Health Law Update – March 9, 2017

Alerts / March 9, 2017

Welcome to this week's edition of the Health Law Update. In this Issue:

AHCA: The Republican House Leadership Proposal to Change the ACA

By Susan Feigin Harris

Late Monday afternoon, House Republican leaders released a two-bill legislative package to “repeal and replace” the Affordable Care Act (ACA). Collectively called the “American Health Care Act” or “AHCA,” the two bills drafted by the Energy and Commerce and Ways and Means Committees reflect efforts by the GOP to identify provisions in the ACA that can be repealed and/or replaced under a special procedure known as budget reconciliation, which requires only a simple majority to win Senate approval. As a result, the AHCA appears to do less in the “repeal” category, takes on some “replace” and ventures far afield with regard to the Medicaid program.

ACA provisions slated to remain

The AHCA does not eliminate the more popular consumer protections in the ACA applicable to commercial healthcare insurance. Remaining intact are the protections against the imposition of lifetime or annual limits in health plans; health status underwriting; and discrimination on the basis of race, nationality, disability, age or sex. Children up to age 26 will continue to be afforded coverage under a parent’s healthcare insurance plan. Pre-existing condition protections remain as well as guarantee availability and renewability of coverage. The essential health benefits requirement, while left untouched for Exchange plans, was eliminated for the Medicaid expansion population. Other important provisions in the ACA also left intact include funding for the Center for Medicare & Medicaid Innovation (CMMI), accountable care organizations, elimination of the Stark Law whole hospital exception, modifications to the False Claims Act, and provisions regarding the timing of “overpayments,” discovery and obligations associated with self-disclosures.

ACA provisions slated for repeal/replace

So what was repealed? The individual and employer mandate. The AHCA introduces a continuous eligibility penalty aimed at encouraging individuals to maintain insurance coverage. To that end, individuals will have to prove that they had creditable coverage during the year and did not have a gap in coverage that lasted for more than 63 continuous days. Failure to do so would result in a 30 percent premium surcharge. Young folks that age out of dependent coverage would need to prove that they enrolled for coverage during the first open enrollment period after their dependent coverage ended. Thus, while the individual mandate technically would be “repealed,” the penalty for failing to maintain insurance coverage remains alive and well under the AHCA. Such provisions are important for preventing adverse selection and it appears that Congress has recognized this as a key factor in stabilizing the individual insurance market.

Also repealed are the numerous taxes in the ACA that were used to help pay for the other elements of the healthcare law. These include taxes on employee health insurance premiums (Cadillac tax), over-the-counter medications and medical devices as well as penalties for flexible spending account contributions over the $2,500 limit and health savings account funds used for non-medical purposes. Instead, the AHCA introduces a new premium tax credit that would be available for those purchasing health plans on the Exchanges beginning in 2020. The tax credit, which is advanceable and refundable on a monthly basis to help defray the cost of premiums in the individual insurance market, would be age-dependent as follows:

  • $2,000 for individuals under 30
  • $2,500 for individuals ages 30-39
  • $3,000 for individuals ages 40-49
  • $3,500 for individuals ages 50-59
  • $4,000 for individuals ages 60 and over

The means-tested premium tax credits currently in place under the ACA would be maintained through 2019, and the age-dependent premium tax credits proposed under the AHCA would be implemented in 2020.

Individuals would qualify for the tax credits only if they do not otherwise have access to employer coverage, are U.S. citizens, are not incarcerated and are covered by a state-approved individual health insurance plan that does not otherwise cover abortions. The tax credit ends when a taxpayer’s modified adjusted gross income (MAGI) reaches $75,000 ($150,000 for joint filers), and there are a host of additional requirements in the age categories that are tied to the MAGI.

Efforts to stabilize the insurance markets

Specifically, the proposed legislation would create a Patient and State Stability Fund available to states beginning in 2018 through 2026. States could use this funding to:

  • Provide assistance to high-risk individuals
  • Offer incentives to certain entities to provide reinsurance to stabilize individual market insurance premiums
  • Reduce the cost of insurance for individuals with high rates of utilization of health services (measured by cost)
  • Encourage greater participation in the individual and small group markets and increase the availability of health insurance options
  • Promote access to preventive services
  • Make payments directly or indirectly to healthcare providers for the provision of health services “specified by the Administrator”
  • Provide assistance to reduce out-of-pocket expenditures, including copayments, coinsurance, premiums, and deductibles for individuals enrolled in health insurance coverage in the state

Failure by a state to take advantage of this funding would allow the Centers for Medicare & Medicaid Services to direct these funds toward stabilizing patient premiums in the state.

Restructuring Medicaid

By far the most sweeping changes involve the Medicaid program. The ACA expanded Medicaid coverage to individuals who were previously ineligible for coverage under the program, and this led to the largest expansion of Medicaid in decades. The controversy regarding expansion also caused significant consternation resulting in the NFIB v. Sebelius case. The AHCA repeals Medicaid expansion, but not until 2020, and would codify expansion as an option, presumably through 2020 when it phases out. The enhanced federal funding associated with a state’s Medicaid expansion population would also end in 2020. Non-expansion states would be permitted to expand their Medicaid program prior to 2020 with the same enhanced funds, but the mandatory income eligibility threshold for children, ages 6-19, would be reduced from 133 percent to 100 percent as of 2020. The Children’s Health Insurance Program (CHIP) would be expected to pick up coverage for these children.

A per capita cap would be instituted beginning October 1, 2018. This would be a single cap made up of several buckets of enrollee populations whose per capita allotments would be calculated based on the state’s fiscal year 2016 Medicaid expenditures, multiplied by the number of enrollees in each category, and trended forward using a medical Consumer Price Index (CPI). The enrollee categories include the elderly, children, the blind and disabled, expansion adults, and non-elderly/non-disabled adults.  Disproportionate share hospital supplemental payments, safety net payments for non-expansion states, 1115 waiver spending for delivery reform and uncompensated care pools, Medicare cost sharing for dual eligibles, and administrative costs would all be excluded from the per capita cap calculation.

What is most perplexing about the AHCA is the lack of flexibility provided to the states. The AHCA does not appear to authorize the states to expand the enrollee populations to which they could apply the per capita caps, nor does it allow for the states to adjust for the expansion population once the enhanced match decreases. As a result, the AHCA’s Medicaid provisions appear to be a huge cost shift from the federal government to the states, one that offers little in the way of flexibility for states to manage the imposed costs associated with a federal restructuring of the Medicaid program. 

Capitol Hill Healthcare Update

By Mike Ferguson, Chris Jones, Adam Higgins and Tyler Thompson

‘Take it or leave it’

Some conservatives say it represents “Obamacare lite,” not the full repeal they have campaigned on for years. Other Republicans are mindful of policy decisions impacting Americans who have received insurance coverage on the Exchanges or the states that have expanded their Medicaid populations. House leaders have concluded it’s impossible to reconcile these competing positions, so they are plowing ahead with legislation that would fundamentally change the ACA. In doing so, they will effectively dare their members – particularly the most conservative lawmakers – to vote against it. One leadership staffer last week called the GOP leaders’ message to the rank and file as “Take it or leave it.”

At the end of the day, leadership is banking that conservatives will not pass on the opportunity to “repeal” the ACA. The key to this strategy is President Donald Trump, who ran up huge winning margins in scores of House Republicans’ congressional districts. Trump effectively blessed the House legislation this week to give these Republicans the incentive – and political cover – they need to vote for the AHCA. A House floor vote is planned for early April. Assuming it passes the House, the Senate would vote on the reconciliation bill – needing only 51 votes to pass it – before Congress adjourns for a two-week recess. Leaders are not envisioning going to a conference committee to resolve differences in each chamber’s reconciliation bills; the Senate would take up and try to pass whatever the House approves. But the House’s political cross currents also exist in the Senate, where Republicans can only afford to lose two votes, assuming all Democrats oppose the bill.

That’s the plan. It’s a gamble by House and Senate GOP leaders, and it’s possible the plan will go sideways. But leaders believe muscling through a bill – with Trump providing air cover – is the only workable strategy.

For healthcare stakeholders, that process provides limited options to try to shape the final legislation. It’s not clear whether the committees will vote on a “manager’s amendment,” an updated version of the House legislation that could reflect stakeholder input. But the Budget Committee and the Rules Committee will likely make changes to the bill as it moves forward, providing opportunities for stakeholders to weigh in and propose changes – likely not wholesale changes, but potentially narrow changes that could mitigate adverse provisions.

Employee Reference Releases: Who’s In and Who’s Out?

By Robert M. Wolin

A recent Indiana defamation case, Manhas v. Franciscan Hammond Clinic, serves as a critical reminder of the importance of scrutinizing physician and employee reference forms and releases. Dr. Sheila Manhas and Franciscan Hammond Clinic (FHC) were parties to a settlement agreement that included a provision whereby Dr. Manhas would direct inquiries from prospective employers to a named person at FHC “who will provide only the following information: dates of employment, last position held, and salary.” Subsequently, Dr. Manhas applied for a temporary position as a neurologist at another hospital, and as part of the application process was required to sign a Release of Information/Consent to Background Check Authorization (authorization form). Unfortunately, the prospective employer failed to send the authorization form to the FHC-designated individual, and the person who responded on behalf of FHC was unaware of the settlement agreement.

The prospective employer hired a temporary physician placement agency to complete the credentialing process. By signing the authorization form, Dr. Manhas authorized the placement agency to:

[P]erform a check of [her] background, references, character, employment, motor vehicle, education and criminal history record bearing on information which may be in any state or local files, including those maintained by both public and private organizations and all public records for the purpose of confirming the information contained in the application and/or obtaining other information which may be material to [her] qualifications for employment.

As part of the authorization form, Dr. Manhas consented to release the temporary physician placement agency, “its corporate affiliates, its current and/or former officers, directors and employees, its authorized agents and representatives and all others involved in this background investigation and any subsequent investigations, from any liability in connection with any information they give or gather and any decisions made concerning my employment based on such information” [emphasis added].

As part of the credentialing process, an evaluation of Dr. Manhas was completed by Dr. Majmudar on behalf of FHC, who assessed Manhas’s physician skills as either fair or poor, despite neither having known nor worked with Dr. Manhas, and further stated that Dr. Manhas had been terminated by FHC and was not eligible for rehire. After counsel for Dr. Manhas questioned the responses, “Dr. Majmudar reviewed Dr. Manhas’s credentialing file and confirmed that he made false and inaccurate statements about Dr. Manhas.” Dr. Majmudar then wrote letters to the temporary physician placement agency hired by the prospective employer to undertake the credentialing process and Manhas’s attorney “apologizing for the inaccuracies,” admitting that he “was wrong to make those statements,” noting that Dr. Manhas had left FHC in good standing and that he would recommend Dr. Manhas without reservation. Despite the corrective letters, Dr. Manhas filed suit against FHC and its successor for defamation and violation of the Indiana blacklisting statute.

FHC and its affiliates argued that the release contained in the authorization form “relieved them of any and all liability arising out of the responses provided” with respect to Dr. Manhas. The trial court dismissed Dr. Manhas’s claim, finding that FHC was included as a released party within the “all others involved in this background investigation and any subsequent investigations” group.

In reversing the trial court’s decision, the Court of Appeals of Indiana held that:

[T]he catch-all phrase refers to ‘all others involved’ with [the prospective employer’s] authorized agents and representatives. Further, there is no language in the Authorization Form or the Release from which [the court] can decipher any intent to extend the protection of the Release to third parties, i.e., former employers. A plain reading of the Authorization Form as well as the Release contained therein reveals that [the prospective employer] cast a wide net to relieve itself of any liability and clearly evinces an intent that the Release does not extend to the Defendants [FHC and its affiliates].

The Court of Appeals, however, indicated that had the release been drafted to include a former employer, the former employer would have been released from liability.

Careful reading of the release language included in employee or physician reference requests is critical for assuring compliance with settlement agreements or state law limits on reference information that can be imparted to a prospective employer. For example, when a settlement agreement addresses employee or physician references, providers should attempt to assure that it does not contain provisions waiving release language contained in a prospective employer’s reference requests. These waiver provisions are included in some settlement agreements to limit future references to agreed data elements, despite the broad prospective employer reference form signed by the employee/physician and any release contained therein.

Providers should also be aware that some states have statutes that limit the reference information that can be provided on certain healthcare employees. For example, employers in Texas may not disclose information about a licensed nurse or licensed vocational nurse that relates to conduct protected by the Nurse Practice Act. In addition, an employer must “provide an affected nurse an opportunity to submit a statement of reasonable length to the employer to establish the application” of the exceptions. Tex. Labor Code §103.003(b).

Some states also afford immunity to employers providing references. Using Texas again as an example, Tex. Labor Code §103.004 states that an “employer who [provides] information about a current or former employee … is immune from civil liability for that disclosure or any damages proximately caused by that disclosure unless it is proven by clear and convincing evidence that the information disclosed was known by that employer to be false at the time the disclosure was made or that the disclosure was made with malice or in reckless disregard for the truth or falsity of the information disclosed.”

You Can’t Fire Me for Drug Diversion If I Am Personally Consuming the Drugs

By Robert M. Wolin

A nurse employed by a major medical center was suspected of illegally diverting medications. When confronted by her employer with evidence of suspicious transactions recorded by the provider’s medication monitoring systems, the nurse denied diverting medications but could not explain the suspicious transactions (“I’m not an IT person. I’m a nurse.”). Following termination of her employment, the nurse filed suit against her former employer under the Tennessee Disabilities Act (TDA), claiming she had lost her job solely because the employer “perceived her to have the disability of drug addiction.”

The employer argued that “it did not fire her because she was considered a drug addict, but because it thought she was stealing medications.” The Tennessee Court of Appeals in Demastus v. University Health System upheld the trial court’s dismissal of the nurse’s claim on two grounds. First, the court held that the TDA specifically excludes the “current illegal use of or addiction to a controlled substance” as a disability. Second, the court found that the nurse had failed to show that her termination for diversion was a pretext for illegal discrimination. The court noted, however, that an employer is prohibited from terminating an employee for a disability it perceives the employee suffers from, without regard to whether the employee actually suffers from such disability.

As the case shows, to avoid discrimination claims, care is advised when taking action against an employee suspected of diverting medications.

Justice Department Sets Standards for Evaluation of Corporate Compliance Programs

By John J. Carney, Margaret E. Hirce, Bari R. Nadworny and Jacqlyn Rovine

Since the U.S. Department of Justice’s (DOJ) announcement of its new compliance counsel expert in November 2015, many have been waiting patiently for additional insight into the DOJ’s emphasis on corporate compliance programs. In April 2016, the DOJ issued its Federal Corrupt Practices Act Pilot Program, again highlighting its intense focus on effective compliance programs by focusing on remediation as a factor to avoid prosecution. The Pilot Program provided criteria of an effective compliance and ethics program that would be considered during an investigation, setting benchmarks against which a company’s program would be assessed. Recently, the DOJ provided more information in its “Evaluation of Corporate Compliance Programs,” revealing critical insight about how the DOJ’s Fraud Section may evaluate a corporate compliance program during an investigation. Read more >>

Publication Notice

The Health Law Update newsletter will not publish its March 23, 2017 issue. Our biweekly publication schedule will resume April 6, 2017.

Subscribe to the Health Law Update blog for postings on the latest healthcare industry news and developments during this period (and every day!). Follow us on Twitter @HealthLawUpdate.

Events Calendar

March 10, 2017

Atlanta Partner Kristen McDermott Woodrum is presenting “Making Sense of MACRA in the AMC Setting: Adapting to the New Quality Payment Program” at the AHLA Legal Issues Affecting Academic Medical Centers and Other Teaching Institutions Conference in Baltimore, Maryland.

March 11, 2017

Houston Partner Lynn Sessions will present “Domino Effect of Flawed Breach Response” at the 2017 SXSW Conference in Austin, Texas.

March 22, 2017

Cleveland Of Counsel Thomas S. Campanella will moderate a Panel: “Positive Disruptions in the Health Care Market: An Interactive Dialogue” at the North East Ohio Underwriting Association – Annual Expo in Cleveland, Ohio.

April 6, 2017

Houston Partner Donna S. Clark will present a “Stark Law Update” at the UT CLE 2017 Health Law Conference in Houston, Texas.

Houston Partner B. Scott McBride will present “Recent Trends in the False Claims Act and Government Enforcement” at the UT CLE 2017 Health Law Conference in Houston, Texas.

April 7, 2017

Houston Partner Susan Feigin Harris will moderate the panel “The Realities and Future of Payment and Delivery Reform” at the UT CLE 2017 Health Law Conference 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.

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