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Your Medicare Reimbursements Are Your Property Rights

As a Medicare/caid health care provider, you have a property right to your reimbursements for services rendered that were medically necessary.

Why does it matter if your Medicare/caid reimbursements constitute property rights? If you have a property right to something it cannot be taken from you without due process of law. Due process equals a fair hearing and notice. If you have a property right in something then it cannot be usurped from you. For example, since I own my house, you cannot come to my house and claim ownership, even as a squatter. I am afforded due process for my right to my property. Similarly, when you provide Medicare services that are medically necessary and properly completed, your reimbursements for such services cannot be withheld without due process. This means that many rules and regulations across the nation may be unconstitutional.

One of the questionable laws comes into light under many managed care catchment area’s (MCOs) closed network system, which comprises the majority of managed care in America, as well as Medicare Administrative Companies (MACs). MCOs and MACs act as if it are the judge, jury, and executioner when it comes to payments. But, according to the constitution and property rights, Medicare/caid reimbursements are not based on a subjective review by a government contractor.

The ultimate victims in unfair, premature, or erroneous terminations from Medicare or Medicaid programs are the recipients. Often there are too few providers who accept Medicare and Medicaid in certain areas. The other victims in a wrongful termination is the provider and its staff. While the adverse consequences of an unjust termination has minimal to no unfavorable results to the government.

Under numerous Supreme Court holdings, most notably the Court’s holding in Board of Regents v. Roth the right to due process under the law only arises when a person has a property or liberty interest at stake. See also Bowens v. N.C. Dept. of Human Res.

In determining whether a property interest exists a Court must first determine that there is an entitlement to that property. Cleveland Bd. of Educ. v. Loudermill. Unlike liberty interests, property interests and entitlements are not created by the Constitution. Instead, property interests are created by federal or state law and can arise from statute, administrative regulations, or contract. Bowens.

Specifically, the Fourth Circuit Court of Appeals has determined that North Carolina Medicaid providers have a property interest in continued provider status. Bowens, 710 F.2d 1018. In Bowens, the Fourth Circuit recognized that North Carolina provider appeals process created a due process property interest in a Medicaid provider’s continued provision of services and could not be terminated “at the will of the state.” The Court determined that these due process safeguards, which included a hearing and standards for review, indicated that the provider’s participation was not “terminable at will.” The Court held that these safeguards created an entitlement for the provider, because it limits the grounds for his/her termination such that the contract was not terminable “at will” but only for cause, and that such cause was reviewable. The Fourth Circuit reached the same result in Ram v. Heckler, two years later. I foresee the same results in other Court of Appeals’ jurisdiction.

Since Ram, North Carolina Medicaid provider’s right to continued participation has been strengthened through the passage of Chapter 108C. Chapter 108C expressly creates a right for existing Medicaid providers to challenge a decision to terminate participation in the Medicaid program in the Office of Administrative Hearings (OAH). It also makes such reviews subject to the standards of Article 3 of the APA. Therefore, North Carolina law now contains a statutory process that confers an entitlement to Medicaid providers. Chapter 108C sets forth the procedure and substantive standards for which OAH is to operate and gives rise to the property right recognized in Bowens and Ram.

In another particular case, a MAC terminated a provider’s ability to deliver four CPT codes, which comprised of over 80% of the provider’s bailiwick and severely decreased the provider’s financial income, not to mention Medicare recipients lost their access to care and choice of provider.

The MAC’s contention was that the provider was not really terminated since they could still participate in the network in ways. But the company was being terminated from providing certain services.

The Court found that the MAC’s contention that providers have no right to challenge a termination was without merit. And, rightfully so, the Court stated that if the MAC’s position were correct, the appeals process provided by law would be meaningless. This was certainly not the case.

The MAC’s contention that it operates a “closed network” and thus can terminate a provider at its sole discretion was also not supported by the law. No MAC or MCO can cite to any statute, regulation or contract provision that gives it such authority. The statutory definition of “closed network” simply delineates those providers that have contracted with the LME-MCOs to furnish services to Medicaid enrollees. The MAC was relying on its own definition of “closed network” to exercise complete and sole control and discretion which is without foundation and/or any merit. Nothing in the definition of “closed network” indicates that MACs or MCOs have absolute discretion to determine which existing providers can remain in the closed network.

It is well settled law that there is a single state agency responsible for Medicare and Medicaid, which equals the Center for Medicare and Medicaid Services (CMS). Case law dictates that the responsibility cannot be delegated away. A supervisory role, at the very least, must be maintained.

On the Medicaid level, 42 CFR § 438.214 entitled “Provider Selection” requires the State to ensure, through a contract, that each MCO/PIHP “implements written policies and procedures for selection and retention of providers.”). A plain reading of the law makes clear that MCOs that operate a PIHP are required to have written policies and procedures for retention of providers. Requiring policies and procedures would be pointless if they are not followed.

To the extent that a MAC or MCO’s policy states that it can decide not to retain a provider for any reason at its sole discretion, such a policy does not conform with Federal law and the State requirements.

On the Medicare level, 42 U.S.C. § 405(h) spells out the judicial review available to providers, which is made applicable to Medicare by 42 U.S.C. § 1395ii. Section 405(h) aims to lay out the sole means by which a court may review decisions to terminate a provider agreement in compliance with the process available in § 405(g). Section 405(g) lays out the sole process of judicial review available in this type of dispute. The Supreme Court has endorsed the process, for nearly two decades, since its decision in Shalala v. Illinois Council on Long Term Care, Inc., holding that providers are required to abide by the provisions of § 405(g) providing for judicial review only after the administrative appeal process is complete.

The MACs and the MCOs cannot circumvent federal law and State requirements regarding provider retention by creating a policy that allows it to make the determination for any reason in its sole discretion. Such a provision is tantamount to having no policies and procedures at all.

What “Medicare for All” Looks Like for All Health Care Providers, Even If You Refuse Medicare Now

“Medicare for All” is the talk of the town. People are either strong proponents or avid naysayers. Most of the articles that I have seen that have discussed Medicare for All writes about it as if it is a medical diagnosis and “cure-all” for the health care disease debilitating our country. Others articles discuss the amount Medicare for All will cost the taxpayers.

I want to look at Medicare for All from a different perspective. I want to discuss Medicare for All from the health care providers’ perspectives – those who already accept Medicare and those who, currently, do not accept Medicare, but may be forced to accept Medicare under the proposed Medicare for All and the legality or illegality of it.

I want to explore the implementation of Medicare for All by using my personal dentist as an example. When I went to my dentist, Dr. L,  today, who doesn’t accept Medicare or Medicaid, he was surprised to hear from the patient (me) in whom he was inserting a crown (after placing a long needle in my mouth to numb my mouth, causing great distress and pain) that he may be forced to accept Medicare in the near future. “I made the decision a long time ago to not accept Medicare or Medicaid,” he said. “Plus, Medicare doesn’t even cover dental services, does it?”

While Medicare doesn’t cover most dental care, dental procedures, or supplies, like cleanings, fillings, tooth extractions, dentures, dental plates, or other dental devices, Medicare Part A (Hospital Insurance) will pay for certain dental services that you get when you’re in a hospital. Part A can pay for inpatient hospital care if you need to have emergency or complicated dental procedures, even though the dental care isn’t covered. However, some Medicare Advantage Plans (Part C) offer extra benefits that original Medicare doesn’t cover – like vision, hearing, or dental. Theoretically, Medicare for All will cover dental services since Part C covers dental, although, there is a question as to how exactly Medicare for All will/would work. Who knows whether dental services would be included in Medicare for All – this is just an example. Insert any type of medical service in lieu of dental, if you wish.

Dr. L had made the decision not accept Medicaid or Medicare. He only accepts private pay or cash pay. If Medicare for All is implemented, Dr. L’s decision to not accept Medicare will no longer be his decision; it would be the government’s decision. The rates that Dr. L charges now and receives for reimbursements now could be slashed in half without Dr. L’s consent or business plan.

In a 2019 RAND study, researchers examined payment and claims data from 2015 to 2017 representing $13 billion in healthcare spending across 25 states at about 1,600 hospitals. The study showed that private insurers pay 235% of Medicare in 2015 to 241% of Medicare in 2017. The statistics differ state to state. In some states private pay reimbursed as low as 150% of Medicare, while in others private pay reimbursed up to 400% of Medicare.

To show how many providers are adverse to accepting Medicare: In 2000, nearly 80% of health care providers were taking new Medicare patients. By 2012, that number dropped to less than 60%. Currently, less than 40% of the health-care system are government run and nearly 33% of doctors won’t see new Medicaid patients. Medicare patients frequently have difficulty finding a new primary-care doctor.

My question is –

Is it legal for the government to force health care providers to accept Medicare rates by issuing a Medicare for All system?

An analogy would be that the government forced all attorneys to charge under $100/hour, or all airplane flights to be $100, or all restaurants to charge a flat fee that is determined by the government. Is this what our country has transformed into? A country in which the government determines the prices of services and products?

Let me be clear and and rebut what some readers will automatically think. This is not simply an anti-Medicare for All blog. Shoot, I’d love to get health care services for free. Instead, I am reviewing Medicare for All from a legal and constitutional perspective to discuss whether government implemented reimbursement rates will/would be legal. Or would government implemented reimbursement rates violate due process, the right to contract, the right to pursue a career, the right to life, liberty, and the pursuit of happiness, and/or our country’s history of capitalism.

The consequences of accepting Medicare can be monumental. Going back to Dr. L, due to the massive decrease of reimbursement rates under Medicare, he may be forced to downsize his staff, stop investing in high tech devices to advance the practice of dentistry, take less of a salary, and, perhaps, work more to offset the reimbursement rate reduction.

Not to mention the immense regulatory oversight, including audits, documentation productions, possible suspensions of Medicare contracts or accusations of credible allegations of fraud that comes hand in hand with accepting Medicare.

I don’t think there is one particular law that would allow or prohibit Medicare for All requiring health care providers to accept Medicare reimbursements, even against their will. Although I do think there is potential for a class action lawsuit on behalf of health care providers who have decided to not accept Medicare if they are forced to accept Medicare in the future.

I do not believe that Medicare for All will ever be implemented. Just think of a world in which there is no need for private insurance companies…a utopia, right? But the private health care insurance companies have enough money and enough sway to keep Medicare for All at bay. Hospitals and the Hospital Association will also have some input regardless the implementation of Medicare for All. Most hospitals claim that, under Medicare for All, they would close.

Regardless the conversation is here and will, most likely, be a highly contested issue in our next election.

HIPAA Penalties on the Rise and New HIPAA Penalties Reduced

HIPAA mandates the privacy of private health care records. HIPAA is a serious issue, both financially and in the risk-management aspect, for health care providers. Providers need to delegate annual funds to the defense of regulatory audits proactively – before the actual adverse action occurs. Because it’s not an “if;” it’s a “when,” when you accept Medicare/caid. In the Medicare/caid world, HIPAA violations can catastrophically render a company dead for an infraction. In the current days of technical, daily advances and allegations of cybersecurity breaches, health care providers must be cognizant of cyber criminals, their intent, their modus operandi, and what personal/company information is valuable to such criminals. The HIPAA statutes are vague and lack detailed explanations as to penalties.

In 2018, the Office for Civil Rights (OCR) issued a record-breaking $28 million in fines for HIPAA violations. The number of health care providers currently under investigation by HHS, in 2019, will be another record-breaking number.

As more and more data is maintained on computer systems, the more and more accessible the information becomes to potential scammers. In 2017, the number of cyber attacks increased exponentially to 5,207. There is actually an itemization as to how many of the attacks were germane to health care; health care breaches accounted for 8.5% of all breaches. 2.3 billion health care records have been exposed. This isn’t new. In 2015, the most healthcare records ever were breached. 113 million healthcare records were exposed that year. Now, in 2019, we may witness an all-time-high.

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Human error is the number 1 reason for HIPAA violations. Employees gossiping and disclosing private health care information among each other is another culprit, along with social media and lack of training.

The largest individual HIPAA settlement was reached in October 2018, when OCR fined health insurer Anthem $16 million.

The oxymoron is that the government (Medicare/caid) and private payors are pushing for collaborative health care and the sharing of health care records amongst varying providers. Yet the possible HIPAA breaches increase with collaboration.

In April 2019, HHS randomly selected 9 HIPAA-covered entities—a mix of health plans and clearinghouses—for Compliance Reviews. The CMS Division of National Standards, on behalf of HHS, has launched a volunteer Provider Pilot Program to test the compliance review process.

The Trump administration has interpreted HIPAA penalties differently than the Obama administration did. Now HHS will apply a different cumulative annual CMP limit for the four penalties tiers in the Health Information Technology for Economic and Clinical Health (HITECH) Act.

There are four tiers of HIPAA violation severity outlined in the HITECH Act, based on the violator’s level of culpability:

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Under the Obama administration, the annual limit for each tier was $1.5 million.

HIPAA penalties are appealable and with the disparate amount of penalties, it is well worth the time and expense to appeal.

 

Medicare Audits: Huge Overhaul on Extrapolation Rules

Effective January 2, 2019, the Center for Medicare and Medicaid Services (CMS) radically changed its guidance on the use of extrapolation in audits by recovery audit contractors (RACs), Medicare administrative contractors (MACs), Unified Program Integrity Contractors (UPICs), and the Supplemental Medical Review Contractor (SMRC).

Extrapolation is the tsunami in Medicare/caid audits. The auditor collects a small sample of claims to review for compliance. She then determines the “error rate” of the sample. For example, if 50 claims are reviewed and 10 are found to be noncompliant, then the error rate is set at 20%. That error rate is applied to the universe, which is generally a three-year time period. It is assumed that the random sample is indicative of all your billings regardless of whether you changed your billing system during that time period of the universe or maybe hired a different biller.

With extrapolated results, auditors allege millions of dollars of overpayments against health care providers…sometimes more than the provider even made during that time period. It is an overwhelming wave that many times drowns the provider and the company.

Prior to this recent change to extrapolation procedure, the Program Integrity Manual (PIM) offered little guidance to the proper method for extrapolation.

Well, Change Request 10067 – overhauled extrapolation in a HUGE way.

The first modification to the extrapolation rules is that the PIM now dictates when extrapolation should be used.

Determining When a Statistical Sampling May Be Used. Under the new guidance, a contractor “shall use statistical sampling when it has been determined that a sustained or high level of payment error exists. The use of statistical sampling may be used after documented educational intervention has failed to correct the payment error.” This guidance now creates a three-tier structure:

  1. Extrapolation shall be used when a sustained or high level of payment error exists.
  2. Extrapolation may be used after documented educational intervention (such as in the Targeted Probe and Educate (TPE) program).
  3. It follows that extrapolation should not be used if there is not a sustained or high level of payment error or evidence that documented educational intervention has failed.

“High level of payment error” is defined as 50% or greater. The PIM also states that the contractor may review the provider’s past noncompliance for the same or similar billing issues, or a historical pattern of noncompliant billing practice. This is HUGE because so many times providers simply pay the alleged overpayment amount if the amount is low or moderate in order to avoid costly litigation. Now those past times that you simply pay the alleged amounts will be held against you.

Another monumental modification to RAC audits is that the RAC auditor must receive authorization from CMS to go forward in recovering from the provider if the alleged overpayment exceeds $500,000 or is an amount that is greater than 25% of the provider’s Medicare revenue received within the previous 12 months.

The identification of the claims universe was also re-defined. Even CMS admitted in the change request that, on occasion, “the universe may include items that are not utilized in the construction of the sample frame. This can happen for a number of reasons, including, but not limited to: (1) Some claims/claim lines are discovered to have been subject to a prior review, (2) The definitions of the sample unit necessitate eliminating some claims/claim lines, or (3) Some claims/claim lines are attributed to sample units for which there was no payment.”

There are many more changes to discuss, but I have been asked to appear on RACMonitor to present the details on February 19, 2019. So sign up to listen!!!

Non-Profit Going For-Profit: Merger Mania Manifests

According to the American Hospital Association, America has 4,840 general hospitals that aren’t run by the federal government: 2,849 are nonprofit, 1,035 are for-profit and 956 are owned by state or local governments.

What is the distinction between a for-profit and not-for-profit hospital… besides the obvious? The obvious difference is that one is “for-profit” and one is “not-for-profit” – but any reader of the English language would be able to tell you that. Unknown to some is that the not-for-profit status does not mean that the hospital will not make money; the status has nothing to do with a hospitals bottom line. Just ask any charity that brings in millions of dollars.

The most significant variation between non-profit and for-profit hospitals is tax status. Not-for-profit hospitals are exempt from state and local taxes. Some say that for-profit hospitals have to be more cost-effective because they have sales taxes and property taxes. I can understand that sentiment. Sales taxes and property taxes are nothing to sneeze at.

The organizational structure and culture also varies at for-profit hospitals rather than not-for-profit hospitals. For-profit hospitals have to answer to shareholders and/or investors. Those that are publicly traded may have a high attrition rate at the top executive level because when poor performance occurs heads tend to roll.

Bargaining power is another big difference between for-profit and non-profit. For-profit has it while non-profit, generally, do not. The imbalance of bargaining power comes into play when the government negotiates its managed care contracts. I also believe that bargaining power is a strong catalyst in the push for mergers. Being a minnow means that you have insect larvae and fish eggs to consume. Being a whale, however, allows you to feed on sea lion, squid, and other larger fish.

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Merger Mania

A report conducted by the Health Research Institute showed 255 healthcare merger and acquisition (M&A) deals in the second quarter of 2018. Just the second quarter! According to the report, deal volume is up 9.4% since last year.

The most active sub-sector in the second quarter of 2018 is long-term care, with 104 announced healthcare M&A deals representing almost 41% of deal volume.

The trend today is that for-profit hospitals are buying up smaller, for-profit hospitals and, any and all, not-for-profit hospitals. The upshot is that hospitals are growing larger, more massive, more “corporate-like,” and less community-based. Is this trend positive or negative? I will have to research whether the prices of services increase at hospitals that are for-profit rather than not-for-profit, but I have a gut feeling that they do. Not that prices are the only variable to determine whether the merger trend is positive or negative. From the hospital’s perspective, I would much rather be the whale, not the minnow. I would feel much more comfortable swimming around.

My opinion is that, as our health care system veers toward value-based reimbursement and this metamorphous places financial pressure on providers, health care providers are struggling for more efficient means of cost control. The logical solution is to merge and buy up the smaller fish until your entity is a whale. Whales have more bargaining power and more budget.

In 2017, 29 for-profit companies bought 18 for-profit hospitals and 11 not-for-profits, according to an analysis for Kaiser Health News.

10 hospital M&A transactions involved health care organizations with net revenues of $1 billion or more in 2017.

Here, in NC, Mission Health, a former, not-for-profit hospital in Asheville, announced in March 2018 that HCA Healthcare, the largest, for-profit, hospital chain would buy it for $1.5 billion. The NC Attorney General had to sign off on the deal since the deal involved a non-profit turning for-profit, and he did ultimately did sign off on it.

Regardless your opinion on the matter, merger mania has manifested. Providers need to determine whether they want to be a whale or a minnow.

Licensing and Tax Implications of Telemedicine; Will the Regulations Inhibit Telemedicine’s Ability to Thrive?

My husband and I recently decided to try new insurance. It is always hard to change from what you know, so we were a bit hesitant. But the insurance costs under half of what we were paying, and it seemed that nothing was covered with our old insurance. So we took the leap. The absolute best thing about our new insurance is that we have 24/7 access to a physician for prescriptions. For example, I was ill last week, so at about midnight on Tuesday, I called the 24/7 hotline for anti-nausea medicine. A doctor called me within 30 minutes, listened to my complaints, and I had a prescription to be picked from my local Costco within minutes. Obviously, I waited to pick up my prescription the next day when Costco opened, but you see my point. Technology is amazing and scary. Had I preferred, I could have opted to talk to my tele-doctor through Facetime, but, quite frankly, I doubt he would have enjoyed that image of me sick with vomit in my hair. But if my issue were a rash or a questionable mole, Facetime would have worked.

There I am – last Tuesday – at midnight, talking to my new tele-doctor. I don’t even know his name. Most likely, next time I call the 24/7 hotline I will talk to someone else. I may never speak to my prescribing provider again. Nor would I know if I did.

But it worked. It was efficient. Oh, and did I say “free?” We pay a monthly premium and the cost of the prescription was $9.75, but no cost of a doctor visit. I didn’t have to drive to an office. I spoke to the doctor while laying on bed. This is telehealth.

I found myself wondering why doesn’t every health insurance implement this system of free access to a doctor 24/7, the ability to get a prescription at any time, and at nominal cost?? Medicare and Medicaid recipients would benefit highly from telehealth.

And I wondered so much (and couldn’t sleep) that I decided to research. My Melatonin works less and less as time passes. I guess I am getting resistant.

The tele-doctor that wrote me a prescription for anti-nausea was not a North Carolinian. I know this for a fact because when I said to tele-doctor, “I cannot believe that you work at midnight.” He said, “Oh, it’s only 9:00 here.” Based on his sentence, I deduced that tele-doctor was somewhere on the west coast. (I could be a PI).

How could tele-doctor write me a prescription when I live in North Carolina and he lives in CA, OR, or WA? Does he have to be licensed in NC to prescribe to me? And what about the tax implications on providing a medical service in a different state?

One thing that I need to make clear for my readers is that this blog is made possible by the standoff in our U.S. Congress that failed to pass legislature regarding telemedicine in its 2017-2018 session, the first week of August 2018. The opioid bill (which is what it has been dubbed) was to boost telemedicine by breaking down state law barriers disallowing telemedicine or imposing high taxes on telemedicine, which inhibits its growth. In case you are curious, Massachusetts has been named the worst state in which to perform telemedicine. Apparently, Massachusetts has many laws suppressing the advancement of telemedicine.

According to (hopefully not fake) news, what ultimately sunk this year’s wide-ranging health bill was a philosophical disagreement over the funding of community hospitals, which, apparently is a hot topic to debate between the Senate and the House.

As for the telemedicine elements of the failed bill, word on the street is that it could return in a standalone bill come January. Consult your horoscope or 8-ball for more information.

Telemedicine – How Does It Work Legally?

The World Health Organization’s has defined telemedicine as “The delivery of healthcare services, where distance is a critical factor, by all healthcare professionals using information and communication technologies for the exchange of valid information for diagnosis, treatment and prevention of disease and injuries, research and evaluation, and for the continuing education of healthcare providers, all in the interests of advancing the health of individuals and their communities.”

The type of telemedicine in which I participated is considered “real time telemedicine.” I had a consultation with no delay in communication at a distance.

While real estate tax is relatively simple, other taxes are not. Sales and use taxes, income taxes, and business privilege taxes are complex because of the interstate commerce issues. If my tele-doctor lives in CA and provides taxable services to me in North Carolina, does California or North Carolina benefit from the tax? Is the tax due where the provider lives or the consumer? And, BTW, Dr. Tele-health did not ask my location or state of residence. How will he do his taxes?

One of the pinnacle, legal cases that speaks to jurisdictional issues, such as interstate tax issues, is the Supreme Court case, International Shoe Co. V. Washington (I hated this case in law school). According to International Shoe:

  • A state may only impose a tax if it has a substantial nexus to the persons and transactions that would be subject to tax. (Now you see why I hate this case. What is substantial nexus? This case creates a riddle.) Oh, and it gets better.
  • The tax must be a fairly apportioned to reduce the prospect of double taxation.
  • A state cannot adapt a tax that discriminates against interstate commerce.
  • Any tax must be fairly related to services provided by the state. (Can you hear the Charlie Brown teacher reciting this?)

Wait, what?

Because we are the United States of America and believe in States remaining sovereign over its own people, unsurprisingly, the tax laws in every state differ – dramatically.

Telemedicine providers need to be cautious of income tax, unrelated business income tax, sales and use tax, sales tax, and use tax and be knowledgable about the state-by-state  licensing requirements for telehealth. Most states require that a physician is licensed in the state where their patient is located, which presents a problem for telehealth. Some states have exceptions carved out for telehealth.

Here is the Cliffnotes version:

Income Tax

The telehealth professional will be paid, and income will be reported to the IRS on a 1099. Most states have income tax, but some do not. Alaska, Florida, Nevada, South Dakota, Texas,Washington and Wyoming do not have income tax.

Even more complicated for the telehealth providers, is the question of whether the “source” of the income received by the surgeon is the country or state where the provider is located or the country or state where the patient is located. You can see why this is an important issue to the state, which wants to collect the most income tax possible, and to the physician, who doesn’t want to pull a Martha Stewart.

The current IRS definition of “patient” originated in 1968. The current definition of a “patient” contemplates a bricks-and-mortar structure at which patients receive treatment. Even though the IRS’ definition of “patient” is prehistoric, there have been several subsequent private letter rulings (PLRs) permitting the term “patient” to extend to recipients of services conducted by providers, even though performed at a variety of locations.

Unrelated Business Income (UBI)

The IRS defines UBI as income from a trade or business that is regularly carried on by a tax-exempt organization and that is not substantially related to the organization’s exempt purpose.

To date, the IRS has not issued any guidance or rulings regarding telemedicine UBI, specifically. For now, tax-exempt healthcare organizations participating in telemedicine are subject to the IRS rules and principles that apply more broadly to UBI and healthcare activities – some of which, frankly, don’t neatly fit, and some of which require careful documentation to avoid triggering UBI status.

One problem with UBI (like income tax) is the IRS’ definition of “patient.” The IRS’ definition does not contemplate telemedicine because the setting is not traditional.

In PLR 8122013, a tax-exempt hospital was not liable for UBI tax on its provision of laboratory services to patients of private physicians because such services contributed importantly to meeting the health needs of the community. In discussing Rev. Rul. 68-376, the IRS noted: “[I]t is important that the Service take cognizance of the changes in health care delivery brought about by modern technology. For example, the technology is now in place for a hospital to monitor the results of an electrocardiogram attached to a patient who is 80 miles away. The point is that who is legitimately considered a patient of a hospital today is not necessarily the same as 12 years ago, when the cited revenue ruling was published.” This shows, at the very least, that the IRS understands the definition of “patient” needs to be updated, even if no steps are taken to do so.

Sales and Use Tax

Sales and use taxes are typically imposed upon tangible personal property. Medical services provided in a traditional face-to-face setting would not trigger any sales and use tax issues. However, many states have adopted legislation that defines some intangible items to be treated like tangible personal property. For example, the data transmission component of telemedicine services could be subject to sales and use tax, which would mean that my “free” telehealth consult could have a tax implication of which I was unaware.

Sales Tax

If a provider renders health care services to someone in a foreign state, that provider may be liable to collect sales tax. Quite recently, I noticed this issue, not with telehealth, but with the internet sales of durable medical equipment. Providers who sell equipment, prescriptions, or vitamins over the internet need to be mindful of cross-state, sales tax.

The potential sales tax arises from the data transmission component of telemedicine. For example, in New Jersey, the sales tax expressly exempts services of of a physician. Juxtapose Connecticut, which has an administrative ruling that the provision of medical records through an online service is a taxable service.

Licensing Issues

This issue – cross-state licensing issues – really deserves a blog of its own. I will discuss this issue with the author of this blog. Much like an attorney, physicians and other health care providers have to be licensed in the state in which they practice.Most states require that a physician is licensed in the state where their patient is located.  Telehealth challenges states’ borders. Some states have attempted to solve this problem by creating a limited telemedicine license for which out-of state physicians can apply. However, this solution doesn’t exist in all states.

The Federation of State Medical Boards (FSMB), is a non-profit representing more than 70 medical and osteopathic boards. It also has about 17 states as members. FSMB is a proponent of allowing physicians to practice beyond state lines.

Partly due to the efforts of FSMB, approximately nineteen states have passed legislation to adopt the Interstate Medical Licensure Compact, which allows physicians to obtain a license to practice medicine in any Compact state through a simplified application process. The state medical boards retain their licensing and disciplinary authority, but agree to share information for licensing purposes.

The state boards of medicine recognize that standard of care is also largely a state-by-state analysis, sometimes even a community-by-community expectation. Some states, such as California, passed policy requiring the standard of care in telemedicine services to be the same as if providing the service in person.

All in all, I was happy with my very first telehealth experience. I do recognize, however, that there are legal barriers preventing telehealth and regulatory risks for the health care providers to contemplate before jumping on the telehealth boat. But, as a consumer…I’m hooked!

 

 

5th Circuit Finds Subject Matter Jurisdiction For Medicare and Medicaid Providers – Why Collards Matter

“I’d like some spaghetti, please, and a side of meatballs.” – This sentence is illogical because meatballs are integral to spaghetti and meatballs. If you order spaghetti  – and -meatballs, you are ordering “spaghetti and meatballs.” Meatballs on the side is not a thing.

Juxtapose, a healthcare provider defending itself from an alleged overpayment, But during the appeal process undergoes a different penalty – the state or federal government begins to recoup future funds prior to a decision that the alleged recoupment is authorized, legal, or warranted. When a completely new issue unrelated to the allegation of overpayment inserts itself into the mix, then you have spaghetti and meatballs with a side of collard greens. Collard greens need to be appealed in a completely different manner than spaghetti and meatballs, especially when the collard greens could put the company out of business because of the premature and unwarranted recoupments without due process.

I have been arguing this for years based off of, not only, a 1976 Supreme Court case, but multiple state case law, as well as, success I have had in the federal and administrative courts, and BTW – logic.

On March 27, 2018, I was confirmed again. The Fifth Circuit Court of Appeals decided a landmark case for Medicare and Medicaid providers across the country. The case, Family Rehab., Inc. v Azar, 2018 U.S. App. LEXIS 7668, involved a Medicare home health service provider, which was assessed for approximately $7.8 million in Medicare overpayments. Family Rehab, the plaintiff in the case, relied on 88% to 94% of its revenue from Medicare. The company had timely appealed the alleged overpayment, and it was at the third level of the Medicare five step process for appeals. See blog. But there is a 3 – 5 year backlog on the third level, and the government began to recoup the $7.8 million despite the ongoing appeal. If no action were taken, the company would be out of business well-before any ALJ could rule on the merits of the case, i.e. whether the recoupment was warranted. How is that fair? The provider may not owe $7.8 million, but before an objective tribunal decides what is actually owed, if anything, we are going to go ahead and take the money and reap the benefit of any interest accrued during the time it takes the provider to get a hearing.

The backlog for Medicare appeals at the ALJ level is unacceptably long. See blog and blog. However, the federal regulations only  prevent recoupment during the appeal process during the first and second levels. This is absolutely asinine and should be changed considering we do have a clause in the Constitution called “due process.” Purported criminals receive due process, but healthcare providers who accept Medicare or Medicaid, at times, do not.

At the third level of appeal, Family Rehab underwent recoupments, even though it was still appealing the decision, which immediately stifled Family Rehab’s income. Family Rehab, because of the premature recoupments, was at risk of losing everything, going bankrupt, firing its staff, and no longer providing medically necessary home health services for the elderly. This situation mimics a situation in which I represented a client in northern Indiana who was losing its Medicaid contract.  I also successfully obtained a preliminary injunction preventing the provider from losing its Medicaid contract. See blog.

It is important to note that in this case the ZPIC had audited only 43 claims. Then it used a statistical method to extrapolate the alleged over-billings and concluded that the alleged overpayment was $7,885,803.23. I cannot tell you how many times I have disputed an extrapolation and won. See blog.

42 USC 1395(f)(f)(d)(1)(A) states that the ALJ shall conduct and conclude the hearing and render a decision no later than 90 days after a timely request. Yet the Fifth Circuit Court of Appeals found that an ALJ hearing would not be forthcoming not within 90 days or even 900 days. The judge noted in his decision that the Medicare appeal backlog for an ALJ hearing was 3 – 5 years. The District Court held that it lacked subject matter jurisdiction because Family Rehab had not exhausted its administrative remedies. Family Rehab appealed.

On appeal, Family Rehab argued the same arguments that I have made in the past: (1) its procedural due process and ultra vires claims are collateral to the agency’s appellate process; and (2) going through the appellate process would mean no review at all because the provider would be out of business by the time it would be heard by an ALJ.

What does collateral mean? Collard greens are collateral. When you think collateral; think collards. Collard greens do not normally come with spaghetti and meatballs. A collateral issue is an issue that is entirely collateral to a substantive agency decision and would not be decided through the administrative appeal process. In other words, even if Family Rehab were to only pursue the $7.8 million overpayment issue through the administrative process, the issue of having money recouped and the damage to the company that the recoupment was causing would never be heard by the ALJ because those “collateral” issues are outside the ALJ’s purview. The premature recoupment issue could not be remedied by an ALJ. The Fifth Circuit Court of Appeals agreed.

The collateral argument also applies to terminations of Medicare and Medicaid contracts without due process. In an analogous case (Affiliated Professional), the provider argued that the termination of its Medicare contract without due process violated its right to due process and the Equal Protection Clause and was successful.

The upshot is obvious, if the Court must examine the merits of the underlying dispute, delve into the statute and regulations, or make independent judgments as to plaintiff’s eligibility under a statute, the claim is not collateral.

The importance of this case is that it verifies my contention that if a provider is undergoing a recoupment or termination without due process, there is relief for that provider – an injunction stopping the premature recoupments or termination until due process has been completed.

Minor Documentation Errors, But Being Accused of a Medicare or Medicaid Overpayment? Not So Fast!!

In a January 11, 2018, opinion, a district court in Florida held that once the government learns of possible regulatory noncompliance or mistakes in billings Medicare or Medicaid, but continues to reimburse the provider for later claims – the fact that the government continues to reimburse the provider – can be evidence in court that the alleged documentation errors are minor and that, if the services are actually rendered, despite the minor mistakes, the provider should not be liable under the False Claims Act.

What?

Here is an example: Provider Smith undergoes a post-payment review of claims from dates of service January 1, 2016 – January 1, 2017. It is February 1, 2018. Today, Smith is told by the RAC auditor that he owes $1 million. Smith appeals the adverse decision. However, despite the accusation of $1 million overpayment, Smith continues providing medically necessary services the exact same way, he did in 2016. Despite the supposed outcome of the post-payment review, Smith continues to bill Medicare and Medicaid for services rendered in the exact same way that he did in 2016.

At least, according to UNITED STATES OF AMERICA AND STATE OF FLORIDA v. SALUS REHABILITATION, LLC, if Smith continues to be reimbursed for services rendered, this continued reimbursement can be evidence in court that Smith is doing nothing wrong.

Many of my clients who are undergoing post-payment or prepayment reviews decrease or cease all together billing for future services rendered. First, and obviously, stopping or decreasing billings will adversely affect them. Many of those clients will be financially prohibited from defending the post or prepayment review audit because they won’t have enough funds to pay for an attorney. Secondly, and less obvious, at least according to the recent decision in Florida district court mentioned above, continuing to bill for and get reimbursed fo services rendered and billed to Medicare and/or Medicaid can be evidence in court that you are doing nothing wrong.

The facts of the Salus Rehabilitation case, are as follows:

A former employee of a health care system comprising of 53 specialized nursing facilities (“Salus”) filed a qui tam claim in federal court asserting that Salus billed the government for unnecessary, inadequate, or incompetent service.

Break from the facts of the case to explain qui tam actions: A former employee who brings a qui tam action is called the “relator.” In general, the reason that former employees bring qui tam cases is money. Relators get anywhere between 15 -30 % of the award of damages. Many qui tam actions result in multi million dollar awards in damages – meaning that a relator can get rich quickly by tattling on (or accusing) a former employer. Qui tam actions are jury trials (why this is important will be explained below).

Come and listen to a story ’bout a man named Jed
Poor mountaineer barely kept his family fed
Then one day he was shooting for some food,
And up through the ground come a bubbling crude
(Oil that is, black gold, Texas tea)

In the Salus case, the relator (Jed) asserted that Salus failured to maintain a “comprehensive care plan,” ostensibly required by a Medicaid regulation and that this failure rendered Salus’ Medicaid claims fraudulent. Also, Jed asserted that a handful of paperwork defects (for example, unsigned or undated documents) demonstrated that Salus never provided the therapy purported by the paperwork and billed to Medicare. Jed won almost $350 million based on the theory “that upcoding of RUG levels and failure to maintain care plans made [the defendants’] claims to Medicare and Medicaid false or fraudulent.”  Oil, that is, black gold, Texas tea. You know Jed was celebrating like it was 1999.

Salus did not take it lying down.

The jury had awarded Jed $350 million. But in the legal world there is a legal tool if a losing party believes that the jury rendered an incorrect decision. It is called a Judgment as a Matter of Law. When a party files a Motion for Judgment as a Matter of Law, it is decided by the standard of whether a reasonable jury could find in favor of the party opposing the Motion, but it is decided by a judge.

In Salus, the Judge found that the verdict awarding Jed of $350 million could not be upheld. The Judge found that Jed’s burden was to show that the federal government and the state government did not know about the alleged record-keeping deficiencies but, had the governments known, the governments would have refused to pay Salus for services rendered, products delivered, and costs incurred. The Judge said that the record was deplete of any evidence that the governments would have refused to pay Salus. The Judge went so far to say that, theoretically, the governments could have implemented a less severe punishment, such as a warning or a plan or correction. Regardless, what the government MAY have done was not in the record. Specifically, the Judge held that “The resulting verdict (the $350 million to Jed), which perpetrates one of the forbidden “traps, zaps, and zingers” mentioned earlier, cannot stand. The judgment effects an unwarranted, unjustified, unconscionable, and probably unconstitutional forfeiture — times three — sufficient in proportion and irrationality to deter any prudent business from providing services and products to a government armed with the untethered and hair-trigger artillery of a False Claims Act invoked by a heavily invested relator.”

Wow. In other words, the Judge is saying that the verdict, which awarded Jed $350 million, will cause health care providers to NOT accept Medicare and Medicaid if the government is allowed to call every mistake in documentation “fraud,” or a violation of the False Claims Act. The Judge was not ok with this “slippery slope” result. Maybe he/she depends on Medicare…maybe he/she has a family member dependent on Medicaid…who knows? Regardless, this a WIN for providers!!

Legally, the Judge in Salus hung his hat on Universal Health Services, Inc. v. Escobar, 136 S. Ct. 1989 (2016), a Supreme Court case. In Escobar, the Supreme Court held that nit-picky documentation errors are not material and that materiality is required to condemn a provider under the False Claims Act. Escobar “necessarily means that if a service is non-compliant with a statute, a rule, or a contract; if the non-compliance is disclosed to, or discovered by, the United States; and if the United States pays notwithstanding the disclosed or discovered non-compliance, the False Claims Act provides a relator no claim for “implied false certification.”” (emphasis added). In other words, keep billing. If you are paid, then you can use that as evidence in court.

Escobar specifies that a “rigorous” and “demanding” standard for materiality and scienter precludes a False Claims Act claim based on a “minor or unsubstantial” or a “garden-variety” breach of contract or regulatory violation. Instead, Escobar assumes and enforces a course of dealing between the government and a supplier of goods or services that rests comfortably on proven and successful principles of exchange — fair value given for fair value received. Get it?? This is the first time that I have seen a judge be smart and intuitive enough to say – hey – providers are not perfect…and that’s ok. Providers may have insignificant documentation errors. But it is fundamentally unfair to prosecute a provider under the False Claims Act, which the Act is extraordinarily harsh and punitive, for minor, “garden variety” mistakes.

Granted, Salus was decided with a provider being prosecuted under the False Claims Act and not being accused of a pre or post-payment review finding of alleged overpayment.

But, isn’t it analogous?

A provider being accused that it owes $1 million because of minor documentation errors – but did actually provide the medically necessary services – should be afforded the same understanding that Salus was afforded. The mistakes need to be material. Minor mistakes should not be reasons for a 100% recoupment. Because there must be a course of dealing between the government and a supplier of goods or services that rests comfortably on proven and successful principles of exchange — fair value given for fair value received.

Oil has dried up, Jeb.

Will Health Care Providers Be Affected By the Government Shutdown?

Happy third day of the government shutdown.

deflated

According to Twitter (which is not always correct – shocker), the government shutdown may be lifted momentarily. At least, according to Jamie Dupree’s Twitter account, “From the Senate hallways – it seems like there are enough votes now to fund the government & end the shutdown.”

But, as of now, the government shutdown remains in effect, after Senators failed to come to an agreement to end it, late Sunday night. A vote is is ongoing that could end the shutdown with a short-term, spending bill that would last three weeks. A short-term answer to a much bigger problem is like putting a band-aid on a broken leg. In other words, a shutdown can happen again in three weeks. So, even if the shutdown is thwarted today, it may not matter. For future government shutdowns, we need to explore the consequences of a shutdown as it pertains to health care.

If you are a health care provider who accepts Medicare and/or Medicaid, then you are probably worried about the consequences of a federal government shutdown. As in, will you get your reimbursements for services rendered? We are currently on Day 3.

Health Care Related Consequences

The Department of Health and Human Services (DHHS) will send home — or furlough — about half of its employees, or nearly 41,000 people, according to an HHS shutdown contingency plan released this past Friday.

According to the HHS plan, the CDC will suspend its flu-tracking program.

Medicare

It depends. If the shutdown is short, medical providers will continue to receive reimbursements. If the shutdown is prolonged, reimbursements could be affected. As with Medicaid, Medicare has funding sources that don’t depend on Congress passing annual spending bills. Again, beneficiaries and providers should not be affected by a shutdown, unless it is prolonged.

Medicaid

States already have their funding for Medicaid through the second quarter, or the end of June, so no shortfall in coverage for enrollees or payments to providers is expected. Enrolling new Medicaid applicants is a State function, so that process should not be affected. Federal funding for the health insurance program for the low-income population is secure through the end of June.

States also handle much of the Children’s Health Insurance Program (CHIP), which provides coverage for lower-income children whose families earn too much to qualify for Medicaid. But federal funding for CHIP is running dry — its regular authorization expired on Oct. 1, and Congress has not agreed on a long-term funding solution. However, federal employees, who are necessary to make payments to states running low on funds will continue to work during a shutdown. The definition of “necessary?” Up in the air.

With a shutdown, there will be no new mental health or social services grants awarded and less monitoring of existing grants. The HHS departments most involved in issuing grants to health-care providers around the country would be particularly affected by the shutdown because more of their employees are furloughed. This includes the Substance Abuse and Mental Health Services Administration and the Administration for Children and Families.

FDA

The FDA’s food-safety inspection program hits pause. “FDA will be unable to support the majority of its food safety, nutrition and cosmetics activities,” the HHS contingency plan says. The exception is meat and poultry inspections carried out by the Agriculture Department’s Food Safety and Inspection Service.

Not health care related, but NASA tweeted “Sorry, but we won’t be tweeting/responding to replies during the government shutdown. Also, all public NASA activities and events are cancelled or postponed until further notice. We’ll be back as soon as possible! Sorry for the inconvenience.”

Is this legal? Well, as it pertains to Medicare and Medicaid providers receiving reimbursements, the government is required to follow the law.

42 CFR 422.520 require that the contract between CMS and the MA organization must provide that the MA organization will pay 95 percent of the “clean claims” within 30 days of receipt if they are submitted by, or on behalf of, an enrollee of an MA private fee-for-service plan or are claims for services that are not furnished under a written agreement between the organization and the provider.

42 CFR 447.45 requires that the Medicaid agency must pay 90 percent of all clean claims from practitioners, who are in individual or group practice or who practice in shared health facilities, within 30 days of the date of receipt.

Part D has a similar regulation, as does all Medicare and Medicaid service types.

Theoretically, if a government shutdown causes the federal or state government to violate the regulations that instruct those agencies to pay providers within 30 days, then providers would have a legal cause of action against the federal and/or state governments for not following the regulations.

Hostile Takeover: Cardinal Usurped by DHHS! Any Possible Relief to Providers for Misconduct?

DHHS has ousted and taken over Cardinal Innovations!

And may I just say – Finally! Thank you, Sec. Cohen.

Cardinal is/was the largest of seven managed care organizations (MCOs) that was given the task to manage Medicaid funds for behavioral health care recipients. These are Medicaid recipients suffering from developmental disabilities, mental health issues, and substance abuse; these are our population’s most needy. These MCOs are given a firehose of Medicaid money; i.e., tax dollars, and were entrusted by the State of North Carolina, each individual taxpayer, Medicaid recipients, and the recipients’ families to maintain an adequate network of health care providers and authorize medically necessary behavioral health care services. Cardinal’s budget was just over $682 million in 2016. Instead, I have witnessed, as a Medicaid and Medicare regulatory compliance litigator, and have legally defended hundreds of health care providers who were unlawfully terminated from the MCOs’ catchment areas, refused a contract with the MCOs, accused of owing overpayments to the MCOs for services that were appropriately rendered. To the point that the provider catchment areas are woefully underrepresented (especially in Minority-owned companies), recipients are not receiving medically necessary services, and the MCOs are denying medically necessary services. The MCOs do so under the guise of their police power. For years, I have been blogging that this police power is overzealous, unsupervised, unchecked, and in violation of legal authority. I have blogged that the MCOs act as the judge, jury, and executioner. I  have also stated that the actions of the MCOs are financially driven. Because when providers are terminated and services are not rendered, money is not spent, at least, on the Medicaid recipients’ services.

But, apparently, the money is spent on executives. This past May, State Auditor Beth Wood wrote a scathing performance audit regarding Cardinal’s lavish spending on CEO pay as well as on expensive Christmas parties and board retreats, charter flights for executives and “questionable” credit card purchases, including alcohol. All of that, her report said, threatened to “erode public trust.” Cardinal’s former CEO Richard Topping made more than $635,000 in salary this year. On Monday (November 21, 2017), DHHS escorted Topping and three other executives out the door. But they did not walk away empty handed. Topping walked away with a $1.7 million severance while three associates left with packages as high as $740,000 – of taxpayer money!

This overspending on salaries and administration is not new. Cardinal has been excessively spending on itself since inception. This has been a long term concern, and I congratulate Sec. Cohen for having the “cojones” to do something about it. (I know. Bad joke. I apologize for the French/Spanish).

In 2011, Cardinal spent millions of dollars constructing its administrative facility.

cardinaloutside

cardinal4 Break Room

cardconference Conference Room

According to Edifice, the company that built Cardinal Innovations’ grand headquarters, starting in 2011, Cardinal’s building is described as:

“[T[his new three-story, 79,000-square-foot facility is divided into two separate structures joined by a connecting bridge.  The 69,000-square-foot building houses the regional headquarters and includes Class A office space with conference rooms on each floor and a fully equipped corporate board room.  This building also houses a consumer gallery and a staff cafe offering an outdoor dining area on a cantilevered balcony overlooking a landscaped ravine.  The 10,000-square-foot connecting building houses a corporate training center. Computer access flooring is installed throughout the facility and is supported by a large server room to maintain redundancy of information flow.” How much did that cost the Medicaid recipients in Cardinal’s catchment area? Seem appropriate for an agent of the government spending tax money for luxurious office space? Shoot, my legal office is not even that nice. And I don’t get funded by tax dollars!

In 2015, I wrote:

On July 1, 2014, Cardinal Innovations, one of NC’s managed care organizations (MCOs) granted its former CEO, Ms. Pam Shipman, a 53% salary increase, raising her salary to $400,000/year. In addition to the raise, Cardinal issued Ms. Shipman a $65,000 bonus based on 2013-2014 performance.

Then in July 2015, according to the article in the Charlotte Observer, Cardinals paid Ms. Shipman an additional $424,975, as severance. Within one year, Ms. Shipman was paid by Cardinal a whopping $889,975. Almost one million dollars!!!!

I have been blogging about MCO misconduct for YEARS. Seeblog, blog, blog, blog, and blog.

Now, finally, DHHS says Cardinal Innovations “acted unlawfully” in giving its ousted CEO $1.7 million in severance, and DHHS took over the Charlotte-based agency. It was a complete oust. One journalist quoted Cardinal as saying, “DHHS officials arrived at Cardinal “unexpectedly and informed the executive leadership team that the department is assuming control of Cardinal’s governance.”” Unexpected they say? Cardinal conducted unexpected audits all the time on their providers. But, the shoe hurts when it’s on the other foot.

The MCOs are charged with the HUGE  fiscal and moral responsibility, on behalf of the taxpayers, to manage North Carolina and federal tax dollars and authorize medically necessary behavioral health care services for Medicaid recipients, our population’s most needy. The MCOs in NC are as follows:

  1. Vaya Health
  2. Partners Behavioral Health Management
  3. Cardinal Innovations (formerly)
  4. Trillium Health Resources
  5. Eastpointe
  6. Alliance Behavioral Health Care
  7. Sandhills Center

The 1915 (b)(c) Waiver Program was initially implemented at one pilot site in 2005 and evaluated for several years. Two expansion sites were then added in 2012. The State declared it an immediate success and requested and received the authority from CMS to implement the MCO project statewide. Full statewide implementation is expected by July 1, 2013. The MCO project was intended to save money in the Medicaid program. The thought was that if these MCO entities were prepaid on a capitated basis that the MCOs would have the incentive to be fiscally responsible, provide the medically necessary services to those in need, and reduce the dollars spent on prisons and hospitals for mentally ill.

Sadly, as we have seen, fire hoses of tax dollars catalyze greed.

Presumably, in the goal of financial wealth, Cardinal Innovations, and, maybe, expectantly the other MCOs, have sacrificed quality providers being in network and medically necessary services for Medicaid recipients, Cardinal has terminated provider contracts. And for what? Luxurious office space, high salaries, private jets, and a fat savings account.

I remember a former client from over 5 years ago, who owned and ran multiple residential facilities for at-risk, teen-age boys with violent tendencies and who suffered severe mental illness. Without cause, Alliance terminated the client’s Medicaid contract. There were no alternatives for the residents except for the street. We were able to secure a preliminary injunction preventing the termination. But for every one of those stories, there are providers who did not have the money to fight the terminations

Are there legal recourses for health care providers who suffered from Cardinal’s actions?

The million dollar question.

In light of the State Auditor’s report and DHHS’ actions and public comments that it was usurping Cardinal’s leadership based on “recent unlawful actions, including serious financial mismanagement by the leadership and Board of Directors at Cardinal Innovations,” I believe that the arrows point to yes, with a glaring caveat. It would be a massive and costly undertaking. David and Goliath does not even begin to express the undertaking. At one point, someone told me that Cardinal had $271 million in its bank account. I have no way to corroborate this, but I would not be surprised. In the past, Cardinal has hired private, steeply-priced attorney regardless that its funds are tax dollars. Granted, now DHHS may run things differently, but without question, any legal course of action against any MCO would be epically expensive.

Putting aside the money issue, potential claims could include (Disclaimer: this list is nonexhaustive and based on a cursory investigation for the purpose of my blog. Furthermore, research has not been conducted on possible bars to claims, such as immunity and/or exhaustion of administrative remedies.):

  • Breach of fiduciary duty. Provider would need to demonstrate that a duty existed between providers and MCO (contractual or otherwise), that said MCO breached such duty, and that damages exist. Damages can include actual loss and if intent is proven, punitive damages may be sought.
  • Unfair and Deceptive Trade Practices. Providers would have to prove three elements: (1) an unfair or deceptive act or practice; (2) in or affecting commerce; (3) which proximately caused the injury to the claimant. A court will first determine if the act or practice was “in or affecting commerce” before determining if the act or practice was unfair or deceptive. Damages allowed are actual damages, plus treble damages (three times the actual damages).
  • Negligence. Providers would have to show (1) duty; (2) breach; (3) cause in fact; (4) proximate cause; and (5) damages. Actual damages are allowed for a negligence claim.
  • Breach of Contract. The providers would have to demonstrate that there was a valid contract; that the providers performed as specified by the contract; that the said MCO failed to perform as specified by the contract; and that the providers suffered an economic loss as a result of the defendant’s breach of contract. Actual damages are recoverable in a breach of action claim.
  • Declaratory Judgment. This would be a request to the Court to make a legal finding that the MCO failed to follow certain Medicaid procedures and regulations.
  • Violation of Article I, NC Constitution (legal and contractual right to receive payments for reimbursement claims due and payable under the Medicaid regulations.

To name a few…