News / Resources

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

• Health Reform Update—Initial Roundtable Discussion, Policy Options Add Momentum
• Swine Flu Prompts Heightened Alert; Issues for Employers
• FTC Issues Advisory Opinion on Proposed Clinical Integration
• Case Law Update: Stark Law Challenge; Internal Investigation Employee Warnings
• New Bill Expands FDA Authority and Enforcement Power Over Medical Devices and Pharmaceuticals
• Baker Hostetler Clients and Friends Hear About Changes to the Privacy Landscape
• Legal Ethics for the Health Lawyer—Special Health Law Issues
• Events Calendar

HEALTH REFORM UPDATE—INITIAL ROUNDTABLE DISCUSSION, POLICY OPTIONS ADD MOMENTUM

Senate Finance Committee Holds Roundtable Discussion

On April 21, 2009, Sen. Max Baucus (D-Mont.) held the first of a series of roundtables on healthcare reform intended to facilitate discussion between members of the Senate Finance Committee and industry experts and leaders regarding the development of a comprehensive reform bill. This first session, which centered around ways to lower costs and improve the overall quality of patient care, addressed a number of payment changes and incentives within the Medicare program. Citing Medicare as key to reform "in large part because the other players tend to follow Medicare," Chairman Baucus said the roundtables "will preview many of the policies the Committee will be considering in its June markup."

Policy Options Paper Released

On April 28, 2009, the Senate Finance Committee issued the first of three papers identifying policy options for health system reform. The 48-page document is filled with varying approaches for reforming the Medicare payment system for hospitals and physicians, with a focus throughout on rewarding quality initiatives. First among them is the establishment of a value-based payment system for hospitals by 2012 that proposes to reward performance based on patient outcomes. Incentive bonus payments for qualifying hospitals would be derived from reductions in other Medicare inpatient prospective payment system (IPPS) payments. Disproportionate share hospital (DSH), indirect medical education (IME), outlier and low-volume adjustment payments, however, would not be affected. Quality incentive payments would be applied to physicians through an expansion of the Physician Quality Reporting Initiative. Other proposed options include incentives and reductions in payments tied to hospital readmission rates and bundled payments for IPPS and post acute care services occurring or initiated within 30 days of discharge from a hospital beginning in 2015. Also proposed is the institution of an independent, private, non-profit corporation to generate and synthesize evidence on comparative clinical effectiveness research. This entity would set the national agenda for research priorities within its proposed mission.

An option to amend the in-office ancillary services exception in the Stark Law would require physicians to disclose ownership interest in imaging facilities or services, including MRI, CT, PET and other "designated health services," effective January 1, 2010. The policy options paper also contains several proposals aimed at determining a "best practices" standard with regard to ordering and proper use of diagnostic imaging and directs the Secretary of the U.S. Department of Health and Human Services (HHS) to work with stakeholder groups on developing appropriate use and reporting criteria. Varying payments to physicians ordering imaging services based on adherence to the new criteria would be implemented by 2013, with lower payments to physicians who exceed the national threshold. Another imaging-related option would establish a Diagnostic Imaging Exchange Network (DIEN) to facilitate the exchange of information regarding a patient’s imaging history.

Primary care and general surgery are targets for incentive payments and additional attention under proposals aimed at incentivizing graduate medical education (GME) training. With respect to proposed bonus payments for general surgeons and primary care physicians, this option would be offset by an across-the-board reduction in payments for services under all other codes. GME slots would be open for redistribution, with 75 percent of such slots being allocated toward primary care and general surgery. Teaching hospitals would be allowed to apply for additional slots in accordance with several proposed criteria. Clarifying a policy that has been the subject of litigation, the counting of time for certain non-patient care activities, such as didactic and scholarly activities in a non-hospital setting would be allowed in calculating GME payment.

Another policy option directly addressing physician-owned hospitals proposes that the whole hospital exception to the Stark Law be eliminated, grandfathering hospitals that have physician ownership and a Medicare provider agreement in effect on July 1, 2009. Additionally, the proposal identifies multiple reporting requirements for such hospitals and certain safety requirements for hospitals without 24-hour physician coverage.

The takeaway for providers from this first roundtable? Major changes to the Medicare program are coming and will not be necessarily dependent on the ultimate success of any reform legislation. Two additional roundtables, one on expanding coverage and another on financing reform will be held May 5 and May 14, respectively. It is anticipated that additional option papers will be released by the Committee following these meetings.

The Senate Finance Committee has requested stakeholder "input" with respect to several of these proposals. Baker Hostetler would be pleased to discuss the manner in which such feedback could be provided.

For more information, please contact Susan Feigin Harris, or 713.646.1307, or Kathleen P. Rubinstein, MPA, Policy Analyst, or 713.276.1650.

SWINE FLU PROMPTS HEIGHTENED ALERT; ISSUES FOR EMPLOYERS

The World Health Organization (WHO) has raised the Pandemic Threat Level for swine flu influenza A(H1N1) to phase 5 out of 6 levels, signifying that human-to-human transmission is occurring all over the world. The spread of swine flu prompted the WHO to raise the alert level to 5 and warn that the world may see pandemic conditions associated with the swine flu (though pandemic conditions are not inevitable). At the same time, Texas Governor Rick Perry issued a disaster proclamation, allowing the state to avail itself of federal reimbursement associated with the cost of implementing emergency protective measures against the outbreak.

There are presently 109 laboratory-confirmed human cases of swine flu in the U.S. with only one fatality involving a Mexican infant transported to the U.S. Some of the swine flu cases in the U.S. have been linked to travel to Mexico. The Centers for Disease Control (CDC) is concerned that continued travel by U.S. travelers to Mexico presents a serious risk for further outbreaks of swine flu in the U.S. Consequently, employers should avoid unnecessary employee travel to Mexico at this time. Employees who are ill should delay international travel. Employees returning from international travel who develop symptoms of the swine flu should be encouraged to seek prompt medical attention. Individuals returning from international travel or affected areas within the U.S. should monitor their health closely for seven days. If the swine flu symptoms listed below appear, the employee should seek immediate medical attention.

The symptoms of swine flu are similar to the symptoms of seasonal flu and may include fever (greater than 100°F or 37.8°C), sore throat, cough, stuffy nose, chills, headache, body aches and fatigue. Some people have reported diarrhea and vomiting associated with swine flu. Severe illness (pneumonia and respiratory failure) also has been reported with swine flu infection. As is the case with the traditional seasonal flu, swine flu may cause a worsening of underlying chronic medical conditions.

To prevent the spread of swine flu, individuals should:

• Avoid contact with ill persons;
• When coughing or sneezing, cover the nose and mouth with a tissue or use the sleeve (if no tissue is readily available);
• Discard tissues in a trash can;
• After coughing or sneezing, wash hands with soap and water or use an alcohol-based hand gel (with at least 60 percent alcohol) when soap and water are not available; and
• Avoid touching the eyes, nose or mouth.

Individuals who are ill with the flu should avoid close contact with others as much as possible. Sick employees should be encouraged or directed to stay at home and not go to work, school or travel, avoid gatherings of people and seek medical care. There are antiviral medications for the prevention and treatment of swine flu that can be prescribed.

The CDC has recommended that persons with suspected swine flu infection self-isolate for seven days, or for 24 hours after symptoms subside, whichever is longer. Children with influenza may be infectious for up to ten days after the onset of illness while adults are thought likely to be infectious for five to seven days.

Employers should consider revising their sick leave policies to encourage employees to remain at home for the CDC’s recommended self-isolation periods. Health departments in areas where persons have been affected with swine flu may recommend more rigid exclusion policies; consequently, employers also should consult with their local health departments.

Employers may, however, be required to act to avoid spreading swine flu among their workforce. As an initial preventative measure, employers should inform employees of the preventive actions described above and assure that workplace areas are properly cleaned on a regular basis and, if necessary, disinfected. Frequently touched surfaces and commonly shared items should be cleaned at least daily and when visibly soiled with an Environmental Protection Agency (EPA) registered household disinfectant labeled for activity against bacteria and viruses, an EPA-registered hospital disinfectant, or EPA-registered chlorine bleach/hypochlorite solution, as appropriate.

Employees who have been absent from work for the swine flu may be required, under certain circumstances, to provide evidence from their medical provider that they no longer are ill or contagious. Employers generally may require employees to undergo medical examinations if the employer has a reasonable belief, based on objective evidence, that the individual employee’s medical condition either impairs his/her ability to perform essential job functions, with or without a reasonable accommodation, or poses a direct threat to safety in the workplace.

Under federal regulations, a "direct threat" to workplace safety refers to a "significant risk of substantial harm to the health or safety of the individual or others that cannot be eliminated or reduced by reasonable accommodation." Whether an employee poses a threat must be based upon an assessment of the individual employee’s risk to the workplace. An employer may not base a request for medical examination upon generalized concerns about swine flu risks or fears of a pandemic. If an employee takes leave for swine flu under the Family and Medical Leave Act (FMLA), an employer may require certification that the employee can resume work and perform his/her essential job functions.

To assist employers in their efforts to prepare for the effects of the swine flu, HHS and the CDC have developed several checklists for businesses.

One area that deserves consideration is the insurance coverage an employer has to cover losses related to a pandemic. Business interruption insurance should be reviewed to assure that it covers a facility shutdown caused by worker illness. It is important to evaluate this in the context of a governmental order to close the facility and also in the context of a self-initiated shutdown at the "suggestion" of a governmental agency. Many business interruption policies exclude these types of events, without a specific endorsement. Properly underwritten, a business interruption policy can cover losses resulting from pandemic illness including the inability to continue operations due to excessive employee absenteeism, loss of business due to fear of public gatherings and government actions, including travel restrictions.

The swine flu also may generate interesting workers' compensation issues. Workers' compensation policies generally do not cover illnesses unless they are contracted "out of the course of employment." Swine flu illnesses may, in certain cases, be deemed to be within the course of employment. For example, if an employee traveling on business were to contract the virus in an area of an outbreak and spread it to workers upon returning, the exposure may be considered in the course of employment. Healthcare workers also would be at risk of contracting the illness on the job. However, workers' compensation coverage can vary from state to state, as some states restrict which occupational diseases are covered.

If a workplace has to be decontaminated, property insurance coverage likely will not cover the costs, unless the employer has specific coverage for infectious diseases, which is not a customary coverage.

Employers and businesses that don’t plan adequately to respond to the risks associated with a pandemic, putting others at risk, may face legal action. According to some in the insurance industry, over three-quarters of companies have inadequate plans for coping with a flu pandemic and, of those, a third of businesses have no strategy at all, while 14 percent have only rudimentary contingency plans.

Corporations should develop plans that are consistent with their size, their industry and the perceived risks to best limit their exposure. Healthcare providers may be at particular risk if their plans are inadequate in an absolute sense, or relative to their peers. Such employers should consider, for example, whether enough masks were obtained? Are the masks effective against the swine flu virus? Did they obtain enough antiviral medications? Were standards of cleanliness sufficient?

Now is the time to prepare. Employers should educate their employees, review their policies and procedures and remain flexible as the level of risk changes. Baker Hostetler has extensive experience in guiding clients through the multiplicity of legal issues associated with emergency preparedness by healthcare institutions.

For more information, please contact Susan Feigin Harris, or 713.646.1307, or Robert M. Wolin, or 713.646.1327.

FTC ISSUES ADVISORY OPINION ON PROPOSED CLINICAL INTEGRATION

On April 13, 2009, the Federal Trade Commission’s Bureau of Competition (Bureau) issued a 37-page Advisory Opinion to a physician-hospital organization named TriState Health Partners, Inc. (TriState) of Hagerstown, Maryland. The Advisory Opinion approved TriState’s proposal to integrate the provision of its members’ healthcare services and to contract with health plans and other payers on a fee-for-service basis to provide services for its members. Exceptionally notable about this Advisory Opinion is that it addressed activities not only of independent physicians, the traditional focus of the few preceding opinions, but also a hospital partner in the network.

TriState sought to facilitate cooperation and collaboration among its member physicians, create a comprehensive program of care management by engaging everyone associated with TriState, and offer a previously unavailable integrated set of services that would be desirable to self-insured employers who want to lower healthcare costs in an effort to offer a competitive advantage over other health plans.

TriState would create clinical practice guidelines to improve clinical efficiency and have a program to monitor the physicians’ adherence to those guidelines. Physicians would be required to refer their patients to other member physicians (though the patient still had the choice of which physician to select) and to grade their peers. TriState also proposed the implementation of a web-based health information technology system that will help identify high-risk and high-cost patients and facilitate the exchange of patients’ treatment and medical management information.

While the proposed plan required the agreement of competing physicians for the fees charged for their services (and thus normally would be "condemned as per se illegal price fixing"), the Bureau stated that the analysis differed because the plan arose in the context of a "potentially efficiency-enhancing joint venture among otherwise competing market participants." The Bureau, in part guided by the Health Care Statements, determined that it would not challenge the program between the 212 physician members and the hospital due to three principal reasons:

• The program had the potential to lower healthcare costs and improve the quality of care for patients;
• TriState’s collective negotiation of contracts with payers, including the prices paid for participating physician services, is "subordinate and reasonably related" to the overall proposal to integrate healthcare for its members, and so the rule of reason should be used to evaluate it; and
• An essential element to the Bureau’s decision was that there would not be an increase in the market power of either TriState or the physician members as a group because all concerned were still free to contract individually outside the proposed program.

Accordingly, the Bureau determined that it would not recommend the commencement of any legal enforcement action against TriState or its providers as long as the proposed plan was followed and no anti-competitive activities, like the exercise of market power, arose.

With the continued push for digital healthcare and a system that provides better access, it is highly likely that this will be the first of many alternative arrangements that will be brought before the Bureau.

For more information, please contact Adam J. Smith, or 202.861.1661; Steven A. Eisenberg, or 216.861.7903; or Melissa H. Maxman, or 202.861.1560.

CASE LAW UPDATE: STARK LAW CHALLENGE; INTERNAL INVESTIGATION EMPLOYEE WARNINGS

Court Rejects Stark Law Challenge

The U.S. District Court for the District of Columbia has dismissed a lawsuit brought by several cardiac catheterization facilities and physician-owners challenging a change to the definition of "entity" in the Stark Law. Colorado Heart Institute, LLC v. Johnson, No. 08-1626 (D.C. Apr. 20, 2009).

The Stark Law generally prohibits physicians from referring Medicare or Medicaid patients to an entity that furnishes designated health services (DHS) if the physician (or immediate family member) has a financial relationship with the entity, unless an exception applies. Effective October 1, 2009, the current definition of entity, which is limited to entities that bill for DHS, will be expanded to include entities that perform DHS. Under the current definition, physician-owned cardiac catheterization facilities that furnish cardiac catheterization services to hospitals under arrangements do not need to meet a Stark Law exception for the ownership interest because the physician-owned entity is not billing for the service; instead, the hospital bills for the service as a hospital service. After October 1, 2009, many of these facilities will be considered to have performed the service, thus necessitating an exception for the ownership interest. Because no exception exists outside of rural areas, the plaintiffs in the lawsuit claimed that the change effectively destroys their business.

The plaintiffs sought a judgment declaring the expanded definition unenforceable as contrary to Stark Law, arbitrary and capricious, and issued in excess of the authority of the Centers for Medicare and Medicaid Services (CMS). The judge dismissed the lawsuit on the basis of lack of subject matter jurisdiction, holding that the plaintiffs could get their claims heard administratively, even though they could not bring a direct administrative challenge to the regulatory change.

In light of the October 1, 2009, effective date of the new regulation, physician-owned entities that perform services under arrangements with hospitals should examine their relationship to assure Stark Law compliance.

For more information, please contact Donna S. Clark, or 713.646.1302.

Yours, Mine And Ours: Court Reiterates Need For Proper Internal Investigation Employee Warning

Since the 1981 Supreme Court decision in Upjohn Co. v. United States, it has been common practice for counsel conducting internal investigations to provide witnesses, including company employees, with "Upjohn warnings" or "Corporate Miranda warnings" to ensure that the witnesses understand no attorney-client privilege exists between the witnesses and the interviewing attorney. 449 U.S. 383 (1981). In United States v. Nicholas, No. Cr. 08-00139 (C.D. Cal. Apr. 1, 2009), the court found statements made by Broadcom’s (the Corporation) chief financial officer (CFO) to outside counsel (the Firm) during the course of the internal investigation could not be used by the government in the CFO’s subsequent criminal trial, because the CFO had a reasonable belief that he had an attorney-client relationship with the Firm.

The Firm was retained simultaneously to conduct an internal investigation and to represent the Corporation’s CFO in connection with two related shareholder lawsuits. During the internal investigation, the Firm interviewed the CFO but failed to provide all Upjohn warnings and obtain his informed consent to its dual representation of the CFO and the Corporation. The Corporation decided it was in its best interest to cooperate with the government and instructed the Firm to disclose the CFO’s statements. The CFO did not consent to the disclosure and objected to the use by the government on the grounds that his statements were privileged attorney-client communications.

The court had "serious doubts whether any Upjohn warning was given" since the CFO could not remember having received one, no warning was referenced in the Firm’s notes, and no written record of the warning existed. In addition, even if an Upjohn warning were provided, the substance of the warning supposedly given was "woefully inadequate under the circumstances."

In a proper Upjohn warning, interviewing counsel should clearly inform the witness that counsel represents the corporation and not the witness; no attorney-client privilege exists with the witness; and the witness’ statements may be communicated to third parties, including the government, if disclosure is in the best interest of the corporation. Recently, a Stanford Financial Group officer filed suit against one of the company’s outside attorneys for legal malpractice and breach of fiduciary duty after the attorney allegedly failed to provide the officer with a proper Upjohn warning. However, even a proper Upjohn warning may be insufficient, as in this case, where the employee had a separate, then-current attorney-client relationship with the counsel, "to suspend or dissolve an existing attorney-client relationship and to waive the privilege." Providers should be aware of attorney-client privilege issues when conducting internal investigations and the risk of malpractice, breach of fiduciary duty and ethics rules violations by attorneys, including in-house counsel.

For more information, please contact Robert M. Wolin, rwolin@bakerlaw.com or 713.646.1327, or Summer D. Swallow, sswallow@bakerlaw.com or 713.646.1306.

NEW BILL EXPANDS FDA AUTHORITY AND ENFORCEMENT POWER OVER MEDICAL DEVICES AND PHARMACEUTICALS

Sens. Edward M. Kennedy (D-Mass.) and Charles Grassley (R-Iowa) introduced a bill on April 23, 2009, that provides resources and enforcement tools to strengthen the FDA’s grip on medical devices and pharmaceutical products. The proposed Drug and Device Accountability Act of 2009 enhances the FDA’s authority to detain medical devices and pharmaceuticals suspected of being adulterated or misbranded, and increases the number of foreign manufacturer and importer inspections. It also allows the FDA to issue subpoenas, tolls additional inspection fees and requires an individual to certify that drug or device applications and safety reports comply with applicable regulations and are not false or misleading. The penalty for drug/device application and safety report misrepresentations includes civil and criminal penalties.

The FDA has long come under fire from individuals within and outside the agency. For example, FDA scientists have raised serious allegations of the agency’s mishandling of medical device reviews. In an effort to address this issue, the bill requires the Institutes of Medicine to conduct a study to examine the FDA’s process for medical device approvals and clearances.

Speaking on the floor, Sen. Grassley stated that this legislation seeks to address nagging issues within the FDA related to delays in identifying safety problems, a failure of accountability, the quashing of scientific opinion within the agency and the inability to inspect adequately foreign medical device and pharmaceutical facilities. An increasing number of drugs and devices are manufactured overseas. FDA officials estimate that it inspects foreign Class II device manufacturers once every 27 years and foreign Class III device manufacturers once every six years. The number of pharmaceutical facility inspections is likewise poor. In 2007, only 11 inspections were conducted in China, the world’s largest producer of active pharmaceutical compounds and the nexus of most contaminated products.

If you would like more information regarding the proposed Drug and Device Accountability Act of 2009, please contact Karen A. Weaver, or 310.442.8866.

BAKER HOSTETLER CLIENTS AND FRIENDS HEAR ABOUT CHANGES TO THE PRIVACY LANDSCAPE

On April 22, 2009, clients and friends of Baker Hostetler tuned into a webinar entitled, "HIPAA and Healthcare Privacy: How the Stimulus Bill, State Statutory Enactments, Red Flag Rules & Cases Have Changed the Landscape," that discussed a variety of privacy and security developments affecting the healthcare industry, including an overview of HIPAA changes from the recent Stimulus Bill, a review of the FTC Red Flag Rules and an examination of case law and state privacy developments. Attorneys Steve Eisenberg, Bob Wolin and John Mulhollan offered practical tips and concrete action steps that providers can take in light of the changed and changing landscape. A complete replay of this webinar is available online.

For more information, please contact Ameena Ashfaq, or 713.646.1329.

LEGAL ETHICS FOR THE HEALTH LAWYER—SPECIAL HEALTH LAW ISSUES

Baker Hostetler partner Rick Siehl recently served as a faculty member for a CLE course offered by the Florida Bar Association on Advanced Health Law Topics and Certification Review. Mr. Siehl’s topic, which addressed "Legal Ethics for the Health Lawyer," included a summary overview of "Special Health Law Issues" and a detailed outline regarding rules of professional conduct and case studies. Mr. Siehl currently divides his time between Baker Hostetler's Columbus and Orlando offices.

EVENTS CALENDAR

May 1, 2009

Cleveland partner Steve Eisenberg will participate in a panel discussion on Developments and Trends for Hospitals and Health Systems at the 25th Annual Health Law Institute of the Cleveland Bar Association in Cleveland, Ohio.

May 14, 2009

Houston partner Susan Feigin Harris will provide a Legislative Update at the May Symposium of the Texas Gulf Coast Chapter of the Healthcare Financial Management Association in Houston, Texas.

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.