By Adil Daudi, Esq.

There are two things that are inevitable inthis world: death and taxes.

However, for many physicians, we canadd a third: malpractice judgment.

Nevertheless, at least with re-spect to taxes and malpracticejudgment, physicians can con-

trol exactly how much they pay and how much ex-posure they allow for their assets. All this can beaccomplished through establishing an estate plan. With the limited free time physicians have

outside of work, drafting a sound estate plan isusually not the first thing on their list of chores.However, with a simple plan in place andthrough the utilization of an Irrevocable Life In-surance Trust (ILIT), physicians can save thou-sands of dollars in estate taxes.

An ILIT is a unique estate planning tooldesigned to help physicians minimize tax-es by reducing the size of their estate.

This trusted tool has saved physi-cians hundreds, if not thousands ofdollars by limiting the amount of tax-es that their estate has paid upon theirdeath. Although common among med-ical professionals, many still hesitateto implement this tool as part of their

By Michelle D. Bayer, Esq.

Malpractice and liability insurance is considered essentialfor any physician practice. Yet, some physicians may notcarefully vet insurance providers, or read and fully under-stand the fine print of their policies.What these physicians may not realize is that under

some insurance policies, an insurer can unilaterally makethe decision to settle a malpractice case without thephysician’s consent — or even against the physician’sexpress wishes.Accordingly, physicians should carefully review

their liability insurance policies to make sure thatthey understand the settlement requirements. Oth-erwise, practitioners may end up in the unfortunateposition where they need coverage, only to discoverthat they do not have the options they desire.

Overview of liability policiesAn insurance policy is a contract and is interpreted

the same way as any other contract. Thus, unless thelanguage is ambiguous, the contract will be construedaccording to the plain and ordinary meaning of itsterms, and the party signing the policy will bedeemed to be bound by its requirements.Some insurance policies contain “deem expe-

Buyer beware:Physician consent to settle malpractice cases may not be required

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Winter 2012Vol. 7, No. 4

Inside MedLawComplianceWhile medical professionals may not be able to prevent government audits, there are steps they can take to lessen the risk and stay out of trouble. See story, page 3.

RAC updateCMS announced the Part A to Part BRebilling Demonstration Program and announced the Recovery Audit Pre-Payment Review DemonstrationProgram. See story, page 3.

Civil RightsHealth care providers can’t discriminatebased on the marital status of a patient. See story, page 4.

Business of HealthA brief roundup of the ways the Centersfor Medicare and Medicaid makeAccountable CareOrganizations morephysician-friendly. See story,page 5.

MarketingWith the rapid growth and resultingcompetition for patients, many providersare turning to social media and web-based “daily deal” coupons to attractbusiness. See story, page 11. Final rule on

ACOs includeswaivers to fraud,abuse lawsBy Mercedes Varasteh Dordeski, Esq.and Suzanne D. Nolan, Esq.

Recognizing that participants in Ac-countable Care Organizations (ACOs)must operate within the confines of themany existing health care fraud andabuse laws, the Department of Healthand Human Services released an Inter-im Final Rule (IFR), which provideswaivers to qualifying ACOs.

Fraud and abuse waiversACOs are part of the Medicare

Shared Savings Program, the purposesof which are to promote accountabilityfor the quality, cost and overall all carefor a Medicare patient population; man-aging and coordinating care forMedicare fee-for-service beneficiariesthrough an ACO; and encouraging in-vestment in infrastructure and re-designed care processes for high-quality,

See “Trust,” page 6

See “Malpractice,” page 5

See “ACOs,” page 10

An Irrevocable Life InsuranceTrust can help reduce taxes

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Solid Advice. Real Solutions. For Healthcare Business.

By Meghan S. Laska

In light of the recent surge in federalhealth care fraud cases, it’s increasinglyimportant for physicians to be aware ofpotential pitfalls that could leave them onthe hook for penalties.

While medical professionals may not beable to entirely prevent government au-dits — some of which are random — ex-perts say there are steps they can take tolessen the risk and stay out of trouble.

According to the Transactional RecordsAccess Clearinghouse (TRAC), federalprosecutions over health care fraud in thefirst eight months of 2011 were up 85percent over 2010 with cases all overthe country. Of the top ranked judicialdistricts for these cases, the SouthernDistrict of Florida is at the top of the list.

A December 2010 U.S. Department ofJustice news release stated that it hadrecovered more than $4 billion in civiland criminal health care fraud settle-ments in Massachusetts over the priortwo years.

“I’ve seen a significant uptick in thesecases in the last year,” said Eric W.Sitarchuk, chair of the corporate investi-gations and white collar practice at Mor-gan Lewis in Philadelphia.

“It’s not just the classic fraud casessuch as when a physician bills for servic-es not rendered, but we’re also seeing alot of cases involving busy physicians fo-cused on patient care rather than bu-reaucratic requirements.”

Mary C. Malone, a director and healthcare attorney at Hancock, Daniel, John-son & Nagle in Richmond, Va., agreed.

“The number of audits we’re seeing isunprecedented with states increasing en-forcement in this area,” she said. “Theability for the government to bring backmoney into a system that is alreadybroke is not going away.”

Audit triggersGiven that stricter enforcement means

more audits, attorneys recommend thatdoctors have and follow a compliance plan.

“Having a compliance program disin-centivizes the government even in an au-dit,” said Paul R. Cirel, a partner at Col-lora LLP in Boston. “If they see your heartand mind are in the right place then youaren’t an attractive target. There is not alot of fun to building a fraud case againstsomeone who took steps to make sure thatfraud didn’t happen.”

The actual plan can be scalable to thesize of a physician’s practice, but it shouldinclude training and education for codingand billing, encourage reporting of prob-lems to senior leaders in the practice andutilize periodic self-auditing.

Those audits check whether claims arebeing submitted with the proper codesand documentation, said William M.Mandell, chair of the health law practiceat Pierce & Mandell in Boston.

When it comes to self-audits, AndrewB. Wachler, principal of Wachler & Asso-ciates, P.C., in Royal Oak, recommendsthat physicians use an auditor hired bytheir attorney.

“If the auditor finds blemishes, theywould fall under attorney-client privilege,allowing the doctor to take steps to re-solve the issue,” he said.

Wachler added that it’s also importantfor doctors to be aware of how they com-pare to their peers in terms of billing.

“If the government does a data analysisand it turns out you are in the top per-centage for ordering X-rays or tests, theymight look at you more,” he stated.

While some doctors will have a sense ofwhere they fall in a ranking, others mightfind it useful to request data from privatehealth insurance companies, which tendto track this information.

Cirel advised that specialists be vigi-

lant in making third-party payers awareof their status as specialists.

“The government anticipates that thisgroup of doctors may see more complexpatients and have higher billings,” hesaid, “but you’d be surprised how manydon’t identify themselves as specialists intheir applications or updates to Medicaidso their bills are analyzed under thewrong model,” he said.

Regardless of the type of physician,all must pay attention to theirdocumentation.

“The mantra that third-party payersand auditors use is that if it’s not writtendown, then it didn’t happen,” so docu-mentation is a key way for doctors to pro-tect themselves, Cirel said.

To ensure proper recordkeeping, ex-perts recommend using an electronicmedical record system that flags insuffi-ciently completed fields.

“If you’re not moving in that direction,then you’re potentially making it easierfor an auditor to find mistakes and prob-lems with your records,” Mandell said.

Financial relationshipsWhile billing and documentation are

fraught with potential pitfalls for physi-cians, another cause for concern involvesfinancial relationships. The federal anti-kickback law applies to receiving pay-

ment for or mak-ing payments to influence the re-

ferral of business, and the Stark Lawprohibits self-referral.

“Any financial relationship between adoctor and a recipient of that doctor’s re-ferrals creates an enforcement risk underboth laws,” said Sitarchuk, noting thateven lease arrangements between doc-tors and hospitals have been the subjectof past investigations.

For example, it’s not uncommon for adoctor leasing space at a hospital to slow-ly take over additional unoccupied roomsthat are not specifically covered in thelease. Or the parties may forget to renewthe lease when it expires. These types ofscenarios can cause problems for bothparties.

“Physicians need to make sure allagreements are in writing, that they arefor fair market value, and that they sat-isfy the requirements of the safe harborrules,” Sitarchuk said.

Malone noted that it’s important for le-gal counsel to review all business rela-tionships.

“In any other sector they might be ac-ceptable and desirable business arrange-ments, but in health care they might vio-late the law,” she said.

Mandell agreed that physicians mustbe “particularly careful” when it comes tofinancial relationships.

“Compliance managers at large prac-tices and facilities and office managers atsmall practices should keep a running in-ventory of all financial relationships withreferring physicians and other referralsources, as well as with parties benefit-ting from referrals, and proactively man-age contracts and leases with these thirdparties for anti-kickback and Stark com-pliance,” he said.

A big problem for hospitals, he main-tained, is that they may literally havethousands of relationships with doctorsand medical practices potentially subjectto these laws. If they can’t find the leaseor allow the agreement to lapse, thentechnically both parties may be out ofcompliance.

The bottom line, he added, is to avoidcomplacency.

This article originally appeared in Massachu-setts Medical Law Report, which, like MichiganLawyers Weekly, is a Dolan Company newspaper.

Michigan Medical Law Report • 3Winter 2012Cite this page 7 M.L.R. 51

“It’s not just the classic fraud cases such as when aphysician bills for services not rendered, but we’realso seeing a lot of cases involving busy physiciansfocused on patient care rather than bureaucraticrequirements.”

— Eric W. Sitarchuk, Morgan Lewis, Philadelphia

Physicians must take action to avoid healthcare fraud pitfalls

Winter RAC update • On Nov. 15, 2011, Centers for Medicare andMedicaid Services (CMS) announced the PartA to Part B Rebilling Demonstration Program,which will allow participating providers to re-ceive 90 percent of the Part B payment for PartA inpatient claims where inpatient admission isdenied as not reasonable and necessary.

Under the current system, if a Part A inpatientclaim is denied on the basis that the servicescould have been provided in the outpatientsetting under Part B, the claim is denied in fulland hospitals are not permitted to rebill forPart B reimbursement. Presently, hospitalproviders must engage in the Medicare ap-peals process in order to obtain Part B pay-

ment of inpatient short-stay claims deniedunder Part A.

• The Part B Rebilling Demonstration Programwill accept 380 volunteer participants on afirst-come-first-serve basis.The pool of hospital participants will be stratifiedby size: small hospitals (less than 100 beds);moderate hospitals (100-299 beds); and largehospitals (300 or more beds). Hospital partici-pants in the demonstration program will be ableto obtain 90 percent of the Part B payment, butwill not be permitted to charge beneficiaries foradditional co-pays or out-of-pocket costs. Participating hospitals will agree to waive theirappeal rights to claims rebilled underMedicare Part B. The Part B Rebilling Demon-stration Program is set to run for three years,

from Jan. 1, 2012, through Dec. 31, 2014.

• CMS also recently announced the RecoveryAudit Pre-Payment Review DemonstrationProgram. Under this program, the RACs will bepermitted to review claims before they arepaid to ensure the provider complied with allMedicare payment rules.

The demonstration will build on the RACsexisting infrastructure for claim reviews andwill initially focus on inpatient hospital claims,specifically short-stay cases.

The pre-payment demonstration will be imple-mented in 11 states including Michigan andwill last for three years beginning Jan. 1, 2012.

Provided by Wachler & Associates, P.C. For moreinformation, visit www.wachler.com.

4 • Michigan Medical Law Report Winter 2012 Cite this page 7 M.L.R. 52

CONTENTSPending Legislation .................8

Legislative Committees ...........8

Winter RAC update...................3

BUSINESS OF HEALTH:CMS makes ACOs more physician-friendly ....................5

COMPLIANCE:Physicians must take action to avoid health carefraud pitfalls ............................3

Options are limited for avoiding a reportablelicensure action .......................6

HIPAA audits have begun.......14

LEGAL LIABILITY:No man, no baby? No way .......4

Failure to communicate testresults leads to lawsuits........12

MARKETING:The daily-deal discount forhealth care services: Innovativemarketing plan or riskybusiness? ..............................11

REGULATIONS:Final rule for ACOs providesgreater flexibility....................13

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Civil Rights

By Brian Frasier, Esq.

A health care provider can’t discriminatebased on the marital status of the patient,a Michigan Court of Appeals panel held.

The provider, an in vitro fertilization(IVF) center, had notified the plaintiff in anemail that it wouldn’t provide her servicebecause she was unmarried and could po-tentially sue the center for child support.

The panel said that,regardless of theirreasoning, discrimi-nation is discrimina-tion, said Kalamazoosolo attorney KennethA. Rathert, who rep-resented plaintiff Ali-son Moon. She wasrepresented in the cir-cuit court by EastLansing attorney Marlo D. Smith.

Rathert said the opinion is consistentwith other case law because it still allowsdoctors to choose whom they want totreat, “except for illegal reasons” underMichigan’s Elliott-Larsen Civil Rights Act(ELCRA). He said it’s also consistent withother family law policies, which allow sin-gle parents to adopt children.

“I’ve done many single-parent adop-tions,” Rathert said. “It stands to reasonthat if you are going to use a service likeIVF, you should be able to do it if you’resingle.”

The IVF center’s attorney, Megan K.Cavanagh of Garan Lucow Miller P.C.,didn’t respond to messages seeking com-ment for this story.

In Moon v. Michigan Reproductive &IVF Center (Lawyers Weekly No. 07-76715, 7 pages), Moon sought to be im-pregnated through in vitro fertilization.She visited two centers on the west side of

the state, defendantsGrand Rapids Fertil-ity & IVF (GRFI)and Michigan Re-productive & IVFCenter (MRIC),both of which turnedher away, stating

that they don’t per-form such services for

single women. MRIC wasnot party to the appeal.The GRFI doctor told her in

an email that he won’t performthe procedure on a single woman be-

cause it potentially makes his clinic liablefor child support under Michigan law.

She sued GRFI, claiming the entity dis-criminated against her because of hermarital status in violation of ELCRA. Thecircuit court dismissed her claim, ruling“a physician-patient relationship is vol-untary and consensual, and a physicianmay refuse to enter into such a relation-ship for any reason or no reason at all.”

That court also said Moon’s claim alsofailed on the merits, finding that Mooncouldn’t rebut the defendants’ nondis-criminatory reason for their actions.

The Court of Appeals reversed the cir-cuit court on both holdings. Specifically,the panel wrote that, under the circuitcourt’s holding that a doctor can choosewho he will treat, it naturally follows thata doctor can allow a doctor to refuse treat-ment based on any “personal prejudices orbiases.”

The panel also ruled that Moon offered direct evidence of discrimination, thus theMcDonnell Doug las Corp v. Green shifting

burdens an alysis doesn’t apply. Civil rights attorney Sarah S. Prescott,

of Deborah L. Gordon P.L.C. said that, re-gardless of case law stating a doctor canchoose who he wants to treat, he still hasto comply with civil rights laws.

“The reasoning that a professional canchoose to be involved with in terms ofcommerce is no different than a businessowner,” said Prescott, who was not in-volved with the Moon case. “It’s no differ-ent from the mom-and-pop barber shop ora pizza delivery service.”

She said the issue of whether the doc-tor’s email was direct evidence of discrim-ination is a “bugaboo” found in almostevery discrimination case. In fact, shesaid, it’s rare to have a piece of evidencelike the email in this case.

“I see it in age [discrimination] cases,”Prescott said. “I’ve seen some really directthings and I see it one way, and the de-fense sees it another way.”

But, she said, the email evidence inMoon was pretty unambiguous.

“I think this judge didn’t understandthat when you have direct evidence, that’sthe end of the analysis,” she said. “Youdon’t then turn and ask if there’s an ex-planation or a legitimate business reason.”

Prescott said judges can be inconsis-tent with what is direct evidence, but aconfession isn’t required, which is essen-tially what happened in Moon.

“In this case, he links it,” she said. “Heliterally links it.”

If you would like to comment on this story, please contact Brian Frasier at (248) 865-3113or brian.frasier@mi.lawyersweekly.com.

No man, no baby? No way In vitro fertilization clinic cannot

discriminate based on marital status

Decision in a nutshellThe Case: Moon v. MichiganReproductive & IVF Center (LawyersWeekly No. 07-76715, 7 pages).

The Facts: Plaintiff, a single woman,sought in vitro fertilization servicesfrom the defendants. The defendantstold her they don’t perform such serv-ices for single women. Plantiff sued,alleging discrimination against unmar-ried women.

The Decision: A medical provider can’tdiscriminate based on marital status.

From the Decision: “Civil rights actscertainly serve to prohibit doctors andmedical facilities from refusing to forma doctor-patient relationship basedsolely on a protected status. Acontrary interpretation would allow adoctor to follow his personalprejudices or biases and denytreatment to a patient merely becausehe is African-American, Jewish, orItalian. Rather, following this state’senactment of its civil rights legislation,a doctor may only deny his or herconsent to enter into a doctor-patientrelationship with a potential patientbased on legally permissible,nondiscriminatory reasons.”

RATHERT

“I think this judge didn’t understand that when you have directevidence, that’s the end of the analysis.”

— Sarah S. Prescott, Deborah L. Gordon P.L.C

Submit a Feature ArticleThe Michigan Medical Law Report welcomes articles and letters fromreaders. Submissions should be approximately 1,000 words. Submissiondoes not guarantee publication.

For more information and to submit a proposed article, contact Editor GaryGosselin at editor@mi.lawyersweekly.com or 800-678-5297 ext. 3103.

Michigan Medical Law Report • 5Winter 2012Cite this page 7 M.L.R. 53

The Centers for Medicare and MedicaidServices (CMS) listened to the flood ofcritical comments it received from physi-cian organizations and others in thehealth care industry on its Proposed Rulefor Accountable Care Organizations underthe Medicare Shared Savings Program.

In response, CMS has lowered the bar-riers to participate in them.

The Final Accountable Care Organiza-tion (ACO) Rule incorporates significantchanges that make ACOs more appealingto physicians and other providers. Amongother things, CMS has strengthened fi-nancial incentives; streamlined quality re-porting; changed the beneficiary assign-ment methodology; and adjusted measuresfor calculating shared savings.

By way of background, the goals of theShared Savings Program are to providebetter care to Medicare beneficiaries, pro-mote better health for the Medicare pop-ulation and reduce growth in Medicareexpenditures.

A Medicare ACO is a legal entity, sepa-rate from its members, consisting of a net-work of physicians, hospitals, and otherproviders who have agreed to collaborateand share responsibility for managingthe care for a population of at least5,000 Medicare beneficiaries, andwhich has entered into a three-year, renewable agreement withCMS to participate in the MedicareShared Savings Program.

An ACO provides the structure for co-ordinating care, controlling the quality ofcare and distributing any shared savingspayments or paying for losses. Savings oc-cur if the cost of providing care for theACO’s patients is less than a benchmark

figure, and losses occur if such costs arehigher than the benchmark figure. Physi-cians and other providers/suppliers alsoare paid for their own services under theMedicare fee-for-service system.

No loss The following are some of the key

changes to the Proposed Rule, whichmake ACOs more physician friendly.

One of the Final Rule’s most importantchanges is eliminating the requirementfor all ACOs to repay a portion of anylosses to CMS during their first three-year term. Under the Final Rule, ACOsparticipating in the one-sided model donot share in any losses during their firstthree-year term (but do in subsequentterms); and can receive up to 50 percent ofthe savings achieved by the ACO.

ACOs in the two-sided model must stillshare in losses each year, can receive up to 60percent of the savings achieved by the ACO,and can participate in the one-sided modelonly during their first three-year term.

Under the Proposed Rule, only ACOs inthe two-sided model were eligible for firstdollar savings. Under the Final Rule, how-ever, ACOs in both models are eligible forfirst dollar savings — meaning that anACO that succeeds in reaching a mini-mum savings rate will be entitledto receive a share of all savings,not just those savings thatexceed the minimum sav-ings rate. This changewill make it more like-ly that an ACO willreceive sharedsavings pay-ments.

No withholding of paymentsThe Final Rule does not require CMS to

withhold a certain portion of the sharedsavings to offset potential future losses.Under the Proposed Rule, CMS wouldhave withheld a flat 25 percent of theshared savings payments in order to offsetany future losses and returned positivebalances to the ACO only at the end of thethree-year agreement period.

Streamlined reportingBecause the percentage of shared sav-

ings paid to an ACO is dependent on theACO’s performance on quality standards,easing these standards is apt to result inhigher shared savings. Under the FinalRule, ACOs must report on 33 qualitymeasures in four domains, instead of 65quality measures over five domains setforth in the Proposed Rule.

During the first year of an ACO’s exis-tence, shared savings payments are basedupon accurate reporting on quality meas-ures. During subsequent years, shared sav-ings payments are based on both accuratereporting and performance.

Complicated care coordination measuresrelating to complications of chronic diseasehave been eliminated. The quality reportingchanges are expected to be most beneficial toorganizations that are just beginning tobuild a clinical integration model.

EHR use encouragedLack of meaningful use of EHRs is no

longer a bar to participating in an ACO.The Final Rule has eliminated the re-quirement that at least 50 percent of theprimary care physicians in an ACO bemeaningful users of EHRs.

However, use of EHRs is a quality meas-ure that is weighted more highly than anyother measure for quality-scoring purposes.Accordingly, meaningful use will affect theamount of shared savings payments sincethe payments vary with quality scores.

Prospective assignment of patientsUnder the Proposed Rule, patients

would be assigned to ACOs on a retrospec-tive basis at the end of a year. Physiciansobjected to this method on the groundsthat it would be difficult to coordinate carefor a patient population when they did noteven know who the patients were.

Accordingly, CMS changed its assign-ment method, and will now assign patientsprospectively at the beginning of a year ona preliminary basis by giving the ACO alist of patients likely to be assigned to theACO. A reconciliation process at the end ofthe year will adjust this patient populationbased on where the patients receivedtheir greatest share of primary care.

Accordingly, ACOs will only be as-signed patients for whom they actu-ally delivered care during the year.

This article only touches uponsome of the requirements of theMedicare Shared Savings Pro-gram. There are numerous com-

plex legal and business issues to beconsidered before the decision to

form or join a Medicare ACO is made.The guidance of legal counsel can

help providers determine whetherand on what terms to participate in aMedicare ACO, as well as complyingwith a complex set of requirements andother applicable regulatory laws.

CMS makes ACOs more physician-friendly: A brief roundupBusiness of HealthBy Suzanne D. Nolan, Esq.,

Suzanne D. Nolan is apartner in the lawfirm of Frank HaronWeiner PLC. Herpractice focuses uponbusiness and intellec-tual property transac-tions, including trade-mark and copyrightlicensing and e-com-

merce transactions for all types of entitiesincluding health care providers. She alsoadvises clients on HIPAA, Stark, andAnti-Kickback Statute compliance mat-ters. She may be reached at (248) 952-0400 or snolan@fhwnlaw.com.

dient” provisions that allow the insurercomplete discretion to settle a liabilityclaim. “Consent to settle” provisions arecertainly preferred; however, even some“consent to settle” provisions do not givethe physician complete control over thesettlement of liability claims.

For example, some “consent to settle”provisions allow the insurer to consultwith a panel of its choosing if the insurerdisagrees with the physician’s settlementdecision. Furthermore, other “consent tosettle” policies include provisions knownas a “hammer clause,” under which, if theinsured refuses to settle after settlementis recommended by the insurance compa-ny, the insured will be liable for any judg-ment in excess of the recommended set-tlement amount.

Consent limitation upheld by courtsA recent decision, Papudesu v. Medical

Malpractice Joint Underwriting Associa-tion of Rhode Island, et al., highlights thepitfalls of these settlement consent limi-tation provisions.

In Papudesu, the Rhode IslandSupreme Court affirmed the decision byan insurer to settle a malpractice caseover the objection of Papudesu, one of the

named defendants. Papudesu and severalothers were sued in a wrongful-death ac-tion after a woman in her eighth month ofpregnancy delivered a stillborn baby.

During the ensuing jury trial, the in-surer decided to settle the case as to allthe defendants for $500,000. However,Papudesu strenuously denied any wrong-doing in the case, claiming that he was noton call during the time leading to the de-livery; he had not received a call from theanswering service about the patient; andhe would prevail on the merits at trial.

The case settled despite Papudesu’s ob-jections, and he filed suit against the in-surer for (1) breach of contract; (2) negli-gence; (3) bad faith; (4) breach of fiduciaryobligation; (5) civil conspiracy; (6) tortu-ous interference; and (7) malicious false-hood and commercial libel. However, thetrial court dismissed his complaint. Onappeal to the Rhode Island SupremeCourt, the Supreme Court affirmed thetrial court’s ruling.

Notably, the insurance policy at issue inPapudesu contained a provision stating:“the [insurance] company may make suchinvestigation and settlement of any claimor suit as it deems expedient.”

The Rhode Island Supreme Court ex-amined the “deems expedient” language ofthe policy and ruled it to be “straightfor-ward and readily understandable.” TheCourt acknowledged that, while the lan-

guage gave the insurer a great deal of dis-cretion, that was “precisely what the in-surance contract provided for.”

The Court also ruled that the inclusionof this provision and the insurers’ con-duct in settling the case was not “badfaith.” Specifically, the Court held thatthe insurer performed in accordance withthe policy’s terms, and there was no dutyby the insurer to conduct a more thor-ough investigation into the possibleharm that the settlement would cause tothe physician.

This decision in Papudesu is consistentwith Michigan case law.

In 1989, in Jayakar v. North DetroitGeneral Hospital, the Michigan Court ofAppeals affirmed an insurance policy witha similar “deems expedient” provision. InJayakar, the named insured was the de-fendant hospital, not the individual physi-cian, and the power to consent to a settle-ment rested only with the hospital as thenamed insured.

Jayakar, the individual physician de-fendant, was particularly upset by the set-tlement as it was picked up by local me-dia, and he was not happy with how hewas portrayed in the coverage.

Unfortunately for Jayakar, the Courtheld that the plain language of the insur-ance policy did not provide Jayakar with acontractual right to participate in settle-ment or require his consent to settle.

Pay close attentionSettlement of a malpractice action can

have a significant impact on a physician.Clearly, there is an emotional componentwhen being forced to settle a case whenthe physician strongly believes he com-mitted no wrongdoing.

Further, as seen in Jayakar, a physi-cian’s professional reputation may beharmed by a settlement. The settlementalso may be reported to the National Prac-titioner Data Bank, which is accessible byhospitals and third-party payers. If a“hammer clause” exists, there can be asteep financial consequence as well.

Accordingly, it is important for allphysicians to:• Understand who is the “insured” for pur-poses of the insurance policy, the physicianor the practice/hospital, or both; and• Review the language of policy to deter-mine the scope of coverage and consent tosettlement rights.

Michelle D. Bayer is an associ-ate at Frank Haron Weiner PLC.She focuses her practice in em-ployment law and has advisedhealth care professionals, healthcare entities, and providers inemployment and personnel mat-

ters and represents such clients in employmentlitigation, medical staff credentialing/privileg-ing, and licensing matters. She may be reachedat (248) 952-0400 or mbayer@fhwnlaw.com.

Continued from page 1

Malpractice

The Final Rule does not require CMS towithhold a certain portion of the sharedsavings to offset potential future losses.

6 • Michigan Medical Law Report Winter 2012 Cite this page 7 M.L.R. 54

Recent changes to the National Practi-tioner Databank (NPDB), and MichiganDepartment of Licensing and RegulatoryAffairs’ subsequent interpretation ofthose changes, has made keeping any sortof disciplinary licensure action out of po-tential employers’ or other licensing au-thorities’ hands extremely difficult.

In response, physicians and otherhealth care providers must be vigilantand ready to challenge any investigationor allegations. Otherwise, any final disci-plinary finding or order will, almost with-out exception, be on a provider’s “perma-nent record.”

The NPDB was established by theHealth Care Quality Improvement Act of1986. Until recently, it contained reportsof adverse licensure; clinical privilege;professional society membership; DrugEnforcement Agency; Health & HumanServices; Office of the Inspector Generalactions; and medical malpractice pay-ments made only by doctors and dentists.

Hospitals, health care entities that con-duct peer review activities, professionalsocieties that conduct peer review, andstate medical and dental boards canquery the NPDB for information on apractitioner, usually for employment, cre-dentialing or licensure purposes.

In 2010, the government issued regula-tions authorized by section 1921 of theSocial Security Act that made two veryimportant changes to the NPDB.

The first is that each state must reportto the federal government certain ad-verse licensure actions taken against anylicensed health care practitioner, not justdoctors and dentists.

Section 1921 also requires that statesreport any negative action or finding thata state has finalized against a health carepractitioner. State licensure authoritiesmust now report any “negative action orfinding” taken as the result of a formalproceeding.

A negative action or finding is any ac-tion taken by the state licensure boardthat is publicly available information, ex-cluding administrative fines or citationsand corrective action plans unless theyare connected to the delivery of healthcare services or assessed along with oth-er reportable action.

This broad definition of what consti-tutes a negative action or finding makesit virtually impossible to avoid an NPDBreport once a state licensing board makes

an official determination that a physi-cian has violated the public health codeand is to be disciplined.

The Michigan Bureau of Health Profes-sions (BHP) makes avoiding a reportableevent even more difficult by broadly defin-ing when an administrative fine is relatedto the delivery of health care.

In discussions, the BHP EnforcementSection indicated that it will report tothe NPDB for almost any public healthcode violation related to health care ac-tivity where the practitioner is fined —even a violation generally considered anadministrative matter.

The only time an otherwise adminis-trative fine will be considered unconnect-ed to the delivery of health care servicesis if the fine is assessed because a practi-tioner violates the code in an extremelyminor and technical way, such as failingto comply with continuing education re-quirements in a timely manner.

Indeed, the most egregious scenario theEnforcement Section could envisionwhere a fine would be considered not re-lated to the delivery of health care, and,thus, non-reportable, was where a physi-cian failed to report to the BHP a sanc-tion from another state.

So what does this mean for a physicianor other practitioner contacted by theBHP, or otherwise notified that he or sheis under investigation?

Once the BHP has handed down a dis-

ciplinary sanction, or entered into a con-sent agreement with a provider acknowl-edging a violation of the public healthcode, it is nearly impossible to avoid aNPDB report. A practitioners’ bestchance of success is to fight the allega-tions or charges early in the investigationprocess before BHP files a formal admin-istrative complaint.

If the provider cannot convince the in-vestigator to recommend closing the in-vestigation, the BHP will likely file acomplaint, which will require the practi-tioner to expend a large amount of timeand resources to defend.

It is important to make a vigorous de-fense of any allegations. Many times, astrong early defense of an investigationwill be enough to convince an investigatorto recommend closing a file. The investi-gator’s file is the only record of the inves-tigation at this stage and the provider’sonly chance to tell his or her side of thestory before the investigator makes a rec-ommendation to the BHP. Normally, theinvestigator will ask for a statement oran interview of the provider.

Despite the best efforts of the providerand counsel, the investigator may recom-mend that the BHP pursue the case andfile an administrative complaint. Thecomplaint itself is not reportable, but anydiscipline imposed as a result of the casewill most likely be.

It is imperative that the provider andcounsel defend at this stage. Because ofthe new NPDB changes, almost anythingshort of a full dismissal will be reportable,and, thus, on the provider’s record for therest of his or her career.

It is important to remember at thisstage that even a settlement, or consentorder, with the BHP could very likely re-sult in a reportable event.

In previous years when fines weremostly non-reportable events, physiciansand their counsel would negotiate withthe BHP to accept a monetary penaltyand move on. This is no longer a tenablestrategy. The BHP will likely only consid-er technical and minor violations of thehealth code that result in punishmentslike an administrative fine or correctiveaction plan as non-reportable events.

Further, the violations must not be re-lated in any way to the delivery of healthcare services, and must not even have thepotential to affect patient care in order tobe treated as non-reportable. This makes itextremely likely that any discipline theBHP imposes will be reported to the NPDB.

The difficulty of working with the BHPto structure a non-reportable licensureevent makes it vital to “get out in front” ofany investigation of which a provider isaware. It is more important than ever forproviders to focus on the front end of aninvestigation. Only with a strong defenseup front can a provider hope to avoid re-porting to the NPDB.

Options are limited for avoidinga reportable licensure action

ComplianceBy Jesse Adam Markos, Esq.and Christopher J. Laney, Esq.

Jesse Adam Markos is an associate atWachler & Associates, P.C., where he prac-tices in all areas of health care law with aspecific concentration in license defense,staff privileging matters, and Medicareand other third-party payor audit defense.Markos also provides assistance to clientswith transactional, corporate, and regula-tory compliance matters. He can be reachedat (248) 544-0888 or jmarkos@wachler.com.

Christopher J. Laney is an associate atWachler & Associates, P.C. He practices inall areas of health care law and has experi-ence defending Medicare and other third-party payor audits, representing profession-als in licensing disputes, and defending civilFalse Claims actions. Laney can be reachedat (248) 766-9986 or claney@wachler.com.

MARKOS LANEY

overall estate plan.

What is an ILIT?An ILIT is an agreement between a

grantor and a trustee that is specificallydesigned to hold life insurance policies. Es-sentially, an ILIT is a special trust that al-lows a physician’s life insurance proceedsto be excluded from their estate, thus low-ering their estate taxes.

What many physicians are not aware of isthat without the proper planning, life in-surance proceeds become subject to federalestate taxes. In Michigan, life insuranceproceeds are included in a deceased’s estateif they claimed “incidents of ownership” overthe policy. Therefore, if the owner is able tochange their beneficiary, borrow from thepolicy, or exercise any right that is usuallygiven to an owner, then the owner is deemedto have ownership over the policy.

This is something often overlooked untilthey realize the sizable amount of estatetaxes they pay. For example, if a physicianhas an estate valued at $6 million (includinga $1 million life insurance policy), under thecurrent laws where $5 million is exempted,$1 million is subject to taxes. Therefore,$350,000 (because the current estate tax is35 percent on amounts over the limit) wouldbe unnecessarily paid to the government.

However, if that $1 million life insur-ance policy was placed into an ILIT, thatequates to a savings of $350,000.

How does an ILIT work? In order to properly effectuate an ILIT,

the grantor must first appoint a trustee tohelp administer the trust, and then selectits beneficiaries (typically the grantor’sspouse/children). Upon the documents be-ing created, the grantor is then instructed togift funds to the trust, which are used to paythe premiums for the life insurance policies.

Normally, when gifts are made to anILIT, they do not qualify under the gift taxexemption. However, in order for it to beconsidered an actual gift and excluded, thebeneficiary is required to have a presentinterest in the gift, meaning the benefici-ary must be able to have access to the gift.Therefore, it is the trustee’s responsibilityto submit a letter, commonly referred to asthe “Crummey Letter,” to all beneficiaries,notifying them of their interest in the gift.

Three-year ruleAlthough it is recommended to transfer

a new policy into your trust, many physi-cians choose to use their existing policies.It is important, however, to be aware ofthe “three-year rule.”

It arises when a transfer of an existingpolicy is placed into the trust, and if thegrantor does not survive for three yearsfrom the date of transfer, then the life in-surance proceeds are not excluded fromthe grantor’s taxable estate.

In contrast, if the grantor chooses topurchase a new insurance policy, then thethree-year rule is not applicable.

Here are some important benefits to re-member when considering an ILIT: • It helps reduce and/or eliminate federalestate taxes.• It provides extended protection fromcreditors of your beneficiaries.• It helps avoid probate, thus reducingcosts and delays.• Grantors are at ease knowing that theirloved ones are taken care of.• Gifts to the ILIT may qualify for the an-nual gift exclusion.

An ILIT is an extremely useful toolused by many physicians to help mini-mize their estate taxes. With the estatetax exemption being widely speculated tohit pre-2001 figures — $1 million exemp-tion at a 55 percent tax rate — ILITs areincreasingly becoming the most popularestate planning tool.

Remember, planning for today willserve you no protection for tomorrow. Butplanning for tomorrow will serve you pro-tection for today.

Adil Daudi is an attorney atJoseph, Kroll & Yagalla, P.C. inOkemos, focusing primarily onasset protection, physician con-tracts, estate planning, businesslitigation, and corporate forma-tions. He can be reached at (517)381-2663 or adil@josephlaw.net.

Continued from page 1

Trust

Only with a strongdefense up front can aprovider hope to avoidreporting to the NPDB.

Billing & Reimbursement | Contracts & Business Transactions | Credentialing, Staffing, & Privileges | Estate Planning

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team that you want on your side.

8 • Michigan Medical Law Report Winter 2012 Cite this page 7 M.L.R. 56

Legislative Committee Members

COMMITTEE ON HEALTH POLICYHouse

• Gail Haines (R)Committee Chair, 43rd District

• Mike Callton (R)Majority Vice-Chair, 87th District

• Paul E. Opsommer (R), 93rd District

• Kenneth Kurtz (R), 58th District

• Wayne A. Schmidt (R), 104th District

• Paul Scott (R), 51st District

• Michael Shirkey (R), 65th District

• Thomas B. Hooker (R), 77th District

• Matt Huuki (R), 110th District

• Paul Muxlow (R), 83rd District

• Ken Yonker (R), 72nd District

• Holly Hughes (R), 91st District

• Lesia Liss (R)Minority Vice-Chair, 28th District

• Thomas Stallworth III (R), 8th District

• George T. Darany (R), 15th District

• Kate Segal (R), 62nd District

• James Womack (R), 7th District

• Marcia Hovey-Wright (R), 92nd District

Senate

• Jim Marleau (R), Chair, 12th District

• Dave Robertson (R)Vice-Chair, 26th District

• Judy K. Emmons (R), 33rd District

• Joe Hune (R), 22nd District

• Rick Jones (R), 24th District

• Tonya Schuitmaker (R), 20th District

• Rebekah Warren (R)Minority Vice Chair, 53rd District

• John J. Gleason (R), 27th District

COMMITTEE ON FAMILIES, CHILDREN, AND SENIORSHouse

• Kenneth Kurtz (R)Committee Chair, 58th District

• Margaret E. O’Brien (R)Majority Vice-Chair, 61st District

• Gail Haines (R), 43rd District

• Kurt Heise (R), 20th District

• Thomas B. Hooker (R), 77th District

• Bruce R. Rendon (R), 103rd District

• Dian Slavens (R)Minority Vice-Chair, 21st District

• Marilyn Lane (R), 31st District

• Maureen L. Stapleton (R), 4th District

COMMITTEE ON FAMILIES, SENIORS AND HUMAN SERVICESSenate

• Judy K. Emmons (R)Committee Chair, 33rd District

• Tory Rocca (R)Majority Vice Chair, 10th District

• Mike Nofs (R), 19th District

• Vincent Gregory (R)Minority Vice Chair, 14th District

COMMITTEE ON INSURANCEHouse

• Peter J. Lund (R)Committee Chair, 36th District

• Deb Lynn Shaughnessy (R)Majority Vice-Chair, 71st District

• Paul E. Opsommer (R), 93rd District

• Cynthia S. Denby (R), 47th District

MICHIGAN MEDICALLEGISLATION REPORT Following is a list of bills pending in the Michigan Legislature related to health careand health care professionals.

Detailed information and analysis on this andother pending legislation can be found atwww.michiganlegislature.org.

HOUSE BILLSHB 4858 — Revising definitions applicable toprohibition on human cloning

A bill to amend 1978 PA 368, “Public HealthCode,” by amending section 16274 (MCL333.16274), as added by 1998 PA 108.

“LA licensee or registrant shall not engage inor attempt to engage in human cloning.

“Subsection (1) does not prohibit scientificresearch or cell-based therapies notspecifically prohibited by that subsection.

“A licensee or registrant who violatessubsection (1) is subject to theadministrative penalties prescribed insections 16221 and 16226 and to the civilpenalty prescribed in section 16275.

“This section does not give a person a privateright of action.

“As used in this section:

“(a) ‘Human cloning’ means the asexualcreation or attempted creation of a humanbeing at any stage of development who issubstantially identical genetically toanother human being at any stage ofdevelopment, whether living or deceased,by any technological means.

“(b) ‘Substantially identical genetically’ meanseither of the following:

“(i) Sharing identical nuclear geneticcomposition that may or may not includeidentical genetic composition ofmitochondrial DNA or other cellularstructures necessary to or associatedwith the expression of genetic function ortraits.

“(ii) Sharing a genetic composition wherean inert or inconsequential portion ofgenetic composition has beenintentionally altered for the purpose ofcircumventing the prohibitions of thissection.”

Sponsored by: Dave AgemaReferred to Committee on Health Policy

HB 4931 — Require certain physicians toinform patients during second trimesteroptions regarding cord blood stem cells

A bill to amend 1978 PA 368, “Public HealthCode,” by amending sections 2681 and2683 (MCL 333.2681 and 333.2683),section 2681 as added by 2006 PA 635 andsection 2683 as added by 2006 PA 638,and by adding section 2684.

Sec. 2681: “As used in sections 2681 to2684:

“(a) ‘Cord blood unit’ means the bloodcollected from a single placenta andumbilical cord.

“(b) ‘Donor’ means a mother who hasdelivered a baby and consents to donatethe newborn’s blood remaining in theplacenta and umbilical cord.

“(c) ‘Donor bank’ means a qualified cordblood stem cell bank that enters into acontract with the director under section2682.

“(d) ‘Human cord blood stem cells’ meanshematopoietic stem cells and any otherstem cells contained in the neonatal bloodcollected immediately after the birth fromthe separated placenta and umbilical cord.

“(e) ‘Network’ means the statewide network ofqualified cord blood stem cell banksestablished under section 2682.”

Sec. 2683: “If funding is made available, thedepartment shall promote public awarenessand increase knowledge about the statewidenetwork of cord blood stem cell banks, cordblood banking options, and the benefits ofcord blood stem cells by developing and dis-seminating educational materials on the usesand benefits of cord blood stem cells, the vi-ability of cord blood stem cells, informationon research results utilizing cord blood stemcells, and any other related materials and in-formation to enable the public to make in-formed decisions about the utilization of cordblood stem cells. Information shall include,but is not limited to, all of the following:

“(a) An explanation of the differences betweenpublic and private cord blood banking.

“(b) Information on the statewide network ofcord blood stem cell banks.

“(c) Cord blood options available.

“(d) The medical process and risks involved inthe collection of cord blood.

“(e) Medically accepted uses and benefits ofcord blood collection and transplantation.

“(f) A statement that due to ongoing researchand development there may be future usesand benefits of cord blood collection andtransplantation.

“(g) An explanation of any costs to the donorassociated with cord blood donation andstorage.

“(h) Information on how to request printedmaterials and how to access otherinformation available on the department’swebsite.

“(i) Options for ownership and future use ofthe donated material.

“(j) An explanation of the storage,maintenance, and viability fortransplantation of cord blood stem cells.

“(2) The department, on its website, shallmake the materials and information gatheredand developed under subsection (1)available in printable format to the publicand to health care facilities and agencies,cord blood banks, and health careprofessionals.”

Sec. 2684: “Except as otherwise provided inthis section, a health professional who is theprimary care provider for a patient who is inher second trimester of pregnancy shallinform the patient of the following optionsrelating to cord blood stem cells after thedelivery of her child:

“(a) Discard the cord blood stem cells.

“(b) Donate the cord blood stem cells to adonor bank.

“(c) Store the cord blood stem cells for use bythe immediate and extended familymembers in a cord blood stem cell bank.

“(d) Store the cord blood stem cells for familyuse through a family or sibling donorbanking program that provides freecollection, processing, and storage wherethere is a medical need.

“(2) If the department has developededucational materials under section 2683,the health professional described insubsection (1) shall also provide his or herpatient with those materials. A healthprofessional described in subsection (1)meets the notification requirements of thissection by providing the information verballyor in writing or by providing the woman with apublication prepared by the department that,as certified by the department, contains allthe information required by this section inaddition to the information required undersection 2683.

“(3) This section does not apply to a healthprofessional and he or she is not required toinform a pregnant patient regarding cordblood stem cell options if providing thatinformation conflicts with the healthprofessional’s bona fide religious beliefs.

“(4) A person who acts in good faith pursuantto this section is not subject to civil or

criminal liability or professional discipline forthose acts.”

Sponsored by: Paul ScottReferred to Committee on Health Policy

HB 5134 — Require oral screening ofindividual seeking an abortion for coercion toabort and domestic violence

A bill to amend 1978 PA 368, “Public HealthCode,” by amending section 17515 (MCL333.17515), as added by 1993 PA 133 andby adding section 17015a.

Sec. 17015a: “If a patient schedules anappointment for an abortion after receivingthe information required under section17015(3), the physician or qualified personassisting the physician shall orally screen thepatient for coercion to abort and domesticviolence using the screening tools developedby the department under section 17015(11).

“If a patient discloses that she is the victim ofdomestic violence that does not includecoercion to abort, the physician or qualifiedperson assisting the physician shall followthe protocols developed by the departmentunder section 17015(11).

“If a patient discloses coercion to abort, thephysician or qualified person assisting thephysician shall follow the protocolsdeveloped by the department under section17015(11) and shall do all of the following:

“(a) Inform the patient that coercion of her toseek an abortion is illegal and is alsogrounds for a civil action under which shemay receive financial compensation for herdamages.

“(b) Postpone the performance of the abortionfor at least 24 hours after the coercion isdisclosed under this subsection.

“If a patient who discloses coercion to abortunder subsection (3) returns to the physicianseeking an abortion after the time period re-quired under subsection (3)(b) has elapsed,the physician may, after obtaining the pa-tient’s signature on the acknowledgment andconsent form as required under section17015, perform the abortion.

“If a patient who is under the age of 18discloses domestic violence or coercion toabort, the physician or qualified personassisting the physician shall report that factto a local child protective services office.

“A private office, freestanding surgicaloutpatient facility, or other facility or clinic inwhich abortions are performed shall post in aconspicuous place in an area of its facilitythat is accessible to patients, employees, andvisitors the notice described in section17015(11)(i). A private office, freestandingsurgical outpatient facility, or other facility orclinic in which abortions are performed shallmake available in an area of its facility that isaccessible to patients, employees, andvisitors publications that contain informationabout violence against women.

“This section does not create a right toabortion. Notwithstanding any other provisionof this section, a person shall not perform anabortion that is prohibited by law.”

Sec. 17515: “A physician, before performingan abortion on a patient, shall comply withsections 17015 and 17015a.

“Enacting section 1. This amendatory acttakes effect October 1, 2012.

“Enacting section 2. This amendatory act doesnot take effect unless all of the following billsof the 96th Legislature are enacted into law:

“(a) House Bill No. 4798.

“(b) House Bill No. 4799.

“(c) Senate Bill No.____ or House BillNo.____ (request no. 03186’11).

“(d) Senate Bill No.____ or House BillNo.____ (request no. 03835’11).”

Sponsored by: Nancy JenkinsReferred to Committee on on Families,Children, and Seniors

Pending Legislation

Michigan Medical Law Report • 9Winter 2012Cite this page 7 M.L.R. 57

• Mike Callton (R), 87th District

• Ben Glardon (R), 85th District

• Joel Johnson (R), 97th District

• Andrea LaFontaine (R), 32nd District

• Lisa Posthumus Lyons (R), 86th District

• Margaret E. O’Brien (R), 61st District

• Ken Yonker (R), 72nd District

• Andrew J. Kandrevas (R)Minority Vice-Chair, 13th District

• Roy Schmidt (R), 76th District

• Kate Segal (R), 62nd District

• Marcia Hovey-Wright (R), 92nd District

• Lisa Howze (R), 2nd District

• Douglas A. Geiss (R), 22nd District

COMMITTEE ON JUDICIARYSenate

• Rick Jones (R), Chair, 24th District

• Tonya Schuitmaker (R)Vice-Chair, 20th District

• Tory Rocca (R)Minority Vice-Chair, 10th District

• Steve Bieda (R)Minority Vice-Chair, 9th District

House

• John J. Walsh (R)Committee Chair, 19th District

• Kurt Heise (R)Majority Vice-Chair, 20th District

• Judson S. Gilbert II (R), 81st District

• Kenneth B. Horn (R), 94th District

• Kurt Damrow (R), 84th District

• Paul Muxlow (R), 83rd District

• Bradford C. Jacobsen (R), 46th District

• Peter Pettalia (R), 106th District

• Pat Somerville (R), 23rd District

• Kevin Cotter (R), 99th District

• Mark S. Meadows (R)Minority Vice-Chair, 69th District

• Bob Constan (R), 16th District

• Stacy Erwin Oakes (R), 95th District

• Lisa Brown (R), 39th District

• Jeff Irwin (R), 53rd District

• Phil Cavanagh (R), 17th District

• John Olumba (R), 5th District

COMMITTEE ON TAX POLICYHouse

• Judson S. Gilbert II (R)Committee Chair, 81st District

• John J. Walsh (R)Majority Vice-Chair, 19th District

• Kenneth B. Horn (R), 94th District

• Jeff Farrington (R), 30th District

• Frank Foster (R), 107th District

• Lisa Posthumus Lyons (R), 86th District

• Aric Nesbitt (R), 80th District

• Margaret E. O’Brien (R), 61st District

• Rick Olson (R), 55th District

• Mark Ouimet (R), 52nd District

• Bob Constan (R)Minority Vice-Chair, 16th District

• Vicki Barnett (R), 37th District

• Andrew J. Kandrevas (R), 13th District

• Mark S. Meadows (R), 69th District

• Jim Townsend (R), 26th District

• Phil Cavanagh (R), 17th District

• Rudy Hobbs (R), 35th District

Contact information for state senators can be foundat http://senate.michigan.gov.

Contact information for state house representativescan be found at http://house.michigan.gov.

SENATE BILLSSB 0610 — Create uniform credentialingapplication

A bill to amend 1978 PA 368, entitled “PublicHealth Code,” (MCL 333.1101 to 333.25211)by adding section 16285.

“By not later than nine months after the effec-tive date of this section, the department shalldevelop a uniform, standard, electronic healthcare professional credentialing application. Thedepartment shall make the credentialing appli-cation available free of charge to health insur-ers, health care corporations, health mainte-nance organizations, and health facilities andagencies and shall make the application avail-able on its Internet website. In developing thecredentialing application under this section,the department shall consult with health careprofessionals, health insurers, health care cor-porations, health maintenance organizations,and health facilities and agencies and shallconsider their reasonable requirements, in-cluding, but not limited to, all of the following:

“(a) Statutory credentialing requirements.

“(b) The need to eliminate multiple proprietarycredentialing applications.

“(c) Providing an efficient, electronic, cost-ef-fective health care professional databasethrough which health care professionals canprovide notification of changes in address,practice-related information, qualifications,and other pertinent information.

“(d) Time frames within which entities requiringcredentialing applications shall respond to applications filed by health care professionals.

“(e) Maintaining the confidentiality of creden-tialing information.

“(f) The need for a health care professional tocontrol the distribution of his or her creden-tialing application.

“By not later than 365 days after the effectivedate of this section, a health insurer, healthcare corporation, health maintenance organi-zation, or health facility or agency that re-quires a health care professional to undergo acredentialing or recrendentialing process, orthe entity’s credentialing intermediary, shalluse the credentialing application developedunder this section, except that this subsectiondoes not apply to any credentialing or recren-dentialing that has already been submittedbefore or on that date.

“This section does not prevent a health insurer,health care corporation, health maintenanceorganization, health facility or agency, or cre-dentialing intermediary from requesting infor-mation in addition to that contained in thecredentialing application so long as any re-quests for additional information are made inwriting or electronically and use a form for thehealth care professional to comply with therequest that is separate from the credentialingapplication form.

“A health insurer, health care corporation,health maintenance organization, health facili-ty or agency, or credentialing intermediaryshall not charge a health care professional afee for use or submission of the credentialingapplication or for completion of requests foradditional information under subsection (3).

“The department shall review the standardcredentialing application no less frequentlythan every five years and may modify thecontents and format as determined necessaryand appropriate.

“As used in this section, ‘credentialing interme-diary’ means a person to which a health in-surer, health care corporation, health mainte-nance organization, or health facility or agencyhas delegated credentialing, recrendentialing,or primary source verification process.

Sponsored by Bruce CaswellReferred to Committee on Health Policy

SB 0735 — Provide for requirement for apharmacist to fill prescriptions without bias

A bill to amend 1978 PA 368, “Public HealthCode,” (MCL 333.1101 to 333.25211) byadding section 17744.

“Except as otherwise provided in this section, apharmacy shall deliver lawfully prescribeddrugs or devices to patients and shall distributedrugs and devices approved by the United

States food and drug administration for re-stricted distribution by pharmacies, or providea therapeutically equivalent drug or device in atimely manner consistent with reasonable ex-pectations for filling the prescription. Subject tosubsection (3), a pharmacy is not required tocomply with this subsection in any of the fol-lowing or substantially similar circumstances:

“(a) The prescription contains an obvious orknown error, inadequacy in the instructions,or known contraindications or is an incom-patible prescription.

“(b) A national or state emergency exists orguidelines have been issued affectingavailability, usage, or supplies of drugs ordevices.

“(c) The pharmacy lacks specialized equipmentor expertise needed to safely produce, store,or dispense drugs or devices, such as cer-tain drug compounding or storage for nu-clear medicine.

“(d) The prescription is potentially fraudulent.

“(e) Despite good-faith compliance, the drug ordevice is unavailable.

“Nothing in this section requires pharmacies todeliver a drug or device without payment of theirusual and customary or contracted charge.

“If, despite good-faith compliance, the lawfullyprescribed drug or device is not in stock or theprescription cannot be filled under subsection(1)(a), the pharmacy shall provide the patientor his or her agent a timely alternative for ap-propriate therapy that, consistent with custom-ary pharmacy practice, may include obtainingthe drug or device. Alternatives that a pharma-cy may use under this subsection include, butare not limited to, any of the following:

“(a) Contacting the prescriber to address con-cerns such as those identified in subsection(1)(a) or to obtain authorization to providea therapeutically equivalent product.

“(b) If requested by the patient or his or heragent, returning unfilled lawful prescriptionsto the patient or agent.

“(c) If requested by the patient or his or heragent, communicating or transmitting, aspermitted by law, the original prescription in-formation to a pharmacy of the patient’schoice that is able to fill the prescription ina timely manner.

“(d) Offering to locate a pharmacy that is rea-sonably accessible to the patient or agentand that has the drug or device in stock.

“A pharmacy that engages in or permits any ofthe following violates this section and is sub-ject to discipline or other enforcement actionsunder this act:

“(a) Destruction of unfilled lawful prescriptions.

“(b) Refusal to return unfilled lawful prescriptions.

“(c) Violation of a patient’s privacy.

“(d) Discrimination against patients or theiragents in a manner prohibited by state orfederal laws.

“(e) Failure on a persistent basis to have preg-nancy prevention drugs or devices approvedby the United States Food and Drug Admin-istration available for delivery.

“A person who believes that a violation of thissection has occurred may report the violationto the department. The department shall in-vestigate each complaint received and shallnotify the complainant in writing of the resultsof a review or investigation of the complaintand any action proposed to be taken.”

Sponsored by Gretchen WhitmerReferred to Committee on Health Policy

SB 0736 — Require emergency room orurgent care clinic to offer emergencycontraception to victims of sexual assault

A bill to amend 1978 PA 368, “Public healthcode,” (MCL 333.1101 to 333.25211) byadding section 20190.

“Before the expiration of 30 days after the ef-fective date of this section, the departmentshall prepare and distribute to health facilitiesand agencies that provide emergency or ur-gent care medically and factually accuratewritten information about emergency contra-ception. On and after the expiration of 30days after the effective date of this section, ahealth facility or agency that provides emer-gency or urgent care shall provide to all per-sons who provide care to victims of criminal

sexual conduct in that facility the written infor-mation about emergency contraception pre-pared under this subsection.

“A health facility or agency that provides emer-gency or urgent care shall promptly provide to apatient who is a female victim of criminal sexualconduct and who is of childbearing age a copyof the written information about emergency con-traception prepared under subsection (1) andshall promptly offer emergency contraception tothat female victim. If the female victim of crimi-nal sexual conduct who is of childbearing agerequests emergency contraception, the healthfacility or agency shall administer emergencycontraception to that female victim.

“A health facility or agency that administersemergency contraception under subsection(2) shall annually report to the departmentthe number of times emergency contraceptionis administered to victims of criminal sexualconduct under this section. A health facility oragency shall not identify any individual patientin a report made under this section. A reportmade under this section is confidential and isnot subject to public disclosure under thefreedom of information act, 1976 PA 442,MCL 15.231 to 15.246.

“The department may promulgate rules neces-sary to administer this section and shall prom-ulgate rules necessary to carry out the annualreporting requirement of subsection (3).

“As used in this section:

“(a) ‘Emergency contraception’ means a drug,medicine, oral hormonal compound, mix-ture, preparation, instrument, article, or de-vice that is approved by the federal foodand drug administration and that prevents apregnancy after sexual intercourse. Emer-gency contraception does not include adrug, medicine, oral hormonal compound,mixture, preparation, instrument, article, ordevice of any nature that is prescribed toterminate the pregnancy of a female.

“(b) ‘Victim of criminal sexual conduct’ meansa victim of criminal sexual conduct undersections 520a to 520l of the Michigan pe-nal code, 1931 PA 328, MCL 750.520a to750.520l.”

Sponsored by Rebekah WarrenReferred to Committee on Health Policy

SB 0747 — Require nursing homes andhomes for the aged to provide private exami-nation rooms for on-site medical or dentaltreatment

A bill to amend 1978 PA 368, “Public HealthCode,” (MCL 333.1101 to 333.25211) byadding sections 21334 and 21736.

Sec. 21334: “If medical or dental care isprovided to a home for the aged resident onthe premises of the home for the aged, thehome for the aged shall have a privateexamination room for the purpose of medicalor dental examination and treatment.

“An examination room required under subsec-tion (1) shall be used exclusively for the med-ical and dental examination and treatment ofresidents, and shall be kept separate fromcommon areas, dining facilities, patientrooms, and restrooms. The examination roomshall have a door or other means of prevent-ing the entry of unauthorized individuals.

“The department may promulgate rules oradopt guidelines for examination rooms re-quired under this section.”

Sec. 21736: “If medical or dental care isprovided to a nursing home patient on thepremises of the nursing home, the nursinghome shall have a private examination roomfor the purpose of medical or dentalexamination and treatment.

“An examination room required under subsec-tion (1) shall be used exclusively for the med-ical and dental examination and treatment ofresidents, and shall be kept separate fromcommon areas, dining facilities, patientrooms, and restrooms. The examination roomshall have a door or other means of prevent-ing the entry of unauthorized individuals.

“The department may promulgate rules oradopt guidelines for examination rooms re-quired under this section.”

Sponsored by John ProosReferred to Committee on Health Policy

Pending LegislationContinued

10 • Michigan Medical Law Report Winter 2012 Cite this page 7 M.L.R. 58

efficient service delivery for patients.However, the Department of Health and

Human Services has recognized thatfraud and abuse laws may hinder the de-velopment of ACOs.

To address this, the Patient Protectionand Affordable Care Act provides forwaivers of certain fraud and abuse lawsfor ACOs during both the formation of anACO, and the ensuing period when theACO is up and running. These laws (as ap-plicable to Medicare beneficiaries) include:• The Physician Self-Referral or “Stark”Law, which prohibits physicians from re-ferring Medicare beneficiaries for certainhealth care services to entities in whichphysicians have a financial interest.• The federal Anti-Kickback Statute(AKS), which prohibits giving or receivingremuneration in exchange for the referralof Medicare patients.• The “Beneficiary Inducement” prohibi-tion, which bars providers from offering orgiving remuneration to Medicare benefici-aries in order to induce or influence the pa-tient. Providers who violate this rule are li-able for a Civil Monetary Penalty (CMP).• The “Gainsharing” rule, which prohibitshospitals from making payments to inducea physician to reduce or limit services toMedicare beneficiaries under the physi-cian’s direct care. Hospitals that make (orphysicians who receive) such payments areliable for CMPs of up to $2,000 per patient.

Some specificsThe IFR establishes five separate, inde-

pendent waivers that are self-implement-ing. In other words, so long as the ACOparticipants follow the guidelines in theIFR, a separate approval process is not re-quired. Importantly, the “arrangements”subject to the waivers must be reasonablyrelated to the purposes of the Shared Sav-ings Program.

The first waiver is the ACO Pre-Partic-ipation Waiver. This applies to start-uparrangements, which are defined as anyitems, services, facilities, or goods used tocreate or develop an ACO that are provid-ed by the ACO, its participants, and itsproviders/suppliers.

This waiver provides generally that theStark Law, Gainsharing CMP, and theAKS are waived with respect to startuparrangements that pre-date an ACO’sParticipation Agreement with CMS, pro-vided certain conditions are met.

These conditions include, but are notlimited to, a requirement that the startuparrangement is undertaken by partiesacting with the good faith intent to ulti-mately develop an ACO; and that the par-ties developing an ACO are taking dili-gent steps to meet the managementrequirements for an ACO.

The ACO Participation Waiver waivesthe Stark Law, Gainsharing CMP, and AKSwith respect to any arrangement of anACO, providers/suppliers, or a combinationthereof, provided that the ACO has enteredinto a Participation Agreement; remains ingood standing under the agreement; andcertain other conditions are met.

These include, but are not limited to,meeting the requirements for governance,

leadership and management; and havingall arrangements and the authorizationby the governing body for the same prop-erly documented. A description of thearrangement also must be publicly dis-closed (however, the public disclosure doesnot have to include the financial/econom-ic terms of the arrangement).

The Shared Savings Distribution Waiverwaives the Stark, Gainsharing CMP, andAKS with respect to distributions or use ofshared savings earned by an ACO. Again,certain conditions must be met, such as en-suring that the shared savings are earnedthrough the Shared Savings Program andare appropriately distributed.

This is a broad waiver that can even beused to distribute shared savings outsideof the ACO, so long as such distributionsare reasonably related to the purpose ofthe ACO.

ComplianceCompliance with the Physician Self-Re-

ferral Law Waiver waives the GainsharingCMP and AKS with respect to any financialrelationship between or among the ACO,the ACO participants, and providers/sup-pliers so long as the arrangement fits with-in an exception to the Stark Law.

In order to qualify, the ACO must be in aParticipation Agreement and in good stand-ing under the same; the financial relation-ship must be reasonably related to the pur-pose of the Shared Savings Program; andthe financial relationship must comply witha Stark Law exception for investment in-terests or compensation arrangements.

If an arrangement meets the foregoingconditions, the waiver period will begin onthe start date of the Participation Agree-ment and will end on the expiration or ter-mination of the agreement, whichever oc-curs first.

Finally, the Waiver for Patient Incen-tives waives the Beneficiary InducementCMP and the AKS with respect to itemsor services provided by an ACO, its par-ticipants, or its providers/supplied to ben-

eficiaries for free or below fair-market val-ue if the following conditions are met: theACO has a Participation Agreement andis in good standing; there is a reasonableconnection between the items or servicesand the medical care of the beneficiary;the items and services are in-kind; andthe items or services are preventativecare or advance certain clinical goals. Thewavier period will begin on the start dateof the participation agreement, and willend when the participation agreement ex-pires or terminates.

Importantly, even if an ACO fits withinone of the waivers outlined in the IRF, thisdoes not mean that the ACO is also ex-empt from compliance with other stateand federal laws. For example, Michiganhas its own Physician Self-Referralstatute that makes prohibited referralsgrounds for disciplinary action by thestate medical board. Providers with spe-cific questions about ACO waivers andtheir relationship with other state andfederal laws should contact an experi-enced health care law attorney.

Mercedes Varasteh Dordeski isan associate with Frank HaronWeiner PLC in Troy. She repre-sents health care providerswith issues pertaining to reim-bursement, licensing, medicalstaff credentialing/privileges,

National Practitioner Data Bank reporting,and compliance with fraud and abuse laws.She may be reached at (248) 952-0400 ormdordeski@fhwnlaw.com

Suzanne D. Nolan is a partnerwith Frank Haron Weiner PLC.Her practice focuses upon busi-ness and intellectual propertytransactions, including trade-mark and copyright licensingand e-commerce transactions

for all types of entities including health careproviders. She also advises clients on HIPAA,Stark, and Anti-Kickback Statute compliancematters. She may be reached at (248) 952-0400or snolan@fhwnlaw.com.

Continued from page 1

ACOs

Importantly, even if an ACO fits within one of thewaivers outlined in the IRF,this does not mean that the ACO is also exemptfrom compliance withother state and federal laws.

The U.S. health care field has consis-tently been one of the largest and fastestgrowing industries in the country — infact, close to half of the top 20 fastest grow-ing occupations are health care-related.With the rapid growth and resulting

competition for patients, many providersare turning to social media and web-based“daily deal” coupons to attract business.The daily-deal phenomenon, largely

considered to have been developed by theChicago-based company Groupon, hasquickly expanded to include other siteslike LivingSocial, Daily Dibs, Zulily,CoupTessa, and Woot, to name a few. Busi-nesses use the sites hoping to increaseexposure by offering a set minimum num-ber of deals at deeply discounted prices.While the programs have been popular

among restaurants and entertainmentvenues, recently, some health careproviders have turned to these sites aswell. However, unlike deals for a free ap-petizer or discounted gym memberships,the use of daily-deal coupons by medicalproviders raises several unique issues.While there is no telling how long the

trend will last, daily deals are big busi-ness — Groupon alone has more than 50million subscribers. The sites work by con-tracting with businesses, who can pickboth the minimum and maximum num-bers of deals that they wish to sell. Thesites email the deals to their subscribers,who are required to purchase the dis-counted product or service up front andreceive a voucher that can be redeemed atthe business.Typically, the businesses will offer 50 per-

cent or more off their normal prices, andthe daily-deal site takes around 50 percentof the resulting income as its fee, which re-sults in businesses usually receiving 25percent or less of their normal prices. While the deep discounts cause many

health care providers to reject daily-dealsite marketing as unprofitable, othershave embraced the benefits.So far, the majority of health care serv-

ices offered on daily-deal sites are thoseoften not covered by insurance, such asacupuncture, massages, chiropractic serv-ices, teeth cleaning or whitening, and eyeexams and glasses.However, a wider variety of procedures

have begun cropping up. For example, asearch of recent daily-deal coupons yield-ed dental implants for $2,000 (50 percentoff the normal $4,000 price); a routine gy-necological exam for $99 (65 percent offthe normal $285 price); breast augmenta-tion for $4,250 (50 percent off the normal$8,500 price); and an urgent-care medicalvisit for $70 (53 percent off the normal$150 price).

Potential benefits, drawbacksAmong the potential benefits

of using daily-deal sites are in-creased cash flow (as theprovider’s percentage ispaid up front); new pa-tients; the opportunity toupsell the service (i.e. of-fering discounted den-tal cleanings, and thenrecommending X-rays, fillings, and fu-ture visits); attract-ing patients withoutinsurance who maybe otherwise unableto afford health careservices; and even thepossibility that some

purchasers will pay cash up front for thedeal, then never redeem it for the service,thus generating 100 percent profit. While providers may consider daily-

deal sites a valuable marketing tool, theuse of coupons for health care servicesraises legal, safety, and practical concerns.For example, professional licensing boardsin some states have strict regulations thatprohibit fee splitting for providers — thusrendering the service fee paid to the siteproblematic.Recently, the Oregon Board of Dentistry

posted on its website that “[t]he Board haspreliminarily determined thatthese [daily-deal arrangements]may violate the unprofessionalconduct rule OAR 818-012-0030(3) which prohibits offer-

ing rebates, split fees,or commissions forservices rendered toa patient to any per-son other than apartner, employee oremployer,” and cau-tioned that any

providers considering entering into suchagreement before the Board conducts afull review should seek legal counsel.Similarly, the Oregon Board of Chiro-

practic Examiners has declined to amendits fee-splitting rule to allow for these dai-ly-deal, revenue-sharing schemes.Additionally, health care providers con-

sidering daily-deals should note that theuse of the coupons may trigger violationsof other state and federal laws, or maybreach agreements with insuranceproviders.Importantly, the 50 percent fee paid to

the site operators could be considered im-permissible remuneration in exchange forreferrals under federal and state Anti-Kickback laws. Providers also shouldcarefully check coverage agreements withboth private and government payors, asthey may grant the payer the provider’s“best price.”For example, under the Michigan Med-

icaid rules, a provider may not chargeMedicaid a higher rate for a service thanthe lowest charge that would be made toothers for the same or similar service.

Quality of care issuesOne of the primary concerns is that

consumers purchasing daily-deal healthcare services may focus more on thelower cost than on the quality of theservices or the provider’s track record. Another concern is that consumers

pay for services without being pre-screened, and some may not evenqualify to have the service or procedureperformed.While it is possible to get refunds for

services that cannot be performed, theprocess is difficult and often lengthy.Notably, there is a big differencebetween botched plastic surgery and abad dinner.While there do not yet appear to be

any cases of state licensing boardsdisciplining providers for using daily-deal sites, the growing use of the siteshas captured the attention of licensingboards and professional societies.So far, health care licensing boards in

Michigan have not weighed in on theissue and have not issued guidance toproviders. That being said, providersconsidering offering discounts on daily-deal sites should carefully consider theissues involved in doing so, such aswhether arrangement may violate anystate and federal laws, or agreementswith government and private insurers. With these many factors to consider,

assistance from a qualified health careattorney may also be helpful.

MarketingBy Scott W. Malott, Esq.,

Scott W. Malott is anassociate at FrankHaron Weiner PLC,where he assistsclients on a variety ofhealth care and busi-ness law issues andFalse Claims Act/quitam litigation. Malottmay be contacted at

(248) 952-0400 or smalott@fhwnlaw.com.

The daily-deal discount for health care services:

Innovative marketingplan or risky business?

Michigan Medical Law Report • 11Winter 2012Cite this page 7 M.L.R. 59

While there is no telling how long the trend will last, daily deals are big

business — Groupon alone has more than 50 million subscribers.

12 • Michigan Medical Law Report Winter 2012 Cite this page 7 M.L.R. 60

By Jane Pribek

The failure to communicate diagnostictest results is generating more claimsagainst health care providers, according toa study reported in the Journal of the Amer-ican College of Radiology in November.Looking at data from the National Prac-

titioner Data Bank, researchers reportedthat claim payouts in the U.S. from 1991to 2010 due to communication break-downs more than quadrupled across allmedical specialties, rising from $21.7 mil-lion to $90 million.The study also examined claims from

Controlled Risk Insurance Co./Risk Man-agement Foundation (CRICO/RMF), whichinsures the Harvard medical communityand institutions. Between 2004 and 2008,communication failures accounted for 7percent of CRICO’s total legal costs.According to the CRICO data used in

the study, the most common contributingfactors in cases associated with communi-cation failures were failures to notify thepatient of a test result, telling the patientan incorrect result and failing to notifythe referring clinician of a result.John Cassidy, a med-mal defense attor-

ney at Ficksman & Conley in Boston, saidhe has often seen miscommunication leadto problems when radiologists make an-cillary, non-emergency findings, which ei-ther don’t get conveyed or aren’t noticedby primary care physicians on lab reports.Or in some cases, radiologists aren’t giv-

en critical facts from the patient’s history. “A radiologist gets a film: ‘Rule out pneu-

monia.’ That’s kind of a ‘brand x’ requestfor an x-ray. That can leave a lot of sins un-accounted for,” Cassidy said. “In that situ-ation the radiologist is really looking at itpretty much without any real informationto speak of. But it makes a big difference ifthe patient is a 60-year-old, lifelong smok-er. You might want to also look for a lunglesion and cancer on that film, as opposedto a 30-year-old nonsmoker.”Ann Louise Puopolo, vice-president of

patient safety for CRICO in Boston, didnot play a role in the research, but shesaid its findings don’t surprise her.“It’s an enormous problem,” Puopolo

said, noting that over the last five years,CRICO has had 32 claims in the outpa-tient setting alleging a miscommunica-tion of diagnostic testing. Defending thoseclaims cost the company nearly $28 mil-lion, including closed cases and reservesfor open matters.“Failure or delay to diagnose in the out-

patient setting is [an element] in 25 per-cent of our cases at Harvard overall, and[accounts for] 40 percent of our losses,”she said.

The issue is an especially acute concernfor primary care doctors, who often havehigh-volume practices and who typicallyorder many diagnostic tests, Puopolo said.In fact, the Journal of the American Col-lege of Radiology article mentions thatduring the past decade, clinicians haveordered dramatically greater numbers ofdiagnostic examinations.

Closing the loopSemi-automated critical test manage-

ment systems could improve communi-cation, the article concluded. Thesesystems are designed to reducemissed notifications by alerting refer-ring clinicians of results and generat-ing delivery receipts.Electronic medical records (EMRs) of-

fer “a huge safety net,” Puopolo agreed.CRICO’s outpatient providers arenow all using the software.But while EMRs offer great

promise, technology also has itslimitations, cautioned Bostonmed-mal defense attorneyMichael Barkley of Adler, Cohen,Harvey, Wakeman & Guekguezian. Test results or consultant evalua-

tions are often transmitted throughelectronic systems that might have de-ficiencies, or that providers are inexpe-rienced in using. “A consulting physician may be operat-

ing with the assumption that a record of apatient encounter or test results storedelectronically will be viewed by the refer-ring physician, and that necessary follow-up will be coordinated by the referringphysician. But the referring physicianmay not receive notification that therecord is available. This can result in arecord being filed in the patient’s elec-tronic chart without ever being viewed bythe referring physician,” Barkley said. That’s when it becomes critical to have

back-up administrative policies in place,said Anne Huben-Kearney, the vice-pres-ident of risk management for Coverys inBoston. The system should ensure thatevery test that’s ordered is tracked, andevery staff member should be familiarwith the protocol.She recommended establishing a cen-

tralized follow-up system for all providerswithin a building or practice, including a designating a point person to reviewresults and take the appropriate action,even if a particular physician is out ofthe office.It doesn’t have to be complicated.

Barkley mentioned a physician who sendshimself an email every time he orders atest, for example, to remind himself tocommunicate the results to the patient.

Even a low-tech option, such as recordingall tests ordered in a three-ring binder,will suffice, as long as the policy is strict-ly followed.The best practice is a system that com-

municates all results to patients, not justthe abnormal ones, both Huben-Kearneyand Puopolo said.However, given the current practice en-

vironments where time resources arestrained, that doesn’t end

up happen-ing in many instances, according to Cas-sidy. At the least, institutions should haveclear protocols for physicians about whatkind of findings must be communicated,and when.

Communicate clearly with patients When ordering tests, Huben-Kearney

suggested requesting that a copy of the re-sults be sent to the patient.Overall, she said, educating patients is

extremely helpful. Tell a patient why atest is being ordered, how long results typ-ically take to come back, and whom theyshould contact if they haven’t heard backbefore then. It won’t relieve physicians ofliability if problems arise, but it makespatients better partners in their own careand serves as an added safeguard.Consider the use of password-protected

portals, Puopolo said, so patients can di-rectly access information about test re-sults, independent from their physiciansand in real time. Another strategy is to schedule follow-

up appointments, especially with high-risk patients and those with multiple co-morbidities, said Huben-Kearney.

“It’s an opportunity to interact with pa-tients and see how they’re doing physical-ly, as well as to communicate the writtenmodality,” she said. In addition, make it clear among multi-

ple providers who will be communicatingwith the patient and ensuring the properfollow-up. Huben-Kearney said liabilitycarriers often provide templates for spe-cialists, where blanks are to be completeddesignating who’s leading the care, reading

and communicating the test results, etc.Some communication may be delegated

to staff, Puopolo said. At Harvard, for ex-ample, they’re experimenting with usingnon-licensed staff to communicate cancerscreening results to patients, to free up li-censed providers’ time for more diagnostictasks.But, from a legal standpoint, the liabil-

ity almost always falls upon whoever or-dered the test, Puopolo noted, even if he orshe doesn’t manage the result. “If you ordered the test, you own it, even

if you’re not responsible for the patient’scare at this time,” she said. “Don’t order itif you have no intention of following up onthe result.”As a final step, document the communi-

cation of results to the patient in the chart,Huben-Kearney emphasized. Stamps ortemplates can be used, where there areblanks for date received, date reviewed,any necessary follow-up, date of patientnotification and who notified the patient.

Jane Pribek is a freelance writer. This story firstappeared in a publication of the MassachusettsMedical Law Report, which, like Michigan Med-ical Law Report, is a Dolan Company newspaper.

Failure to communicate test results leads to lawsuits

“If you ordered the test, you own it, even if you’re notresponsible for the patient’scare at this time. Don’t orderit if you have no intention offollowing up on the result.”

— Ann Louise Puopolo, Controlled Risk Insurance Co./ Risk

Management Foundation

Michigan Medical Law Report • 13Winter 2012Cite this page 7 M.L.R. 61

On Oct. 20, 2011, Centers for Medicareand Medicaid Services (CMS) released themuch awaited final rule for implementa-tion of the Medicare Shared Savings Pro-gram for Accountable Care Organizations(ACOs).

The final rule addresses many of theconcerns that providers voiced regardingthe proposed rule, and will likely makeformation of, or participation in, an ACOmore feasible and attractive for manyproviders and suppliers.

One of the most important changes inthe final rule is elimination of the sharedrisk requirement for the final year of par-ticipation. While the proposed rule wouldhave required all ACOs to share risk ofloss in the final year of the three-yearparticipation period, the final rule createsan alternative for a “shared savings only”track (one-sided model) that will not re-quire any sharing of losses.

Two-sided model retainedThe final rule also retains the proposed

two-sided model that will allow ACOs toshare in an increased portion of savings,so long as the ACO also agrees to share insome of the losses.

The final rule also made revisions thatwill provide greater cash flow to ACOs inthe initial years of formation. While theproposed rule would have required ACOsparticipating in the one-sided model toshare in savings only when the savingsreached a threshold of 2 percentgreater than the ACO’s bench-mark, the final rule will al-low all ACOs to share in“first dollar” savings oncethe Minimum SavingsRate (MSR) is reached.

CMS also eliminatedthe requirement that theprogram withhold 25percent of shared sav-ings to cover potentialshared losses. Howev-er, ACOs participatingin the two-sided modelwill still be required todemonstrate an ade-quate repayment methodfor an amount equal to atleast 1 percent of the percapita expenditures for its as-signed population.

The final rule includes twodifferent start dates to accom-modate ACOs that might needadditional time to organize andprepare. Specifically, the finalrule will allow ACOs that wantto begin in 2012 to do so on eitherApril 1, 2012, or July 1, 2012.

These ACOs will have a longerperformance year (21 months or18 months respectively) and an op-tion to receive an interim paymentcalculation following the first 12

months of participation.One-sided ACOs receiving an interim

payment will be required to demonstratea self-executing repayment mechanismsimilar to that which the two-sided ACOsmust demonstrate.

The final rule also provides for greaterflexibility with regard to ACO governance.Specifically, CMS will no longer requireeach participant to be represented on thegoverning body, but will instead requirean ACO to provide “meaningful participa-tion” for ACO participants or their desig-nated representatives in the compositionand control of the ACO’s governing body.

The final rule retains a general re-quirement that ACOs give their partici-pants 75 percent control and allow bene-ficiary representation on the board.However, ACOs also will be permitted toutilize innovative approaches in certaincircumstances, so long as the innovativeapproach is explained in the application.

Quality and provider changesIn order to ease burdens on participat-

ing ACO providers, CMS also reduced thenumber of quality measures that must re-port from 65 to 33, and eliminated the re-quirement that 50 percent of an ACO’sprimary care physicians demonstratemeaningful use of an EHR. Instead, EHRuse will be a quality measure that is

weighted

higher than other quality measures.In response to requests from com-

menters that ACOs be permitted to devi-ate from their approved structure to a cer-tain degree over the course of thethree-year participation period, the FinalRule allows ACOs to add or subtractproviders/suppliers over the course of theagreement period, but they must notifyCMS of a “significant change.”

Changes could potentially require ad-justment of the ACO’s benchmark or couldcause it to no longer meet eligibility re-quirements (e.g., could cause assignmentto fall below 5,000 beneficiaries).

In response to concerns that the pro-posed assignment process did not proper-ly take into account primary care servicesprovided by non-physician primary careproviders or specialists, CMS is revisingthe beneficiary assignment process to re-flect a “step-wise” approach.

First, beneficiaries will be assignedon the basis of utilization of primarycare services by primary care physi-cians (based on plurality of allowed

charges), but beneficiaries who are notseeing a primary care physician may beassigned to an ACO on the basis of pri-mary care services provided by specialistsor non-physician providers (based on plu-rality of allowed charges).

This change, however, will require spe-cialist or non-physician-provider ACOparticipants providing primary care serv-ices to also be exclusive to one ACO iftheir primary care services are the basisfor beneficiary assignment.

To address concerns that the ACO willbe held accountable for an unknown pop-ulation, CMS will provide a list of benefi-ciaries likely to receive care from the ACOon a prospective basis, which will be up-dated periodically on a rolling basis. Thelist will be reconciled at the end of the per-formance year so that only beneficiarieswho are actually assigned to the ACO areincluded in shared savings calculations.

CMS also clarified certain misconcep-tions about its comments to the proposedrule, including a clarification that any andall groups of providers and suppliers thatmeet the eligibility requirements will bepermitted to participate in the sharedsavings program.

CMS also clarified that providers pro-viding primary care services on which as-signment is based (including physicians,specialists providing primary care servic-es and non-physician providers). In otherwords, a primary care physician or otherindividual whose primary care servicesare a basis for assignment can participatein more than one ACO individually, butgroup practices that provide primary careservices upon which assignment is basedmust be exclusive to one ACO.

Although the final rule on the MedicareShared Saving Program for ACOs re-moves many of the barriers that werefound in the proposed rule, the structur-ing of ACOs for participation in theMedicare Shared Savings Program willstill be a complicated and costly process.

Potential ACO organizers and partici-pants should carefully weigh the pros andcons of the Medicare Shared Savings Pro-gram and evaluate the program in com-parison to various other programs thatare being introduced by the Center forMedicare and Medicaid Innovation, suchas the Bundled Payment Initiative.

CMS will provide a list of beneficiarieslikely to receive carefrom the ACO on aprospective basis,

which will be updatedperiodically on a rolling

basis. The list will bereconciled at the end of the performance year so that only beneficiaries who are actually assigned to the ACO are included in shared savingscalculations.

Final rule for ACOs provides greater flexibility

RegulationsBy Andrew B. Wachler, Esq. and Amy K. Fehn, Esq.

Andrew B. Wachler is the principal of Wachler & Associates, P.C. He counsels health care providersand organizations nationwide in a variety ofhealth care legal matters. He can be reachedat(248) 544-0888 or awachler@wachler.com.

Amy K. Fehn is a partner with Wachler & Associ-ates, P.C. She is a former Registered Nurse who has been counseling health care providersfor the past 12 years on regulatory and compliance matters. Contact her at (248) 544-0888or afehn@wachler.com.

WACHLER FEHN

By Correy E. Stephenson, Esq.

All entities covered under the HealthInsurance Portability and AccountabilityAct (HIPAA) must get ready — audits ofprivacy and security compliance underthe Act have officially begun.

Under the auspices of the 2009 HealthInformation Technology for Economic andClinical Health Act (HITECH), the De-partment of Health and Human Services(HHS) was mandated to conduct periodicaudits to ensure HIPAA compliance.

Prior to HITECH, HHS investigated po-tential HIPAA violations based on specif-ic complaints.

The new audits will impact all types ofcovered entities, which will need to supplyauditors with documentation and host anon-site visit.

Calling the initial round of audits a “pilotprogram,” the Office for Civil Rights (OCR)said the focus is on prevention and educa-tion rather than penalizing covered entities.The audits will be completed by December2012, and HHS will share best practiceslearned from the audit process and provideguidance based on the shortfalls found.

But entities with particularly egregiousnoncompliance could face further investiga-tions or monetary penalties, according toAdam H. Greene, a partner in the Washing-ton, D.C. office of Davis Wright Tremainewho formerly worked at the OCR and fo-cuses his practice on HIPAA compliance.

“I don’t expect too many, if any, coveredentities to come out of this audit-proof,” hesaid. “Some segments [of covered entities]are fully aware of the audits, but others —like small medical practices — are notaware. There are a lot of covered entitiesthat are unprepared for an outside audit.”

Joseph Lazzarotti, a partner at JacksonLewis in White Plains, N.Y., agreed.

“In my view, no one is 100 percent com-pliant,” he said. With regulations beingupdated or added frequently and the tech-nology constantly changing, “the groundof compliance is always shifting and it ishard to keep up.”

The audit processTo help guide covered entities, the OCR

has issued guidance about the process ofthe audits. Link: http://www.hhs.gov/ocr/privacy/hipaa/enforcement/audit/index.html

• Who will be audited? Between now and December 2012, a total

of 150 covered entities will be audited. Whilethere was some question as to whether the“business associates” of covered entitieswould also be audited, OCR has indicatedthat they will be audited “in the future.”

“My interpretation of that statement isthat business associates will not be tar-gets for the first 150 audits,” Greene said.

OCR has also stated that the auditswill cover a broad range of entities, bothlarge and small. All three types of coveredentities — health care providers, healthplans and health care clearing houses —will be audited, Greene said.

“And I expect all different types ofhealth care providers will be audited, likegeneral hospitals, specialty care hospitals,large group practices, small practices andpharmacies,” he added.

• What does an audit entail? The audit process will begin with a no-

tification letter that contains a prelimi-nary request for documentation. Coveredentities may receive as little as 10 days toprovide that documentation, which will befollowed by an on-site visit that could lastanywhere from three to 10 days, depend-ing on the complexity of the organization.

Auditors will focus on two things, ac-cording to Greene: interviews with em-ployees and looking at routine operationsto determine whether they are consistentwith the entity’s policies and procedures

and the regulations themselves.“It could be everything from looking at

servers and work stations to checkinglocks on cabinets,” he said.

While the OCR has indicated that onlyhigh-level staff will be interviewed (suchas a privacy officer, Chief Information Of-ficer or general counsel), lower-level staffcould be questioned as part of the reviewof routine operations, Greene speculated.

Auditors are likely to ask employeesquestions like, “What is the policy on X?”or “Where is the policy located?” said AmyFehn, a partner at Wachler & Associatesin Royal Oak.

• What happens after the audit? If a covered entity passes an audit with

flying colors, the process ends. But giventhe complexity of HIPAA’s privacy anddata security requirements, such perfectcompliance is unlikely, Greene said.

If there are minor adverse findings, HHSwill work with the covered entity to takesteps toward appropriate, corrective action.However, if the audit reveals serious non-compliance, “that could lead to a formal en-forcement action, such as a settlementagreement with a corrective action plan ora civil monetary penalty,” Greene said.

OCR will not release a list of the audit-ed entities or specific findings, but will is-sue an aggregated report of the final re-sults of the audits, Lazzarotti said.

Preparation for an auditIn preparation for an audit and to

achieve compliance with HIPAA, coveredentities must have “an appropriate set ofpolicies and procedures in place,” saidDavid Harlow, a health care attorney atThe Harlow Group in Newton, Mass. andauthor of the HealthBlawg.

A system of training and re-trainingemployees should also be established,Harlow said.

Fehn said training should occur on anannual basis at a minimum, with imme-diate training for new hires.

“Every time a training is performed —under both the privacy and security regula-tions — have a sign-in sheet and keep thosein a file to document who was there andthat the training occurred,” she advised.

Ensure that any existing systems aremaximized to their full capability, Fehnadded.

“For example, if an entity has settingsthat log employees off after a certain timeperiod, make sure that function is turned

on and is being used,” she said.Harlow recommends encrypting elec-

tronic health records, although he ac-knowledged opponents’ argument that itcan be cumbersome and get in the way ofday-to-day operations.

“Another approach might be to encryptcertain elements of the record and not theentire record,” he suggested, or entitiesmight require portable devices to be pass-word-protected. That way, if a laptop islost or stolen, its data cannot be read.

“Each covered entity needs to make ajudgment about what works best for theirorganization,” Harlow said.

Greene suggested that covered entitiesfocus on potential high-impact vulnera-bilities and perform a self-assessment onboth the privacy and data security rules.

“Until you have gone around and talkedto randomly selected staff or checked thelocks on filing cabinets through the organ-ization, you really do not have a good ideaif compliance is being achieved,” he said.“And better you find out than an auditor.”

Correy Stephenson is associate editor atLawyers USA, which, like Michigan MedicalLaw Report, is a Dolan Company newspaper.

HIPAA audits have begun

14 • Michigan Medical Law Report Winter 2012 Cite this page 7 M.L.R. 62

“Every time a training is performed— under both the privacy andsecurity regulations — have a sign-in sheet and keep those in a file todocument who was there and thatthe training occurred.”

— Amy Fehn, Wachler & Associates

“I don’t expect too many, if any,covered entities to come out of this audit-proof.”

— Adam H. Greene, Davis Wright Tremaine, Washington, D.C.

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