Health Care Legislation Updates

The Minnesota Legislative Session adjourned on May 21, 2007. In total $9.7 billion was allocated to Health and Human Services, constituting over 28% of the all General Fund Spending. Additionally, the following pieces of health care legislation were enacted:

Updates to the Minnesota Health Records Act
The Minnesota Legislature updated the Minnesota Health Records Act to, other things, facilitate the exchange of electronic information between health care providers via a "Record Locator Service" ("RLS"). The RLS is an index that will provide information about the location of medical records to participating providers. The updated Act allows a provider or group purchaser to send patient identifying information and the location of medical records to a service without the patient's consent. However, providers must have patient consent to access patient identifying information from the service. Further, only providers are allowed to access patient identifying information through the RLS and the Minnesota Department of Health is specifically prohibited from accessing patient identifying information through the service. The legislation can be viewed here.

Amendments to Patients' Bill of Rights
The Legislature amended the state Patients' Bill of Rights. Under this new law, a patient may now be accompanied by a family member or other chosen representative or both while his or her physician discloses information about potential treatment. The law also extends a patient's ability to participate in planning of treatment by allowing, in situations where a patient cannot be present during treatment discussions with caregivers, for a chosen representative to include a doula of the patient's choice. Additionally, the law broadens the rights of a resident to associate with visitors and requires an opportunity be given to a patient, conservator, or legal guardian of the patient to designate a person who is not related as one who will have the status of next of kin. Finally, the law sets forth that a health care agent can visit a principal in a health care facility regardless of whether the principal has decision-making capacity unless one of the bill's three specific circumstances are met.

New State Licensing Requirements
The 2007 Health and Human Services Omnibus Bill also impacted the licensing laws in a variety of areas. First, new licensure requirements for limited x-ray machine operators, professional clinical counselors, physical therapist assistants, and speech-language pathologists and audiologists were created. Second, changes were made to the current requirements for graduates from foreign medicals schools, for social work licensing, and for health-related licensing board provisions. Finally, the expiration date for certain health occupation advisory councils and made technical corrections to the Board of Pharmacy statues was extended.


FOR PROVIDERS
IRS Issues Guidance on Hospital-Physician EHR Relationships

On May 11, 2007, the IRS released an internal memorandum announcing that not-for-profit hospitals subsidizing electronic health records ("EHR") technology to physicians would not endanger 501(c)(3) status so long as the following conditions are met.

  1. The hospital-physician arrangement complies with the anti-kickback and Stark EHR regulations at 42 C.F.R. Section 411.352 and 42 C.F.R. Section 1001.952.
  2. The hospital must have access to all of the EHRs created by a physician using the hospital's technology.
  3. The hospital makes its technology available to all of its medical staff physicians.
  4. The hospital provides the same subsidy to all physicians or varies the subsidy using criteria related to meeting the healthcare needs of the community.

If all of the above conditions are met, the subsidy will not be considered a prohibited private benefit or private inurement. Stephen Clark, an IRS official , further stated that, "We're not saying that if it doesn't fit this mold, it's automatically going to create an impermissible private benefit. But if it varies from what's here, the hospital wouldn't be able to rely on this directive; we'd have to see the facts and circumstances".

The IRS is concerned that any third party benefit arising from these subsidies be incidental to the primary goal of improving patient care. Therefore, IT subsidies that are primarily providing office management software, as opposed to EHR software, to physicians would still be considered private benefit and may endanger a hospital's 501(c)(3) status.


IRS Finds Medical Practices Constitute Unrelated Trade or Business

On April 20, 2007, the IRS issued a private letter ruling regarding affiliations between professional corporations and hospitals. See Priv. Ltr. Rul. 2007-16034. An employee physician is the sole shareholder of each of the professional medical corporations pursuant to shareholder agreement terms by which the physician buys corporation stock at a nominal price, is required to be employed by the Hospital through the corporation, and is prohibited from disposing of or encumbering the stock. The acquisition costs of the corporation are funded substantially by loans from the Hospital and the parent. Upon termination of employment with the Hospital, the physician is required to sell all shares at the original nominal price. The physician is not entitled to profits or losses from the operation of the corporation and is required to give the hospital any income received from the corporation. The hospital provides management, professional, and administrative services to each corporation. Three rulings were requested: whether the Parent corporation was a controlling organization with respect to the private corporations within the meaning of §512(b)(13)(A); if so, whether the private corporations have net unrelated income or loss under §512(b)(13)(B); and if so, whether the interest accrued by the hospital or parent from the private corporations should be treated as gross income derived from an unrelated trade or business under §512(b)(13)(A).

  • Ruling 1.
    The IRS ruled that the Hospital holds all significant rights granted by stock ownership because the Hospital has the right to force the physician to sell all corporation stock at no profit, the physician holds the stock at the hospital's pleasure, and the physician cannot act with regard to the stock contrary to the Hospital's instructions. Therefore, under Frank Lyon Co. v. U.S., 435 U.S. 561, 572 (1978), the Hospital is the beneficial owner and a controlling organization.
  • Ruling 2.
    The IRS further ruled that the corporation's provision of medical services to their own patients does not have a substantial causal relationship to the achievement of the Hospital's exempt purpose under Geisinger Health Plan v. Commissioner, 100 T.C. 394, 405 (1993) and IHC Health Plans v. Commissioner, T.C. Memo 2001-246, aff'd 325 F.3d 1188 (10th Cir. 2003). Therefore, the corporations are conducting their activities on a larger scale than is reasonably necessary for the Hospital's exempt functions and are engaged in an unrelated trade or business with respect to the Hospital. Consequently, the corporations' income is unrelated income.
  • Ruling 3.
    The IRS further ruled that interest accrued by the Hospital and the Parent from the corporations pursuant to the start-up loans constitutes a specific payment within the meaning of §512(b)(13)(C), and as such counts as gross income derived from an unrelated trade or business to the extent it reduces the corporations net unrelated income.


FRAUD AND ABUSE
Medicare Fraud Strike Force Targets Fraudulent Billing Practices

In an effort to crack down on companies that fraudulently bill the Medicare program, Attorney General Alberto Gonzales and Secretary Michael O. Leavitt of the Department of Health and Human Services (DHHS) announced last month that 38 people had been arrested for allegedly using their durable medical equipment and infusion therapy supply businesses to cheat the Medicare program out of $142,061,059.

A Medicare Fraud Strike Force comprised of federal, state and local investigators was responsible for securing the arrests. Using real-time analysis of billing data from Medicare Program Safeguard Contractors and claims data from the Health Care Information System, charges brought by the Strike Force include conspiracy to defraud the Medicare Program, criminal false claims, and violations of the Anti-Kickback statute. If convicted, many of the defendants face up to twenty years in prison.

The indictments outline various methods that were used to defraud the Medicare program including schemes to bill for services that were not necessary or were never delivered to a Medicare patient and/or never ordered by a physician.

The investigation, conducted in the Southern District of Florida, began on March 1, 2007 and the arrests target infusion therapy and durable medical equipment suppliers. In early phases, the focus has been on these areas because of their potential for abuse, but the government is cognizant of abuse and the need for enforcement throughout all aspects of Medicare. In a press release dated May 9, 2007, Secretary Leavitt announced that they "will be announcing the second step in this multi-year process within the next month."


CMS Clarifies Emergency Services Requirements for Hospitals

In order to comply with Medicare Conditions of Participation (CoPs), nearly all hospitals must be able to evaluate persons with emergencies, provide initial treatment, and be able to refer persons with emergencies to other hospitals when appropriate. The guidance was released April 26th as part of survey and certification letters to state surveyors. The requirements issued apply to all hospitals (except Critical Access Hospitals) whether or not they have an emergency department.

According to CMS, each hospital must have a registered nurse immediately available who is qualified to recognize that a person needs emergency care, and who can provide initial treatment to a person with a medical emergency. The on-site or on-call physician should either provide appraisals of emergencies or direct the onsite staff in their appraisals.

In addition, hospitals are advised that they should evaluate the patient population the hospital routinely cares for in order to anticipate emergency care scenarios, and develop policies, procedures, and staffing required to ensure it can provide safe and adequate initial treatment of medical emergencies. While a medical emergency is not defined by the Medicare CoPs, the EMTALA definition of medical emergency should be used as a "general guide."

The letter also makes clear that hospitals cannot rely on 911 services to substitute for the emergency response capabilities, but that hospitals may in "extraordinary circumstances" use 911 to secure transport of a patient to another hospital. However, hospitals are still responsible for arranging for the patient's transfer to an appropriate facility and transferring the necessary medical information along with the patient.


FOR PHARMACEUTICAL MANUFACTURERS
Federal Court Finds New Hampshire Law Prohibiting the Transmission of Prescribing Data Unconstitutional

A federal court in New Hampshire found a state law prohibiting the transmission and use of patient-identifiable and prescriber-identifiable data for certain commercial purposes violates the First Amendment. IMS Health Inc. v. Ayotte, No. 06-cv-280-PB (D.N.H. Apr. 30, 2007). The plaintiffs, IMS Health Inc. and Verispan, LLC, acquire prescription information, de-identify the patient information, and sell that information to clients who then use the information to market to specific prescribers.

The court found the law impermissibly restricted protected speech because it limited both the use and disclosure of the data. The court rejected state arguments that the state had a substantial interest in protecting prescriber privacy, containing healthcare costs and promoting public health because the evidence did not show that the data was being used to improperly coerce providers, intrude upon the doctor-patient relationship, or promote false or misleading statements. Further, the court argued that the state could accomplish its goal of preserving independent physician judgment through less restrictive means, such as the implementation of state anti-kickback provisions, the distribution of best practice guidelines, or amending the state Medicaid program to consider drug costs when determining reimbursement rates.


Manufacturer of OxyContin Agrees to Pay $700 Million to Settle Criminal and Civil Charges

The FDA recently announced that the Purdue Frederick Company, Inc. and three of its executives have agreed to pay in excess of $700 million to settle criminal and civil liabilities arising from a long term marketing scheme promoting the pain reliever OxyContin. Purdue pled guilty to one felony count of misbranding a drug with intent to defraud and mislead. In its marketing and promotion efforts, Purdue generally claimed that OxyContin was less addictive, less subject to abuse, and less likely to cause withdrawal symptoms than other pain medications. These claims were neither supported by medical research evidence nor approved by the FDA. It was also alleged that Purdue failed to disclose adequately the fact that the drug posed an unusually high risk of abuse and marketed the drug for other off-label uses. Purdue was accused of misbranding OxyContin in three specific ways. First, the sales representatives said that Oxycontin did not have as dramatic a euphoric effect as did other opiods. This misrepresentation was often demonstrated by way of graphs that exaggerated the "peak and trough" blood level effects that supposedly led to the lower euphoria. Second, Purdue produced and circulated an article about a study that supposedly proved that users of OxyContin did not develop a tolerance. They also claimed that people who took less than 60 milligrams per day did not suffer withdrawal symptoms. These claims were made despite the fact that Purdue was aware of significant evidence to the contrary. Finally, sales representatives said that OxyContin's delayed absorption led to less euphoria and addiction.