HCLL_May13

Liability & LitigationHealthcare

A Publication of the American Health Lawyers Association

Healthcare Liability and Litigation Practice Group

Volume 15 • Issue 2 • May 2013

State Action Immunity in the Aftermath of FTC v. Phoebe Putney Health System, Inc.Phillip Nichols Martha Legg Miller ..........................1

Supreme Court Eliminates Equitable Tolling from Medicare Part A AppealsRobert Wanerman .............................5

The Power of a Strong RAC Denial Appeal PolicyRich Marotti ......................................7

Protecting Your Practice from Social Media Misadventures—Drafting a Social Media PolicySalima Ali .........................................9

Table of Contents

Healthcare Liability & Litigation © 2013 is published by the American Health Lawyers Association. All rights reserved. No part of this publication may be reproduced in any form except by prior written permission from the publisher. Printed in the United States of America.“This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal or other professional services. If legal advice or other expert assistance is required, the services of a competent professional person should be sought.”

—from a declaration of the American Bar Association

State Action Immunity in the Aftermath of FTC v. Phoebe Putney Health System, Inc.Phillip A. NicholsMartha Legg MillerBalch & Bingham LLP Birmingham, AL

O n February 19, 2013 the U.S. Supreme Court reversed a decision of the Eleventh Circuit in a manner that may have a significant impact on the reach of the federal antitrust laws with regard to local govern-

ment bodies or “substate” governmental entities, including hospital authorities that are creatures of state law.1 Under Georgia law, hospital authorities have general corporate powers, including the right to acquire and operate hospitals. In a unanimous opinion written by Justice Sonia Sotomayor, the Supreme Court announced that the acquisition of a second hospital by a Georgia hospital authority would not be shielded from federal antitrust scrutiny by the state action immunity doctrine, as Georgia had not “clearly articulated and affirmatively expressed” a state policy to displace competition.

State Action Immunity at a GlanceIt is difficult to appreciate the significance of the Supreme Court’s decision in Phoebe Putney without at least a fundamental understanding of the state action immunity doctrine that lies at the core of the decision. Originally enunciated by the Supreme Court in 1943 in its Parker v. Brown decision,2 the state action immunity doctrine is moored in the principles of federalism and state sover-eignty. It is without question “that actions of the state itself, acting as sover-eign, are covered by the state action doctrine by their very nature and without further inquiry.”3 In other words, a state acting for itself simply is not subject to the restrictions of the federal antitrust laws.

This concept of state action immunity, however, weakens as the actors in ques-tion move farther away from the state itself. Non-sovereign governmental enti-ties (referred to as “substate entities” by Justice Sotomayor in Phoebe Putney), including counties, municipalities, and various state authorities acting by virtue of authority delegated from the state are not, ipso facto, immune from federal antitrust attack. Private parties acting in concert with non-sovereign state actors, likewise, are not automatically immune. In 1980, the Supreme Court refined the state action doctrine of Parker v. Brown by instituting a two-

Healthcare Liability & Litigation

2

pronged test for determining state action immunity: “First, the challenged restraint must be ‘one clearly articulated and affir-matively expressed as state policy’; second, the policy must be ‘actively supervised’ by the State itself.”4

With regard to non-sovereign state actors, the Supreme Court has recognized that those entities need only satisfy the first prong of the so-called Midcal test, meaning that these substate entities must only establish that they are acting according to a clearly articulated and affirmatively expressed state policy to displace competition.5 Private actors must satisfy both prongs of the Midcal test. In attempting to provide more clear guidance with respect to the requirement for finding a clearly articulated state policy to displace competition, the Supreme Court in Phoebe Putney rested its entire opinion on the first prong of the Midcal test. It remains to be seen whether that guidance is indeed clear or, as discussed below, whether the Court truly may have estab-lished a trap for the unwary.

Factual and Procedural BackgroundGeorgia law, like that of many other states, authorizes coun-ties, municipalities, and combinations thereof to create hospital authorities to provide healthcare to their indigent population through, among other acts, the acquisition and operation of hospi-tals. Pursuant to Georgia’s Hospital Authorities Law, the city of Albany and Dougherty County established the Hospital Authority of Albany-Dougherty County (Authority) in 1941, through which the Authority acquired Phoebe Putney Memorial Hospital.

While the fact was not referenced by the Court, it is helpful to understand that the Authority apparently had little to do with the operations of Phoebe Putney Memorial Hospital or the transaction that would bring about the case. The Authority leased the hospital to a private actor, a nonprofit corporation (it and its affiliates are hereinafter referred to as Phoebe Putney). According to the admin-

istrative complaint filed by the Federal Trade Commission (FTC) on April 19, 2011, the Authority ceded all control over Phoebe Putney Memorial Hospital to Phoebe Putney. Similarly, according to the FTC, Phoebe Putney structured the transaction at issue to acquire Palmyra Medical Center (Palmyra) from Hospital Corpo-ration of America (Transaction) without involving the Authority until the last minute and then only to have the Authority rubber-stamp the transfer of Palmyra from one private actor effectively to another.6 The Transaction contemplated an immediate transfer of control over Palmyra to Phoebe Putney.

The Transaction was an acquisition of Phoebe Putney’s cross-town competitor7 and would put Phoebe Putney in control of the only two hospitals in Dougherty County. Further, the acquisi-tion would give Phoebe Putney 86% of the acute-care hospital services market in the six counties surrounding Albany. In sum, the acquisition of Palmyra would have given Phoebe Putney a virtual monopoly over acute-care services in a sizable market. According to the FTC, “[t]he Transaction was motivated and planned exclusively by Phoebe Putney, which act[ed] in its inde-pendent, private, and pecuniary interests.”8 The FTC criticized the Authority for not “acting in furtherance of the public interest, or even evaluating those interests,” but rather serving “only as a strawman to permit Phoebe Putney to attempt to shield this overtly anticompetitive Transaction from antitrust scrutiny.”9 Interestingly, the FTC stated in its complaint that no state action was contemplated at all.10

The FTC argued that the acquisition of Palmyra violated federal antitrust laws by creating a virtual monopoly and substantially reducing competition for acute-care hospital services in violation of Section 5 of the Federal Trade Commission Act11 and Section 7 of the Clayton Act.12 The FTC and the state of Georgia subse-quently filed suit to enjoin the acquisition of Palmyra. The U.S. District Court for the Middle District of Georgia dismissed the action on the ground that the Authority was immune from federal antitrust scrutiny under the state action doctrine,13 which the Eleventh Circuit affirmed.14

The Eleventh Circuit held that Georgia’s state legislature had clearly articulated a policy to displace competition in the hospital services market because, “in granting the power to acquire hospi-tals, the legislature must have anticipated that such acquisitions would produce anticompetitive effects.”15 The Eleventh Circuit’s interpretation of what is required to pass muster under the clear-articulation test is the hub of what was at issue in the Supreme Court. The Eleventh Circuit interpreted broadly the Supreme Court’s direction in Town of Hallie that courts should look to whether anticompetitive conduct was “a foreseeable result” of the state’s legislation or other action.16 “According to the [Elev-enth Circuit,] anticompetitive conduct is foreseeable if it could have been ‘reasonably anticipated’ by the state legislature.”17 The Eleventh Circuit had reemphasized its earlier position that a “‘foreseeable anticompetitive effect’ need not be ‘one that ordi-narily occurs, routinely occurs, or is inherently likely to occur as a result of the empowering legislation.’”18 Obviously, the Supreme Court did not agree with the Eleventh Circuit’s approach.

Healthcare Liability & Litigation

3

Supreme Court’s DecisionIn a significant victory for the FTC, the Supreme Court unani-mously reversed the Eleventh Circuit’s decision, holding in effect that the Georgia legislature did not take sufficient steps to autho-rize what the FTC determined to be an anticompetitive acquisi-tion by the Authority of a competing hospital so as to shield the Authority and the acquisition of Palmyra under the state action doctrine.19 The Court was not nearly so impressed with the Georgia legislature’s grant of broad corporate-style powers to state bodies such as the Authority as was the Eleventh Circuit.

According to the Court, its precedents “make[] clear that state-law authority to act is insufficient to establish state-action immu-nity; the substate governmental entity must also show that it has been delegated authority to act or regulate anticompetitively.”20 The Court likened Georgia’s legislative grant of powers to the Authority to the “neutral” or general grant of authority considered insufficient to pass the clear articulation standard in its earlier opinion in Community Communications Co. v. Boulder.21 The Court explained that “when a State’s position ‘is one of mere neutrality respecting the [governmental actor’s] actions challenged as anticompetitive,’ the State cannot be said to have ‘contemplated’ those anticompetitive actions.”22

While acknowledging that the Georgia legislature could have anticipated that the powers conferred might produce anticom-petitive effects, the Supreme Court did not find a delegation of authority to act anti-competitively. Stated differently, the Supreme Court found nothing in Georgia statutory law that “clearly articu-lates a state policy to allow authorities to exercise their general corporate powers, including their acquisition power, without regard to negative effects on competition.”23 The Supreme Court remanded the case for further proceedings. On March 14, the FTC lifted the stay that had been placed on the administrative proceedings pending resolution of the federal court action now resolved by the Court.24 The Order Lifting Stay calls for a hearing on the matter no later than July 15, 2013.

Ramifications of the Court’s DecisionFor Phoebe Putney, the Authority, and Palmyra, the effect of the Court’s decision will be immediate, as the parties gear up for the substantive hearing on the merits of the Transaction that was consummated some time ago. Should the FTC staff prevail in convincing the Commission that the Transaction creates an untenable monopoly,25 the parties then will face the uncertainty of the relief that will be mandated. This likely will involve unwinding the Transaction or otherwise requiring the divestiture of the Palmyra hospital to a third-party operator. Without ques-tion, such a remedy would be painful for the parties involved.

More importantly, the Court’s decision in Phoebe Putney must be evaluated by lawyers and their clients to determine its effect on their unique situations. Moving forward, it will be crucial for entities operating pursuant to legislation analogous to the hospital authority system in Georgia to assess whether their enabling legisla-

tion provides immunity under the Supreme Court’s narrowed view of the state action doctrine. It seems clear that enabling legislation amounting to nothing more than general corporate-type powers, as was the case in Georgia, will be suspect. Further, legislation that most likely can be read as “neutral” will be similarly suspect.

How far do state legislatures have to go to immunize non-sover-eign state entities (and the private parties that do business with them) from antitrust liability? In light of Phoebe Putney, it would seem that prudent state legislatures wishing to cast a lifeline of antitrust immunity must do exactly what the Supreme Court has long said (and reiterated in its Phoebe Putney decision26) that they do not have to do—explicitly authorize anticompetitive conduct. Unfortunately, in the Court’s attempt to avoid a “trap for unwary state legislatures” on a forward-looking basis, the Court may have set a trap for unwary substate entities (and private parties doing business with them) under existing state laws that constitute nothing more than general or neutral authorizations likely to fail the Phoebe Putney standard. Like the legislation in Georgia, many of these now-suspect statutes may have been in place for years and the relevant actors blissfully may have thought their antitrust exposure was non-existent. Many such entities may be relying on legal advice given prior to Phoebe Putney that now may be supplanted by the Court’s recent action. Lawyers for clients in such circumstances may find themselves advising their clients to seek legislative fixes to existing legislation that falls short of the Court’s narrowed view of state action immunity.

It remains to be seen whether enabling legislation that gener-ally authorizes anticompetitive conduct or anticompetitive effects will be sufficient under the seemingly more-stringent test announced in Phoebe Putney. While language permitting the exercise of powers “regardless of the competitive consequences”27 satisfied the Sixth Circuit in Jackson, Tennessee Hospital Company,

Healthcare Liability & Litigation

4

Practice Groups StaffTrinita Robinson

Vice President of Practice Groups (202) 833-6943

[email protected]

Magdalena Wencel Senior Manager of Practice Groups

(202) 833-0769 [email protected]

K. J. Forest Practice Groups Distance Learning Administrator

(202) 833-0782 [email protected]

Brian Davis Practice Groups Communications and

Publications Administrator (202) 833-6951

[email protected]

Crystal Taylor Practice Groups Activities Coordinator

(202) 833-0763 [email protected]

Arnaud Gelb Practice Groups Distance Learning Coordinator

(202) 833-0761 [email protected]

Tazeen Dhanani Practice Groups Web Assistant

(202) 833-6940 [email protected]

Dominique Sawyer Practice Groups Distance Learning Assistant

(202) 833-0765 [email protected]

Graphic Design StaffMary Boutsikaris Creative Director (202) 833-0764

[email protected]

Ana Tobin Graphic Designer/Coordinator

(202) 833-0781 [email protected]

LLC v. West Tennessee Healthcare, Inc. in 2005,28 it is unclear how courts would view such language in light of the Supreme Court’s recent opinion. Hopefully, such express statements will continue to pass the clear articulation test even under the new standard announced in Phoebe Putney.

While only time and the federal judiciary’s interpretations of the Phoebe Putney decision will determine how significant the change in the application of the state action immunity doctrine will be, what is clear is that the Court has given a sword to the federal antitrust enforcement agencies and private litigants to challenge transactions and other activities involving non-sovereign state actors that they deem to be anticompetitive. Counselors of poten-tially affected entities would be wise to encourage their clients to assess not only relevant enabling legislation but also to assess and ensure that their activities comport to the strictures of applicable antitrust laws.

1 Federal Trade Comm’n v. Phoebe Putney Health Sys., No. 11-1160, slip op. (U.S. Feb. 19, 2013).

2 Parker v. Brown, 317 U.S. 341 (1943).3 FTC, Office of Policy Planning, Report of the State Action Task Force at 5

(Sept. 2003) (Task Force Report).4 California Retail Liquor Dealers Ass’n. v. Midcal Aluminum, Inc., 445 U.S. 97, 105

(1980) (quoting City of Lafayette v. La. Power & Light Co., 435 U.S. 389, 410 (1978)).

5 See Town of Hallie v. City of Eau Claire, 471 U.S. 34, 40 (1985).6 Complaint at ¶ 3, In re Phoebe Putney Health Sys., Inc. (FTC Apr. 19, 2011)

(No. 9348) (Administrative Complaint).7 Although not mentioned by the Court, it is also interesting that Palmyra had

filed a complaint for monopolization against Phoebe Putney and that a condi-tion of the Transaction was that Palmyra would drop that suit. See Administra-tive Complaint at ¶ 9.

8 Id. ¶ 79.9 Id.10 Id. at 83.11 15 U.S.C. § 45.12 15 U.S.C. § 18.13 FTC v. Phoebe Putney Health Sys. Inc., 793 F.Supp. 2d 1356 (M.D. Ga. 2011).14 FTC v. Phoebe Putney Health Sys. Inc., 663 F.3d 1369 (11th Cir. 2011).15 Id. at 1377.16 See Town of Hallie, 471 U.S. at 42-43.17 FTC v. Phoebe Putney Health Sys. Inc., No. 11-1160, slip op. at 4-5.18 FTC v. Phoebe Putney Health Sys. Inc., 663 F.3d at 1375-76 (quoting FTC v. Hos-

pital Bd. of Directors of Lee Cnty., 38 F.3d 1184, 1188, 1190-91 (11thCir. 1994).19 FTC v. Phoebe Putney Health Sys. Inc., No. 11-1160, slip op. at 19.20 Id. at 9-10.21 Id. at 10 (citing Community Commc’ns. Co. v. Boulder, 455 U.S. 40, 55-56

(1982)).22 Id. (quoting Boulder, 455 U.S. at 55).23 Id. at 16.24 Order Granting Complaint Counsel’s Motion to Lift Stay, In re Phoebe Putney

Health Sys. Inc., (FTC Mar. 14, 2013) (No. 9348) (Order Lifting Stay).25 This result seems all but certain. Even the Eleventh Circuit “agree[d] with the

[FTC] that, on the facts alleged, the joint operation of Memorial and Palmyra would substantially lessen competition or tend to create, if not create, a mo-nopoly.” FTC v. Phoebe Putney Health Sys. Inc., 663 F.3d at 1375.

26 FTC v. Phoebe Putney Health Sys. Inc., No. 11-1160, slip op. at 11.27 See Tenn.Code Ann. § 7-57-502(c) (emphasis added).28 414 F.3d 608 (6th Cir. 2005).

Healthcare Liability & Litigation

5

Supreme Court Eliminates Equitable Tolling from Medicare Part A AppealsRobert WanermanEpstein Becker & Green PC Washington, DC

O n January 22, 2013 the U.S. Supreme Court issued a unanimous decision holding that equitable tolling does not apply to hospitals challenging their Medicare

disproportionate share hospital (DSH) reimbursement before the Provider Reimbursement Review Board (PRRB) when more than three years had elapsed between receipt of their Notices of Program Reimbursement (NPRs) and the date that they filed their appeals.1 The decision signals that the Court is willing to accord administrative agencies considerable deference in exclu-sive appeals processes notwithstanding other equitable concerns. The Court also distinguished Medicare Part A providers from other potential claimants on the ground they are presumed to be sophisticated entities familiar with complex regulatory schemes. This expanded deference may have a significant impact on any challenges to the multiple regulations that must be promulgated to implement the Affordable Care Act (ACA).

The underlying dispute in Auburn involved Medicare DSH payments, which are supplemental Medicare payments claimed by hospitals serving a disproportionate share of low-income patients.2 The Medicare DSH calculation is based on the sum of two fractions: the first determines the number of patient days attributable to individuals who qualify for both Medicare Part A and Supplemental Security Income benefits; the second fraction, known as the Medicaid fraction, represents the number of patient days attributable to individuals who are entitled to Medicaid benefits and ineligible for Part A benefits.3 This case involved the data used to calculate the Medicaid fraction. Prior to the enact-ment of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, hospitals had to rely on their fiscal intermediaries for the Medicaid fraction calculation and did not have access to the underlying data.4

In 2006, a group of the hospitals learned that the Centers for Medicare & Medicaid Services (CMS) had been using erroneous data in calculating their Medicare DSH reimbursement from 1987-1994, and promptly appealed to the PRRB. Their action was based on an unrelated PRRB decision that CMS had errone-ously undercalculated a hospital’s Medicaid DSH fraction from 1993-1996 and had not disclosed this error to the affected hospital, which at the time was unaware of the error and could not have discovered it using their available data.5

The PRRB dismissed the hospitals’ appeals because they had not been filed within 180 days of each hospital receiving its NPR for the years at issue, as required by 42 U.S.C. § 1395oo(a).6 Even though CMS’ regulations do allow for an extension of the filing

deadline based on good cause if the request is filed within three years of the date that the NPR is sent to the provider, in this case more than 10 years had elapsed from the dates of the respective NPRs, and the PRRB determined that it lacked the authority to exercise any equitable powers.7

On appeal, the District of Columbia Circuit held that the statu-tory filing deadline was subject to equitable tolling due to the agency’s errors. The court concluded that the language in Section 1395oo(a) was not sufficiently detailed that it could overcome a presumption of equitable tolling, and the fact that a regulation allowed for a good-cause exception had no bearing on whether Congress intended to rebut the presumption.8

The Supreme Court granted certiorari to resolve a conflict between two pairs of circuits: the District of Columbia and Ninth Circuits had found that Section 1395oo(a)(3) was not jurisdic-tional, while the Eighth and Eleventh Circuits had found that it was jurisdictional and could not be extended by regulation.9 The Court reversed the D.C. Circuit and made three related rulings. First, it held that the 180-day limitation in Section 1395oo(a)(3) was not jurisdictional, but was a “claim processing rule” because Congress did not use language intended to define jurisdictional limits. This finding also allowed the extension of time for filing permitted by 42 C.F.R. § 405.1841(b) to stand because a different finding would invalidate the regulation.10 Second, the Court found that the regulatory exception allowing extensions of the filing deadline for good cause did not violate the Chevron stan-dard for regulatory review because it is a reasonable procedural rule that was based on a permissible construction of Section 1395oo and was not arbitrary or capricious.11 Third, the Court found that the presumption in favor of equitable tolling that applies to limitations applicable to civil actions in a district court does not apply to administrative appeals of the kind at issue here. The Court gave significant weight to the fact that Congress amended Section 1395oo six times since it was first enacted,

Healthcare Liability & Litigation

6

and never changed the 180-day rule or altered the good-cause extension permitted under the regulation. It concluded that the rationale for equitable tolling was inapplicable in this context, as hospitals are presumed to be “‘sophisticated’ institutional providers assisted by legal counsel, and ‘generally capable of identifying an underpayment in [their] own NPR within the 180-day time period specified in 42 U.S.C. § 1395oo(a)(3).’”12

Although the Court’s decision dealt only with Medicare Part A appeals, a concurring opinion written by Justice Sotomayor cautioned against interpreting the Court’s action as a complete abandonment of equitable tolling in all administrative appeals or even all Medicare appeals. She explained that while the three-year exception for good cause was a reasonable balancing of administrative efficiency and fairness in the context of appeals of Medicare Part A cost reports by hospitals, the presumption of equitable tolling should still apply with less-sophisticated claimants. Even where Congress authorizes an agency to adopt regulations that limit the exceptions to jurisdictional deadlines, equitable tolling may still survive when the filing delay is attribut-able to the agency’s conduct.13 In addition, Justice Sotomayor suggested that there is a distinction between the hospitals, which file annual cost reports with CMS, and other potential appel-lants, for whom their appeal may be the only encounter with the administrative appeals process set out in the Social Security Act.14

The Court’s decision reinforces earlier decisions that have adopted a highly deferential approach to administrative agency actions, especially those governing the operations of a complex program such as Medicare.15 This application of Chevron defer-ence here to a matter involving a procedural filing deadline and a request to extend that deadline based on an agency’s use of flawed data or evidence should be contrasted with other circumstances where lower courts have addressed remedies when an agency has adopted final regulations but did not fully disclose the underlying data on which its decisions were made; in those cases where a regulation was invalidated or vacated, the courts discussed how the agency’s error undermined the notice and comment rule-making process.16 The impact of the decision on any appeal of a Medicare Part A reimbursement appeal is unmistakable: notwith-standing errors by CMS that may prejudice a provider, the elimi-nation of equitable tolling means that issues must be appealed as promptly as possible by hospitals or other Part A providers. It remains to be seen how much latitude lower courts may give to other Medicare appellants who cannot be classified in the same “sophisticated” category as hospitals if a prescribed filing deadline is not met and the failure to file is attributable to an agency error discovered long after the filing deadline has passed.

The Auburn decision also foreshadows how federal courts will deal with the numerous sets of regulations that must be promulgated to fully implement the ACA, especially with respect to procedural issues. As a result, healthcare providers and other stakeholders should examine carefully any procedural rules before considering a challenge to these regulations or decisions made by agencies imple-

menting these regulations, as there may be only one opportunity to correct agency errors or to be heard on the merits of any dispute that requires that administrative remedies be exhausted.

1 Sebelius v. Auburn Reg’l Med. Ctr., No. 11-1231 (Jan. 22, 2013).2 42 U.S.C. § 1395ww(d)(5)(F).3 42 U.S.C. § 1395ww(d)(5)(F)(vi). 4 Pub. L. No. 108-173, § 951. The amendment now obligates the U.S. Depart-

ment of Health & Human Services Secretary to furnish the necessary data to hospitals to allow them to do their own DSH calculations.

5 Baystate Med. Ctr., PRRB Dec. No. 2006-D20, (Mar. 17, 2006).6 SRI 1987-1994 DSH SSI Group, PRRB Decision No. 2009D12(2009), available

at www.cms.gov/Regulations-and-Guidance/Review-Boards/PRRBReview/List-of-PRRB-Decisions-Items/2009D12.html.

7 See 42 C.F.R. § 405.1841(b). 8 Auburn Reg’l Med. Ctr. v. Sebelius, 642 F.3d 1145, 1148-51 (D.C. Cir. 2011).9 Western Med. Enters., Inc. v. Heckler, 783 F. 2d 1376 (9th Cir. 1986); Alacare

Home Health Servs., Inc. v. Sullivan, 891 F.2d 850 (11th Cir. 1990); St. Joseph’s Hosp. of Kansas City v. Heckler, 786 F.2d 848 (8th Cir 1986).

10 Sebelius v. Auburn Reg’l Med. Ctr., No. 11-1231, slip op. at 7-11 (Jan. 22, 2013). 11 Id. at 11.12 Slip op. at 13 (quoting Your Home Visiting Nurse Servs., Inc. v. Shalala, 525 U.S.

449, 456 (1999)). 13 Id. at 2-3 (Sotomayor, J., concurring).14 Id. at 2-4 (and citations therein).15 See, e.g., Mayo Found. for Med. Educ. & Research v. United States, 131 S. Ct. 704

(2011); Your Home Visiting Nurse Servs., 525 U.S. at 452-53.16 See, e.g., Mortgage Investors Corp. of Ohio v. Gober, 220 F.3d 1375, 1379-80

(Fed. Cir. 2000); Engine Mfgs. Ass’n v. EPA, 20 F.3d 1177, 1181 (D.C. Cir. 1994)(R. Ginsburg, J.); Lloyd Noland Hosp. and Clinic v. Heckler, 762 F.2d 1561, 1565 (11th Cir. 1985): Conn. Light & Power Co. v. NRC, 673 F.2d 525, 530-31 (D.C. Cir. 1982); United States v. Nova Scotia Food Prods. Corp., 568 F.2d 240 (2d Cir. 1977); Portland Cement Ass’n v. Ruckleshaus, 486 F.2d 375, 392-94 (D.C. Cir. 1973), cert. denied, 417 U.S. 921 (1974).

Healthcare Liability & Litigation

7

The Power of a Strong RAC Denial Appeal PolicyRich MarottiMurphy Austin Adams Schoenfeld LLP Sacramento, CA

Since 2006, when Congress turned a “successful” demon-stration program into a permanent part of the Medicare landscape, the Centers for Medicare & Medicaid Services

(CMS) have been operating the Recovery Audit Program. Recovery audit contractors (RACs) review the already-paid Medicare billing of providers and determine whether an over- or underpayment has occurred. The RACs are private companies, often insurers, who are compensated by a percentage of the amount of money they successfully “clawback” from providers. RACs find overpayment far more regularly than underpayment, currently at a ratio of more than seven to one.

While this program has returned significant sums to the Medicare coffers, it can place a severe strain on providers. In addition to the financial exposure and uncertainty caused by a RAC audit, there is a significant cost both in responding to the audit and appealing adverse determinations. The full administrative appeals process can take more than a year per disputed claim (though some claims can be consolidated at the discretion of CMS or its contractors.)

However, when providers do appeal these claims they have enjoyed disproportionate success. Some providers have reported overturning adverse decisions as much as 87% of the time. In a December 2012 bulletin, CMS revealed that “[t]o date, only 2.4 percent of all 2010 claims collected have been both chal-lenged and overturned on appeal. Health care providers have appealed 8,449 claims to date, which constitutes 5 percent of all claims collected in FY 2010.” In other words, about half of all claims that are appealed are overturned, but only 5% of claw-backs are ever appealed in the first place.

Since virtually the beginning of the RAC program, providers have been fighting a particularly difficult application of RAC audits where the RAC determines that a Medicare beneficiary who was admitted on an inpatient basis (and therefore eligible for reim-bursement under Medicare Part A) should have actually been an outpatient (therefore eligible for reimbursement under Medi-care Part B.) It is important to note that the RAC does not claim the services provided were unreasonable or unnecessary, just that they were provided in the wrong setting (inpatient versus outpatient). The RAC then claws back the full reimbursement the provider received for the inpatient admission.

CMS has taken the complementary position (via an interpretation of a policy manual) that once a claim paid under Part A is denied, the provider cannot receive reimbursement under Part B except

for a handful of ancillary services. Thus, once a RAC has clawed back a Part A payment based on a disagreement with setting, the provider is deprived of almost all reimbursement for medical services despite the fact that no one disagrees the services were reasonable and necessary when they were rendered.

Some providers have aggressively appealed these clawbacks and appear to be winning. Administrative law judges (ALJs) (the third level of administrative appeal) have been regularly awarding hospitals a full Part B payment. In July 2012, CMS issued a memo instructing contractors on how to implement the string of ALJ decisions overturning RAC clawbacks based on the inpatient/outpatient distinction.1 The memo instructed the contractors to pay the hospitals the Part B payment they requested. Tell-ingly, however, the memo stressed that the ALJ decisions are not consistent with Medicare policy, that these payments are being made only to implement the particular ALJ decisions, and that the memo does not reflect a change in CMS policy. The obvious subtext from the memo was that providers should be appealing RAC denials more.

In an apparent change of heart, CMS recently issued Ruling 1455-R on March 13, 2013 and a corresponding proposed regu-lation on March 18.2 The ruling and proposed rule purport to pay Part B rates for all services that were rendered as inpatient and paid under Part A, but are later denied based on a RAC disagree-ment with the inpatient setting. The notice and comment period on the proposed rule ends on May 17, 2013.

Healthcare Liability & Litigation

8

Prior to that ruling, the American Hospital Association (AHA), along with several other hospitals, filed a lawsuit alleging the RAC policy of clawing back Part A payments, combined with the U.S. Department of Health & Human Services Secretary’s policy of denying Part B reimbursement for those same cases, violates the Administrative Procedure Act (APA).3 From the allegations of the complaint in AHA v. Sebelius, it appears that only one of the party hospitals has completely exhausted its administrative appeals. However, all of the plaintiff hospitals seek to invalidate the practice under the APA. No published case has yet dealt with this issue.

Subsequent to the issuance of Ruling 1455-R, the plaintiffs amended their complaint to object to the fact that the Ruling did not go far enough to address the problem. The Ruling allows re-billing to Part B only for claims that still have live appeal rights. The majority of claims at issue in AHA v. Sebelius no longer have appeal rights because CMS’ previous policy induced the providers not to seek appeals. CMS has indicated that it will move to dismiss the complaint.

The allegations in the complaint regarding plaintiffs’ harms are sobering. As a direct result of RAC audits, the individual hospitals

have been required to pay back anywhere from $3 million to $33 million after turning over anywhere from a few hundred to tens of thousands of records. AHA member hospitals reported $236 million in RAC clawbacks for the first quarter of 2012 alone, and the data available to AHA shows that RACs have requested more than half a million records to be reviewed.

Regardless of the outcome of the AHA lawsuit, providers should aggressively pursue appeals of RAC denials. ALJs seem amenable to overturning a significant number of lower level denials. Furthermore, providers should take AHA as a reminder that RAC appeals are more than just a costly bureaucratic headache. They have the potential (either via judicial review under the APA or by influencing CMS policy) to eradicate CMS practices that necessi-tate administrative appeal after administrative appeal.

1 CMS Memo to All FIs, Carriers and A/B MACs re: Administrative Law Judge Decisions (July 13, 2012).

2 See 78 Fed. Reg. 16635.3 American Hosp. Ass’n v. Sebelius, No. 1:12 cv 01770 (D.D.C. 2012).

Rebekah N. Plowman, Chair Jones Day Atlanta, GA (404) 581-8240 [email protected]

George B. Breen, Vice Chair – Publications Epstein Becker & Green PC Washington, DC (202) 861-1823 [email protected]

Edwin E. Brooks, Vice Chair – Membership McGuireWoods LLP Chicago, IL (312) 849-3060 [email protected]

Thomas J. Kenny, Vice Chair – Strategic Activities Kutak Rock LLP Omaha, NE (402) 346-9000 [email protected]

Cavender C. Kimble, Vice Chair – Educational Programs Balch & Bingham LLP Birmingham, AL (205) 226-3437 [email protected]

Laura C. McBride, Vice Chair – Research and Website Ulmer & Berne LLP Cleveland, OH (216) 583-7034 [email protected]

Healthcare Liability and Litigation Practice Group Leadership

Healthcare Liability & Litigation

9

Protecting Your Practice from Social Media Misadventures—Drafting a Social Media PolicySalima AliProfessional Risk Management Services Inc. Arlington, VA

W ith the ever-increasing use of social media in both private and professional settings, healthcare enti-ties should be aware of potential liability exposure

through the misuse of social media by employees. Recent head-lines regarding inappropriate postings have demonstrated a lack of knowledge among healthcare workers as to what constitutes confidential patient information, which in turn has resulted in reputational damage to organizations along with government inves-tigations, patient board complaints, regulatory fines, and litigation.

As demonstrated by a Michigan case, inappropriate social media disclosures often demonstrate an ignorance or misunderstanding of privacy laws. In this case, a hospital employee posted her feel-ings on Facebook following a particularly emotional night in the emergency room treating both a police officer who was shot and the shooting suspect.1 She was surprised to be reprimanded and fired for violating Health Insurance Portability and Accountability Act (HIPAA) regulations after she wrote that she had come “face-to-face with a cop killer and hoped he rotted in hell.” Following her termination, she voiced her confusion as to why she had been terminated: “I am familiar with HIPAA. I did not give out any of his information. I did not give out his name. I did not mention the hospital. I did not give out his condition.” This hospital employee is not alone. Many healthcare employees erroneously believe that by omitting the patient’s name or other identifying information when posting information, they have sufficiently protected patient privacy. Others believe that posting information to a social media site from home, rather than from the workplace, entitles them to share the information without any repercussions.

One way to eliminate such misconceptions is through the use of an organizational social media policy. A comprehensive social media policy and corresponding training can help to insulate the organization from potential liability exposure and create an environment that protects the privacy of all patient informa-tion. While it may seem that the best solution is to simply forbid access to social networking sites from office computers, this may not be sufficient as employees can still obtain access through personal mobile devices and from home after hours. Even if an individual claiming breach cannot establish a claim of vicarious liability, negative publicity can still impact the viability of the organization. Thus, developing organizational policies regarding the use of social media inside and outside of the workplace and providing comprehensive training on such polices is an important step in limiting an organization’s liability exposure.

Creating a Social Media PolicyThe first step to drafting a comprehensive social media policy is to understand the role played by social media within your organization, through your employees and your patients, person-ally and professionally. Consider implementing an internal audit to discover how social media is being utilized by employees and patients in the organization, both formally and informally. The results of such an audit will provide crucial information to developing a comprehensive social media policy. Next, consider the vision, mission, and goals of the organization in relation to social media such as the type of image the organization seeks to create in the public and the overall goals that the organization seeks to accomplish through the use of social media. This will provide a framework for outlining the permissive use of social media, as well as the specific departments or individuals who should be responsible for monitoring and developing the content delivered through social media. In this process, it is important to consider the various ways in which social media can be used, such as by employees while in and outside the workplace, by the company with respect to services and products provided, or by the company during the recruiting and hiring process.

Participation in social media creates numerous legal liability exposures within diverse areas of the law, with the potential to incite causes of action for trademark and copyright infringe-ment, defamation, endorsements, and violation of privacy and publicity rights and labor and employment regulations. The exposure increases significantly in the context of healthcare organizations, which are subject to additional and far more stringent regulations, such as HIPAA, state health information privacy laws, federal and state fraud and abuse statutes, standard-of-care requirements, and the nuanced issues that come to light with the ubiquitous nature of social media, such as inadvertent

Healthcare Liability & Litigation

10

creation of the physician-patient relationship and the unlicensed practice of medicine. Most importantly, litigation involving such issues becomes infinitely more complex, as the content on social media sites is permanent and discoverable by courts and written communication, such as emails, Facebook posts or comments, and tweets can be easily misconstrued, particularly content drafted for the purposes of social media, which is often written without much forethought.

The National Labor Relations Board (NLRB) has taken an active role in protecting employee use of social media, which should be taken into consideration when drafting and implementing a policy. The NLRB will deem unlawful any social media or confidentiality policy that employees could “reasonably interpret to prohibit protected activity,”2 such as broad provisions requiring discussions to be appropriate, respectful, or professional, or those prohibiting disparaging and inflammatory comments. Therefore, organizations should be cautious when restricting employee conduct, particu-larly with the use of generic or overly broad provisions that may be construed as restricting an employee’s right to publicly criti-cize their employer or discuss the terms and conditions of their employment. Encouraging employees to refrain from disparaging language is allowed, but employers should not impose provisions that are written as “absolutes,” as it is these provisions that have been held by the NLRB to be unlawful.3

The following are suggested elements for an organizational social media policy, which should be modified and expanded upon to meet each organization’s needs as appropriate:

• Purpose/Objective of the Policy. Clearly establish the objec-tive of the policy and the role it will play in the organization. Emphasize that the policy governs both the use of social media at the place of employment and personal use of social media.

• Prohibited Uses. This section should outline specific uses that would not be allowed via business-hosted social media or personal social media, including:

– Posting false, obscene, harassing statements or statements disparaging an individual’s race, religion, age, sex, or disability;

– Posting of any patient information or photographs;

– Disclosure of company financial, proprietary, or other confi-dential information; and

– Utilizing company trademarks or logos on personal social media.

This section can also feature hypothetical scenarios based closely on real-life case examples. This will allow employees to become familiar with the uses that are not allowed and the possible sanc-tions that can result from such use of social media.

• Social Media Best Practices/Permitted Uses. By outlining the type of uses that would be permitted under the policy, the organiza-tion can further decrease the likelihood of an employee violation and delineate the boundaries for the use of social media.

– Encourage employees to utilize citations whenever possible to prevent copyright and intellectual property issues.

– Encourage employees to include disclaimer as to medical advice when posting educational information.

– Encourage employees to include disclaimer that posts by others not affiliated with the organization are not attributable to the organization.

– Encourage employees to post photos of co-workers only if taken outside of work and only with the co-worker’s permission.

– Specify that employees are not to speak for companies on social networking sites or blogs, only for themselves.

– Ensure that employees understand that content posted on social media is easily misconstrued, permanent, discoverable, and can be utilized in adversarial proceedings.

• Violations and Enforcement. Specify the sanctions that would result if an employee violates the policy.

• Protected Activity by the NLRB. The NLRB has been active in protecting employee use of social media who engage in concerted activity for their mutual aid or protection. This includes allowing employees leeway to express their views in a manner that employers may consider rude, discourteous, and/or disloyal.

– Explicitly state that the policy is not intended to interfere with protected activity as defined by the NLRB or infringe upon employees’ rights.

• Employee Affirmation/Acknowledgement. This concluding section should require an employee to confirm through his or her signature that the employee understands and agrees to abide by the policy.

Resources and Further Reading • Social Networking and the Medical Practice: Guidelines for Physi-

cians, Office Staff and Patients. Ohio State Medical Association.

• Social Media: Employers’ Liability for the Activities of Their Employees. Advisen White Paper. September 2011.

• Practicing medicine in the Facebook age: Maintaining profession-alism online. Kirby, Scott. North Carolina Medical Association.

• AMA Policy: Professionalism in the Use of Social Media. American Medical Association.

• Model Policy Guidelines for the Appropriate Use of Social Media and Social Networking in Medical Practice. Federation of State Medical Boards.

1 Sandra Yin, Hospital worker fired over Facebook comments about patient, FierceHealthcare, Aug. 1, 2010, available at www.fiercehealthcare.com/story/hospital-worker-fired-over-facebook-comments-about-patient/2010-08-01.

2 National Labor Relations Board, Press Release, Acting General Counsel releases report on employer social media policies, May 30, 2012, available at www.nlrb.gov/news-outreach/news-releases/acting-general-counsel-releases-report-employer-social-media-policies.

3 Office of the General Counsel. Division of Operations-Management, MeMorAn-duM oM 12-31, at 4, Jan. 24, 2012. The Employer’s rule prohibited “[m]aking disparaging comments about the company through any media, including online blogs, other electronic media or through the media.” “We concluded that this rule was unlawful because it would reasonably be construed to restrict Section 7 activity, such as statements that the Employer is, for example, not treating employees fairly or paying them sufficiently. Further, the rule contained no limiting language that would clarify to employees that the rule does not restrict Section 7 rights.”

Healthcare Liability & Litigation

Attend the In-House Counsel Program in San DiegoSponsored by MediTract, Inc.

2013 Annual Meeting

In-House Counsel Program

Register

at the 2013 AHLA Annual Meeting

This one-day program is designed to address the unique issues faced by in-house counsel. Breakout sessions will focus on practical, hands-on ways to function in the challenging day-to-day work roles and responsibilities of in-house counsel lawyers. The schedule will be available soon.

The In-House Counsel Practice Group luncheon is included in the registration fee. All registrants are welcome to attend this lively luncheon. For those not attending the In-House Counsel Pro-gram, but who would like to attend the luncheon, there is an additional fee.

Sunday, June 30, 2013 | Manchester Grand Hyatt | San Diego, CA

11

1620 Eye Street, NW 6th Floor Washington, DC 20006-4010

Order Today! Enterprise Risk Management Handbook for Healthcare EntitiesCall toll-free 800.533.1637 Online at www.healthlawyers.org/bookstore

AHLA is pleased to announce the publication of the Second Edition of Enterprise Risk Management Handbook for Healthcare Entities, published in conjunction with ASHRM. This new edition addresses the need for and implementation of a comprehensive risk management process and plan that encompasses the entire enterprise and crosses departmental barriers. The coverage begins with an overview of enterprise risk management (ERM) and its evolution, including a discussion of the Sarbanes-Oxley Act of 2002. The authors provide guidance on structuring an ERM system, as well as insight on risk financing methods. They delineate how organiza-tions can manage risk in various settings, including contract management, claims management, environmental compliance, human research, peer review and credentialing, due diligence in business transactions, consent to treatment, and numerous others. The publication also includes insight on the impact that electronic health record systems, combined with the advent of e-discovery rules, will have on traditional documentation issues.