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Health Law Update—January 24, 2008

Alerts / January 24, 2008

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



On January 11, 2008, the federal district court for the Northern District of Florida held that days during which a bed is used to house observation patients must be included in the provider's bed count for purposes of determining whether a provider qualifies for a disproportionate share hospital ("DSH") payment adjustment. The Provider, North Okaloosa Medical Center, appealed the Intermediary's removal of "observation bed days" from its bed count—a removal which resulted in the hospital's failure to reach the 100-bed threshold for DSH reimbursement for urban hospitals. The Provider argued that, under the plain language of the DSH regulation and Medicare manual provisions in place during the relevant time period, observation bed days must be included in a provider's DSH bed count. The court agreed with the Provider, citing the fact that the plain language of the bed-counting regulation in place at that time did not list observation beds among the enumerated categories of beds that must be excluded from a provider's bed count. The court rejected the Intermediary's argument that only bed days involving services reimbursable under the inpatient prospective payment system may be counted for DSH bed-counting purposes. As a result of the court's decision, the Provider was deemed to have at least 100 available beds and therefore qualified for DSH reimbursement. This decision is the latest in a line of provider-friendly decisions on the DSH bed-counting issue, which include Clark Regional Med. Ctr. v. U.S. DHHS (6th Circuit 2002), Odessa Regional Hosp. v. Leavitt (W.D. Texas 2005), and Highland Med. Ctr. v. Leavitt (N.D. Texas 2007). The Providers in the present North Okaloosa case and the recent Highland case were represented by Greg Etzel and Krista Barnes. The decision in North Okaloosa Med. Ctr. v. Leavitt is available on Westlaw at 2008 WL 141478.

For more information, please contact Greg Etzel, or 713.646.1316 or Krista Barnes, or 713.646.1352.


Following the highly publicized deaths of two specialty hospital patients where neither specialty hospital had a physician on duty at the time of the emergency and both hospitals called 9-1-1, on January 10, 2008, the U.S. Department of Health and Human Services Office of Inspector General ("OIG") issued a report summarizing its evaluation of how physician-owned specialty hospitals manage medical emergencies. In the report, the OIG noted that CMS does not currently have a way to identify and track physician-owned specialty hospitals and recommended that CMS develop a system for this purpose.

For this report, the OIG reviewed the emergency departments, staffing schedules, staffing policies, and written policies and procedures for handling medical emergencies and interviewed administrators at 109 physician-owned specialty hospitals (defined as hospitals that primarily perform cardiac, orthopedic, or surgical procedures and are partially or fully owned by physician investors) for the report.

The most significant finding in the OIG report was that more than 1/3 of the hospitals reviewed may not be in compliance with the Medicare Conditions of Participation ("CoPs"). Specifically, the OIG found that:

  • 7 hospitals did not have a registered nurse on duty during at least 1 of the 8 sampled days, as required by 42 C.F.R. § 482.23(b)(1);
  • 1 hospital did not have a physician on call or on duty during at least 1 of the 8 sampled days, as required by 42 C.F.R. § 482.12(c)(3);
  • 37 of the hospitals reviewed (34%) use 9-1-1 to obtain medical assistance to stabilize a patient, a practice that is not in compliance with the Medicare CoPs according to a CMS memorandum to State Survey Agency Directors entitled "Provision of Emergency Services – Important Requirements for Hospitals" issued on April 26, 2007.

Other findings in the report involved the extent to which physician-owned specialty hospitals rely on the use of 9-1-1 to transfer patients to other hospitals, the prevalence of emergency departments in physician-owned specialty hospitals, the extent to which physician-owned specialty hospitals lack physicians on-site at all times, and the inadequacy of many physician-owned specialty hospitals' written policies for managing medical emergencies.

The OIG made several recommendations related to these findings. The OIG also indicated that it was forwarding to CMS for appropriate action the information about the 8 hospitals that did not meet the staffing requirements set forth in the Medicare CoPs and the 37 hospitals that use 9-1-1 to obtain assistance in stabilizing patients during medical emergencies.

The OIG's report confirms many of the concerns expressed by members of Congress and others about the care that patients receive in specialty hospitals, particularly in emergency situations. Based on the OIG's findings, the healthcare industry should expect to see further congressional and regulatory action in this area in the near future.

The OIG's report is available online. For more information, please contact Shannon DeBra, or 513.852.2619.


In an effort to further clarify questions raised regarding discounts to the uninsured and underinsured by hospitals, CMS recently posted Frequently Asked Questions ("FAQs") related to hospital billing and collection practices. Generally, questions sought answers to the impact of discounts to the uninsured/underinsured to Medicare reimbursement for bad debt and the beneficiary inducement provision of the anti-kickback statute. The new CMS FAQs clarify that a hospital may be reimbursed by the Medicare program for a Medicare patient's unpaid deductibles and coinsurance amounts, provided that the hospital sends a bill to the patient and engages in reasonable and consistent collection efforts. The agency also provides reassurance regarding the flexibility that hospitals have in developing their own indigency policies. The FAQs remind hospitals that they are permitted to use their own business judgment in determining whether or not a non-Medicare patient is indigent and entitled to a discount pursuant to specific indigency policy. With respect to Medicare reimbursement consequences, CMS clarifies that hospital discounts to non-Medicare patients, such as the uninsured, do not have a resultant impact upon outlier or new technology payments. The agency also specifically provides that offering discounts to the uninsured or underinsured does not affect the hospital's cost-to-charge ratio or Medicare cost apportionment, as long as the provider properly reports its full charges on its Medicare cost report.

The new CMS FAQs on hospital billing and collection practices are available online. For details regarding the implementation of various discount policies to the uninsured or underinsured, and for more information regarding the CMS FAQs, please contact Susan Feigin Harris or 713.646.1307.


The OIG recently issued two Advisory Opinions (07-21 and 07-22) reiterating its acceptance of gainsharing arrangements that allow for transparency and include specific safeguards to limit the risk of improper kickbacks. The hospitals involved in the opinions utilized a third-party program administrator to identify cost-saving opportunities available by implementing specific changes in the physicians' operating room practices. The OIG found the two similar arrangements, involving cardiologists and anesthesiologists, respectively, implicated the anti-kickback statute and civil monetary penalty provisions of the Social Security Act, but concluded it would not impose sanctions against the hospitals. Although the OIG determined the arrangements would not meet the personal services safe harbor because the aggregate compensation was not set in advance, it declined to impose sanctions under the anti-kickback statute because it found the arrangements were (1) unlikely to increase referrals on the basis, among other reasons, that savings attributable to federal health program beneficiaries were capped; (2) contained groups which distributed their payment on a per capita basis and were composed entirely of their respective specialty; and (3) allowed for a reasonable compensation considering the increased liability risks for the physicians. Among the eight specific safeguards the OIG considered in its decision not to seek sanctions under its civil monetary authority were (1) the clearly and separately identified specific cost-saving actions; (2) the administrator's use of objective historical data and clinical measures and, where appropriate, the establishment of "floors" below which no savings would accrue to the physicians; (3) the hospital and physicians provided written disclosures of the arrangements to patients; and (4) the arrangements limited the duration and scope of the financial incentives.

The Advisory Opinions are available online. Follow this link to see Advisory Opinion (07-21) and this link to see Advisory Opinion (07-22).

For more information, please contact Donna S. Clark, or 713.646.1302, or Summer D. Rohde, or 713.646.1306.


In a recent decision, the 11th Circuit concluded that an MRI facility's refusal to allow a legally blind woman, who requires the assistance of a service dog, to bring her 80-pound Labrador retriever guide dog into an inner waiting area of an MRI facility to wait with her child constituted discrimination. The MRI facility offered various explanations for its policy prohibiting animals to go beyond its waiting room, including concerns relating to (1) the animal's safety, (2) metal in the animal's harness, (3) hygiene, and (4) space restrictions in the holding room. Despite the plausible explanations, the court concluded that the MRI center's discriminatory treatment was intentional and "the result of a years-long policy created by [the MRI's] owner, communicated through [the organization's] ranks, and enforced on multiple occasions, sometimes vehemently."

As a result of the treatment, the patient's mother sued the MRI facility seeking non-economic emotional distress damages under Section 504 of the Rehabilitation Act. While non-economic compensatory damages have not previously been awarded under the Rehabilitation Act in a reported decision, the 11th Circuit held that non-economic compensatory damages were recoverable. Under the Rehabilitation Act, courts may use any available remedy designed to correct the wrong done, other than punitive damages. The court held that remuneration for emotional damages was compensatory in nature and designed to remedy the harm of discrimination. The court believed imposition of non-economic damages was appropriate because emotional distress is a foreseeable consequence of discrimination and the MRI facility had fair notice of the potential liability.

This decision may significantly expand the potential liability of healthcare providers for intentional violations of the Rehabilitation Act. Providers should review their service animal and other disability accommodation policies, procedures and practices. Sheely v. MRI Radiology Network, P.A., 2007 WL 3087215 (11th Cir. Oct. 24, 2007) (No. 06-13791).

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