Health Law Update—July 25, 2013

Alerts / July 25, 2013

Welcome to this week's edition of the Health Law Update. Topics covered today include:

We hope you find this information helpful. Please contact any member of BakerHostetler's Healthcare Team with questions.


Amidst the national discussion over the implementation of the Patient Protection and Affordable Care Act (PPACA), the Centers for Medicare and Medicaid Services (CMS) recently reported early results of the Pioneer accountable care organization (ACO) model. Separate from but complementary to the Medicare Shared Savings Program (SSP) and other ACO initiatives, the Pioneer ACO model was specifically designed by CMS for organizations experienced in coordinated care and risk-sharing. As a result, the 32 health systems participating in the Pioneer ACO program were selected by CMS for their potential to demonstrate and prove the ACO concept.

The ACO concept garners controversy in healthcare circles, depending, it seems, upon one's perspective. Some argue that any savings and improvements achieved by ACOs will be short-lived, while others contend that ACOs will go the way of the dodo bird -- likening it to the unrealized promise of managed care from the 1990s. At the same time, since the passage of PPACA in early 2010, 425 public and private market ACOs reportedly exist in operation nationally. So the broad spectrum of shared savings approaches central to the ACO model were adopted within a short three years in a manner that has penetrated far beyond the Medicare program initiatives found within PPACA.

Highlights of the results from the first performance year of the Pioneer ACO model include the following:

  • All 32 participating health systems were able to show improved patient care related to quality and patient satisfaction benchmarks, specifically with respect to cancer screenings and controlling blood pressure.
  • Only 18 of the 32 health systems lowered costs for the Medicare patients they treated.
  • Thirteen systems saved enough to share savings with the Medicare program.
  • Two systems cost Medicare more and reportedly may owe $4 million back to the program.
  • Savings totaled $140 million, $76 million of which will be returned to the Pioneer ACOs as their portion of the shared savings. A net savings of $33 million will be returned to the Medicare trust funds.
  • Nine Pioneer ACOs -- Prime Care Medical Network, Inc.; University of Michigan Health System; Physician Health Partners LLC; Seton Health Alliance; Plus ACO (North Texas Specialty Physicians and Texas Health Resources); Healthcare Partners Nevada ACO LLC; Healthcare Partners California ACO LLC; JSA Care Partners LLC; and Presbyterian Healthcare Services -- will be leaving the program. Seven have opted to participate in the SSP while two will leave the program altogether.

The early results from the Pioneer ACO program show that a majority of participating health systems indicated improvement in care delivery and promise in the area of cost savings, including the ability to participate in those cost savings. Although the jury is out as to whether ACOs will be able to secure lasting improvements in cost, quality and population health objectives, the early results are a cause for optimism. At a minimum, the ability of providers to attain some level of budget certainty and positive improvement in the benchmarks required suggests that movement in this general direction should be sustained. Ensuring that this effort does not adversely impact provider long-term viability in the process is the challenge that confronts us.

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

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The past is never dead. It's not even past.
-William Faulkner

Speaking at an American Bar Association symposium titled "Retrospective Analysis of Agency Determinations in Merger Transactions," Federal Trade Commission (FTC) Chairwoman, Edith Ramirez, highlighted the FTC's successful track record challenging transactions, but also noted "growing concern" that hospital acquisitions of physician groups are having a negative impact on consumers. In Chairwoman Ramirez's words, "we need some more study before we can proceed." So, is a retrospective investigation targeting hospital/physician transactions brewing at the FTC? In Chairwoman Ramirez's words, "stay tuned."

What a new retrospective investigation ultimately means for hospitals and physicians is far from clear. What is clear is that the last FTC retrospective review is credited by many as reinvigorating the FTC's hospital merger enforcement efforts. In the wake of the enforcement action that grew out of that review -- the 2004 challenge to Evanston Northwestern Healthcare's acquisition of Highland Park Hospital in 2000 -- the FTC has amassed an impressive undefeated record of at least 10-0 challenging transactions involving hospitals and/or physicians. Those challenges have involved both consummated and proposed transactions.

The FTC's turnaround is all the more impressive because both the FTC and the Antitrust Division of the U.S. Department of Justice had suffered a previous series of defeats in hospital merger cases, often because of difficulties in proving effects in relevant geographic markets.

Most recently, the threat of a challenge caused Capella Healthcare to abandon its plan to acquire rival Mercy Hot Springs health system in Hot Springs, Arkansas, for $167.5 million. According to the Statement of FTC Competition Director Richard Feinstein, the Bureau of Competition investigated the proposed transaction for months before telling Capella Healthcare and Mercy Hot Springs that the Bureau "had serious concerns about the likely anticompetitive harm that would have resulted if the transaction was completed, and that [the Bureau was] prepared to challenge the transaction."

Prior to that,

  • Inova Health System and Prince William Health System withdrew their plans for a merger after the FTC filed a complaint in federal district court seeking an injunction pending an administrative trial (2008).
  • Carilion Clinic agreed to sell two independent outpatient medical clinics it acquired to resolve an administrative complaint filed by the FTC (2009).
  • Universal Health Services agreed to sell 15 psychiatric facilities as a condition of its $3.1 billion acquisition of Psychiatric Solutions, Inc. (2010).
  • Although the case is currently on appeal to the U.S. Court of Appeals for the Sixth Circuit, ProMedica Health System was ordered to divest St. Luke's Hospital after a federal district court judge granted the FTC's request for a preliminary injunction, a full administrative trial on the merits and review by the Commission (2011).
  • OSF Healthcare System abandoned its proposed acquisition of rival Rockford Health System after a federal district court granted the FTC's requested preliminary injunction pending a full administrative trial on the merits (2012).
  • Renown Health agreed to release its staff cardiologists from "non-compete" contracts, allowing them to join competing cardiology practices to resolve FTC charges that its acquisitions of two local cardiology groups reduced competition in the Reno area (2012).
  • Universal Health Services, Inc. agreed to sell an acute inpatient psychiatric facility to settle FTC charges that its proposed acquisition of Ascend Health Corporation would be anticompetitive (2012).
  • Reading Health System abandoned its proposed acquisition of Surgical Institute of Reading L.P. after the FTC authorized its staff to seek a preliminary injunction in federal district court pending a full administrative trial (2012).
  • Phoebe Putney Health System and Palmyra Park Hospital agreed to a stay to allow the Commission to consider a proposed consent resolving the matter (2013).

History and the FTC's current efforts in federal district court in Idaho to unwind St. Luke's Health System, Ltd.'s acquisition of Idaho's largest independent, multi-specialty physician practice group, Saltzer Medical Group P.A., certainly suggest that the FTC will not hesitate to pull the enforcement trigger on a consummated or proposed hospital/physician transaction in its crosshairs.

Drawing on the experience of members of our healthcare team in complementary areas of health law, including transactions, tax, labor and employment and healthcare regulation, our team of antitrust lawyers has the depth and experience to handle the most significant antitrust healthcare matters. If you have any questions regarding this matter, or would like to learn more about our healthcare antitrust capabilities, please contact Jonathan L. Lewis, or 202.861.1557; or Lee H. Simowitz, or 202.861.1608.

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In its third resolution agreement of 2013, the U.S. Department of Health and Human Services (HHS) Office for Civil Rights (OCR) recently announced a $1.7 million resolution agreement with WellPoint, Inc., a health insurer and managed care company. The resolution agreement stems from WellPoint's June 18, 2010, report to OCR regarding security weaknesses in an online application database which left the electronic protected health information (ePHI) of 612,402 individuals accessible to unauthorized individuals over the Internet for almost five months between 2009 and 2010. Information accessible included names, dates of birth, social security numbers, telephone numbers and health information.

In response to WellPoint's report, OCR initiated its investigation into WellPoint's compliance with the Privacy, Security, and Breach Notification Rules on September 9, 2010. OCR's investigation indicated the following:

  • Contrary to its obligations under the Security Rule, WellPoint failed to adequately implement policies and procedures for authorizing access to ePHI maintained in its web-based application database;
  • WellPoint failed to perform an adequate technical evaluation to ensure that safeguards were in place to meet requirements of the Security Rule for an operational change -- a software upgrade -- which would affect the security of ePHI maintained in its web-based application database;
  • Between October 23, 2009, until March 7, 2010, WellPoint failed to adequately implement technology to verify persons or entities seeking access to ePHI maintained in its web-based application database; and
  • During the same period of time, WellPoint impermissibly disclosed the ePHI of approximately 612,000 individuals maintained in its web-based application database.

Directly addressed in HHS's press release regarding the WellPoint settlement, HHS instructs covered entities and their business associates to have in place reasonable and appropriate technical, administrative and physical safeguards to protect the confidentiality, integrity and availability of ePHI. As previously discussed on the Data Privacy Monitor, beginning September 23, 2013, liability for HIPAA violations will extend directly to business associates that receive or store PHI.

For more information, please contact Kimberly M. Wong, or 212.271.2028.

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One aspect of PPACA that employers cannot lose sight of is its whistleblower protections. Section 1558 of PPACA added Section 18C to the Fair Labor Standards Act to provide protections to employees subject to retaliation for reporting potential violations of PPACA's consumer protections or affordability assistance provisions. The reach of the law's whistleblower protections is quite broad and applies to almost all public and private employees.

Indeed, it was only earlier this year that the Occupational Safety and Health Administration (OSHA), the agency to which the Secretary of Labor has delegated PPACA whistleblower complaints investigative powers, issued an interim final rule establishing procedures and time frames for the handling of retaliation complaints under Section 18C. The protections afforded by PPACA and the OSHA rule are sweeping, and employers need to be aware of this aspect of PPACA and prepare accordingly.

To get there, please click here for a quick-hitting summary of facts about the statute and the interim final rule that every employer should know.

For more information, please contact Stephen C. Sutton, or 216.861.6165.

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