News / Resources

Topics covered in this issue of the Health Law Update include:

• Court Upholds CMS Administrator’s Denial of Medicare Bad Debts
• Group Not Protected by an Insurer’s Bad Faith Settlement Under a Physician’s Malpractice Policy
• FDA Issues Data Retention Guidance When Subjects Withdraw From Clinical Trials
• Obama-Biden Transition Team Update

COURT UPHOLDS CMS ADMINISTRATOR’S DENIAL OF MEDICARE BAD DEBTS

On November 24, 2008, the United States District Court for the Southern District of California issued a decision in El Centro Regional Medical Center v. Leavitt affirming the Centers for Medicare & Medicaid Services’ (CMS) denial of the hospital’s Medicare bad debt because it failed to put “similar effort” into the collection of non-Medicare and Medicare accounts. Like a number of hospitals, El Centro sent its bad debts (both Medicare and non-Medicare) to outside collection agencies for pursuit of payment. The hospital’s intermediary disallowed the hospital’s Medicare bad debt reimbursement because, once at the outside collection agency, a different process for collection was applied to Medicare versus non-Medicare accounts. The hospital argued, and the Provider Reimbursement Review Board (PRRB) agreed, that by sending both Medicare and non-Medicare accounts to a collection agency it was pursuing reasonable collection efforts as required by the regulation, that its efforts were similar for both sets of accounts, and that Medicare manual provisions do not dictate the particulars of the efforts once the accounts are sent to a collection agency. According to the PRRB, “the manual provision [governing reasonable collection efforts] is a [Medicare] program guideline that is applicable to Medicare providers, and it cannot be applied to ... contracted collection agencies.”

The CMS Administrator disagreed with the PRRB and imposed the “similar collection effort” requirement to activities conducted by the collection agency as well.

The district court found that it was not arbitrary and capricious for CMS to interpret its manual provisions on bad debt as being applicable to both in-house and outside collection efforts. Based on this finding, the court held that there was enough evidence in the record for CMS to determine that the collection efforts that occurred at the outside collection agency were less rigorous for Medicare accounts compared to non-Medicare accounts (e.g., the tone of collection letters were less threatening for Medicare accounts, the non-Medicare accounts were retained longer for additional collection efforts, etc.). The decision did not address the “Bad Debt Moratorium” that was central to the Foothill Hospital v. Leavitt decision issued by the D.C. district court in May of 2008 that found in favor of a hospital’s claim for Medicare bad debt even though the claims were still in collection. Moreover, the Foothill court used the moratorium to issue a decision directly contrary to the Battle Creek Health Sys. v. Leavitt case in the Sixth Circuit in 2007.

These recent cases raise questions with respect to the legal landscape for Medicare bad debt claims. CMS (through its fiscal intermediaries) has taken a far more aggressive approach to denying bad debt claims in recent years. Hospitals facing these denials should preserve their appeal rights, as some of the approaches taken by CMS appear to be inconsistent with the Medicare regulations or prior agency policy governing reimbursement for Medicare bad debt. Additional cases involving collection activities and the appropriate timing of “write-offs” are working their way through the appellate system that may ultimately clarify the limits of CMS actions.

If you have any questions, or would like more information on Medicare bad debts or preserving your hospital’s right to claim such reimbursement upon denial, please contact Gregory N. Etzel, or 713.646.1316.

GROUP NOT PROTECTED BY AN INSURER’S BAD FAITH SETTLEMENT UNDER A PHYSICIAN’S MALPRACTICE POLICY

In a recent case, the Seventh Circuit held that a medical group could not pursue a claim against an insurer for refusing to settle a malpractice claim against one of the group’s physicians, within the physician’s malpractice policy limits, where the group was not an insured under the policy. After the insurer refused to settle, a jury verdict in excess of policy limits was rendered against both the group and the physician. The group paid the excess amount on behalf of itself and the physician and then both the group and the physician sued the insurer for bad faith settlement practices.

The court found that the duty to settle the claim in good faith extended only to the insured physician, despite the fact that the group paid the policy premiums. Interestingly, the physician’s position may not be as good as it first appears. The court suggested that the group may have the right to pursue the physician for contribution or indemnity, and the insurer suggested that the group’s payment of the excess amount on behalf of the physician defeated the physician’s breach of the duty to settle the claim in good faith. Iowa Physicians’ Clinic Medical Foundation v. Physicians Insurance Company of Wisconsin, No. 08-1297 (7th Cir. 10/31/2008).

This case points out the importance of understanding your rights as an insured. Care should be taken to understand the nature and amount of coverage you are receiving under a policy. The names assigned to various types of coverages under a professional liability insurance policy sound remarkably similar, but can significantly affect the scope and amount of insurance coverage.

A “named insured” is a person actually named in the policy as the named insured and is considered to be the true owner of the policy. Named insureds have the greatest protection in terms of coverage and indemnity under the policy. There can, however, be more than one named insured. Named insureds choose coverage types and amounts, receive notices and are responsible for payment of premiums.

An “additional insured,” in contrast, typically refers to a person or entity who has been added to a policy by an endorsement, but is not considered to be an owner of the policy. This is the most frequent form in which parties are added to a policy and is generally done to support indemnity obligations.

The endorsement adding an additional insured to a policy generally limits the insurer’s obligation to liability for claims arising out of acts performed by or on behalf of the named insureds (e.g., there must be some connection between the claim and the named insureds). The actual coverage available to an additional insured, however, depends upon the precise policy wording. Significantly less coverage can be provided to an “additional insured” than to an “additional named insured.” To determine the limitations, one must examine the wording of the applicable insurance policy. Additional insureds have direct contractual rights under the policy, but generally are not obligated to pay premiums and typically do not receive notices unless such right is included in the endorsement.

Additional insureds typically seek coverage for either (1) policyholder’s indemnity obligation to the additional insured, or (2) claims resulting from the additional insured’s own acts or omissions. The policy must reflect the type of coverage desired. Insurance contracts often include language that only allows coverage in situations where the named insured owes an indemnity obligation to the additional insured.

Finally, a party can be an “additional named insured” which is a hybrid between a named insured and an additional insured. An additional named insured is typically someone closely affiliated with a named insured. When an additional named insured is added to a policy, the named insured is generally extending coverage under its policies to all of the additional named insured’s operations. The additional named insured, in essence, has the same coverage as the named insureds, whether or not related to the named insureds, but shares the policy limits. However, the policy and all endorsements must be carefully reviewed as the term additional named insured has not acquired a uniformly agreed-upon meaning within the insurance industry and the rights of the additional named insured can vary significantly.

An additional named insured usually does not have to bear any of the paperwork responsibilities and typically is not responsible for paying the premiums; however, he or she is entitled to notice of policy changes and cancellations. However, in some cases and policies, if the named insured does not fulfill his or her obligations under an insurance policy, they may become a responsibility of the additional named insured. For example, if the named insured doesn’t pay the premium when due, then an additional named insured could be required, in some instances, to pay the premiums.

For more information, please contact Robert M. Wolin, or 713.646.1327.

FDA ISSUES DATA RETENTION GUIDANCE WHEN SUBJECTS WITHDRAW FROM CLINICAL TRIALS

Recent guidance released by the Food and Drug Administration (FDA) clarifies the agency’s position on whether already-accrued data related to subjects who cease participating in a clinical trial or study are to be maintained as part of the study data. FDA regulations provide that when a subject withdraws from a study, the data collected on the subject to the point of withdrawal remain part of the study database and may not be removed. According to the FDA, “loss of these subjects’ data could greatly distort effectiveness results and could hide important safety information (for example, toxicity) of a poorly tolerated treatment.”

Key points outlined in the FDA guidance include the following: (1) an investigator may ask a subject who is withdrawing whether he or she wishes to provide continued follow-up and further data collection subsequent to withdrawal; (2) if a subject withdraws from the interventional portion of the study, but agrees to continued follow-up, the investigator must obtain the subject’s informed consent for this purpose; (3) if a subject withdraws from the interventional portion of a study and does not consent to continued follow-up, the investigator may not access the subject’s medical record for purposes related to the study. However, an investigator may review the subject’s study data that were collected prior to withdrawal, and may consult public records related to the subject including those establishing survival status. A copy of the FDA guidance is available online.

For more information, please contact Karen A. Weaver, or 310.442.8866.

OBAMA-BIDEN TRANSITION TEAM UPDATE

“Healthcare Discussions” Initiative

In putting together recommendations for reforming the nation’s healthcare system, the Obama administration’s Transition Team is seeking input from communities through hosted “healthcare discussions” between December 15 and December 31, 2008. Providers interested in hosting a healthcare discussion—to assure that their point of view is well heard by the new administration—can sign up online through the website of the Office of the President-Elect and receive a special moderators kit and materials for conducting the meeting as well as forms for providing feedback to the Transition Team. The leader of the Transition’s Health Policy Team, former Senator Tom Daschle, will attend at least one of the hosted discussions “and prepare a detailed report, complete with video, to present to the next president.”

“Seat at the Table” Transparency Policy

The Transition Team also released the contents of a memo announcing that all policy documents and written policy recommendations from official meetings with outside organizations will be publicly available for review and discussion online. A copy of the memo announcing the Transition Team’s “Seat at the Table” transparency policy may be obtained online through the website of the Office of the President-Elect.

For more information, please contact Kathleen P. Rubinstein, MPA, Policy Analyst, or 713.276.1650.

Happy Holidays!

The Health Law Update will resume its regular publication schedule on January 8, 2009.

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