News / Resources

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

• Wage and Hour Collective Actions Hit the Healthcare Industry
• While Debate Looms Over Senate—Delivery System Reform Appears Poised for Passage
• IME Resident Research Time Case Remanded to Secretary to Determine What It Means to Be Related to Patient Care
• Little Recourse in Intermediary’s Refusal to Reopen
• Now You’re Going to Pay—Recovery by False Claims Act Defendant
• Practice Manager May Have a Duty to Monitor Professional’s Potential Drug Diversion
• Genetic Nondiscrimination Act—GINA’s Three Wishes
• Frank Pugliese Named Outstanding Healthcare Information Technology Lawyer
• Holiday Publication Notice

WAGE AND HOUR COLLECTIVE ACTIONS HIT THE HEALTHCARE INDUSTRY

Claims and lawsuits filed on behalf of groups of employees under the Fair Labor Standards Act (FLSA) have more than tripled in the last ten years, and the latest trend appears to be the proliferation of wage and hour collective actions targeting hospitals and other healthcare employers for unpaid wages and overtime. While many of the recently filed cases have been lodged in Massachusetts, Pennsylvania and New York, there is no reason to think that the trend will stop in that part of the country. Indeed, results like the recent $9 million settlement against Strong Hospital in Rochester, New York, are making wage and hour actions against hospitals and healthcare providers increasingly attractive to plaintiffs’ attorneys.

Plaintiffs’ attorneys no longer wait for potential wage and hour claimants to contact them. Through websites like www.hospitalovertime.com, plaintiffs’ attorneys are providing employees with information about significant settlements, current “investigations” of healthcare employers, and even direction to identified law firms. Plaintiffs’ counsel also are contacting employees directly regarding potential litigation. One prominent New York firm sent a letter to hospital employees across the country. The letter states:

Our investigation has revealed that many hourly employees in the health care industry are not paid for all the hours that they work, especially during meal periods. You may be owed unpaid wages for situations including when you worked during your meal break. We are currently investigating.

Given the tenacity with which the plaintiffs’ bar is pursing wage and hour claims against healthcare employers, below are some specific wage and hour issues relevant to the healthcare industry.

Working During Meal Breaks

As the above-referenced letter indicates, a majority of the wage and hour suits recently filed attack a practice common in the healthcare industry—automatic 30-minute pay deductions for employee meal periods. This practice is not illegal, so long as workers actually take the breaks. The U.S. Department of Labor (DOL) has advised that if the employees’ meals are interrupted to the extent that a meal period is predominately for the benefit of the employer, the employees should be paid for the full 30 minutes. It is the employer’s responsibility to ensure that the employees take the 30-minute meal break without interruption.

Many times hospital employees, like nurses, have their breaks interrupted to assist patients during what was a scheduled meal period. Although this unpaid time might amount to only minutes per employee per day, with hospitals employing thousands of employees, it could easily add up to tens of millions of dollars a year in compensation.

Also common in the healthcare industry are rest periods of short duration, generally running from 5 minutes to about 20 minutes. These short breaks, taken for any reason, should be compensated as work time and cannot be substituted for employees’ meal breaks.

Unauthorized Hours Worked

Employees must be paid for work “suffered or permitted” by the employer. In other words, if the employer knows or has reason to believe that the employee is continuing to work, the time is considered hours worked. Thus, if nurses or other employees stay beyond their scheduled shifts to perform work—even if this extra work is unauthorized—the time must be compensated. Employees can, however, be disciplined for work that was not authorized.

Rounding Hours Worked

The Fair Labor Standards Act (FLSA) allows an employer to round employee time to the nearest quarter hour; however, an employer may violate the FLSA if the employer always rounds down. Employee time from 1 to 7 minutes may be rounded down and not counted as hours worked. On the other hand, time from 8 to 14 minutes must be rounded up and counted as a quarter hour of work time.

Training and Seminars

Time that employees spend at lectures, training programs and continuing education classes is considered working time and must be compensated, unless all of the following criteria are met:

• Attendance is outside of the employee’s regular working hours;
• Attendance is in fact voluntary;
• The course, lecture or meeting is not directly related to the employee’s job; and
• The employee does not perform any productive work during such attendance.

On-Call Time

The DOL has explained that an employee who is required to remain on the employer’s premises, or so close that the employee cannot use the time effectively for his or her own purpose, is “working while on-call.” Employees must be compensated for this time. In contrast, the employee who is required to carry a cell phone or a beeper, or who is allowed to leave a message where he or she can be reached (i.e., a nurse required to carry a beeper while on-call) is likely not working while on-call and, therefore not entitled to compensation.

Travel Time

Time spent by an employee who travels as part of his or her principal activity, such as from jobsite to jobsite during the workday (i.e., a nurse from one assisted living facility traveling to fill in for someone at the “sister facility”), must be considered as hours worked. However, an employee who travels from home before the regular workday and returns home at the end of the workday is engaged in ordinary home-to-work travel, which is not considered hours worked. Different rules may apply to out-of-town travel.

What You Can Do

Help avoid wage and hour claims by taking the following steps to ensure that you are informed of the time that employees work during each workday and each workweek:

• Clearly communicate that off-the-clock work is not acceptable (even if the employee volunteers to do it). Employees must be compensated for all hours worked.
• Advise employees that if anyone instructs them to perform off-the-clock work, they should bring the instruction to the employer’s attention. Have a multi-faceted complaint procedure and ensure that all complaints are investigated. If something inappropriate was done, make sure it is addressed.
• Be certain that all managers, supervisors and other employees understand, follow and enforce policies and procedures with regard to off-the-clock work, breaks and overtime procedures.
• Require employees to certify that their time records reflect all of the work that they have performed and that they have taken required meal breaks.
• Have a policy in place to address what happens when a meal break is interrupted, and implement that policy.

For more information concerning wage and hour actions in the healthcare industry and how to protect against such claims, please contact Joyce Ackerbaum Cox, or 407.649.4000, Sarah Newcomer, or 407.649.7916 or any other member of our Labor and Employment or Healthcare Industry Team.

WHILE DEBATE LOOMS OVER SENATE—DELIVERY SYSTEM REFORM APPEARS POISED FOR PASSAGE

With the Senate’s unveiling of its health reform combined bill, named the “Patient Protection and Affordable Health Care Act,” coupled with attaining the 60 votes necessary to begin debate, the Senate has passed yet another important hurdle as the dance of legislation continues in Congress. Much has been written about the bill’s more contentious issues, such as inclusion of a “public option,” treatment of illegal immigrants and abortion funding, and more will continue to be debated regarding these issues.

However, both the House and Senate bills, with more than 2000 pages of legislative language, attempt to address a multiplicity of healthcare financing, reimbursement, quality and structural issues that have received little press coverage. While Baker Hostetler is following both bills and closely evaluating their differences for a number of clients, this article will focus on the policy proposals present in both bills that attempt to initiate delivery system reform moving away from fee-for-service medicine toward many of the innovations that health policy analysts, economists and industry specialists have promoted or proposed for many years.

The question many have raised in this debate is: “Does the proposal do enough to bend the cost curve?” The Senate bill’s most recent proposal, estimated to cost $848 billion, is anticipated to reduce deficits by $130 billion over the next ten years and by as much as $650 billion in the second decade. The Senate bill, among the two legislative proposals before Congress, focuses more on cost savings in its attempt to expand coverage while reducing the federal deficit.

Both the House and Senate bills move toward value-based purchasing (VBP); however, the Senate bill moves definitively by actually implementing a program in which Medicare inpatient prospective payment system (IPPS) payments would be reduced by one percent in 2013, two percent in 2017, and thereafter to fund incentive bonus payments to hospitals achieving certain quality-based performance scores. Such VBP initiatives would extend to home health and rehabilitation facilities, and the U.S. Department of Health and Human Services (HHS) would be tasked with establishing a physician fee schedule value-based modifier.

Hospital payments would be reduced under Medicare, applicable to hospital discharges after 2012 for hospital readmission rates related to a specified number of conditions. Additionally, the Senate bill would institute a penalty in 2015 (as opposed to a “report” in the House bill) applicable to hospitals that score poorly related to hospital-acquired conditions (HAC). The Senate and House bills would penalize hospitals under both Medicare and Medicaid programs.

Payment bundling programs are identified and would be funded under both Medicare and Medicaid programs to evaluate alternative payment methodologies that promote care coordination, beginning as early as 2011. The Senate bill also goes further toward establishing Accountable Care Organizations (ACOs), including pediatric Medicaid ACOs, rewarding providers for comprehensive patient care management by allowing them to share in any savings produced.

Under the Senate bill, an independent Medicare Advisory Board would be required to propose cost-savings proposals when Medicare spending rises beyond a specified threshold. Congress could not reject the proposals without itself adopting equivalent savings. The Board’s proposals would not apply to hospitals and other providers until 2020 because such providers would be subject to other reductions through 2019. The House bill only requires that the Institute of Medicine consider the adoption of a value index based on certain quality and cost measures.

The Senate bill contains millions of dollars that would be directed toward increasing payments to primary care physicians, reallocating graduate medical education reimbursement, establishing medical homes and meaningfully addressing the cost of chronic disease management. The Senate bill also contains material reporting changes required by tax-exempt hospitals with respect to community benefits assessments, financial needs policies, billing and collection and implementation.

All these policy initiatives are aimed directly at cost containment and changing treatment patterns and incentives in the current healthcare delivery system. The Senate bill goes further toward implementation of these goals than House provisions.

The Senate currently is debating multiple amendments and has yet to deal with some of the more controversial provisions of the bill. Regardless, our prediction is that payment system reform initiatives will continue their fairly noncontroversial path toward passage, in one form or other.

For more information, please contact Susan Feigin Harris, or 713.646.1307.

IME RESIDENT RESEARCH TIME CASE REMANDED TO SECRETARY TO DETERMINE WHAT IT MEANS TO BE RELATED TO PATIENT CARE

On November 24, 2009, the Rhode Island District Court issued the latest in a line of decisions relating to Rhode Island Hospital’s appeal of the HHS Secretary’s removal of resident research time from the hospital’s indirect medical education (IME) full-time equivalent (FTE) resident count for its fiscal year 1996. Rhode Island Hospital v. Sebelius, Civ. Action No. 06-05 S (D. R.I. 2009). The hospital originally was victorious at the district court level, persuading the district court to rule that resident research time must be included in a hospital’s IME FTE count during 1996. The First Circuit Court of Appeals reversed, holding that the Secretary’s requirement that research be patient care-related was permissible. However, the First Circuit also noted that the district court had not addressed the hospital’s alternative argument that 7.49 FTEs worth of resident research time was, in fact, patient care-related, and remanded this issue to the district court. The hospital made this argument previously and the Secretary had dismissed it with a short and confusing (according to the district court) discussion as to why the hospital’s proof was insufficient.

On remand to the district court, the hospital argued that (1) it was arbitrary and capricious for the Secretary to provide no guidance about documenting research prior to 1996, and then to reject the proof the hospital offered after the fact; and (2) the Secretary unreasonably determined that the research in dispute did not involve patient care. The court did not reach the hospital’s second contention, but with respect to the first, held that while the Secretary is permitted to determine what evidence is sufficient to show that research is patient care-related (even via after-the-fact adjudication), the Secretary’s rationale was insufficient.

The district court remanded the issue to the Secretary with instructions to (1) clearly set forth the evidentiary criteria for documenting that resident research “relates to patient care”; (2) review the record and explain which of the hospital’s documentation does and does not meet the criteria, and why or why not; and (3) state how many of the contested FTEs qualify for reimbursement. With respect to the first task, the court specified that such criteria cannot be designed to make a hospital show that research time was related to care of a particular patient, as this requirement did not exist until 2001 and could not be retroactively imposed for fiscal year 1996, when, according to the First Circuit’s ruling in this case, hospitals merely were required to show that research was “patient care related” (a broader standard).

The district court’s ruling should be worrisome for hospitals, as it permits the Secretary to create and enforce standards upon hospitals after the fact, through the adjudicative process. The decision belittles the Administrative Procedure Act’s notice and comment rulemaking requirement, the purpose of which is to inform regulated parties of the standards to which they will be held.

For more information, please contact Krista M. Barnes, or 713.646.1352, or Gregory N. Etzel, or 713.646.1316.

LITTLE RECOURSE IN INTERMEDIARY’S REFUSAL TO REOPEN

On November 24, 2009, the Seventh Circuit issued a decision narrowing its own prior ruling in Edgewater Hospital v. Bowen, 857 F.2d 1123 (7th Cir. 1989), in which it held that an intermediary’s decision not to reopen an issue can constitute an appealable determination. In Little Company of Mary Hospital v. Sebelius, the Seventh Circuit upheld the district court decision that Little Company of Mary Hospital (Hospital) did not have the right to appeal an issue that the intermediary did not take actions to affirmatively reopen.

The Hospital requested that the intermediary reopen and reconsider the calculation of the Medicaid Fraction and SSI Fraction from a 1998 cost report. However, the Notice of Reopening referenced the Medicaid Fraction issue, but made no mention of the SSI Fraction. The revised Notice of Program Reimbursement (NPR) also only adjusted the Medicaid Fraction. When the Hospital appealed the revised Medicaid Fraction and the failure to revise the SSI Fraction, the Provider Reimbursement Review Board (PRRB) agreed with the intermediary’s argument that the SSI Fraction remained finalized in the original NPR and was not reopened, and dismissed the appeal of the SSI Fraction. The district court granted summary judgment in favor of the Secretary, finding that the evidence supported the PRRB’s finding that the intermediary did not reopen the SSI Fraction.

The Hospital challenged the district court’s decision, and both parties agreed that the decision would hinge on whether the intermediary reopened the SSI Fraction when it reopened the Medicaid Fraction. The court relied on the standard that an intermediary’s affirmative actions indicate a reopening, and found that the intermediary had not made such an affirmative action demonstrating that it reopened the SSI Fraction. In making this decision, the court gave little weight to e-mail exchanges suggesting that the intermediary had weighed whether or not to reopen the SSI Fraction issue. The court reasoned that an e-mail exchange “does not amount to an affirmative action sufficient to consider the issue reopened.” In contrast, in Edgewater, the same court ruled that an intermediary’s letter acknowledging that it had decided not to revise three issues did constitute an affirmative action giving rise to appeal rights. The court’s attempt to differentiate the facts involved in Edgewater from those involved in Little Company is unconvincing. Rather, the Little Company decision simply attempts to narrow the court’s prior ruling in Edgewater.

This case should serve as a cautionary tale for providers. An intermediary’s decision not to reopen an issue generally is not appealable. Thus, reliance upon the reopening process rather than the appeals process subjects the provider to the intermediary’s prerogatives and inclinations. The Little Company decision reduces a provider’s ability to argue that, under Edgewater, an intermediary’s decision not to revise a matter that it has opened is itself an appealable final determination. The Little Company decision underscores the importance of acting quickly upon issuance of NPRs and appealing to the PRRB or CMS Administrator within 180 days to properly preserve appealable issues.

For more information, please contact Ameena N. Ashfaq, or 713.646.1329, or Krista M. Barnes, or 713.646.1352.

NOW YOU’RE GOING TO PAY—RECOVERY BY FALSE CLAIMS ACT DEFENDANT

Cell Therapeutics, Inc. (CTI) settled a False Claims Act lawsuit brought by a former employee claiming that CTI obtained improper Medicare reimbursement for off-label uses of the company’s Trisonex prescription drug medication. Cell Therapeutics, Inc. v. Lash Group, Inc., No. 08-35619 (9th Cir. Nov. 18, 2009). CTI’s settlement agreement with the government provided that the settlement was not intended to be, nor should it be, interpreted as an admission of liability by CTI or an admission of any fault or omission by CTI.

CTI relied on a consultant to “handle Medicare reimbursement and serve as a reimbursement counselor.” The consultant held itself out as an expert in reimbursement protocols for oncology drugs. Unfortunately, the consultant mistakenly advised CTI that off-label uses of Trisonex were reimbursable by Medicare.

After settling with the government, CTI turned its sights on the consultant and sued, claiming the consultant caused CTI damages in the form of investigation, litigation and settlement costs, lost opportunities to pursue other means of reimbursement, damage to reputation and increased costs of capital. CTI’s claims were based upon breach of contract, breach of an indemnity agreement, breach of implied warranty of good faith and fair dealing and negligence/breach of the duty of care.

Historically, the courts have held that defendants have “no right of indemnity or contribution among participants in a scheme to defraud the government in violation of the” federal False Claims Act. However, the CTI case presented two wrinkles. First, the company’s claim was made against a third party. Second, there was no finding of liability under the False Claims Act in the settlement agreement.

The Ninth Circuit found that there were no procedures within the False Claims Act to address non-defendants’ wrongdoing and therefore “absent specific and clearly identified intent to the contrary,” a settlement agreement should not be viewed as an admission of liability that would preclude a defendant’s non-False Claims Act claims against third parties.

With respect to CTI’s claims that were not independent of the False Claims Act (e.g., CTI’s investigation, litigation and settlement cost damages related to the false claims action), the court remanded the issue to the district court to assess how to proceed in light of the Ninth Circuit’s holding that the settlement agreement does not constitute a finding of liability under the False Claims Act.

This case increases the incentives for False Claims Act defendants to settle and carefully draft their settlement agreements to retain claims against potentially liable parties. Conversely, consultants, suppliers and officers and directors, should carefully consider the scope of their indemnity obligations and rights in light of the court’s decision.

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

PRACTICE MANAGER MAY HAVE A DUTY TO MONITOR PROFESSIONAL’S POTENTIAL DRUG DIVERSION

In a case with no precedent, in an order denying a motion to dismiss, the District Court for the Northern District of California stated that a practice manager may have a duty of care not to provide a licensed practitioner with unsecured, unmonitored and unrestricted access to controlled substances if the practice manager knows, or has reason to know, such access will result in injury. Kim v. Interdent, No. C08-5565 SI (N.D. Cal. Nov. 16, 2009).

The court concluded that the practice manager potentially could be liable under either a negligent entrustment theory or a failure to take precautions theory (e.g., leaving keys in a bulldozer), given that (1) the professional expressed to the practice manager that his exhausting schedule was having a detrimental impact on his health and well-being; (2) the manager knew or should have known that the professional was vulnerable to abusing drugs as a result of stress, fatigue and frequent illness, and that the controlled substances were highly addictive and harmful if misused; and (3) the manager failed to secure or monitor “its” supply of the controlled substance. The court also entertained liability on a “negligence per se theory predicated upon DEA drug control requirements.” 21 C.F.R. § 1301 et. seq. However, the court’s analysis of this theory was not well developed.

The court never discussed the scope of the practice manager’s obligations under the management agreement in the order denying the practice manager’s motion to dismiss. While many obstacles remain to imposing liability on the practice manager, the order should be considered by third party managers when describing their duties under a management agreement and in their control and management of controlled substances.

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

GENETIC NONDISCRIMINATION ACT—GINA’S THREE WISHES

Title II of the Genetic Information Nondiscrimination Act of 2008 (GINA), took effect on November 21, 2009, even though the Equal Employment Opportunity Commission (EEOC) has not yet published final regulations. Under Title II of GINA, it is illegal for an employer to discriminate against employees or applicants because of genetic information. GINA also prohibits the use of genetic information in making employment decisions, significantly restricts the acquisition of genetic information by employers, labor organizations and employment agencies, and strictly limits the disclosure of genetic information regarding employees, labor organization members and their family members, including family history information inadvertently obtained. A more complete discussion of GINA is available in the October 29, 2009, issue of the Health Law Update.

The EEOC has mandated that employers post a new version of the “Equal Employment Opportunity is the Law” poster by November 21 to reflect information about GINA and updates to current federal employment discrimination laws (including the ADA Amendments Act of 2008 which took effect on January 1, 2009). The revised poster also updates the EEOC’s contact information and other DOL changes.

Employers may download and print an “EEO is the Law” Poster Supplement. The poster supplement must be posted alongside either the current EEOC “EEO is the Law” poster or the Office of Federal Contract Compliance Program’s August 2008 “EEO is the Law” poster. Employers also may download and print the EEOC’s new “EEO is the Law” poster. In addition, employers may order new posters online from the EEOC’s website.

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

FRANK PUGLIESE NAMED OUTSTANDING HEALTHCARE INFORMATION TECHNOLOGY LAWYER

Frank A. Pugliese, a partner in Baker Hostetler’s New York office, has been selected as a 2009 Outstanding Healthcare Information Technology Lawyer by Nightingale’s Healthcare News. Nightingale’s Healthcare News is a newsletter for professionals serving the healthcare industry, healthcare executives and other industry organizations. Each issue contains articles on the latest industry business news and reports on healthcare, transactions, firms and individuals of interest. Mr. Pugliese was noted for his extensive experience working with major national and international vendors in all phases and types of IT transactions including open source, privacy and data security.

HOLIDAY PUBLICATION NOTICE

Please be advised that the Health Law Update will not publish Thursday, December 24, 2009, due to the Christmas holidays. We will resume publication in January 2010. Happy Holidays!

Baker & Hostetler LLP publications are intended to inform our clients and other friends of the Firm about current legal developments of general interest. They should not be construed as legal advice, and readers should not act upon the information contained in these publications without professional counsel. The hiring of a lawyer is an important decision that should not be based solely upon advertisements. Before you decide, ask us to send you written information about our qualifications and experience. © 2009 Baker & Hostetler LLP