Health Law Highlights

The New Health Privacy Landscape—Out of the Frying Pan and Into the Fire

From Perkins Coie, by Stephanie Duchesneau, Susan Fahringer, Meredith Halama, Janis Kestenbaum:

  • The legal landscape around health privacy has become much more complex in recent years, with more entities and types of data now subject to regulation and enforcement.
  • The FTC has taken a broader view of what constitutes sensitive health data and has pursued more enforcement actions around the sharing of such data with third parties like ad tech companies. 
  • Several states like Washington, New York, Nevada, and Connecticut have passed new consumer health privacy laws restricting certain uses of geofencing and health data.
  • HHS and the FTC have also issued new guidance clarifying that certain data sharing practices of HIPAA-covered entities may violate privacy rules.
  • All entities should review their health privacy practices given this changing legal landscape to ensure compliance and avoid litigation and enforcement risks.
Health Law Highlights

Defending Executive Compensation in Nonprofit Health Care Systems

From American Health Law Association, by Albert Lin, Husch Blackwell LLP, and Connor Campbell, Weaver and Tidwell LLP:

This article reviews the rules surrounding the IRS principles of executive compensation with a focus on health care organizations and discusses best practices that the governing boards of such organizations should look for in exercising their fiduciary obligations to minimize issues with tax-exempt status.

State-Specific Requirements Impacting Executive Compensation

State-Specific Nonprofit Corporation Statutes and Applicable Requirements

  • Nonprofit health care organizations should maintain awareness of state-specific nonprofit requirements. These nonprofit requirements encompass both corporate governance requirements and tax-specific requirements based on income, property, and sales taxes that may not always correlate with federal tax concepts.
  • Texas has a common, specific type of nonprofit health organization that is specifically licensed by the Texas Medical Board as a legal entity that can practice medicine.
  • State statutes will usually have provisions directly impacting the payment of compensation.
  • As applied to executive compensation, an argument that a payment is a prohibited “distribution” is usually a key risk factor. The IRS rules prohibit a distribution of net earnings; state statutes may have slightly different language.
  • It is important to have awareness of whether state community benefit goals are met.

State Common Law Fiduciary Duties

  • In exercising their fiduciary duty and reviewing and approving compensation, directors should be mindful of their Duty of Care, Duty of Loyalty, and Duty of Obedience.

Federal Tax Law Requirements Impacting Executive Compensation

Private Benefit and Private Inurement

  • Federal tax concepts of private benefit and private inurement should always be on the minds of those establishing executive compensation for nonprofit organizations.
  • Private benefit refers to situations in which the overall resources of a charitable organization may benefit a general private interest rather than the public.
  • Private inurement prohibition is absolute and occurs when net earnings of a charitable organization are redirected to persons who are essentially in control or exercise control of the charitable organization (“insiders”).

Section 4958 Intermediate Sanctions

  • The intermediate sanctions penalize two key players: any disqualified person and any organization manager.
  • The defense to private inurement and the intermediate sanction regime the rebuttable presumption of “reasonable compensation.” This essentially shifts the burden of proof to the IRS in any contest over whether compensation was excessive.

21% Excise Tax on Compensation in Excess of $1M for Nonprofit Covered Employees

  • There is a 21% excise tax on the amount of compensation over $1 million as well as excess “parachute payments” paid to any “covered employees”.
  • There is also an exception for physicians and other providers, as amounts paid for medical services are disregarded for purposes of the $1 million excise tax threshold.

Recommended Best Practices on Executive Compensation for Nonprofit Health Care Boards

Monitor Legal Developments Contemporaneously Document Facts and Circumstances Supporting Both Reasonableness of Compensation and Community Need

  • The analysis conducted by the compensation committee should be written up in the form of minutes or internal memoranda.
  • An independent third-party compensation study can be critical in providing evidence in support of meeting the burden of proof and assist in moving performance factors to criteria more focused on community benefit.
  • Compensation assessments should elaborate on non-qualitative factors, emphasizing the argument that tax-exempt hospitals need to provide more and more community benefit.

Physician Executive-Specific Factors

  • There should be a ceiling or reasonable maximum that the physician can earn.
  • An increasing level of compensation, coupled with decreasing charity care statistics, may trigger scrutiny.
  • Incentive bonuses should include measures such as quality of care and patient satisfaction.
  • Be prepared to show that the arrangement accomplishes a charitable purpose and is not intended to induce referrals or incentivize the “cherry-picking” of patients in an effort to maximize revenues.
  • The arrangement should not be a substitute for a joint venture. JVs need to be structured separately and comply with the separate set of rules and administrative rulings on physician joint ventures with tax-exempt organizations.
  • The compensation should reward physicians for services performed and not activities beyond the physician’s control.

Recruitment Incentives

Health Law Highlights

Advisory Opinion 23-7 OIG Issues Favorable Opinion Regarding Proposal to Pay Bonuses to Its Employed Physicians Based on Net Profits

From Health Law Diagnosis, by Nathaniel Arden & Michael Lisitano:

  • On October 13, 2023, the Office of Inspector General (OIG) published Advisory Opinion 23-07, in which the OIG issued a favorable opinion regarding a physician group employer’s proposal to pay bonuses to its employed physicians based on net profits derived from certain procedures performed by the physicians at ambulatory surgery centers.
  • Under the proposed arrangement, the Group would pay its physician employees a bonus in addition to the physicians’ base compensation. The bonus would be equal to 30% of the Group’s net profits derived from two ambulatory surgical centers’ facility fee collections attributable to that physician’s procedures.
  • The two ambulatory surgical centers in question would be operated as “divisions” of the Group and not as separate legal entities.
  • The OIG determined that the proposed bonus arrangement is protected by the bona fide employee statutory exception and regulatory safe harbor of the Anti-Kickback Statute and would therefore, not generate prohibited remuneration.
  • The OIG differentiated similar arrangements where the ACS is owned by a separate entity. In those cases, the bona fide employee exception and safe harbor would likely not apply.
  • OIG’s analysis in the Advisory Opinion demonstrates that when properly structured to comply with statutory exceptions and regulatory safe harbors, certain bonus compensation arrangements of this sort may be permissible.
Health Law Highlights

UnitedHealth Defends Lucrative Billing Tactic in Appeals Court

From Bloomberg Law, by Jacklyn Wille:

  • “Cross-Plan Offsetting” is the practice by an insurer of clawing back benefits it says were overpaid to a provider under one plan by reducing future payments to the provider under a different plan that it administers.
  • This common insurance billing tactic has invited litigation over its legality and opposition from the Labor Department.
  • In one such case, the Eighth Circuit is being asked to decide whether Smith and Ghanim, who are covered by health plans funded by their employers and administered by United, have been harmed in a way that would give them standing to challenge the practice under ERISA.
Health Law Highlights

Ozempic’s Success Treating Other Ailments Is Bad News for Rivals

From Bloomberg Law, by Madison Muller:

  • Ozempic, and other GLP-1 receptor agonists, are diabetes medications that have become popular for weight loss.
  • Now, there is evidence that they have other more far-reaching benefits too:
    • They may have a protective effect on the heart, liver and kidneys.
    • They may combat substance abuse or even Alzheimer’s disease.
    • Wegovy has been shown to reduce the risk of heart attacks and strokes by 20% in overweight people with a history of heart issues.
  • As a result, these medications may disrupt many different industries.
  • For example, when the manufacturer of Ozempic announced on Oct. 10 that its effectiveness in kidney disease was so conclusive that it was stopping a trial early, it sparked a $3.6 billion selloff in shares of dialysis providers Fresenius Medical Care AG and DaVita Inc.
  • These drugs may also disrupt the health insurance market. Even if approved for new uses, these drugs are very expensivThe list price for Ozempic is about $900 a month, and for Wegovy it’s more than $1,000.
Health Law Highlights

False Claims Act Risks for Cyber Device Manufacturers Arising Under New Requirements Subject to FDA Enforcement Beginning October 1, 2023

From GibsonDunn, by Winston Chan, Jonathan Phillips, Gustav Eyler, John Partridge, Christopher Rosina, Carlo Felizardo, and Nicole Waddick:

  • The FDA approval process for digital health “cyber devices” requires that premarket submissions contain cybersecurity information, including the company’s plans to address cybersecurity vulnerabilities, processes to provide a reasonable assurance that the devices are cybersecure, a software bill of materials, and other information as the Secretary requires.
  • As of October 1, 2023, the FDA expects companies to comply with these new cybersecurity requirements.
  • False statements related to these disclosures could give rise to false statements and subsequent risk based on the “fraud-on-the-FDA” theory of liability.
  • Companies should take significant care in their statements in premarket submissions regarding their cybersecurity practices and procedures.
Health Law Highlights

Woman’s Death After IV Therapy Leads to License Suspension for Frisco Anesthesiologist

From D Magazine, by Will Maddox:

  • The Texas Medical Board suspended Frisco anesthesiologist Dr. Michael Gallagher after a mother of four died in July at a med spa for which he was the medical director. 
  • She died after receiving an IV treatment administered by the non-licensed owner of the business. 
  • The med spa did not have protocols or policies for the staff’s IV therapy administration. 
  • There was only an unsigned agreement between Gallagher and the med spa. 
  • There were no licensed medical staff or experienced personnel onsite while IV therapy was being administered. 
  • The treatment the patient received before dying included vitamin B complex, vitamin B12, TPN electrolytes, and ascorbic acid. TPN electrolyte solution requires a prescription and is known to cause complications. 
  • IV therapy is a growing market, but complications can be deadly because it is often administered in medical spas with little medical supervision.
Health Law Highlights

Congress Eyeing Broker Payments Behind Booming Medicare Sales

From Bloomberg Law, by John Tozzi:

  • About 31 million people – more than half of Medicare enrollees – opt to get their coverage through private plans known as Medicare Advantage.
  • Lawmakers are examining the payments made by health insurers to brokers who sell their Medicare plans, concerned that the payments may be steering seniors to some plans over others.
  • Federal rules limit the commissions Medicare plans can pay brokers, but some companies may be skirting these rules by offering extra payments that can sometimes double brokers’ compensation, influencing them to push plans that pay the most.
  • A report from the Senate Finance Committee last year described deceptive marketing tactics, “fraudulent sales practices,” and instances of people being enrolled in Medicare Advantage plans without knowing it.
  • The large, publicly traded online brokers report revenue from both commissions and other sources, such as “volume-based bonuses” for meeting sales targets and “marketing development funds” for certain customers.
Health Law Highlights

CMS Publishes Updated Data on Stark Law Voluntary Disclosures

From Policy & Medicine, by Thomas Sullivan:

  • 2022 was a stand-out year for Stark Law self-disclosures. It was the highest year in both the number of disclosures settled and the aggregate amount of all settlements for the year.
  • In 2020, a total of 36 settlements were reached, ranging from $33 to $952,300, for a total of $4,344,966.
  • In 2021, a total of 27 settlements were reached, ranging from $631 to $1,110,148, totaling $1,988,451.
  • In 2022, a total of 104 settlements were reached, ranging from $299 to $1,171,174, for a total of $9,287,866.
Health Law Highlights

Labs Take Note New OIG Opinion Highlights That Fair Market Value Per Test Payments Can Still Violate the Anti-Kickback Statute Publications

From Bass, Berry & Sims, by Jennifer E. Michael & Danielle M. Sloane:

  • The U.S. Department of Health and Human Services Office of Inspector General (OIG) issued Advisory Opinion 23-06, wherein the OIG reiterated its longstanding position that carving out federal health care program (FHCP) business from an arrangement does not insulate the arrangement from Anti-Kickback Statute liability.
  • The arrangement would involve laboratories that conduct both the Technical Component (TC), preparing the slides, and the Professional Component (PC), interpreting the slides.
  • The Requestor would pay fair market value (FMV) for the TC services from other labs, provide the PC, and then bill commercial insurance for both the TC and PC services. The commercial insurance policies allowed this practice.
  • The arrangement would not involve any service reimbursable by FHCP, but the Requestor did expect the labs to refer FHCP services outside of this arrangement.
  • The Requestor admitted the arrangement was not commercially reasonable because it could provide TC services itself for less than FMV.
  • Despite the FMV payment and FHCP business carve-out, OIG determined that the arrangement could increase the likelihood that the labs or their referring physicians would order federally reimbursable services from Requestor.
  • Citing its Special Fraud Alert on Laboratory Payments to Referring Physicians, OIG reiterated that the Anti-Kickback Statute is violated if even one purpose of the payment is to induce referrals of FHCP business, regardless of whether that payment is FMV.
  • Finally, the proposed arrangement in Advisory Opinion 23-06 failed to meet a safe harbor only because Requestor effectively certified that the arrangement was not commercially reasonable.