Health Care Update - April 2009

American Recovery and Reinvestment Act: Health Care Policy Provisions

On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act (ARRA) into law. The $790 billion economic stimulus package includes many health care policy provisions. For example, ARRA provides:

Almost $20 billion in funding for nation-wide health information technology;
Additional HIPAA federal privacy and security provisions;
Help for unemployed workers to maintain health insurance coverage under COBRA;
A reversal of a Medicare payment cut to hospice providers;
Certain corrections to the Medicare, Medicaid, and SCHIP related to Medicare payments for long-term care hospitals;
$1.1 billion to support comparative effectiveness research;
$1 billion for a new Prevention and Wellness Fund;
An increase in states’ disproportionate share hospital allotments;
$87 billion in additional federal matching funds over two years to help states maintain their Medicaid programs in light of state budget shortfalls; and
Medicaid prompt payment requirements for nursing facilities and hospitals.

Title XIII of ARRA, the Health Information Technology for Economic and Clinical Health Act (HITECH Act) addresses health information technology ( HIT). The HITECH Act includes approximately $20 billion allocated to health information technology ( HIT) projects. Projects include investment in HIT infrastructure, a nationwide health information network, and Medicare and Medicaid reimbursement incentives to assist physicians and hospitals in implementing electronic health record (EHR) technology.

The Office of the National Coordinator of Health Information Technology (ONCHIT), a unit of the Department of Health and Human Services (DHHS) is charged with adoption and implementation of HIT standards. ARRA also establishes the Federal Coordinating Council for Comparative Effectiveness Research to improve the quality of health care.

ARRA directs ONCHIT, in consultation with other federal agencies, to update “The ONC-Coordinated Federal Health IT Strategic Plan.” ARRA further directs DHHS to establish by December 31, 2009 an “initial set of standards, implementation specifications, and certification criteria” for national interoperability HIT standards. DHHS may use any existing national interoperability HIT standards that DHHS has already recognized, such as the six HITSP interoperability specifications, in meeting its December 31, 2009 rulemaking deadline.

ADA and FMLA Amendments Require Changes in Policies

The Americans with Disabilities Act (the ADA) was amended effective January 1, 2009 to broaden the scope of the term disability. While the statutory definition remains "substantial impairment in a major life activity," many of the Supreme Court decisions that had restricted the ADA's application have been specifically overruled. The statute also includes a long list of "major life activities." As a result, more individuals will be considered persons with disabilities and this will impact employers in several respects. Prior the amendment, employers won most ADA cases because the courts frequently found an employee could not prove a substantial impairment. The focus will move away from whether an individual has a disability and move to whether the employer can accommodate without undue hardship. This will require a better understanding of essential and non-essential functions of a job. Many employers don't have written job descriptions and others may not have revised job descriptions since the ADA first went into effect in 1992. Now is the time to review job descriptions, implement a formal, written policy on accommodations in the workplace, and make sure your supervisors and manager are trained on the changes in the law. Human Resources needs to be well versed in the importance of engaging in the interactive process when a request for accommodation is made. In addition, there will be more scrutiny on any leave of absence practice or policy that has a "hard and fast" cut off on leave. The EEOC has a number of useful Guidance documents on its website, which are a good resource whenever accommodation issues, including the need for a leave of absence, are raised.

The Family and Medical Leave Act (FMLA) was amended in January 2008 to add two new types of family military leave. The FMLA regulations, which interpret the FMLA, were changed substantially in November 2008 and became effective January 16, 2009. There are many subtle changes to the regulations, but the primary issues employers need to know are as follows. First, the FMLA forms (including the certification forms and notice forms) have changed and expanded. Second, there is a new poster (WH 1420), which needs to be posted where employees and applicants can see it. Third, FMLA policies need to be updated and should include Form 1420 or all of the items in the poster. Fourth, the regulations now allow employers to apply their usual and customary leave application practices and permit an employer to require written leave applications and notice to a particular person/department of the need for FMLA leave, absent unusual circumstances. Fifth, the process for authentication and clarification of a medical certification has changed to allow more rights for employers. Finally, if you have not already done so by now, you need to add the family military leave provisions to your policy. These include up to 12 weeks of leave for a qualifying exigency resulting from an employee's parent, child, or spouse being deployed to active duty, and up to 26 weeks of leave to care for an employee's parent, child, spouse or relative for whom the employee is next of kin and who is injured in the line of active duty. The Department of Labor has a user friendly website, which includes the forms and a lot of helpful material for employers.

New Form 990 – The Clock is Ticking

For calendar year not-for-profit organizations, the new Form 990 is due May 15, 2009. As such, the new era for tax-exempt organizations which focuses on enhancing transparency and promoting tax compliance has stepped into the limelight. The IRS has clearly expressed that it believes that good governance and accountability practices provide safeguards to ensuring that not-for-profit assets are used consistently with exempt purposes and not to provide excess benefits, private inurement or any other private benefit. The redesigned Form 990 specifically asks organizations to comment on whether it has certain policies in place, including, but not limited to:

Conflicts of interest policy
Whistle-blower policy
Document retention and destruction policy
Policies to ensure consistency in operations across affiliates and branches
Policies regarding reimbursement of business, travel and entertainment expenses
Compensation policies (for both directors and key staff)

As such, health systems should have appropriate and effective policies to satisfy these spotlighted governance practices. For example, a conflict of interest policy should emphasize the tax-exempt director’s or officer’s duty of loyalty, which requires every director or officer to act in the best interest of the organization, rather than in the personal interest of the director or officer (or some other person). Additionally, it should provide a course of action if a conflict of interest is identified.

A document retention and destruction policy should establish standards for document integrity, retention and destruction as well as including guidelines for handling electronic files and should cover backup procedures, archiving of documents and regular system reliability checkups.

A policy regarding reimbursement of business, travel and entertainment expenses should establish terms for payment and reimbursement of ordinary and necessary expenses incurred while carrying out the organization’s activities and should be consistent with IRS guidance on accountable plans.

Compensation policies should ensure that no more than reasonable compensation is paid for services rendered. It is always recommended to meet the rebuttable presumption of reasonableness under Code Section 4958. Compensation programs must be approved by the Board or a committee comprised entirely of individuals who do not have a conflict with respect to the relevant compensation program. Additionally, the Board or committee must obtain and rely on data in giving its approval that is comparable to that organization, it must conduct due diligence on the comparability data (e.g., compensation levels paid by similarly situated organizations (for profit and not-for-profit) – data for organizations with similar revenues as well as independent compensation surveys compiled from independent firms), and it must adequately document that basis for its determination that the program is reasonable – within 60 days or the next meeting, whichever is later.

The IRS has clearly stated in Form 990 that the governance policies addressed are not required by the Internal Revenue Code. While many of these are considered “best practice” in today’s legal environment, not all professionals believe that these policies are necessary in all not-for-profit organizations. Notwithstanding this, the majority of these policies are applicable to healthcare entities based on their size and scope of their services.

These policies should be reviewed and re-evaluated annually, at least for the next few years. Additionally, by conducting annual reviews, the policies get spotlighted and greatly assist Boards into transitioning into this greater oversight role.

OSHA Enforcement Issues

Under the new Administration, OSHA is becoming very aggressive in its inspection and enforcement. Several areas are of particular note to the healthcare industry.

Controlling Employer Liability – OSHA can cite “controlling employers” (owners) at worksites where there are multiple employers if there are safety or health hazards to which employees of another employer are exposed. For example, OSHA has cited a hospital when janitorial employees of an outside contractor at the hospital were exposed to bloodborne pathogens while cleaning waste receptacles. OSHA can also use this policy for criminal charges if there is a fatality. Hazardous Chemicals – OSHA is focusing on healthcare employees and their exposure to hazardous chemicals that can cause illness to healthcare employees (e.g., pharmaceuticals, chemotherapy medications) or present a safety hazard (e.g., gasses that can cause fire or explosion). Electrical Safety – OSHA focuses on electrical hazards to maintenance employees who may work on or in vicinity to live electrical equipment where there is a hazard of injury due to “arc flash” or “arc blast” from live electrical equipment and no compliance with NFPA 70E requirements, particularly during “troubleshooting.” Workplace Violence – OSHA is using its General Duty Clause (Section 5(a)(1)) to require healthcare organizations to develop workplace violence prevention programs for their facilities as a result of statistical data on the industry. Whistleblower Protection – OSHA is investigating whistleblower complaints from healthcare employees who claim they have been retaliated against for making safety-related complaints, seeking job reinstatement or other damages.

Our attorneys are very familiar with these requirements and OSHA’s enforcement agendas and can advise on all aspects of compliance or assist in responding to OSHA inspections and citations.

Proposed Sunshine Act Would Impose Additional Regulation on Physicians and Pharmaceutical and Medical Device Companies

Senators Charles Grassley and Herb Kohl have introduced the Physician Payments Sunshine Act of 2009 (the "Sunshine Act"). The Sunshine Act would require public disclosure of financial relationships between drug and device manufacturers and physicians. Manufacturers would make annual reports to the U.S. Department of Health and Human Services (" HHS") of any payments to physicians that exceed $100 per year. Specifically, beginning March 31, 2011, any entity engaged in the "production, preparation, propagation, compounding, conversion, processing, marketing or distribution of a … drug, device, biological or medical supply" (including any subsidiary) that is eligible for any federal or state coverage must report any payment or other transfer of value to a physician, medical practice, or group practice that exceeds $100 per year. HHS would then make all of the reported information available over the internet in a searchable format. Manufacturers would face fines ranging from $1,000 to $10,000 for each payment that is not reported (up to $150,000 annually). Further, if a manufacturer knowingly violated the reporting requirements, it could incur penalties of $10,000 to $100,000 for each payment not reported (up to $1 million annually).

The Sunshine Act defines reportable transactions broadly to include items such as meals, entertainment, travel expenses, consulting fees, honoraria, and royalty payments. In addition, manufacturers and group purchasing organizations would be required to report any ownership or investment interests held by physicians or their immediate family members (except for publicly traded securities or mutual funds). Excluded from the reporting requirement are educational materials that directly benefit patients, product samples for patient use, and charity care contributions. Also, manufacturers may be able to delay reporting payments for up to two years pursuant to the development of a new drug, device, biological, or medical supply or in connection with a clinical trial.

Notably, the Sunshine Act does not prohibit such payments to physicians. However, the disclosure of such information would certainly arm enforcement agencies with ammunition to investigate violations of the Anti-Kickback Statute or Stark Amendment. In addition, other credentialing or health care entities can monitor compliance with various conflict of interest requirements.

If passed, the Sunshine Act would require a significant compliance burden for reporting and monitoring compliance. The Sunshine Act would only preempt duplicate state reporting requirements. However, states may still impose additional reporting obligations in addition to those contained in the Sunshine Act. In addition to the HHS Office of the Inspector General’s compliance program guidance for pharmaceutical manufacturers, both the PhRMA Code on Interactions with Healthcare Professionals and the AdvaMed Code of Ethics on Interactions with Health Care Professionals have provided guidance to the manufacturing industry with respect to relationships with health care providers. Such guidance should already provide entities with a roadmap for acceptable types of relationships.

The introduction of the Sunshine Act signals a desire by Congress to actively regulate the drug and device industry and the relationships with health care providers.

Pennsylvania Hospitals Face Class Action Wage Hour Claims

Suits were filed in early April against several large health care employers in Pittsburgh alleging that the employers had illegal pay practices that deprived the class members of compensation for all hours worked. The suits were filed under the Fair Labor Standards Act, which is the usual vehicle for redress of these claims. However, the suits were also brought under ERISA and RICO. One of the issues in the cases is the meal break deduction, pursuant to which a 30 minute meal period was automatically deducted from the employees’ time. The claim is that employees had to routinely work through their meal periods. Many health care employers use electronic time and attendance systems that make these automatic deductions and it is not uncommon for health care employees to forego meal periods. Health care employers need to take steps to ensure that they are in full compliance with all wage and hour laws. The defense of these types of claims is extremely expensive.