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Earlier this week, the boards of Beaumont Health System, Botsford Hospital, and Oakwood Healthcare approved a merger agreement to form a new $3.8 billion nonprofit organization–Beaumont Health. The deal, which still requires state and regulatory approval, would create the region’s largest health system with 8 hospitals, 153 outpatient care sites, 5,000 physicians, 33,093 employees and 3,500 volunteers. Beaumont Health expects to receive approval by the Federal Trade Commission and Michigan Attorney General in time to close the transaction by this fall.

Beaumont Health joins the long list of mergers between hospital systems over the recent years as many hospitals seek to reduce costs and improve patient care through more streamlined operations, increase bargaining power with insurance companies, and take advantage of the cost-saving incentives included in the Affordable Care Act (ACA).

When news of the merger first broke, Fox 2 Detroit interviewed Wachler & Associates partner Andrew Wachler, who explained that the merger could allow patients access to each hospital’s specialization, while allowing the hospitals to share costs. As Mr. Wachler explained, this type of cost sharing typically leads to improved health care quality and reduced costs.

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On June 11, 2014, the Michigan Supreme Court issued its decision in Michigan ex rel. Gurganus v. CVS Caremark Corp., and ruled that Michigan law requires a pharmacist to pass on the difference in cost between the wholesale cost of a brand-name drug and the wholesale cost of a generic drug to the purchaser when a generic drug is substituted for a brand-name drug (and only then). The case involved two consolidated class actions and a qui tam action against multiple pharmacies alleging that the pharmacies violated MCL 333.17755(2) by failing to pass on the savings to customers when substituting brand-name drugs with generic drugs. The plaintiffs further alleged that the defendant pharmacies necessarily violated the Health Care False Claim Act (HCFCA), MCL 752.1001 et seq, and the Medicaid False Claims Act (MFCA), MCL 400.601 et seq., by violating MCL 333.17755(2) and then submitting claims for reimbursement to the state.

The trial court granted summary disposition to the defendants because it found that the plaintiffs failed to state a claim upon which relief could be granted. The trial court noted that the plaintiffs did not plead with specificity any transactions involving the defendants that purportedly violated MCL 333.17755(2). The plaintiffs relied on a small set of cost data from a single out-of-state pharmacy during a brief time period to support their allegations of systematic fraudulent activity in Michigan by the defendants. The Court of Appeals reversed the trial court’s decision, finding that the plaintiffs’ general allegations were sufficient to avoid summary disposition. The Court of Appeals then reached several issues related to whether the HCFCA and MFCA created private rights of action. The panel also held that MCL 333.17755(2) applied to all transactions in which a generic drug is dispensed – not just to transactions in which a generic drug is substituted for its brand-name equivalent.

In a unanimous decision (with one Justice concurring only in the result), the Michigan Supreme Court reversed the Court of Appeals and reinstated the trial court’s ruling. The Court reversed the Court of Appeals’ construction of MCL 333.17755(2) and its holding that the plaintiffs’ pleadings were sufficient to survive summary disposition. It vacated the remainder of the Court of Appeals’ decision as unnecessary to the resolution of the case.

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Technological advancements that allow for quicker and more secure electronic communication have encouraged telemedicine. The Federation of State Medical Boards (FSMB) defines telemedicine as “the practice of medicine using electronic communications, information technology or other means between a licensee in one location, and a patient in another location, with or without an intervening healthcare provider.” Telemedicine technologies allow for easier access to health care in rural areas, as well as nearly immediate contact with specialists for individuals involved in an emergency situation. However, widespread usage of telemedicine is still developing and most states have yet to take the appropriate legislative initiative to enact guidelines for state medical boards and health providers to follow when implementing telemedicine systems. As a result, the Federation of State Medical Boards (FSMB), acknowledging the benefits that telemedicine offers, decided to step in.

On April 26, FSMB adopted a Model Policy for the Appropriate Use of Telemedicine Technologies in the Practice of Medicine (Model Policy). The Model Policy comes as a result of the collaborative efforts of the FSMB-appointed State Medical Boards’ Appropriate Regulation of Telemedicine (SMART) Workgroup. The SMART Workgroup, made up of state medical board representatives and telemedicine experts, was tasked with creating uniform guidelines for state medical boards and health providers after:

  • Conducting a comprehensive literature review of telemedicine services and proposed and/or recommended standards of care;
  • Identifying and evaluating existing telemedicine standards of care developed and implemented by state medical boards;
  • Revising the FSMB’s 2002 policy.

In the absence of state legislation, the Model Policy offers a uniform approach to guide state medical boards and health providers in several essential areas.

First, the SMART Workgroup emphasized that the physician-patient relationship is integral in maintaining the integrity of medical care. The Model Policy notes that, before giving any medical advice, physicians utilizing telemedicine should first:

  • Fully verify and authenticate the location and, to the extent possible, the requesting patient;
  • Disclose and validate the provider’s identity and applicable credential(s); and
  • Obtain appropriate consents from requesting patients after disclosures regarding the delivery models and treatment methods or limitations, including any special informed consents regarding the use of telemedicine technologies.

In addition, the Model Policy notes that an appropriate physician-patient relationship has not been established when the physician’s identity is unknown to the patient. Furthermore, a patient must not be randomly assigned to a physician, but rather have a choice, whenever appropriate. So long as the standard of care is met, the physician-patient relationship can be established using telemedicine technologies.

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Healthcare providers across the State of Michigan are continuing to experience terminations and non-renewals from UnitedHealthcare’s Medicaid, MIChild, and Medicare Advantage plans. As previously discussed on this blog, the network exclusions are part of UnitedHealthcare’s nationwide move to narrow networks. Narrow networks limit the amount of physicians available to plan subscribers, which some argue allow plans to better control costs and thus provide premiums that are competitive in the new insurance marketplaces. The real issue, however, is that the manner in which UnitedHealthcare is effectuating its narrow network eliminates patient choice by forcing patient’s to stay with UnitedHealthcare until their anniversary date, despite the fact that they enrolled in UnitedHealthcare with the intent to be treated by their long-term primary care physicians.

In Michigan, providers receiving Terminations Without Cause and Nonrenewals from UnitedHealthcare are granted a limited appeal right via their Participation Agreements. The appeal process, however, is “limited to a review by a UnitedHealthcare panel to determine whether UnitedHealthcare acted in accordance with the provisions of your Participation Agreement.” Accordingly, although an appeal must be filed in order to protect the provider’s appeal rights, the appeal itself may not be effective and providers must look to alternate methods in order to protect physician and patient rights.

Our firm represents multiple primary care physicians facing without cause exclusions from UnitedHealthcare. As the appeal right provided by UnitedHealthcare is insufficient, our firm has contacted the Michigan Department of Community Health (DCH) as well as representative from the State’s Attorney General office in order protect our clients’ and their patients’ rights and achieve a solution that either provides a meaningful appeal process or reinstates patients’ rights to choice of provider.

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Recently, the Department of Health and Human Services Office for Civil Rights (OCR), released its annual report on breaches of protected health information (PHI). Under the Breach Notification Rule, covered entities are required to issue notifications following breaches of unsecured PHI. Examples of covered entities include health care providers and health plans, such as HMOs. Covered entities must notify affected individuals of a breach without unreasonable delay and no later than 60 calendar days following discovery of the breach. Notification to the individuals affected by the breach must include:

  • Covered entity’s contact information for individuals to ask questions and learn additional information;
  • A brief description of the breach, including the date of the breach and discovery of the breach, if known;
  • A description of the types of unsecured PHI involved in the breach;
  • Any steps individuals should take to protect themselves from potential harm resulting from the breach; and
  • A brief description of what the covered entity is doing to investigate the breach, mitigate harm to individuals, and to protect against future breaches.

In addition, for breaches implicating fewer than 500 individuals, covered entities must submit a report to OCR no later than 60 days after the end of the calendar year in which the breach was discovered. Breaches involving 500 or more individuals require the covered entity to provide notice to OCR at the same time the affected individuals are notified. Covered entities must notify OCR by filling out and electronically submitting a form available on OCR’s website.

In its annual report to Congress on breaches of unsecured PHI, OCR reported 236 breaches of PHI which affected over 500 people in 2011 and 222 in 2012. The 236 breaches in 2011 affected in total 11,415,185 individuals, while 3,273,735 were affected in 2012. Per department policy, OCR conducted investigations of each breach that affected over 500 individuals.

Following their investigations, OCR found that the primary reason for breaches affecting over 500 people in 2011 and 2012 was theft of portable electronics or paper containing PHI. The second leading cause of breaches was unauthorized access of records containing PHI. For example, in 2011 the largest breach occurred because of a loss of backup tapes, affecting 4.9 million people. Similarly, in 2012, 116,506 individuals were affected when an unencrypted laptop containing PHI was stolen.

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The results of an audit conducted by the state of Michigan were released on Tuesday, June 17, 2014. The audit found that the state Medicaid program improperly spent $160 million over a three-year period – from October 2010 through August 2013 – on home care services under the Medicaid Home Help Program.

Home care services provide assistance to those residents with disabilities or cognitive impairments who wish to remain in their own homes instead of a care facility. Some services provided include assistance with eating, bathing, and dressing. The overpayments were the result of state administrators of the Medicaid Home Help program failing to obtain invoices and other required documents from service providers. Home care services differ from home health services in that home health services provide continuous medical treatment that a beneficiary would normally receive in an outpatient or inpatient setting, in the home, over extended periods of time. In order to be reimbursed for home health services, home health providers must also meet numerous requirements that home care providers are not subject to (e.g., the face-to-face requirements under the Affordable Care Act).

The Medicaid Home Help Program serves about 67,000 people per year and expenditures from the program account for about 18 percent of all joint federal-state Medicare spending in the state of Michigan. What is particularly important that providers should take note of – and keep a watchful eye out for – is that the state of Michigan may be required to pay back nearly $100 million to the Federal government under regulations governing the matching of state Medicaid expenditures with Federal dollars. If such a repayment is required, the state will likely seek to recoup part, if not all, of the funds from providers who were improperly paid. In fact, the director of the Department of Human Services (DHS) – one of the state agencies responsible for administering the program – says it has already begun the process of recouping payments from some providers. However, DHS notes that it does question the estimated amount of improper payments, challenging it on the basis that it was extrapolated from a small sample size.

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In May of 2014, the Office of the Inspector General (OIG) released a report detailing its findings regarding Medicare payments for evaluation and management (E/M) services. E/M services are performed by physicians in order to assess and manage a beneficiary’s health. The OIG found that coding errors in documents for routine patient E/M services have resulted in the Medicare program paying out billions of dollars in improper payments each year. Earlier in 2014, the OIG reported that the overall Medicare program lost about $50 billion during 2013. In conducting this study, 63 percent of the claims sampled by the OIG were for established patient office/outpatient visits. Only 4 percent of the visits the OIG analyzed were for initial or subsequent skilled nursing care.

The OIG reports that for the 2010 fiscal year, Medicare payments for E/M services totaled $32.3 billion, which accounted for almost 30 percent of all Part B payments. The OIG also noted that in 2012, physicians began to increase their billing of higher level codes, which resulted in higher payment amounts. In its report, the OIG found that 55 percent of E/M services were incorrectly coded and/or lacked sufficient documentation, including: 26 percent of E/M claims were up-coded; 15 percent of E/M claims were down-coded; 12 percent of E/M claims were insufficiently documented; and 7 percent of E/M claims were undocumented altogether. In order to ensure that payments for E/M services are properly coded and supported by sufficient documentation, the OIG made the following recommendations to CMS: (1) educate physicians on coding and documentation requirements for E/M services; (2) continue to encourage contractors to review E/M services billed for by high-coding physicians; and (3) follow up on claims for E/M services that were paid for in error.

As indicated by this report, providers can expect greater scrutiny of their E/M claims by CMS audit contractors. In our experience, CMS audit contractors routinely down-code the level of E/M service billed by providers. Often times, these services are down-coded because CMS determined that the level of E/M service billed is not supported by the accompanying medical records (e.g., the visit note did not support the level of medical decision making component required by the code that was billed). With the increased audit attention relating to E/M services, providers must ensure that they are thoroughly documenting the services provided, and that each component of the E/M service is supported by the medical record. Failure to do so could leave providers vulnerable to audit contractors.

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In the past year, thousands of health care providers across the country have been excluded without cause from their insurance plan’s provider networks. The proliferation of narrow networks – defined as health insurance plans that limit the doctors and hospitals available to their subscribers – has caused a backlash amongst providers, who claim the insurers’ terminations will squeeze beneficiaries on access to care, and disrupt longstanding patient-physician relationship, emergency department care, and referral networks.

Although the Affordable Care Act did not create narrow networks, the reform law accelerated the trend by limiting insurer’s ability to continually lower benefits and exclude unhealthy individuals. Without other ways to compete, controlling providers and limiting choice is the insurers’ best way to lower premiums and thus compete on the exchanges. Insurers claim that narrow networks control costs and allow for higher quality, better coordinated care.

In most cases, however, patients choose insurance plans based on the plan’s access to a specific provider network. Patients subscribe and re-subscribe to one-year commitments with the primary intent to access their long-term primary care physicians or other regularly seen providers. Patients often build relationships with these providers over several years, even decades. Now, without notice or the ability to switch their plan, the patients’ physician is suddenly out-of-network and cost-prohibitive.

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On May 28, 2014, the U.S. Department of Justice (DOJ) settled a whistleblower lawsuit against Medtronic, Inc. for $9.9 million. Medtronic, the fourth largest medical device supplier in the world, was accused of violating the Anti-Kickback Statute and False Claims Act by paying kickbacks to physicians for using Medtronic’s defibrillators and pacemakers.

The allegations came to light after former Medtronic employee-whistleblower notified authorities of the illicit payments, which occurred between 2001 and 2009. In addition to tying kickbacks to the usage of Medtronic products, the complaint details that Medtronic allegedly produced business development and marketing plans for the doctors at no cost, paid doctors to speak at events with the goal of increasing referrals, and gave doctors tickets to sporting events. The complaint further outlines that Medtronic’s sales staff provided doctors with lavish trips and gifts, and even offered cash payments for the utilization of Medtronic devices. Also, business plans were in place in which sales representatives were allegedly instructed to visit doctors’ offices to review patient charts and flag those who they thought should receive an implant despite patients not meeting the criteria for an implantable device.

This settlement should encourage providers to ensure their physician arrangements do not violate provisions of the Anti-Kickback Statute, False Claims Act, or any other fraud and abuse laws. Wachler & Associates healthcare attorneys regularly counsel providers in proactively addressing potential kickback violations and defending providers against government allegations. If you or your healthcare entity have any questions regarding the Anti-Kickback or Statute Stark Law, or wish to have your arrangement reviewed by our attorneys please contact an experienced health care attorney at Wachler & Associates at 248-544-0888.

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On May 12, 2014, the U.S. Department of Health and Human Services (HHS) issued a Proposed Rule to increase the Office of Inspector General’s (OIG) authority to combat fraud and abuse under the Civil Monetary Penalty (CMP) Regulations. The Proposed Rule implements changes enacted by the Patient Protection and Affordable Care Act of 2010 (ACA), which expanded OIG’s ability to assess CMP fines against individuals or entities that defraud Federal healthcare programs. Under the proposed rule, OIG may assess CMPs against individuals or entities for:

  1. Failure to grant OIG timely access to documents, as determined on a case-by-case basis;
  2. Ordering or prescribing medicine or services that the person knows or should know may be paid for by a federal health care program while excluded;
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