Tex. Gen. Hosp., LP v. United Healthcare Servs., Inc. — June 2016 (Summary)

BREACH OF CONTRACT; INSURANCE COMPANY LITIGATION

Tex. Gen. Hosp., LP v. United Healthcare Servs., Inc.
Civil Action No. 3:15-CV-02096-M (N.D. Tex. June 28, 2016)

The U.S. District Court for the Northern District of Texas granted in part and denied in part an insurance company’s motion to dismiss claims brought by a for-profit hospital for the insurance company’s failure to pay in full the amount billed for out-of-network services provided to its subscribers. The court dismissed the hospital’s claim for breach of fiduciary duty under ERISA, but denied the insurance company’s motions to dismiss ERISA claims for recovery of benefits, claims for denial of a full and fair review, and various state claims.

The hospital provided medical service to the insurance company’s subscribers after receiving coverage verification and pre-certification that the services would be covered by the insurance plan.  As a result, the hospital billed the insurance company nearly $140 million, of which the insurance company reimbursed approximately $30 million.

The hospital argued that it had derivative standing to assert ERISA claims for breach of fiduciary duty because it “stepped into the shoes of beneficiaries” when patients registered at the hospital. The insurance company responded that the assignments of benefits payable for care do not provide standing to sue for anything other than plan benefits. The court agreed with the insurance company, holding that the assignments to the hospital did not include any right to pursue non-benefit ERISA claims, and dismissed this claim.

As for the claim for recovery of benefits under ERISA, the insurance company argued that the hospital had not specifically identified the provisions of the ERISA plans that it had allegedly breached, and that the hospital had not exhausted its administrative remedies. The court disagreed and found that the hospital had given adequate notice as to which provisions were breached. Also, the court held that the hospital’s exhaustion of administrative remedies should be excused because the insurance company allegedly failed to provide meaningful access to administrative remedies and the hospital’s efforts to access such remedies were futile.

The insurance company argued that the claim for denial of a full and fair review violating ERISA should be dismissed because that relevant section of ERISA provides no private right of action. The court held that it did not give rise to a private right of action for compensatory relief, but since the hospital was not seeking monetary relief on that count, it declined to dismiss the claim.

U.S. ex rel. Wall v. Vista Hospice Care, Inc. — June 2016 (Summary)

QUI TAM/FALSE CLAIMS ACT

U.S. ex rel. Wall v. Vista Hospice Care, Inc.
No. 3:07-cv-00604-M (N.D. Tex. June 20, 2016)

The U.S. District Court for the Northern District of Texas granted summary judgment for a hospice as to its alleged violations of the False Claims Act (“FCA”) and the Anti-Kickback statute (“AKS”).  However, the claim of retaliation by the individual who brought the lawsuit, called the “relator,” and who was a former social worker for the hospice, survived summary judgment.

The relator claimed that the provider violated the FCA by admitting and maintaining ineligible patients on Medicare.  The court determined that it could not conclude from the evidence that the hospice enrolled and maintained ineligible patients.

The relator also claimed that the hospice offered to pay employees bonuses for hitting admissions targets, an AKS violation. The hospice argued, and the court agreed, that this conduct was protected by the bona fide employee exception of the AKS, and granted summary judgment for the hospice on this claim.  Even if the bonuses had been a violation of the AKS, the court stated that the relator had not met the other elements to prove an FCA claim.

The court denied summary judgment for the hospice as to the relator’s claim of retaliation.  Because the relator had provided evidence of her positive performance reviews before raising concerns and that she was fired within months of doing so, the court held that there was sufficient evidence to connect the relator’s protected activity and her termination.

FTC v. Advocate Health Care — June 2016 (Summary)

HOSPITAL MERGER

FTC v. Advocate Health Care
No. 15 C 11473 (N.D. Ill. June 20, 2016)

The United States District Court for the Northern District of Illinois denied the Federal Trade Commission’s (FTC) motion for preliminary injunction to enjoin the hospital defendants from consummating their proposed merger pending the completion of the FTC’s administrative trial in the merits of the plaintiff’s antitrust claim.  The federal district court ruled that the FTC did not demonstrate that they have a likelihood of succeeding on the merits in a Clayton Act claim against the hospital merger and denied the injunction.

The FTC sought to enjoin hospitals from consummating a proposed merger. In order for the court to grant a preliminary injunction, the FTC had to show that they would likely be successful in a Clayton Act claim against the hospitals. The Clayton Act prohibits a merger “in any line of commerce or in any activity affecting commerce in nay section of the country, the effect of [which] may be substantially to lessen competition, or tend to create a monopoly.”

In order to show that the FTC would likely win their Clayton Act claim, they had to determine both the relevant product market, and the geographic market of that product. All parties agreed that the relevant product in this case was inpatient general acute care services sold to commercial payers and their insured members. However, the parties did not agree on the geographic market.  Therefore, the FTC shouldered the burden of determining the geographic market.

The FTC’s attempt at defining the relevant geographic market failed because it excluded hospitals with relevant production, sales, or services; there was no economic basis for their hospital designations; and they ignored the “commercial realities” of the healthcare industry which point to a decrease in inpatient care and an increase in outpatient care, which effects whether or not a hospital or facility would participate in the monopoly. Because the FTC failed to define the geographic area that would be threatened by the merger, the court could not grant its motion for preliminary injunction.

Frankfort Reg’l Med. Ctr. v. Shepherd — June 2016 (Summary)

ATTORNEY-CLIENT PRIVILEGE

Frankfort Reg’l Med. Ctr. v. Shepherd
No. 2015-SC-000438-MR (Ky. June 16, 2016)

The Supreme Court of Kentucky affirmed the Court of Appeals decision to deny a hospital’s writ of prohibition and allow the defendant physicians in a malpractice suit to take discovery of interview notes taken by the hospital’s risk manager that the hospital believed were privileged.

Shortly after a baby suffered a brain injury during a difficult delivery, the hospital’s risk manager conducted interviews with the nurses and physicians involved as part of the hospital’s root cause analysis.  The child’s father filed a malpractice suit naming the hospital and the physicians as defendants.  During discovery, the hospital’s root cause analysis was produced and the hospital settled the claims against it, leaving the physicians as the only defendants.

The physicians served a subpoena on the hospital requesting the risk manager’s written notes and the statements they contain.  When and why the interviews were conducted was heavily disputed and effects whether or not the interview notes will be considered privileged information.

The hospital claimed the risk manager’s notes were privileged because the interviews were conducted in response to a letter she received from the hospital’s counsel directing her to act in anticipation of litigation. However, the physicians claimed that the interviews began immediately after the birth as part of the hospital’s standard business practice of conducting a Root Cause Analysis following an incident. The physicians argued that the notes were not privileged because the practice of conducting a root cause analysis is part of the hospital’s accreditation process and is required by law; therefore, the interviews were not done in anticipation of litigation.

Though evidence was provided to show that there were interviews conducted after the risk manager received a letter from counsel, there was also evidence of at least one interview that was conducted before the risk manager received the counsel’s letter. At best, the interviews were determined to have taken on the dual purpose of being prepared in anticipation of litigation, and in compliance with the standard business practice of preparing the root cause analysis.

Regardless of the dual nature behind the interviews, the interview notes were not privileged under the work product doctrine or the attorney-client privilege because the interviews were not obtained for the primary or predominant purpose of obtaining legal advice.

More impatient to the court was whether the employees who gave the statements were aware of whether their statements were being obtained in anticipation of litigation.  Since there was insufficient evidence on this point, the hospital was given the opportunity to produce additional evidence on this issue.  However, absent the additional evidence, the court ruled that if the interviews would have still been conducted without pending litigation, then there was no evidence that the interviewees had the intent of answering the questions in anticipation of litigation, the interviews were not conducted for the primary purpose of obtaining legal advice, and as such they were not protected from discovery.

Temple Univ. Hosp., Inc. v. United States — June 2016 (Summary)

INDEMNIFICATION

Temple Univ. Hosp., Inc. v. United States
Civil Action No. 16-1073 (E.D. Pa. June 20, 2016)

The District Court for the Eastern District of Pennsylvania granted the United States’ motion to dismiss a contractual indemnity claim but did not dismiss the counts related to the common law claims for contribution and indemnity brought by a hospital.

A hospital was sued for the alleged negligence of a physician who was alleged to be the ostensible agent of the hospital but was employed by the Federal Public Health Service.  The Hospital settled the claim that had been filed against it.  The hospital then sued the physician’s employer, the United States, under the Federal Tort Claims Act, seeking indemnity and contribution because the hospital and the physician’s employer signed a physician sharing agreement and the physician’s employer allegedly received federal funding.

The hospital argued that because the employer was deemed to be a federally funded clinic, it possessed the implied authority required to bind the United States. The court rejected this argument because the hospital failed to show that an integral part of the clinic’s duties consisted of binding the United States in contract, which was required to demonstrate that the clinic plausibly had the implied contractual authority.

However, the court found that the hospital successfully stated a claim under the common law for contribution and indemnity against the United States and allowed those claims to continue. The United States argued that the hospital had not alleged facts to show it fully extinguished the physician’s liability as required for claim contribution, but the court found sufficient the hospital’s allegation that the settlement agreement expressly released the physician from liability. Additionally, the United States argued that the common law indemnity claim was insufficient because it was inconsistent with the contribution claim and the hospital lacked a legal relationship compelling it to pay the physician’s legal liabilities. The court stated that inconsistent claims were permissible and that the theory of respondeat superior may make the hospital liable for an independent contractor physician.

HCA Health Servs. of Tenn., Inc. v. Bluecross Blueshield of Tenn., Inc. — June 2016 (Summary)

EMTALA

HCA Health Servs. of Tenn., Inc. v. Bluecross Blueshield of Tenn., Inc.
No. M2014-01869-COA-R9-CV (Tenn. Ct. App. June 9, 2016)

The Employee Retirement Income Security Act (“ERISA”) pre-empts most claims against a health insurer.  The plaintiffs in this case were eight hospitals owned by HCA.  The defendant was Blue Cross Blue Shield of Tennessee (“BCBST”).  The issue in this case involved HCA’s ability to sue BCBST to recover the cost of providing emergency care to BCBST enrollees of a plan in which HCA did not participate.

The Tennessee Court of Appeals affirmed a lower court’s grant of summary judgment against HCA which claimed that EMTALA and state law created an implied-in-law contract between itself and BCBST.  HCA argued that BCBST took advantage of HCA’s obligation under EMTALA to provide emergency care to its patients by paying HCA a cut-rate amount for services.

The court reasoned that the obligations imposed on HCA by EMTALA and the prohibitions imposed on the BCBST by state law to provide coverage for emergency services did not create an implied-in-law contract because HCA’s patients received the benefit of the emergency care and are, ultimately, the parties obligated to pay for services. BCBST satisfied its obligation by paying for the services that were agreed to with the patients. Therefore, the court concluded that without BCBST receiving a benefit from HCA, no implied-in-law contract was formed and, as a result, the court affirmed the lower court’s grant of summary judgment in favor of BCBST.

United States v. Iqbal — June 2016 (Summary)

ANTI-KICKBACK LAW

United States v. Iqbal
No. 4:15 CR 343 CDP (E.D. Mo. June 13, 2016)

The United States District Court for the Eastern District of Missouri denied a motion for judgment of acquittal and for a new trial brought by an individual who was not himself a health care provider but who acted on behalf of doctors.  The individual stated to a home health agency that he was acting as an agent for various doctors, and if the agency agreed to pay him 50 percent of its profits on the work he referred, he could steer referrals from the doctors.  Afterwards, the home health agency received one Medicaid and one Medicare referral from doctors associated with the individual.  Unknown to the individual, the home health agency had been working with an undercover agent and the individual was indicted and convicted of soliciting kickbacks for referring Medicare and Medicaid patients to the home health care agency.

The individual argued that in order to prove he was guilty the government had to prove that the physicians making the referrals for home health services actually received the kickbacks.  The court reasoned that the individual was convicted of soliciting kickbacks, and it was therefore not necessary that any kickback had actually occurred.  Whether the doctor actually received any payment was irrelevant in determining whether the individual was guilty of criminal solicitation of a kickback.  As a result, the court denied the individual’s motion for judgment of acquittal and new trial.

Cooper v. Pottstown Hosp. Co. — June 2016 (Summary)

ANTI-KICKBACK LAW

Cooper v. Pottstown Hosp. Co.
No. 15-1748 (3d Cir. June 10, 2016)

The United States Court of Appeals for the Third Circuit affirmed a motion to dismiss in favor of a hospital against a surgeon, holding that the lower court correctly ruled that the surgeon failed to plead facts to show that a hospital’s on-call contracts were not just business arrangements but rather intended to induce referrals.

While working as an independent contractor at the hospital, the surgeon entered into a contract to provide on-call services at the hospital.  Subsequently, the surgeon obtained a financial interest in a competing surgical facility.  The hospital terminated the surgeon’s on-call contract after he refused the hospital’s requests for him to divest his interest in the facility.

Soon after, the hospital entered into another on-call contract with the surgeon that allowed him to retain his financial interest in the surgical facility, as long as he did not gain employment with another hospital within 30 miles.  The surgeon secured new employment at another hospital within the 30-mile radius, so the hospital terminated his second on-call contract.  The surgeon brought suit, claiming that the hospital’s on-call contracts were covert ways of inducing exclusive referrals to the hospital, in violation of the Anti-Kickback Statute.

The appeals court reasoned that, ultimately, the surgeon failed to accuse the hospital of anything indicating that the hospital had the intent to operate a kickback scheme.  The fact that the hospital granted the surgeon a second contract, which did not stop him from retaining his interest in the rival practice, contradicted the surgeon’s assertions that the purpose of the original contract was to force him into an exclusive referral scheme.  Moreover, because the second contract contained a non-compete employment clause, the hospital was within its right to terminate the contract upon discovering that the surgeon had breached the contract by accepting employment at a medical facility forbidden by the contract.  Consequently, the appeals court ruled that the lower court was correct in dismissing the case.

Universal Health Servs., Inc. v. U.S. ex rel. Escobar — June 2016 (Summary)

FALSE CLAIMS ACT

Universal Health Servs., Inc. v. U.S. ex rel. Escobar
No. 15-7 (U.S. June 16, 2016)

The Supreme Court of the United States held that the implied false certification theory can be a basis for False Claims Act (“FCA”) liability and that FCA liability under such a theory turns on whether the requirement in question was material to the government’s payment decision.

The alleged FCA violations arose from a counseling service center operating with only a few of its employees holding the requisite licenses.  A patient at the center was treated and prescribed medication by employees who held themselves out as psychologists and psychiatrists, but lacked the required licenses and authority to prescribe medication.  The patient deteriorated after treatment and died.  This action by her parents, Massachusetts, and the United States followed.

They brought claims under the FCA against Universal Health, alleging violations under an implied false certification theory of liability.  Universal Health argued that the complaint failed to state a claim because, with one exception, the regulations violated were not conditions of payment.  In a unanimous decision, the Court held that, in some circumstances, the implied false certification theory can provide a basis for liability where at least two conditions are satisfied:  first, the claim does not merely request payment but also makes specific representations about the goods and services provided, and second, the defendant’s failure to disclose noncompliance with material requirements makes those representations misleading.

Additionally, the Court held that liability for nondisclosure of violations of CMS requirements does not turn on whether those requirements were conditions of payment.  Instead, it turns on the materiality of the requirement to the government’s payment decision.  This standard is demanding and the Court clarified that it is not sufficient that the government would have the option to deny payment if it knew of the violation.  It must be that the government in fact would withhold payment.

Caring Hearts Pers. Home Servs., Inc. v. Burwell — June 2016 (Summary)

ADMINISTRATIVE LAW

Caring Hearts Pers. Home Servs., Inc. v. Burwell
No. 14-3243 (10th Cir. May 31, 2016)

The Court of Appeals for the Tenth Circuit ruled in favor of a home health agency and denied efforts by the Centers for Medicare & Medicaid Services (“CMS”) to recoup over $800,000 for services it claimed were not reasonable and necessary.  Interestingly, the court chastised CMS for being “unable to keep pace with its own frenetic lawmaking” and stated that “an agency decision that loses track of its own controlling regulations and applies the wrong rules in order to penalize private citizens can never stand.”

The home health agency offered physical therapy and skilled nursing services to homebound Medicare patients.  In an audit, CMS purported to find patients who didn’t qualify as “homebound” or for whom services rendered were not “reasonable and necessary.” However, to reach its finding, CMS applied regulatory standards that it adopted years after the supposed violations occurred.  The court’s analysis revealed that the standards applied by CMS were more demanding than the requirements that had been in effect in 2008, the time of the supposed violations.  When the court applied the proper requirements for the time period, it ruled to not sustain the agency’s decision.  Also, it found that the plain terms of the statute could not have independently alerted the home health agency to the impropriety of its care.

In conclusion, the court stated that an application by the home health agency for costs and fees under the Equal Access to Justice Act may be substantially justified.