatric Association (APA), the Connecticut Psychiatric Society, Inc. and the Connecticut Council of Child and Adolescent Psychiatry, alleged that four insurers failed to provide mental health and substance use benefits owed under beneficiaries’ plan documents, the Parity Act, ERISA, and Connecticut common law. The plaintiffs argued that the insurers imposed unnecessary administrative burdens on the psychiatrists, and reimbursed them at a lower rate than non-psychiatric physicians who provided comparable medical services, which ultimately prevented them from accepting health insurance. The trial court dismissed the case, holding that both the physicians and associations lacked legal standing to sue under ERISA, and the Parity Act did not create a statutory cause of action. On appeal, the 2nd Circuit acknowledged that policy reasons might support allowing physicians to bring suit on behalf of patients with mental health and substance use disorders in the absence of statutory authorization for such action, but agreed with the trial court that the psychiatrists lacked standing to sue under ERISA. The court also rejected the argument of one psychiatrist, who asserted standing from an assignment of two patients’ claims for violations of the Parity Act. The court held that for purposes of conferring an ERISA cause of action upon a provider, an assignment of claims to a provider must be made in exchange for consideration in the form of healthcare services, which was not present in this case.

While the issues involved in this case are something to watch, the decision doesn’t mean the end of benefit denial lawsuits across the country. It’s important to note that the American Psychiatric Association decision is binding only as to cases in 2nd Circuit states (New York, Connecticut and Vermont) until other circuits or the U.S. Supreme Court decide to opine on the issue. Dickinson Wright’s Healthcare Team will continue to monitor these developments.

New IRS Audit Rules: Is Your Healthcare LLC Ready?

The Bipartisan Budget Act of 2015 (the BBA), which was signed into law in November 2015, significantly changes how the IRS will audit partnerships beginning in 2018. These changes will also have far-reaching effects on how members of many limited liability companies must prepare for potential tax liability resulting from an IRS audit. Under the BBA, the Tax Equity and Fiscal Responsibility Act (TEFRA) audit rules that have been in place for more than 30 years were repealed and replaced with new “streamlined” entity-level audit rules. These new rules will almost certainly affect the healthcare industry, because many healthcare limited liability companies and professional limited liability companies are relatively small entities (fewer than ten members) and taxed as partnerships.

Summary of Prior Provisions

Under TEFRA rules, a “small partnership” was automatically exempt from an entity-level audit by the IRS. To be a “small partnership,” an LLC must generally have had fewer than ten members, none of which were an LLC or corporation. The small partnership qualification was determined annually, and it was possible for a partnership to be covered by the TEFRA entity-level audit rules in one year and not in a subsequent year.

Tax liability resulting from an IRS audit under TEFRA also passed through to the ultimate individual member’s tax returns. This requirement often caused significant difficulty for the IRS in determining each partner’s share of the tax liability adjustment and in collecting the tax owed from each member. The difficulty in collecting outstanding amounts owed was further complicated by the IRS being unable to apply any tax liability to the entity, even though members of an LLC could change multiple times during the period being audited.

Summary of New Rules

Although the new audit rules under the BBA were designed to make the IRS’s collection of tax liabilities simpler, this simplification will require a significant redesign of the way members must look at their relationship with their company, and with the company’s current and former members. The key features of the new audit rules are as follows:

  • Rather than assessing a tax to individual partners, the IRS will assess the partnership an “imputed underpayment,” which will be subject to the individual or corporate tax rate regardless of the actual tax rate applicable to individual members.
  • Any tax liability from an audit will be assessed at the company level in the year of the adjustment (when the audit occurs) rather than in the tax year under audit. As a result, subject to two exceptions, current members may be liable for tax errors that benefited the company’s prior members.
  • The new law requires an LLC to appoint a “Partnership Representative.” It is not yet known whether the IRS will treat this person the same as the Tax Matters Member.

Small Partnership Exception

LLCs with fewer than 100 members may opt out of the new audit rule if they do not have any members that are a separate LLC or C-Corporation. A member can be an S-Corporation. To opt out, an LLC must:

  • Elect the opt-out each year on its 1065;
  • Inform each partner of the election;
  • Submit to the IRS the names and TINs of each of the members, including the names of each of the shareholders of an S-Corp member.

Implications for Healthcare LLCs

As a result of the BBA, each healthcare LLC will need to update its operating agreement to remain in compliance with the law, protect its members, and ensure that any tax liability is allocated equitably. These changes should include:

  • Requiring managers of companies that meet the small partnership exception to elect out of the audit rules on an annual basis and comply with the member notification requirements;
  • Creating rules limiting who can be a member for those companies wishing to remain eligible to opt-out as a small partnership;
  • Establishing rules for electing a Partnership Representative, as well as defining actions the Partnership Representative may take;
  • Allocating any assessed tax liabilities in accordance with agreed upon measures; and
  • Providing procedures that members must follow to allow the company to qualify for one of the two exceptions to the entity level tax assessment.

Even though the new rules will not take effect until January 1, 2018, the BBA will have a substantive impact on tax planning for healthcare limited liability companies being taxed as partnerships, regardless of whether or not they meet the small partnership exception. As a result, companies need to take proactive steps to prepare for the new IRS audit requirements by reviewing their operating agreements to determine what changes are needed.

Please contact Peter Domas at 248-433-7595, Ralph Levy, at 615-972-0608 or any member of Dickinson Wright’s Healthcare Practice Group, for assistance with preparing your LLC for the new audit rules.

FTC Mobile Health Guidance

On April 5, 2016, the Federal Trade Commission (FTC) released new guidance for mobile apps directed towards providing health-related services and information. This guidance was developed with numerous other agencies, including the Office for Civil Rights (OCR), to assist app developers in complying with federal healthcare law.

One of the paramount concerns with mobile apps is the protection of patient protected health information (PHI) under the Health Insurance Portability and Accountability Act (HIPAA).

The guidance is provided in the form of a web-based interactive tool. For more information, see https://www.ftc.gov/tips-advice/business-center/guidance/mobile-health-apps-interactive-tool.

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.

© Dickinson Wright | Attorney Advertising

Written by:

Dickinson Wright
Contact
more
less

Dickinson Wright on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.