Sebelius v. Auburn Reg’l Med. Ctr. (Summary)

REIMBURSEMENT APPEALS

Sebelius v. Auburn Reg’l Med. Ctr., No. 11-1231 (U.S. Jan. 22, 2013)

In a suit brought by several hospitals against the Department of Health and Human Services (“DHHS”), seeking adjustment of disproportionate share payments that were incorrectly calculated over a period of several years, the Supreme Court of the United States (“Court”) held that the lawsuits were barred by the statute of limitations because they involved appeals of Medicare claims that were over 10 years old and, by statute and regulation, reimbursement appeals must be filed within 180 days following notification of the intermediary’s reimbursement calculation or, when good cause has been shown, within three years.

The hospitals in this case had filed appeals with the Provider Reimbursement Review Board (“PRRB”) after learning of the success of another hospital which challenged its disproportionate share payments.  Because CMS had previously released only the results of its calculations and not the underlying data, the hospitals did not have definitive evidence of the miscalculation until they learned of the success of the other hospital.  Accordingly, they argued that the 180-day/three-year limitations should be subject to equitable tolling and should begin to run only once the PRRB’s ruling in the other matter became available to the public.  The PRRB rejected the hospitals’ appeals, noting that it had no authority to extend the statute of limitations, by equitable tolling or otherwise.  Accordingly, the hospitals filed suit.

Several such lawsuits made their way through federal trial and appellate courts, with a number of appeals courts divided on whether equitable tolling could apply in Medicare reimbursement appeals to the PRRB.  Accordingly, the Court decided to hear one such case and issue a ruling.

The Court held that the statute which sets a 180-day statute of limitations for appeals to the PRRB is not “jurisdictional” by nature and, accordingly, it does not serve as a complete bar to extensions of the statute of limitation for such appeals.  In turn, the Court held that the DHHS was entirely within its discretion to promulgate a regulation allowing the PRRB to extend the statute of limitations to three years upon a showing of good cause by the party requesting the appeal.

The Court rejected the notion that equitable tolling should apply to appeals to the PRRB, however.  In reaching this conclusion, the Court noted that equitable tolling has never been applied to an agency’s internal appeal deadline (as opposed to claims in courts of law).  Perhaps more importantly, the Court noted that equitable tolling is a concept that is generally applied because it is consistent with legislative intent.  But, in the case of the Medicare Act, it was never the legislature’s intent to allow expansive administrative or judicial review.  In fact, the Court noted, until 1972, the Act provided no avenue for such review and only after Congress ordered the PRRB was such review available and, at that time, the review was specifically subject to a 180-day filing deadline.  Lastly, the Court made it clear that the statutory scheme that allows Medicare reimbursement reviews through the PRRB was never intended to be unusually protective of provider claimants.  The Court noted that Medicare-participating providers tend to be sophisticated organizations with legal counsel and resources sufficient to internally identify errors in reimbursement and timely file challenges to such errors.

Disability Rights N.C. v. Moses H. Cone Mem’l Hosp. Operating Corp. (Summary)

PEER REVIEW PRIVILEGE

Disability Rights N.C. v. Moses H. Cone Mem’l Hosp. Operating Corp., No. 1:11CV812 (M.D. N.C. Jan. 17, 2013)

The United States District Court for the Middle District of North Carolina denied a hospital’s motion to dismiss a lawsuit that had been brought by a state-designated disability advocacy organization, which was seeking injunctive and declaratory relief from the court, to force the hospital to provide it with the medical and peer review records involving a mental health patient who died while restrained.  The advocacy organization was conducting an investigation of the patient’s death pursuant to the authority granted to it by the federal Protection and Advocacy for Individuals with Mental Illnesses Act (“PAIMI”).  The Act provided the advocacy organization with the authority to access records in the course of investigating allegations of abuse or neglect of individuals with mental illness.

The hospital supplied some of the requested records to the advocacy organization, but refused to provide internal investigation reports, claiming the peer review privilege provided under state law protected such reports from discovery and that privilege was not preempted by the PAIMI.  The court rejected the hospital’s arguments, holding that the peer review privilege did not apply at all in this circumstance since it involved an investigation by a federally-authorized agency, rather than a civil action against the hospital.  Second, the court noted that a number of federal appeals courts had interpreted the PAIMI to preempt state peer review statutes and there was no reason for this court not to follow suit.  Noting the unambiguous statutory language of the PAIMI, the court held that it preempted the state peer review statute.  Accordingly, peer review records would be discoverable and, in turn, the hospital’s motion to dismiss was denied.

Zawaideh v. Neb. Dep’t of Health and Human Servs. (Summary)

STATE LICENSING ACTIONS

Zawaideh v. Neb. Dep’t of Health and Human Servs., No. S-12-069 (Neb. Jan. 18, 2013)

The Supreme Court of Nebraska affirmed summary judgment in favor of Nebraska’s Attorney General (“AG”) and Department of Health and Human Services’ Regulation and Licensure Department (“DHHS”) in a case brought by a physician who claimed that the AG duped him into agreeing to an “assurance of compliance” agreement by emphasizing that it was not disciplinary in nature, despite the AG having knowledge that such agreements were being interpreted as disciplinary by outside sources and that entering into such an agreement could have negative effects on the physician.

This case involved a physician against whom a disciplinary licensure action was proposed following an investigation of his obstetrical care of a particular patient. After the physician repeatedly refused proposed settlements that included disciplinary actions, the AG offered the physician an “assurance of compliance,” emphasizing that this was not a disciplinary procedure.  The assurance of compliance document required the physician to agree not to practice obstetrics.  Since the physician had already given up obstetrics, he agreed.  As a result of this action becoming part of his profile, the state of Washington (where he also held a license) entered a disciplinary order against the physician and reported him to the National Practitioner Data Bank.  The physician alleged that, as a result, his board certification was terminated.

The physician filed suit against the Nebraska AG and DHHS alleging fraudulent and negligent misrepresentation.  The lower court dismissed the suit, finding that the claim was a contract claim subject to the state Contract Claims Act and, due to the physician’s failure to follow that Act, the AG and DHHS were entitled to sovereign immunity.  On appeal, the Supreme Court of Nebraska affirmed summary judgment, but for a different reason.

First, the court noted that the state (and, in turn, its agencies) is immune from suit unless it has specifically waived its sovereign immunity through some statutory scheme.  Notably, individuals may sue the state of Nebraska under the State Contract Claims Act and the State Tort Claims Act.  In this case, the court found the State Contract Claims Act to be inapplicable, holding that fraudulent and negligent misrepresentations claims are tort claims, rather than contract claims.  The court also found the State Tort Claims Act to be inapplicable since it applied to claims for money only – and the physician in this case was seeking declaratory relief (removal of the assurance of compliance from his record).

Unable to fit the physician’s claims within any other exception to the state’s sovereign immunity, the court upheld summary judgment in favor of the AG and DHHS.

Hasbun v. United States (Summary)

NEGLIGENT SUPERVISION

Hasbun v. United States, No. 12 C 2543 (N.D. Ill. Jan. 17, 2013)

The United States District Court for the Northern District of Illinois dismissed a lawsuit brought against a Medical Center and the United States Public Health Service (“the U.S.”) by a patient who alleged inappropriate touching during a gynecological examination and, in turn, negligence and negligent supervision by the Medical Center and the U.S. due to their failure to require physicians to have chaperones present during such examinations.

In dismissing the patient’s claims, the court noted that a claim of negligent supervision under Illinois law requires the patient to allege that the employer (in this case the U.S.) knew or should have known that the physician had a particular unfitness for his position so as to create a danger of harm to third persons.  The patient in this case failed to make any allegations that the Medical Center or U.S. had knowledge of the physician’s propensity to commit sexual assault.

In dismissing the negligence claim, the court noted that duty is an essential element of any such claim.  In this case, the patient’s only allegation of duty was that the Medical Center and U.S. should have had a policy requiring chaperones to be present.  But the patient failed to cite any authority for such a duty, other than an AMA guideline stating that chaperones should be available on request.  And even if the AMA guideline created a duty, the patient failed to allege that she requested a chaperone.  Accordingly, the court dismissed the patient’s complaint for failure to plead facts sufficient to state a claim, but gave leave for the patient to amend her complaint.

Ahmed v. Tex. Tech Univ. Health Sci. Ctr. — Jan. 2013 (Summary)

WHISTLEBLOWER

Ahmed v. Tex. Tech Univ. Health Sci. Ctr.
No. 07-11-00176 (Tex. App. Jan. 23, 2013)

The Court of Appeals of Texas dismissed a lawsuit brought by a physician against the medical school where he had served as an assistant professor of surgery and his supervisor, alleging that he was forced to resign in retaliation for reporting his concerns regarding a new surgeon’s credentials.  The court noted that the medical school, as a state institution, was entitled to sovereign immunity from suit, unless a specific exception to the immunity applied.  The court rejected the physician’s claim that he fell within the protections of the Texas Whistleblower Act, which provides an exception to sovereign immunity.  In support of its conclusion, the court noted that the physician could not have reasonably believed he was reporting a violation of the law to an appropriate law enforcement authority when he alerted two private hospitals and his supervisor of his concern that the new surgeon was misrepresenting her credentials.  The court also rejected the notion that hospital credentials and peer review committees were extensions of the state board of medicine because they were required to make certain reports to the board.

Smith v. UHS of Lakeside, Inc. (Summary)

MEDICAL MALPRACTICE

Smith v. UHS of Lakeside, Inc., No. W2011-02405-COA-R3-CV (Tenn. Ct. App. Jan. 18, 2013)

The Court of Appeals of Tennessee vacated and remanded a trial court’s orders granting summary judgment in favor of a mental health facility that held a patient for several days for psychiatric evaluation, during which the patient suffered from encephalopathy which eventually caused his death.  The appeals court vacated the grant of summary judgment because, contrary to Tennessee’s rules of civil procedure, the trial court judge made no oral findings of fact nor conclusions of law to serve as the basis for its rulings and, instead, ordered the prevailing party (counsel for the mental health facility) to prepare the summary judgment orders, including all rationale.  The appeals court determined this to be an abrogation of the trial court’s duties.

Prpa v. Wheaton Franciscan Med. Group, Inc. (Summary)

PHYSICIAN CONTRACTS

Prpa v. Wheaton Franciscan Med. Group, Inc., No. 2011AP3013 (Wis. Ct. App. Jan. 23, 2013)

The Wisconsin Court of Appeals affirmed a trial court’s award of two-thirds attorney’s fees and costs to a physician who sued his medical center employer for breach of contract.

The medical center that employed the physician was a nonprofit entity and, as such, was required to keep physician compensation consistent with fair market value. Accordingly, the medical center obtained a consultant’s opinion that its new compensation plan was consistent with fair market value and, in turn, began compensating physicians pursuant to the plan.  Within seven months, the medical center discovered that the data that it had supplied to the consultant had inadvertently altered the fair market value analysis.  This ultimately resulted in the consultant withdrawing its opinion and the medical center changing its compensation model in July of that year.  The medical center notified the surgeon of the change and the fact that it would be applied retroactively to January 1.  The surgeon continued working and, at the end of the year, was notified that his draws had exceeded his earned income by over $300,000.  The medical center informed the surgeon that it would adjust his draws during the next calendar year to make up for the difference.  The surgeon then sued the corporation for breach of contract, arguing that the changes to his compensation were in violation of the contract and that the restrictive covenants contained in the contract should not be enforced.

The trial court upheld two of the three restrictive covenants included in the contract (upholding the covenant not to compete and the confidentiality covenant; finding the nonsolicitation covenant unenforceable).

With respect to compensation, the trial court held that pursuant to the contract between the medical center and physician, the medical center had the right to change the surgeon’s compensation periodically and could, accordingly, impose changes to the physician’s compensation following the July modification to the compensation plan.  However, the court also found that the corporation could not retroactively apply changes to the compensation model when calculating the physician’s compensation from January through July.  Accordingly, the court awarded over $100,000 to the physician.

Most importantly, the court then awarded attorney’s fees and costs to the physician, pursuant to a provision of the contract which required the unsuccessful party in any litigation to enforce the contract to pay the successful party’s costs of litigation.

On appeal, the medical center argued that it, not the physician, was the successful party since it had won two of the three restrictive covenant challenges and had won one of the two compensation disputes (the dispute over whether it could modify the physician’s compensation from July through December).

The appeals court disagreed and upheld the lower court’s award of two-thirds costs to the physician, noting that the lower court’s manner of calculating the success of the parties was not unreasonable.  Specifically, the lower court had assigned each of the restrictive covenant claims a weight of one and had assigned the compensation claims, collectively, a weight of three.  Accordingly, of the six total “points,” the trial court held that the physician was successful on four (all three of the compensation points and one of the restrictive covenant points).  Accordingly, the court awarded a proportionate amount of the costs to the physician.

 

Baugh v. Columbia Heart Clinic, P.A. (Summary)

NON-COMPETITION CLAUSES

Baugh v. Columbia Heart Clinic, P.A., No. 5074 (S.C. Ct. App.  Jan. 16, 2013)

The South Carolina Court of Appeals reversed a trial court’s award under the state’s Wage Payment Act (“Act”).  Two interventional cardiologists sued their former medical practice.  Their agreements with the practice included two non-compete provisions.  One prohibited the cardiologists from practicing within 20 miles of their former practice for one year or forfeit certain financial rights.  The second prohibited any direct or indirect competition with their former practice within a 20-mile radius for one year.  In April 2006, the cardiologists left the practice.  In May, they opened a new clinic within 300 yards of one of their former practice’s offices.  The cardiologists then sued their former practice, seeking a declaratory judgment that the non-compete provisions were unenforceable, as well as injunctions against their enforcement and alleging violations of the Act.  The trial court held the non-compete provisions unenforceable and awarded the cardiologists unpaid compensation under the Act.

The appellate court reversed.  It found that both of the provisions were reasonable, since they did not place unreasonable geographic prohibitions on the cardiologists.  Also, it found that by violating the non-compete provisions, the cardiologists forfeited the financial rights that they sought under the Act, and that the former practice had not violated the Act in denying them those rights.

Fresenius Med. Care Holdings v. Tucker (Summary)

PATIENT REFERRALS

Fresenius Med. Care Holdings v. Tucker, No. 11-14192 (11th Cir. Jan. 10, 2013)

The United States Court of Appeals for the Eleventh Circuit affirmed a motion for summary judgment in favor of the board of medicine.

A group of renal dialysis providers brought suit against the board, claiming that a state statute that prohibits physicians from referring their patients to business entities in which they have a financial interest was unconstitutional because it preempted federal law, violated the commerce clause, and violated due process.

The circuit court held that the state statute did not preempt federal law, but properly prohibited what would be allowed under federal law.  The court stated that it was possible for the providers to comply with the state law without violating any parts of the federal law.  The court noted that the federal law allowed for the possibility of state laws to limit the exceptions it allows.

The circuit court also held that the state statute did not violate the commerce clause or discriminate against interstate commerce.  The court stated that state law treated in state and out of state clinics in a similar way.  Any burden placed on out of state businesses is not excessive and serves the appropriate purpose of protecting the state’s patients.

The circuit court held that the statute did not violate due process.  The court stated that it was rational for the state to remove the exception granted by federal law in order to reduce conflicts and improve health care.

U.S. ex rel. Dennis v. Health Mgmt. Assocs. (Summary)

FALSE CLAIMS ACT

U.S. ex rel. Dennis v. Health Mgmt. Assocs., No. 3:09-cv-00484 (M.D. Tenn. Jan. 14, 2013)

In this False Claims Act (“FCA”) case, the United States District Court for the Middle District of Tennessee dismissed all claims against a medical center and its parent corporation.

The medical center operates a hospital, which entered into a recruitment contract with the relator, a physician.  The relator alleged that the recruitment contract was a sham, which concealed violations of Stark and the Antikickback Statute.  He also alleged that the hospital had entered into similar sham contracts with other physicians, through which the hospital sought to induce referrals in exchange for below fair market value rent, higher than fair market value salaries, and the provision of supporting personnel free of charge.  The relator alleged that he was pressured to comply with an annual referral requirement, since the recruitment contract required that he maintain active status at the hospital, which, in turn, required him to make 24 admissions per year.  He also alleged that claims based on improper referrals were submitted to Medicare and Medicaid in violation of the FCA and its state law analog.  The United States and the state declined to intervene in the matter.

The court found that the requirement to maintain active status did not amount to a referral requirement.  Instead, it found that staff categories are merely a mechanism of correlating a physician’s use of the hospital’s facilities with responsibilities.  Therefore, it dismissed the relator’s claims premised on that basis.