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Health Law Alert
Fall/Winter 2004
From the Chair
Well, things were relatively quiet through the summer and early fall, unless, of course, you live in Florida. We hope and trust that our friends have survived an unprecedented year of hurricanes and tropical storms with minimal disruption and damage. We commend those who have dealt with those issues while, at the same time, continuing their focus on providing the highest quality of care to the residents of Florida.
Closer to home, Washington appears to have been focused on the presidential election, which is not to say that they have been inactive. This issue of the Health Law Alert addresses developments relating to hospital practices of providing discounts and free care to uninsured patients, a warning from the OIG to physicians against charging patients for otherwise covered services, and expanding compliance guidance issued by the OIG. This issue also covers new requirements for voluntary Medicare refunds resulting from overpayments, CMS programmatic issues, and recent case law relating to the federal False Claims Act. Of particular note, we report on a Florida fraud statute which was found unconstitutional in light of conflicting provisions with the federal antikickback statute.
Click to continue...Hospital Discounts to Uninsured Patients
In response to general confusion and public concern regarding whether hospitals may offer discounts to indigent patients, HHS, CMS, and the OIG each issued guidance this past February to clarify their policies regarding hospital discounts to uninsured and underinsured patients. This new guidance, issued in the form of a letter from HHS, Q&As from CMS, and informal guidance from the OIG, should help hospitals and other entities to better understand when and how they may offer discounts or waivers of copayment and deductibles to their indigent patient populations and better serve their communities without fear of violating federal fraud and abuse laws.
HHS issued a letter to the American Hospital Association (AHA) on February 19, 2004, in response to that organization's inquiry regarding what hospitals can and cannot do with respect to discounts to uninsured or underinsured patients. In the letter, HHS stated unequivocally that "nothing in the Medicare program rules or regulations" prohibits hospitals from providing "discounts to uninsured and underinsured patients who cannot afford their hospital bills and to Medicare beneficiaries who cannot afford their Medicare cost-sharing obligations." Further, the letter indicates that the OIG has informed HHS that "hospitals have the ability to offer discounts to uninsured and underinsured individuals and cost-sharing waivers to financially needy Medicare beneficiaries."
Click to continue...OIG Advisory Opinions
By: William T. Mathias, Christine M. Morse, and Emily H. Wein*
No. 04-01: OIG Approves Waiver of Cost-Sharing Obligations for Participants in Clinical Trial
On January 21, 2004, the OIG issued an advisory opinion regarding a proposed arrangement whereby a national supplier (the Supplier) of blood glucose testing products will provide self-monitored blood glucose supplies (SMBG) to participants in a clinical trial investigating the medical approaches for addressing coronary artery disease in people with Type 2 Diabetes. For Medicare beneficiaries, the Supplier will waive the Medicare Part B coinsurance for SMBG supplies. The proposed arrangement was analyzed under the CMP provision against inducements to beneficiaries, 42 U.S.C. § 1320a-7a(a)(5), and the antikickback statute, 42 U.S.C. § 1320a-7b(b). The OIG concluded that though the proposed arrangement implicated both the CMP provision and antikickback statute, it would not impose administrative sanctions.
The clinical trial at issue, known as the Bypass Angioplasty Revascularization Investigation 2 Diabetes or "BARI 2D," is sponsored by the National Heart, Lung and Blood Institute (NHLBI), an institute of the National Institutes of Health. The National Institute of Diabetes and Digestive and Kidney Diseases and the Centers for Disease Control are also involved in BARI 2D. BARI 2D is scheduled to run for seven years at approximately 40 clinical centers and will involve approximately 2,800 patients. These patients will include Medicare and other federal health program beneficiaries.
Click to continue...OIG Alert: Added Charges for Covered Services
By: Michele M. Vincente, CLA
The OIG issued an Alert in March 2004 reminding physicians participating in the Medicare program that they risk substantial penalties and exclusion from Medicare and other federal health care programs if they charge Medicare patients additional amounts for covered services, other than the applicable coinsurance and deductible. The Alert was prompted by reports of physicians charging patients "extra fees for already covered services" in violation of the terms of the physicians' assignment agreements.
Rather than focusing on the practice of balance billing, commonly understood to be inappropriate, the Alert points to the $600 annual fee that a physician was asking his patients, including Medicare patients, to pay under a "Personal Health Care Medical Care Contract." The OIG alleged that the fee constituted a violation of the physician's assignment agreement because a number of the contracted services (e.g., coordination of care with other providers, comprehensive assessment and plan for optimum health, and extra time spent on patient care) were Medicare covered services. The language of the Alert would not appear to prohibit payments for otherwise noncovered services.
Click to continue...Unsolicited/Voluntary Medicare Refund Requirements
By: John F. Lessner*
In recent revisions to the Medicare Financial Management Manual(Manual), CMS has established new requirements for unsolicited or voluntary refunds and instructions to Medicare contractors on how to account for checks received from providers, physicians, or suppliers (collectively "providers") purporting to be voluntary refunds. Medicare Financial Management Manual, Pub. 100-06, Transmittal No. 48 (July 9, 2004), replacing Transmittal No. 42 (Apr. 30, 2004). The effective date and the implementation date of these newly revised materials is October 4, 2004. These changes are significant and should be carefully reviewed and considered by providers who may be considering refunding monies to Medicare.
Medicare contractors, meaning both intermediaries and carriers, periodically receive unsolicited or voluntary refunds that are not related to open accounts receivable. CMS has issued the clarifications in Transmittal 42 to provide detailed instructions to contractors on how to identify, process, track, and report unsolicited or voluntary refund checks received from providers and other entities, including beneficiaries, insurers, employers, and third-party administrators. CMS notes that intermediaries generally receive these voluntary refunds in the form of an adjustment bill, although they may receive some voluntary refunds as checks. Carriers typically receive such refunds as checks.
Click to continue...Hospital "Credentialing" of Nonphysician Employees
By: Steven R. Smith
It is second nature for hospitals to engage in thorough credentialing functions for physicians. Credentialing is required by the Medicare Conditions of Participation, the JCAHO, and many state laws. See 42 C.F.R. § 482.22; Comprehensive Accreditation Manual for Hospitals: The Official Handbook, Standards MS.4.10 and 4.20 (2004); and Md. Code Ann., Health Gen. §19-319(e). Even in the absence of legal requirements, hospitals have learned from experience that they are subject to many risks simply because physicians practice medicine within the hospital. Many of these risks could be avoided if the hospital had sufficient information about a physician in advance. As a result, medical staff bylaws require that physicians supply a great amount of information about themselves to hospitals as part of the process of gaining privileges to practice within the hospital. This includes completing a lengthy application form and authorizing the hospital to obtain information about the physician held by others.
Why is so much information required of physicians? Physicians are responsible for the medical care provided to patients admitted to the hospital. Both the hospital and the law look to physicians to make appropriate medical judgments on behalf of patients. The failure to do so can result in great harm and even death. Hospitals are therefore held to a standard to inquire about the credentials of physicians before they are allowed to practice in the hospital. This includes information regarding licensure, education, specialty certifications, references, and experiences at other hospitals and claims history. By gathering this information, hospitals can make an informed judgment as to whether a physician presents too great a risk to patients or the hospital to be allowed to practice in the hospital.
Click to continue...The Evolution of Risk Management to Corporate Compliance and Beyond
Risk management is in the process of evolving. Both the scope of what is included in the concept of risk management and the risks that face most hospitals have greatly expanded in recent years. This article will refer to all health care facilities as "hospitals" since hospitals typically have greater risk management presence than other health care facilities. However, the reference to hospitals is not meant to imply that these comments do not also apply to health care facilities other than hospitals. This evolution is occurring in response to changes that have taken place in the broader health care environment. The result of this evolution is that, in the interests of both the hospitals and their patients, hospitals need to view and manage the risks that they face from an organization-wide perspective and not as isolated issues to be confronted on a department by department basis.
The traditional role of the risk manager was tied, not surprisingly, to the traditional concept of risk. "Risk" has been defined as "the chance of injury, damage or loss ." and has been closely aligned to concepts of loss in the context of insurance and safety matters. Webster's New World Dictionary of the American Language, Second College Edition, 1976. Therefore, the traditional role of the risk manager was to manage the risk of loss from events that were insured against. This may have meant simply working with an insurance broker to facilitate the placement of insurance policies (facility professional liability and general liability) to cover such insured losses or a more proactive approach to manage these risks. However, even the proactive approach was traditionally limited to a relatively limited menu of risks such as falls and medication errors.
Click to continue...Medco Settlement Excludes FCA Claim Citing Compliance Plan Deficiencies
By: Ray M. Shepard*
In a complaint filed September 2003 against Merck-Medco Managed Care, L.L.C., (Medco), the United States alleged that Medco submitted false claims in connection with its contract to provide mail order prescription services to federal employees. The government filed an amended complaint against Medco in December 2003, in which it alleged, among other things, that Medco encouraged health care providers to switch patients to different prescription drugs that would result in larger rebate payments from drug manufacturers to Medco. According to the complaint, Medco did not inform prescribers or patients of the increased rebates and did not pass along resulting savings to patients or their health care plans. Count VI of the amended complaint also sought injunctive relief under the fraud injunction statute, 18 U.S.C. § 1345, which permits the Attorney General to sue whenever someone is "committing or [is] about to commit a Federal health care offense." The complaint would be unremarkable except for the fact that it alleged that Medco's lack of an "effective" corporate compliance program demonstrated the requisite knowledge under the FCA. United States v. Merck-Medco Managed Care, L.L.C., No. 00-CV-737 (E.D. Pa. filed Sept. 29, 2003).
In April 2004, Medco and the United States settled the government's claim for injunctive relief and entered into a consent order. Twenty states, including Arizona, California, Connecticut, Delaware, Florida, Illinois, Louisiana, Maine, Maryland, Massachusetts, Nevada, New York, North Carolina, Oregon, Pennsylvania, Texas, Vermont, Virginia, and Washington joined in the settlement and each will file a separate consent order covering both the states' injunctive and monetary claims. Under the state settlements, Medco will pay $20 million to the states in damages, $6.6 million to the states in fees and costs, and about $2.5 million in restitution to patients who incurred expenses related to switching between drugs. The federal government is proceeding with the remaining portions of its amended complaint, including its allegation that Medco's lack of an effective compliance program satisfies the knowledge requirement under the FCA.
Click to continue...CMP Rule, Guidance Set Gauge for Drug Card Sponsors
By: Meredith W. Melmed*
The Medicare Approved Drug Discount Card and Transitional Assistance program, a voluntary prescription drug discount program for eligible Medicare beneficiaries, began accepting enrollees in May 2004. Under the program, which was established as part of the MMA, individuals with an annual income in 2004 of no more than $12,569 if single or $16,862 if married, and individuals receiving state help in paying Medicare premiums or cost sharing, may qualify for a $600 credit in 2004 and 2005 on their discount card to pay for prescription drugs. Medicare has contracted with private companies to offer new drug discount cards until a Medicare prescription drug benefit starts in 2006.
On April 8, 2004, the OIG issued general guidance to drug card sponsors regarding the implication of the antikickback statute in arrangements involving payments to network pharmacies in connection with drug card sponsor-funded education and outreach programs. The OIG stated, "Payments that compensate pharmacies for submitting enrollment applications or for otherwise directing patients to a particular drug card may implicate the Federal criminal anti-kickback statute, section 1128B(b) of the Social Security Act." According to the guidance, the OIG supports bona fide efforts to educate beneficiaries about Medicare's discount drug program and to assist beneficiaries in making educated and informed choices about card options; however, the OIG is concerned that financial incentives offered by drug card sponsors may "convert the education process into a mechanism for steering beneficiaries to a particular drug card without regard to the beneficiaries' best interests." The OIG indicated that arrangements might fit within the personal services antikickback safe harbor at 42 C.F.R. § 1001.952(d) and properly structured arrangements using independent, neutral third parties, such as nonprofit charitable organizations, pose little risk under the antikickback statute.
Click to continue...OIG Updates Hospital Compliance Program Guidance
In June 2004, the OIG issued draft supplemental compliance program guidance for hospitals. 69 Fed. Reg. 32,012 (June 8, 2004). As a starting point, the new guidance is not meant to replace the prior guidance. Instead, it is designed to supplement the prior guidance by identifying additional risk areas that in the OIG's mind are "under-appreciated by the industry." In addition, the new guidance discusses various ways of analyzing the effectiveness of a hospital compliance program. Finally, the new guidance briefly discusses the importance of self-reporting.
Click to continue...AdvaMed Code Curtails Lavish Spending
By: Julie E. Kass
The Advanced Medical Technology Association (AdvaMed) released a Code of Ethics on Interactions with Health Care Professionals that became effective on January 1, 2004. The stated purpose of the Code is to facilitate ethical interactions between the Members of AdvaMed (Members) and those who purchase, lease, recommend, or use the Members' products (Health Care Professionals). The Code is a guide for the Members who produce nearly 90 percent of the health care technology products utilized in the United States. The Code was developed as a means of self-regulation tailored specifically to technology manufacturers after Pharmaceutical Research and Manufacturers of America (PhRMA) developed its own Code and the OIG issued a general set of guidelines.
Click to continue...CMS Proposes Changes to Reimbursement Appeal Rules
In the June 25, 2004, Federal Register, CMS issued proposed changes to the regulations governing appeals of reimbursement determinations to the Provider Reimbursement Review Board (Board) and intermediaries. 69 Fed. Reg. 35,716 (June 25, 2004). Comments were due August 24, 2004. CMS stated its intention that the new rules would reduce Board backlog, clarify CMS's position on certain matters, and eliminate outdated materials. Highlights from the proposed rules are discussed below.
Click to continue...Revised Policies Affect Direct Deposit Medicare Funds
Effective July 25, 2004, CMS changed its policies affecting all Medicare providers and suppliers that have lending relationships with banks or similar lending institutions, through which Medicare payments are electronically deposited in an account with that same lender. The change was made in Transmittal 213, issued June 25, 2004.
This change does not affect providers and suppliers issued checks by CMS, after which those checks are endorsed and deposited with a lender. It does not affect providers and suppliers receiving a direct deposit of CMS payments into a sweep account under the provider or supplier's exclusive control, from which funds are then transferred automatically into an account with a lender. Rather, the revised policy applies to providers and suppliers electing electronic deposit of Medicare payments into an account with an institution that is also the lender to that provider or supplier.
Click to continue...New Changes to Medicare Medical Education Rules
By: Thomas W. Coons
In the coming months, hospitals that receive direct graduate medical education (DGME) and indirect medical education (IME) payments from Medicare will see the rules governing those payments change yet again. Some of these changes are the result of the MMA, while others are the result of recent changes to the Medicare regulations. Most of the changes affect a hospital's full-time equivalent (FTE) count used in calculating both DGME and IME payment amounts; other changes relate to certain aspects of the IME methodology, all as discussed below.
Click to continue...FY 2005 Wage Index: Where Are You Now?
By: Carel T. Hedlund
CMS's final inpatient PPS rule for fiscal year (FY) 2005, issued August 11, 2004, contains massive wage index changes resulting from revised definitions of labor markets as well as numerous changes mandated by the MMA and other statutes. 69 Fed. Reg. 48,916 (Aug. 11, 2004). Taken together, virtually every hospital in the country is affected by these changes.
Click to continue...CMS Sets Criteria for Specialty Hospital Moratorium
By: Michele M. Vincente, CLA
In a March 19, 2004, program transmittal, CMS issued the definitions and criteria that it will apply in implementing the 18-month moratorium on physician investment in, and referrals to, certain specialty hospitals. Transmittal 62 (Mar. 19, 2004). The moratorium, enacted as part of the MMA, specifically applies to the "whole hospital" exception under the Stark law, which, prior to the MMA, permitted a physician to make referrals to a hospital in which the physician had an ownership or investment interest provided certain criteria were met. Under the moratorium, the whole hospital exception does not apply to physician ownership or investment interests in specialty hospitals, including those located in rural areas. The program transmittal establishes the definition of a specialty hospital, lists hospitals that are specifically excluded from the moratorium, sets forth the criteria for determining whether a specialty hospital is grandfathered under the moratorium, and provides information for seeking an advisory opinion from CMS concerning a "grandfathering determination."
Click to continue...New EMTALA Guidance
On May 13, 2004, CMS released revised Interpretive Guidelines relating to the Emergency Medical Treatment and Labor Act (EMTALA). The revised Guidelines were effective immediately upon issuance.
Although many of the additions to the revised Guidelines simply restate the 2003 EMTALA final rule, 68 Fed. Reg. 53,221 (Sept. 9, 2003), there are several interpretations and clarifications of that rule that hospitals may wish to reflect in their policies. In addition, on two matters - the time frame for reporting EMTALA violations and the definition of a "dedicated emergency department" (DED) - the revised Guidelines arguably go beyond existing EMTALA regulations.
Click to continue...EMTALA Compliance - Practical Considerations
By: Steven R. Smith
The Emergency Medical Treatment and Active Labor Act (EMTALA) was passed by Congress in 1986. The purpose for passage of EMTALA was stated by the Department of Health and Human Services in the preamble to the Final Rule on the Responsibilities of Medicare Participating Hospitals in Treating Individuals with Emergency Medical Conditions published September 9, 2003:
Congress enacted these antidumping provisions in the Social Security Act because of its concern with an "increasing number of reports" that hospital emergency rooms were refusing to accept or treat individuals with emergency conditions if the individuals did not have insurance:
".the Committee is most concerned that medically unstable patients are not being treated appropriately. There have been reports of situations where treatment was simply not provided. In numerous other situations, patients in an unstable condition have been transferred improperly..Click to continue...
First Circuit: Rule 9(b) Applies to FCA Actions
By: Ray M. Shepard*
Affirming dismissal of Karvelas' 93-page qui tam complaint, the First Circuit recently joined eight other circuits who have held that Rule 9(b) of the Federal Rules of Civil Procedure, which requires all averments of fraud or mistake to be pled with "particularity," applies to actions brought under the FCA. United States ex rel. Karvelas v. Melrose-Wakefield Hosp., 360 F.3d 220 (1st Cir. 2004). Karvelas, employed as a respiratory therapist at Melrose-Wakefield Hospital, sued the hospital and its parent organizations alleging that the hospital had failed to comply with federal standards for patient care and had wrongfully billed Medicare and/or Medicaid for services that were being provided improperly or not at all. Specifically, Karvelas alleged 16 separate "schemes" to defraud but failed to identify any particular false claims for payment that were actually submitted to the government.
The First Circuit emphasized that liability under the FCA attaches, not to the underlying fraudulent activity or to the government's wrongful payment, but to the false or fraudulent claim submitted to the government for payment. The court stated, "A health care provider's violation of government regulations or engagement in private fraudulent schemes does not impose liability under the FCA unless the provider submits false or fraudulent claims to the government for payment based on these wrongful activities." 360 F.3d at 232. The court suggested that details concerning the dates of the claims, the content of the forms or bills submitted, their identification numbers, the amount of money charged to the government, the particular goods or services billed, the individuals involved in submitting the bills, and the length of time between the alleged fraudulent activity and the submission of the claims constitute the types of information a relator must allege in order to satisfy Rule 9(b). While such details do not constitute a mandatory checklist, the court made clear that "some of this information for at least some of the claims must be pleaded in order to satisfy Rule 9(b)." 360 F.3d at 233.
Click to continue...Standard for Dismissal Misapplied in Qui Tam Case
By: Ray M. Shepard*
Highlighting the standard a district court must apply to dismiss a qui tam complaint upon a motion to dismiss made before discovery, the Fifth Circuit reinstated a lawsuit dismissed by the United States District Court for the Southern District of Texas. United States ex rel. Riley v. St. Luke's Episcopal Hosp., 355 F.3d 370 (5th Cir. 2004). A former nurse at St. Luke's Episcopal Hospital filed the lawsuit pursuant to the qui tam provisions of the FCA, alleging the defendants filed false claims for services that were either medically unnecessary or rendered by an unlicensed physician. Riley's allegations were that: (1) the defendants had billed the government for services performed by an unlicensed physician who held a medical degree from Belgrade, but who had not passed the medical licensing exam in Texas; and (2) the defendants had billed the government for unnecessary heart transplants "in apparent pursuit of prestige by being industry leaders in terms of number of heart transplants performed." 355 F.3d at 374.
Dismissing the allegations of claims for medically unnecessary services, the district court stated, "The evidence shows that St. Luke's provided medical care to patients who desperately needed care." 355 F.3d at 377. The "evidence" considered by the district court consisted of documents attached to the complaint, such as the medical records of two sample patients. Looking to these documents, the district court concluded that expressions of opinions or scientific judgments about which reasonable minds may differ cannot be "false" within the meaning of the FCA. The Fifth Circuit agreed with this statement and agreed that when exhibits attached to a complaint contradict its allegations, the exhibits control. However, the court of appeals found that the district court "acted prematurely in dismissing the complaint" because several of Riley's allegations were not dependent upon the exhibits incorporated into her complaint. The Fifth Circuit emphasized that, when considering a motion to dismiss filed prior to discovery, the "complaint must be liberally construed in favor of the plaintiff, and all well-pleaded facts accepted as true." "Even if it seems almost a certainty to the [district] court that the facts alleged cannot be proved to support the legal claim," said the court, "the claim may not be dismissed so long as the complaint states a claim." 355 F.3d at 375-376.
Click to continue...Government Required to Exhaust Administrative Remedies in Non-FCA Case
By: Ray M. Shepard*
The U.S. District Court for the District of Massachusetts found that it was without subject matter jurisdiction and dismissed the government's lawsuit against the University of Massachusetts Medical Memorial Center (UMass) seeking recoupment of alleged overpayments made to UMass for outpatient laboratory services provided to Medicare patients. United States v. Univ. of Mass. Mem'l Med. Ctr., 296 F. Supp. 2d 20 (D. Mass. 2003). The complaint filed by the government relied on several common law theories to recoup the alleged overpayments, including unjust enrichment and payment under mistake of fact. The government alleged that UMass had submitted claims for blood chemistry tests performed on an outpatient basis between July 1, 1993 and December 31, 1996 that resulted in "systematic overpayment." UMass responded that the court lacked jurisdiction over the subject matter of the suit because the government had failed to exhaust its available administrative remedies as required under 42 U.S.C. § 405(h). That statute provides:
The findings and decision of the [Secretary] after a hearing shall be binding upon all individuals who were parties to such hearing. No findings of fact or decision of the [Secretary] shall be reviewed by any person, tribunal, or governmental agency except as herein provided. No action against the United States, the [Secretary] or any officer or employee thereof shall be brought under section 1331 or 1346 of title 28 to recover on any claim arising under this subchapter.
Click to continue...University of Washington PATH Settlement is Largest Yet
By: Michele M. Vincente, CLA
The $35 million that University of Washington agreed to pay to end a four-year investigation into its physician practice plans' billing practices is the largest amount paid to date in a PATH settlement, according to the U.S. Attorney for the Western District of Washington, John McKay. As part of the settlement, the University of Washington billing plans also entered into a five-year Institutional Compliance Agreement with the OIG. United States ex rel. Erickson v. University of Washington Physicians, No. C99-1261R (W.D. Wash. Apr. 30, 2004).
In an April 30, 2004, press release, McKay described the failure on the part of officials within the University of Washington billing plans to address and report billing problems uncovered by compliance plan audits. The whistleblower complaint, filed in 1999 by a former University of Washington auditor, alleged that when compliance audits revealed "pervasive and egregious upcoding," University officials revised audit protocols to produce more "sanitized" results, and instructed auditors to destroy the original reports and replace them with "sanitized versions." In addition to the upcoding allegations, the qui tam complaint alleged that University of Washington submitted false claims for insufficiently documented teaching physician services and revised medical records to "fabricate support" for billings for assistants at surgery, dialysis care, and postoperative care provided by residents.
Click to continue...Fraud Statute Unconstitutional
By: Michele M. Vincente, CLA
A Florida district court of appeals has found that the antikickback provision of the state's Medicaid Provider Fraud Statute is unconstitutional because it conflicts with the federal antikickback statute and therefore is preempted under the Supremacy Clause of the U.S. Constitution. Florida v. Harden, 873 So. 2d 352 (Fla. Dist. Ct. App. 2004). The appeals court agreed with the trial court's analysis of the statute based on provisions of the federal Medicaid Act and the antikickback safe harbor regulations.
The State charged Gabriel Harden and nine other defendants with violating Florida's antikickback statute, Fla. Stat. Ann. § 409.920(2)(e). The charges were based on payments made by three corporate entities to employed drivers for the "solicitation and transportation" of Medicaid-eligible children to the defendants' dental facilities for treatment. Harden filed a motion to dismiss, which the other defendants adopted, arguing that the payments at issue were protected by the employment safe harbor under the federal antikickback statute. Thus, the defendants argued that the State's criminal prosecution of these payments was unconstitutional under the Supremacy Clause. U.S. Const. Art. VI, cl. 2. The State, in turn, argued that the nature of the payments - "$25 to $35 cash for each Medicaid-eligible child the driver could find and bring to the clinic" - constituted the unlawful use of paid employees to recruit and solicit Medicaid patients, amounting to kickbacks for patient referrals.
Click to continue...Beyond Saber Rattling: Congress Threatens Aggressive Regulation of Nonprofits
By: Thomas K. Hyatt* and Patrick K. O'Hare
This summer saw three converging events which have raised storm flags for tax-exempt health care providers: multiple class action lawsuits against targeted health care systems alleging insufficient indigent care and overly aggressive bill collection practices; a new IRS examination program on nonprofit executive compensation; and serious congressional consideration of legislative "reforms" to correct publicized and perceived excesses by exempt entities. Perhaps the most stunning of these developments is the sudden sharp interest of the U.S. Senate in nearly every aspect of nonprofit activity. Although it is likely that any legislative proposals will not be considered until next year, and even if passed will be substantially modified from early discussion drafts, the current proposals are breathtaking in their reach and suggest that Congress is serious about substantially regulating the operations and governance of nonprofit organizations, including health care providers.
In preparation for the Senate Finance Committee hearings on nonprofit organizations held in June, Committee staff developed several proposals, the most noteworthy of which are summarized below. The proposals can be broken down into four areas affecting exempt providers: operations, governance, additional tax filing requirements, and enforcement.
Click to continue...Consider Broker-Dealer Compliance in Stock and Securities Sales
By: Stephen L. Parker and Jason H. Weiner*
Many entities in the health care industry, including new practice groups, joint ventures, and other new businesses, seek to raise money through the sale of securities. Most of these sales of securities are accomplished through private offerings. When offering securities, most businesses tend to focus on whether the securities are exempt from registration under the Securities Act of 1933, as amended (Securities Act), and comparable provisions under state securities laws. Generally, entities seek to rely on the exemption provided by Rule 506 of Regulation D under the Securities Act, and, in writing this article, we have assumed that offers and sales of securities are being made pursuant to Rule 506. It should be noted that under the National Securities Markets Improvement Act of 1996 (NSMIA), the states are preempted from regulating securities offerings under Rule 506 under state registration provisions. However, NSMIA does not preempt the states from regulating securities offerings under other federal exemptions. However, the securities laws analysis should not be limited to the question of whether registration of the securities is required, but should also include the question of whether the person or persons selling the securities must register as a broker-dealer under the Securities Exchange Act of 1934, as amended (Exchange Act), or as an agent or salesperson under state securities laws.
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