Posts Categorized: Health Law Case Brief

Health Law Case Brief: Marmet Health Care Center v. Clayton Brown, Clarksburg Nursing Home v. Marchio

By: Phillip Rakhunov

On February 21, 2012, the United States Supreme Court announced its decision in Marmet Health Care Center, Inc. v. Brown.  The question in this case was whether the Federal Arbitration Act (“FAA”) preempted a determination by West Virginia courts that, as a matter of state public policy, pre-dispute arbitration agreements are not enforceable with respect to claims made against nursing homes for injury or wrongful death resulting from negligence.

The main case (and the companion cases) arose from classic negligence wrongful death actions brought by plaintiffs against nursing homes.  The basic facts of each case are substantially the same.  In each case, an ill or incapacitated person needing extensive, ongoing nursing care was admitted to a nursing home, and a family member signed an admission agreement with the nursing home that contained a garden-variety pre-dispute arbitration clause. The clause generally provided that any disputes that the ill or incapacitated person might have in the future with the nursing home would be submitted to arbitration.  Later, after the patient died, a family member filed a lawsuit against each nursing home, alleging that various acts and omissions of the nursing home negligently caused injuries which eventually resulted in the ill or incapacitated person’s death.  In each case, the nursing homes successfully moved the trial court to dismiss the cases on the basis of the arbitration clauses.  The plaintiffs in each case appealed to the West Virginia Supreme Court of Appeals.

In a consolidated appeal, the West Virginia Court considered the history and purposes of the FAA and, surprisingly, determined that Congress did not intend for the FAA to apply to arbitration clauses in pre-injury contracts, where a personal injury or wrongful death occurred after the signing of the contract.  Specifically, the West Virginia Court made three rulings:  (1) that the FAA preempted Section 15(c) of the West Virginia Nursing Home Act, which purports to declare “null and void as contrary to public policy” any waiver of a nursing home resident’s ability to “commence an action in circuit court”; (2) that, in any event, as a matter of West Virginia public policy, all pre-injury agreements to arbitrate personal injury or wrongful death claims are unenforceable and that this categorical rule of public policy was not preempted by the FAA; and (3) that the arbitration provisions at issue were procedurally and substantively unconscionable.

In so ruling, the West Virginia Court’s decision focused heavily on the often difficult and emotional decision to be admitted to a nursing home and on the circumstances surrounding the admission process.  The Court of Appeals showed a marked compassion towards the plaintiffs in passionately describing how such a decision, often made in the midst of a crisis brought on by a precipitous deterioration in a love-one’s health, is also often prompted by the loss of, or deterioration in the health of, a spouse or care giver, or when the care-giving family is no longer able to adequately manage the demands of home care.  The West Virginia Court focused on how the confusing and hurried admissions process might discourage the patient (or patient’s family) from questioning the content of the forms to be signed, including the “buried” arbitration provision, because of the implicit perception that the forms must be signed as a condition of admission.

Additionally, the West Virginia Court’s opinion reflected a patent hostility towards the Supreme Court’s expansion of the reach of the FAA over the past century.  In searching for a way to circumvent the FAA, the Court of Appeals criticized the United States Supreme Court for having stretched the application of the FAA, based on “tendentious reasoning,” from being a procedural statutory scheme effective only in the federal courts, to being a substantive law that preempts state law in both the federal and state courts.  The West Virginia Court ceased on the apparent lack of Supreme Court precedent regarding the enforceability of an arbitration clause in a health care contract and, despite recognizing that a rule of state law disfavoring arbitration for a class of interstate commercial transactions is preempted by the FAA, purported to carve out an exception to the FAA, ruling that Congress did not intend for the FAA to be, in any way, applicable to personal injury or wrongful death suits that only collaterally derive from a written agreement that evidences a transaction affecting interstate commerce, particularly where the agreement involves a service that is a practical necessity for members of the public.

In an unusually harsh, but succinct unanimous per curiam opinion, the Supreme Court found that the West Virginia Court’s “interpretation of the FAA was both incorrect and inconsistent with clear instruction” in the Supreme Court’s precedents.  The Supreme Court unanimously reaffirmed that state public policy cannot trump the FAA to agreements implicating interstate commerce.  Because the Court of Appeals cited common law unconscionability as an alternative basis for its holding, the Supreme Court reluctantly remanded the case for the West Virginia court to determine whether the arbitration agreement at issue was otherwise unenforceable under state common law principles that are not specific to arbitration.

Although succinct in its analysis, the Marmet decision sends a strong message that a unanimous Supreme Court would likely fully embrace the prior term’s ruling by a divided (5 to 4) Court in AT&T Mobility LLC v. Concepcion, 563 U.S. __, __, 131 S.Ct. 1740 (2011) (slip op., at 6-7), and makes it clear that “when a state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward:  The conflicting rule is displaced by the FAA.”

Phillip Rakhunov is a business litigator who represents health care organizations, financial institutions, investment professionals, fiduciaries and various other business entities and individuals in a broad array of business disputes, including securities fraud litigation, enforcement of restrictive covenants, and high stakes contract litigation. Mr. Rakhunov regularly appears in state and federal courts, as well as before arbitration and mediation tribunals. Fluent in Russian, Mr. Rakhunov also represents Russian-speaking clients and other clients in need of his unique background and language.  Mr. Rakhunov received his law degree from Northeastern University School of Law and his undergraduate degree from Tufts University.  Mr. Rakhunov is admitted to the state and federal bars of Massachusetts and New Hampshire.

Health Law Case Brief: Mayo Collaborative Services v. Prometheus Laboratories, Inc.

By: Kristyn Bunce DeFilipp

On March 20, 2012, the Supreme Court unanimously held that patent claims that help doctors who use thiopurine drugs to treat patients with autoimmune diseases determine whether a given dosage is too low or too high were unpatentable pursuant to 35 U.S.C. § 101, because the claims set forth laws of nature rather than applications of those laws.

Respondent Prometheus is the sole licensee of two patents, U.S. Patent Nos. 6, 355,623 (‘623 patent) and 6,680,302 (‘302 patent).  The ‘623 and ‘302 patents address the use of thiopurine drugs, a group of antimetabolites, in the treatment of autoimmune diseases.  Thiopurine drugs cause metabolites to form in the patient’s bloodstream andbecause different people metabolize thiopurine at different rates, the same dose of a thiopurine drug affects different people differently.Medical research established that the levels of certain metabolites in a patient’s blood could indicate whether a thiopurine dose was too high (and possibly dangerous) or too low (and likely ineffective).  The ‘623 and ’302 patents embody certain research findings that specify the correlation between the particular metabolites and the preferred dosage with some precision.  Prometheus sells diagnostic tests that employ the processes described in the ‘623 and ‘302 patents.

The petitioners, Mayo Clinic Rochester and Mayo Collaborative Services (collectively Mayo), formerly bought and used Prometheus’ diagnostic tests.  In 2004, Mayo indicated that it had developed its own test, which it planned to use and sell.  Prometheus sued Mayo for patent infringement in the U.S. District Court for the Southern District of California.  The district court found that Mayo’s test infringed one claim of the ‘623 patent, but granted summary judgment in Mayo’s favor, finding that Prometheus’ patents claim natural laws or natural phenomena that are not patentable.

Prometheus appealed this decision to the Federal Circuit.  The Federal Circuit applied the “machine or transformation test” and found that two steps in the patent claims “transformed” the human body or the blood taken from it:  the patents specify steps of “administering” the thiopurine drug to the patient, and “determining” the metabolite level. [1]

Mayo filed a petition for certiorari to the Supreme Court, and it granted certiorari, vacated, and remanded the Federal Circuit’s decision in 2010, indicating that it should be reviewed in light of the Court’s decision in Bilski v. Kappos.[2]   The Federal Circuit considered the case again and came to the same conclusion:  the patents were valid.  Mayo filed a second petition for certiorari, which the Supreme Court granted.

Breyer wrote for a unanimous Court, first examining the patent claims for “additional features” beyond a law of nature, “that provide practical assurance that the process is more than a drafting effort designed to monopolize the law of nature itself.”[3]  The Court addressed the steps of the process that the Federal Circuit had held were enough to transform the claims into patentable material:  the “administering” step, the “determining” step, and the “wherein” step.[4]  The Court found that these steps simply indicate that the patent is directed to doctors who treat patients using thiopurine drugs, and that those doctors should use the natural law described in the patent when they are treating those patients and by measuring metabolites in their blood.  “The upshot is that the three steps simply tell doctors to gather data from which they may draw an inference in light of the correlations.”[5]  The Court found that these steps were not enough to transform the natural correlations into patentable applications.

In finding the claims unpatentable, the Court considered its most relevant precedent on patentable subject matter, Diehr[6] and Flook[7].  In Diehr, the process for molding raw, uncured rubber into cured, molded products was found to be patentable because, although it centered on a basic mathematical equation (which, like a natural corollary, is not patentable), it integrated that equation with additional steps into a process.  The patent in Flook described an improved system for updating alarm limits in the catalytic conversion of hydrocarbons, but it did not limit the claim to a particular application and so was found unpatentable.  The Court found that methods in the ‘623 and ‘302 patents were weaker than the claims in Diehr and no stronger than those in Flook.  Like the invention in Flook, the patents simply provided instructions in applying a law of nature that were already “well-understood, routine, conventional activity, previously engaged by those in the field.”[8]

The Court went on to describe other cases supporting its view that “simply appending conventional steps, specified at a high level of generality, to laws of nature, natural phenomena, and abstract ideas cannot make those laws, phenomena, and ideas patentable.”[9] This review included an English case that instructed users that hot air promotes ignition better than cold air, but did so by describing the implementation of the principle in an inventive way.[10]  Thus, the English court held the invention patentable.  The Court also considered Bilski, which described a mathematical formula that allowed users to hedge risks in investing (unpatentable), and Benson,[11] which rejected the patentability of implementing a mathematical principle on a physical machine in order to convert binary-coded decimal numbers into pure binary numbers.

The Court’s holding in Prometheus works to avoid an unwarranted monopoly on a law of nature, which could impede medical research by disallowing the development of more refined treatment methods that utilize the same law.  The Court quoted from the amicus brief of several medical associations, which argued that “if claims to exclusive rights over the body’s natural responses to illness and medical treatment are permitted to stand, the result will be a vast thicket of exclusive rights over the use of critical scientific data that must remain widely available if physicians are to provide sound medical care.”[12]  Even so, the Court recognized the arguments advanced by Prometheus and the amici that agreed with it, that the medical diagnostics field is driven by investments that are motivated by the exclusivity guaranteed by patent protection.

The Court’s decision does not shut the door on patents for medical diagnostics; rather, it sets another benchmark in the jurisprudence of patentable subject matter which inventors of diagnostic tools that make use of natural laws must aim to overcome.

Kristyn Bunce DeFilipp serves as an Associate in Foley Hoag’s Litigation and Labor and Employment departments.  Kristyn represents clients involved in complex litigation matters involving commercial contract disputes, intellectual property and other business disputes.  Her practice includes a focus on labor and employment issues in litigation.

Kristyn advises and represents corporations in all aspects of labor and employment law. She has experience in labor arbitrations involving unions, including disputes involving just cause termination and organizing campaigns.  Kristyn also defends clients against discrimination, harassment and wage and hour lawsuits. She represents companies in federal and state courts, before administrative agencies including the Massachusetts Commission Against Discrimination, and before the American Arbitration Association.  In addition, Kristyn drafts employment handbooks and policies in order to ensure that employers comply with both state and federal employment law statutes, and provides advice to clients on these topics.

Kristyn is also active in the firm’s pro bono program. Her pro bono practice is varied, and includes assistance with obtaining restraining orders for protection against abuse for victims of domestic violence; assistance to parents and students on special education matters; and pursuit of Chapter 7 and Chapter 13 bankruptcy relief for individual debtors.

Prior to joining Foley Hoag, Kristyn interned at Neighborhood Legal Services in Lynn, Massachusetts, where she assisted low-income clients with housing-related legal issues.


[1] See 581 F.3d 1336, 1345 (Fed. Cir. 2009)

[2] Bilski v. Kappos, 561 U.S. __ (2010)

[3] Prometheus, 566 U.S. __  (2012) (slip op. at 8-9).

[4] Id. at 9.

[5] Id. at 10-11.

[6] Diamond v. Diehr, 450 U.S. 175 (1981).

[7] Parker v. Flook, 437 U.S. 584 (1978).

[8] 566 U.S. __ (slip op. at 13).

[9]Id. at 14.

[10] Neilson v. Harford, Webster’s Patent Cases 295 (1841).

[11] Gottschalk v. Benson, 409 U.S. 63, 67 (1972).

[12] 566 U.S. at ___ (slip op. at 23) (quoting Brief for American College of Medical Genetics et. al. as Amici Curiae 7.)

Health Law Case Brief: “But What Does it Mean?” – An Analysis of Douglas v. Independent Living Centers of Southern California, Inc.

By: Thomas Barker & Joel Goloskie

Does a Medicaid provider or beneficiary have a right to sue a state Medicaid agency if that state enacts a law or regulation that is contrary to the “quality and access” provision of the federal Medicaid Act?  That question was put before the U.S. Supreme Court recently in Douglas v. Independent Living Centers of Southern California, Inc., No. 09-958, the lead case in a group of combined appeals arising out of the U.S. Circuit Court of Appeals for the Ninth Circuit.  Considering the large number of Medicaid providers and beneficiaries nationwide, and considering that skyrocketing Medicaid costs represent one of the largest threats to the future solvency of many states, it is a question whose answer has been eagerly awaited by providers, beneficiaries, and the states alike.

While the Court’s decision in Douglas failed to answer this question, an analysis of the case and the circumstances in which it is playing out indicates that an answer may be safely inferred.  It is likely not, however, the answer that providers and beneficiaries would care to hear.

Background

Facing a well-publicized budget shortfall, the California legislature imposed Medicaid rate cuts across the spectrum of provider types, from hospitals to pharmacies.  CMS did not timely approve these rate cuts, and several lawsuits were filed in federal court by providers, provider associations, and beneficiaries.  These plaintiffs claimed that California’s new rates were so low that they violated the Medicaid Act’s requirement that Medicaid payments are sufficient to: (a) ensure that beneficiaries receive quality healthcare, and (b) enlist enough providers so that beneficiaries have adequate access to that care.  These “quality and access” provisions are found in § 1396a(a)(30)(A) of the Medicaid Act, commonly referred to as section (30)(A). 

Finding that the plaintiffs had established a high likelihood of success on the merits, and because any harm is irreparable under the Eleventh Amendment ‘s prohibition against retrospective relief against states, the district courts in which these cases were pending all granted injunctive relief.  That relief was subsequently upheld by the Ninth Circuit.  California appealed, and the Supreme Court agreed to hear the case. 

What made this a thorny issue is the fact that the Supreme Court had previously held that section (30)(A) does not confer a private right of enforcement under 42 U.S.C. § 1983.[1]  In Gonzaga University v. Doe, 536, U.S. 273, 283 (2002), the Court clarified that a section 1983action required the challenged state law to be in violation of a private right, and not merely a federal law.[2]  Unlike other sections of the Medicaid Act whose wording is deemed specific enough to grant a private right of action, the broad wording of section (30)(A) contains no such “rights creating language.”  Thus, absent some other basis of standing, a provider or beneficiary aggrieved by Medicaid rates that fail the quality and access provision of the Medicaid Act would have no right to contest the state’s rates in federal court.

In Douglas, what turned this from a thorny issue to a justiciable one was the plaintiffs’ reliance upon the Supremacy Clauseto establish standing.  The Supremacy Clause of the U.S. Constitution, found at Article VI, Clause 2, requires state law to yield to federal law with which it conflicts, either directly or through “field preemption.”  However, the Supremacy Clauseis limited by the sovereign immunity granted to states by the Eleventh Amendment.

The tension between the Supremacy Clause and the Eleventh Amendment was at least partly relieved a century ago in Ex parte Young, 209 U.S. 123, (1908).  Under the ex parte Young doctrine, a federal court, consistent with the Eleventh Amendment, may enjoin state officials to conform their future conduct to the requirements of federal law.  Across the subsequent hundred years of jurisprudence, official-capacity cases seeking purely prospective relief have not been treated as actions against the state for Eleventh Amendment purposes, and plaintiffs aggrieved by state action in contravention of federal law have routinely been granted injunctive relief in federal court.

In Douglas, what turned this justiciable issue back into a thorny one was the fact that the ex parte Young doctrine has never been applied to Spending Clause legislation.  Congress’ Spending powerarises under its Article I, section 8 power to provide for the general welfare of the United States.  It is this power from which the Medicaid Act draws its legitimacy.  In Douglas, the state focused upon the fact that there was simply no Spending Clause jurisprudence for the plaintiffs to rely upon to establish Supremacy Clause standing under ex parte Young.

Furthermore, unlike other purely-federal Spending Clauseprograms such as the Medicare Act, Medicaid is a joint federal-state program.  California argued that, because the Medicaid program is a voluntary compact between the federal government and the states, and because the states only agree to participate under the explicit terms of the Medicaid Act, the only private rights of action that providers or beneficiaries can claim are those rights explicitly granted in the Act.  Congress’ decision not to imbue section (30)(A) with rights-creating language, California argued, shielded section (30)(A) from the ex parte Young doctrine.  In essence, California’s argument was that, because Congress had (ostensibly) decided not to grant a private right under section 1983 in this Spending Clause legislation, Congress did not intend for standing to exist under the Supremacy Clause, either.

The Supreme Court Decision 

Then, the unexpected happened.  About a month after oral argument was heard by the Supreme Court, the Centers for Medicare and Medicaid Services (“CMS”) approved most of California’s requested changes, including some that were approved retroactively, and the state withdrew the remaining unapproved change requests.  Thus, before the Court rendered a decision, the federal agency charged with administering the Medicaid program determined that the challenged rate cuts did, in fact, comply with federal law.

Writing for a five-justice majority, Justice Breyer held that CMS approval had sufficiently changed the posture of the case such that the Court would not decide the question of whether the Ninth Circuit properly recognized a Supremacy Clause action to enforce the federal statute against the State before the federal agency took final action.  Instead, the majority remanded the case to the Ninth Circuit for further argument on whether CMS approval of the rate cuts meant that the plaintiffs would now have to abandon their Supremacy Clause action against the state and instead challenge the federal agency determination under the Administrative Procedure Act (“APA”).

The APA provides for judicial review of final agency action, specifically allowing anyone “adversely affected or aggrieved” by agency action to obtain judicial review of the lawfulness of that action.  Under the APA, a reviewing court will set aside agency action it finds to be “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law.”  In an APA action challenging CMS’ approval of the rate reductions, the state agency, of course, is not the proper defendant.  In Douglas, therefore, to challenge CMS’ approval of California’s rate cuts under the APA, the plaintiffs would have to bring suit against the Secretary of Health and Human Services (“HHS”), who had theretofore not been a party to the case.

Justice Breyer gave several reasons why an APA action might be the proper posture for the plaintiffs once CMS had granted approval.  First, the broad and general language of section (30)(A) suggests that the agency’s expertise is relevant in determining that provision’s application.  Second, allowing a Supremacy Clause action to proceed after the agency has reached a decision threatens potential inconsistency or confusion, with the conflicting interpretations of law by several courts (and the agency) threatening to defeat the uniformity that Congress intended by centralizing administration of the program in the agency.  Third, to allow the Supremacy Clause action to continue would appear redundant and inefficient, since the agency was not a participant in the litigation below.

Ordinary review of agency action requires courts to apply the highly-deferential standard of review found in cases like National Cable & Telecommunications Assn. v. Brand X Internet Services, 545 U.S. 967 (2005), and Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 476 U.S. 837 (1984).  Justice Breyer found that the parties had not suggested reasons why, in the changed posture of the case following agency approval, those ordinary standards of deference should not apply.  However, noting that the parties had not fully argued that question, the majority chose not to decide it themselves, but to vacate the decision below and remand the question back to the Ninth Circuit.

It should also be noted that the majority did not hold that the plaintiffs had Supremacy Clause standing prior to CMS approval of the rate cuts.  The majority’s failure to so hold was likely the price of Justice Kennedy’s decision to join the majority; Justice Kennedy had ruled that states could not be sued under § 1983 in the earlier Wilder decision. Instead, Douglas was remanded on a far narrower question.  As to the broader question of Supremacy Clause standing, the dissenting opinion, delivered by Chief Justice Roberts on behalf of the four conservative justices, may well signal the ultimate answer.  “When Congress did not intend to provide a private right of action to enforce a statue enacted under the Spending Clause,” the Chief Justice opined, “the Supremacy Clause does not supply one of its own force.  The Ninth Circuit’s decisions to the contrary should be reversed.”

What Does it Mean?

Since the Ninth Circuit decisions in the Douglas cases, a handful of trial courts in other states have found Supremacy Clause standing where the agency had not yet approved a challenged rate cut.  Further, there is not a single court case where Supremacy Clause standing was not granted because the federal law in question was enacted under the Spending Clause.

In the U.S. Circuit Court of Appeals for the First Circuit, states will continue to point to Long Term Care Pharmacy Alliance, Inc. v. Ferguson, 362 F.3d 50 (1st Cir. 2004), which relied upon Gonzaga to hold that section (30)(A) did not confer a private right of action.  However, Long Term Care Pharmacy Alliance was decided solely under § 1983, and did not address Supremacy Clause standing.  While Rosie D. v. Swift, 310 F.3d 230 (1st Cir. 2002), contains language that appears to favor plaintiffs’ standing, it involves early and periodic screening, diagnosis and treatment (“EPSDT”) under § 1396(a)(10) of the Medicaid Act.  At least five circuit courts of appeal have held that Section 1396(a)(10) creates a private right of action, and none have held to the contrary.  See Watson v. Weeks, 436 F.3d 1152 (9th Cir. 2006).  This renders Rosie D. less than ideal footing for a Supremacy Clause action.

Far more supportive of Supremacy Clause standing are the First Circuit’s holdings in Puerto Rico Telephone Co. v. Municipality of Guayanilla, 450 F.3d 9 (1st. Cir 2006), and O’Brien v. Massachusetts Bay Transportation Authority, 162 F.3d 40 (1st Cir. 1998).  Puerto Rico Telephone Co., decided two years after Long Term Care Pharmacy Alliance, announced a broadly-worded rule that did not carve out an exception for Spending Clause legislation.  To quote: “A party may bring a claim under the Supremacy Clause that a local enactment is preempted even if the federal law at issue does not create a private right of action.”   The 1998 O’Brien decision actually did address the Spending Clause, holding “[P]reemptive legislation under the spending power presents states with a choice… *** When congress delineates conditions governing the receipt of federal dollars and a state agency accepts the money on that basis, the Supremacy Clause requires conflicting local laws to yield.  The rule then, is crystal clear: as long as a state receives federal funds for a particular purpose, its law, if contrary to conditions attached to the funds, must give way to federal law.”

However, it might now be expected that district courts will draw stronger direction from the four dissenting Supreme Court justices in Douglas, who did not hesitate to answer the underlying Supremacy Clause question.  Moreover, the dissent needs only one other justice to join them if the underlying question makes its way back before the Court.

Furthermore, Douglas and the Supremacy Clause cases in its wake are not being decided in a vacuum.  The federal government is facing a multi-trillion dollar shortfall due to unfunded liabilities, and the explosive growth of Medicaid spending has been identified by many states as their number one threat to fiscal solvency.  Against this backdrop, states are already taking lessons from the California cases.  For example, one of the findings that supported a likelihood of success on the merits in the California cases is the fact that the plaintiffs could demonstrate that rates cuts had been made for purely budgetary reasons, without the “section (30)(A) analysis” that prior Medicaid cases have required of the states.  Providers should expect that states will increasingly alchemize their budget processes into “well-researched studies” supporting the fact that quality and access can be effectively maintained under the proposed rate cuts.

Supremacy Clause plaintiffs may also find that hearings on their request for preliminary injunctive relief take just long enough for the state’s proposed changes to be “presumptively approved” under the 90 day rule in 42 C.F.R. § 430.16.  Presumptive approval might then be held to mean that an APA action is the proper remedial vehicle.  Of course, APA actions are decided under the highly-deferential Chevron standard.[3]

This does not mean, however, that CMS will never disapprove a proposed state plan amendment simply because of today’s challenging fiscal environment.  In a pair of change requests recently submitted to CMS by the State of Rhode Island, CMS denied requested premium increases that would have violated “maintenance of effort” requirements, but approved a twenty-three percent rate cut to providers of developmental disability services.  In the latter determination, CMS found that the providers’ attestations and cost documentation simply had not defeated the state’s assurances that that quality and access would be maintained.

So, what is the lesson here?  Given the clear signals from the dissent, it is not clear that a Supremacy Clause action against the state is an advisable strategy.  Rather, the more effective strategy might seem to center on communications with CMS.  The agency has shown that it is not a rubber stamp for the states: if it is presented with persuasive evidence that quality or access will suffer, or that some other Medicaid-related statute will be violated, CMS will deny a state’s change request.  However, potential grievants must be able to demonstrate not merely that the state action will cause reductions in service delivery, but that the reductions will be so great as to constitute a violation of federal law.  When all is said and done, this is the standard, and parties who cannot meet it will fail in their efforts regardless of how they go about seeking redress.

Thomas Barker is a partner in the law firm of Foley Hoag LLP, where he is a member of the firm’s life sciences, health care, and government strategies practices. He represents health care providers, pharmaceutical, biological and medical device manufacturers on complex CMS and FDA regulatory issues. Mr. Barker splits his time between the firm’s Washington, DC and Boston offices. 

Prior to joining Foley Hoag LLP, Mr. Barker served as a political appointee in the Administration of President George W. Bush. Most recently, Mr. Barker was the acting General Counsel of HHS from May of 2008 through the end of the Bush Administration. In that role, he supervised a staff of 450 attorneys nationwide and was responsible for attesting to the legal sufficiency of each regulation issued by HHS and its component agencies, as well as overseeing the conduct of all litigation to which the Department was a party. Mr. Barker also served as counselor to the Secretary of HHS, the Honorable Michael Leavitt, and before that, worked as a policy advisor to the Centers for Medicare & Medicaid Services (CMS). During his tenure at HHS, Mr. Barker was integrally involved in every major health care initiative implemented or proposed by the Bush Administration, including the part D drug benefit.

Prior to his service at HHS, Mr. Barker was regulatory counsel to the Massachusetts Hospital Association. He has also worked on Capitol Hill. Mr. Barker is an adjunct professor of health law at Suffolk University School of Law in Boston, and the George Washington University Schools of Law and Public Health and Health Services in Washington, D.C.

Joel Goloskie is Deputy General Counsel and Director of Compliance, Privacy & Ethics at CharterCARE Health Partners, a multi-facility healthcare delivery system centered in Providence, Rhode Island.  Focusing upon the development of competitive centers of excellence in high-demand services such as cancer care, digestive diseases, elder care, and behavioral health, CharterCARE specializes in breathing vitality and viability into formerly-struggling hospitals and healthcare institutions.

Prior to moving in-house, Mr. Goloskie maintained an active practice in healthcare-related litigation, regulatory, and transactional matters, representing a wide range of clients across all points of the provider spectrum.  Mr. Goloskie spent ten years as the founder and president of Goloskie Consulting Group, Inc., providing reimbursement, compliance, and strategic guidance that generated tens of millions of dollars in additional reimbursement for over fifty hospitals in fifteen states.  Mr. Goloskie also served as the founding Executive Director of a Robert Wood Johnson Foundation-sponsored collaborative consisting of four rural hospitals, two rural referral centers, and nine federally-qualified health center sites.  A graduate of Boston College Law School and a Hingham resident, Mr. Goloskie co-chairs the Boston Bar Association’s Health Law Education Committee.


[1] Twelve years earlier, the Supreme Court had held that another provision of the Medicaid Act, 42 U.S.C. § 1396a(a)(13)(A), could be enforced under § 1983.  Wilder v. Virginia Hosp. Assoc., 496 U.S. 498 (1990).

[2] The inconsistency between Wilder and Gonzaga can likely be explained by two factors.  Number one, in the years between the decisions in Wilder and Gonzaga, the underlying statute had been amended.  Number two, the composition of the Court had changed; Justice Marshall, who had been in the majority in Wilder, was replaced by Justice Thomas, who was in the majority in Gonzaga.

[3] In PhRMA v. Walsh, 538 U.S. 644 (2003), another Medicaid case that arose, in part, under the Supremacy Clause, the Supreme Court implied just how high a challenger’s bar would be once CMS approved a state plan amendment.  See id. at 659 (describing such CMS action as “presumptively valid”).

Health Law Case Brief: Revisiting Federal Authority: An Analysis of Supreme Court’s Patient Protection and Affordable Care Act Cases

By: James P. Dowden, Douglas H. Hallward-Driemeier, and Brendon O. Carrington

            In a landmark ruling this summer, the Supreme Court upheld key provisions of the Patient Protection and Affordable Care Act (ACA), while at the same time stressing the limits of federal regulatory authority.  National Federation of Independent Business v. Sebelius, 132 S.Ct. 2566 (2012).  The most immediate and direct impact of the Court’s opinion will be to spare health care providers, insurers, and insureds the task of unwinding steps they had already taken to implement the law, which many commentators believed would be held unconstitutional in whole or in part.  In a sharply divided opinion with shifting majorities, the Court held that the ACA’s individual mandate provision — which requires that nearly every individual obtain health insurance or pay a monetary penalty — was beyond Congress’s power to regulate commerce, but could nonetheless be upheld as a valid exercise of Congress’s power to lay and collect taxes.  The Court also upheld the ACA’s expansion of Medicaid programs, but effectively rendered participation in the expanded scope optional to the States.  The Court found that a provision threatening States with the loss of all Medicaid funding if they did not comply with the expansion was impermissibly coercive.

The mix of rulings came as a surprise to many commentators, who had thought that the Court would strike down the individual mandate, and perhaps the whole ACA.  However, the biggest surprise was not the Court’s ruling, but its alignment, with the Chief Justice (rather than Justice Kennedy) casting the swing vote to save key provisions of the statute.  While the decision’s final judgment upholds the law, the Chief Justice’s opinion — in civics lesson fashion — offers a strong reaffirmation of the principles of federalism and separation of powers that limit what some on the Court see as an ever-expanding assertion of federal power.  For the ACA in particular, the decision returns the debate to the political realm.

Anti-Injunction Act.  As a threshold matter, the Court first determined that it had authority to rule on the law’s constitutionality.  The Anti-Injunction Act (AIA) generally prevents taxpayers from challenging a tax in court before it becomes operative.  Because the individual mandate and requirement to pay a penalty to the Internal Revenue Service if one fails to obtain insurance do not become operative until 2014, the challenge to that provision was arguably premature.  Employing a literal statutory analysis, the Court held that because Congress called the monetary exaction a “penalty” rather than a “tax” and did not include it among penalties that should be “deemed” taxes for purposes of the AIA, the jurisdictional bar did not apply.

The Individual Mandate. The Court then turned to the question that had captured the most public attention:  whether Congress had the authority to enact the individual mandate.  In briefing and during oral argument, the Court principally focused on whether Congress had the power to enact this provision pursuant to its constitutional authority to regulate interstate commerce.  Since the New Deal, the Supreme Court has taken an expansive view of the Commerce Clause, permitting Congress to enact legislation in many areas, so long as it had a “substantial effect” on interstate commerce, including in agriculture, narcotics, and civil rights.  However, several cases over the last two decades have imposed some limiting principles.

In the Court’s opinion, five Justices — the Chief Justice and Justices Scalia, Kennedy, Thomas, and Alito — declared a further limitation on Congress’s Commerce Clause authority: Congress cannot create commerce by forcing otherwise inactive participants to enter the market.  The Chief Justice wrote separately from the other four, who authored a rare joint opinion that did not indicate the author — something often reserved for when the Justices wish to signal unity on an issue.  These five determined that the individual mandate was an attempt to compel individuals who were not participating in the health insurance market to enter that market.  These Justices rejected the argument pressed by the government and health care and insurance industries that these individuals were already participating in the health care system because almost all were accessing (or someday would access) health care services, but were shifting the cost to others by failing to pay for insurance now.  The five conservative Justices held that interpreting the Commerce Clause to encompass even non-activity that has significant effects on commerce would explode any limits on the federal government’s regulatory authority under our constitutional scheme.  For similar reasons, these Justices concluded that the individual mandate could not be regarded as “necessary and proper” to the exercise of Commerce Clause authority because it represented a vast expansion of that power, not a mere complement to it.

Justice Ginsburg, in an opinion joined by Justices Breyer, Sotomayor, and Kagan, penned a vigorous defense of the individual mandate’s validity under the Court’s Commerce Clause jurisprudence.  She rejected the activity/inactivity dichotomy as unsupported by precedent or the facts of this case.  She stressed that nearly all people will be active in the health care market at some time, and those who choose not to buy insurance are taking an active step to “self-insure.”  She likened the contrary view to the long-discredited Lochner era, in which the Supreme Court regularly struck down economic regulation.  She urged that the Court should avoid unnecessarily constraining Congress’s “capacity to meet the new problems arising constantly in our ever-developing modern economy.”

Despite all the ink spilled over the commerce power, the mandate’s fate was decided, in the end, without reliance on the Commerce Clause.  The Chief Justice was joined by Justices Ginsburg, Breyer, Sotomayor, and Kagan in ruling that the law was valid under Congress’s power to levy taxes.  In something of a semantic twist — which the dissenters lambasted as sophistry — the majority held that the individual mandate could be saved by construing its penalty as a constitutionally authorized “tax,” despite the fact that the same penalty did not constitute a “tax” for statutory purposes under the AIA in the context of the threshold jurisdictional inquiry.  The question the Court addressed was whether it was “fairly possible” to read the individual mandate’s provisions not as making it unlawful for an individual to fail to obtain insurance, and imposing a penalty for this unlawful act, but instead as exacting a “tax,” the condition of which is that the person does not have insurance.  The majority concluded that the latter construction was “fairly possible.”  In reaching this conclusion, the Court employed a functional analysis, and relied on the fact that the exaction is collected by the Internal Revenue Service as part of tax returns, is relatively small and calculated with reference to income and tax status, and is imposed without regard to criminal scienter.

Medicaid Expansion.  The second issue on center stage before the Court was the ACA’s expansion of Medicaid coverage.  Starting in 2014, the ACA increases eligibility for Medicaid, by requiring all States to cover people under 65 with individual or family incomes up to 133% of the federal poverty level.  Although the federal government entirely pays for the expansion for the first two years, it will gradually reduce its payments and only cover 90% by 2020.  Another provision of the ACA authorized the Secretary of Health and Human Services (HHS) to withdraw all of a State’s Medicaid funding should the State fail to comply with the expansion provisions.  The question facing the Court was whether the Secretary’s ability to deprive a State of so significant a percentage of a State’s revenue made the expansion unconstitutionally coercive.

The Supreme Court has from time to time discussed limits on Congress’s power to spend and tax, but it had not found that Congress overstepped those limits since 1936.  In the Court’s ruling, seven members of the Court (all but Justices Ginsburg and Sotomayor) for the first time declared that conditional federal spending unconstitutionally coerced the States.  Chief Justice Roberts wasted no euphemisms, characterizing Congress as pointing “a gun to the head” of each State.  Moreover, he concluded that the expansion of Medicaid to cover all persons with income below 133% of the poverty line constituted a change in kind, rather than degree, to the existing Medicaid program.

But Chief Justice Roberts (joined by Justices Ginsburg, Breyer, Sotomayor, and Kagan) ultimately saved Medicaid expansion by limiting its holding to the unconstitutional applications that the Court had identified.  In other words, the decision precludes the Secretary only from withdrawing funds under the extant Medicaid program from those States that decline to participate in, or fail to comply with, the expansion provisions.  It remains to be seen what practical issues may arise as the Secretary attempts to administer two versions of the Medicaid program, one for States participating in the expanded program and the other for States that reject the new provisions.

***

            While proponents of the ACA are surely celebrating its constitutional vindication, the Justices’ multiple opinions exposed deep ideological rifts and foreshadow fissures that are likely to expand in future cases dealing with the scope of federal legislative power.  Indeed, four Justices would have struck down the ACA in whole, and the Court’s opinions indicate that a majority of the Justices presently on the Court have a relatively restrictive view of Congress’s commerce and spending powers.  While these two powers have expanded without much impediment since the New Deal, a majority of Justices have made it clear, at the least, that federal regulation of commercial inactivity and large monetary grants to the States with onerous conditions will be viewed through a jaundiced eye.

James Dowden is a government enforcement partner with Ropes & Gray and concentrates his practice on advising organizations and individuals in a wide variety of investigations and enforcement proceedings brought by federal, state and foreign government agencies.  Jim has extensive experience in white collar criminal, as well as civil and administrative matters involving the regulation of the health care, life sciences, pharmaceutical and medical devise sectors.  Jim is also a member of Rope & Gray’s Appellate and Supreme Court practice.  Prior to rejoining the firm in January 2012, Jim served as an Assistant United States Attorney in the Economic Crimes and Public Corruption Units in the U.S. Attorney’s Office for the District of Massachusetts.  He also served as a law clerk to Associate Justice Stephen G. Breyer during the United States Supreme Court’s 04-05 Term.

Douglas Hallward-Driemeier is a partner and leads Ropes & Gray’s Appellate and Supreme Court practice. Doug has presented more than 40 appellate arguments, including arguments before the U.S. Supreme Court and every federal circuit court of appeals. He has briefed and argued both civil and criminal matters covering a wide range of subjects and has particular experience in the areas of federal preemption, the False Claims Act, securities litigation, and intellectual property. Doug has extensive experience litigating issues of concern to multinational corporations and other businesses with international activities, including the Alien Tort Statute, the Foreign Sovereign Immunities Act, private enforcement of treaties, and forum non conveniens. In addition to handling appeals, Doug works closely with trial court colleagues to present the most compelling dispositive motions and to preserve our clients’ rights to appeal if necessary. Earlier in his career, Doug was an Assistant to the Solicitor General, where he briefed and argued cases on behalf of the United States before the Supreme Court

Brendon Carrington is a litigation associate at Ropes & Gray, where he defends companies in shareholder class actions, derivative lawsuits, and government investigations.  Brendon also works on federal and state appellate matters, and he devotes significant time to pro bono family law litigation.  He received his J.D., magna cum laude, from Harvard Law School and his A.B. from Princeton University.  Before entering private practice, Brendon spent a year clerking for the Honorable Patrick E. Higginbotham of the U.S. Court of Appeals for the Fifth Circuit.

Health Law Brief: Board of Registration in Medicine v. Sturdy Memorial Hospital, 2011 WL 7102574 (Mass. Super. Dec. 12, 2011)

By Leda Tabaie with credit to Jennifer Gallop, Esq. and Anthony J. Cichello, Esq

In December of 2011, the Superior Court of Massachusetts enforced an investigative subpoena issued by the Massachusetts Board of Registration in Medicine (“Board”) to Sturdy Memorial Hospital, Inc. (“Sturdy”), compelling the disclo­sure of materials claimed by Sturdy to be privileged core materials of medical peer review committee. The subpoena at issue sought to compel the production of certain handwritten notes (“Notes”) cre­ated by Sturdy’s Medical Director concerning a physician, Dr. Doe, about whom complaints had been lodged. The Board sought all docu­ments pertaining to Dr. Doe, includ­ing documents relating to incident reports referencing the physician and the investigation thereof, such as the Notes. Sturdy objected to producing the Notes, claiming they were protected by the medical peer review privilege under G.L. c. 111, § 204(a). The Board asserted that the Notes are protected under G.L. c. 111, § 205(b), which would allow for the production of such materials to the Board prior to the institution of a formal administrative proceed­ing under G.L. c. 30A. The Superior Court agreed with the Board, hold­ing that the Notes constituted raw materials protected only by Section 205(b) and were therefore immedi­ately discoverable by the Board.1

The fundamental purpose of the medical peer review privilege is to achieve quality health care by promoting candor and confidential­ity in the peer review process and to “foster aggressive critiquing of medical care by the provider’s peers.” 2 G.L. c. 111, § 204(a) protects so-called “core materi­als,” i.e., the proceedings, reports, and records of a medical peer re­view committee. Section 205(b) protects from disclosure the “raw materials” of a peer review com­mittee, specifically, “[i]nformation and records which are necessary to comply with risk management and quality assurance programs… and which are necessary to the work product of medical peer re­view committees.” Both catego­ries of peer review material are protected from disclosure to third parties except the Board of Regis­tration, which can obtain the Sec­tion 205(b) materials upon request but can only obtain Section 204(a) core materials after the institution of a formal adjudicatory proceed­ing. 3

In the Sturdy case, the medical director, Dr. Pietro, served as the coordinator of the hospital’s Pa­tient Care Assessment Program (“PCAP”) and as chairman of its Clinical Risk Management Com­mittee (“CRMC”). Both of these programs operated as peer review functions under the hospital’s by­laws. To support its claim that the Notes were protected under Section 204(a), Sturdy introduced an affidavit from Dr. Pietro which claimed that the Notes were core materials made pursuant to his duties as coordinator of PCAP and CRMC. Thus, Sturdy argued that, per Section 204(a), the Notes were not then subject to production to the Board, which had not yet com­menced an adjudicatory proceed­ing. In contrast, the Board argued that the Notes were only protected by Section 205(b) which allows the Board to inspect, maintain, and uti­lize such raw materials prior to the commencement of formal adjudi­catory proceedings.

In finding that the Notes at issue constituted raw materials, the Stur­dy court relied heavily on the analy­sis of the Supreme Judicial Court (“SJC”) in its 2009 case, Hallmark, in which the SJC distinguished peer review core materials protected un­der Section 204(a) from Section 205(b) raw materials. In Hallmark, the SJC recounted the statutory history of the peer review privi­lege, noting that, in 1987, it had held that Section 204(a) did not protect “raw materials” relied on by a peer review committee if they were obtained from other sourc­es.4 In response to that decision, the Massachusetts Legislature enacted Section 205(b) to extend the medical peer review privilege to documents that might otherwise fall outside the scope of Section 204(a), but that are nonetheless necessary to risk management and quality assurance programs. The Hallmark court pointed out that while both sections shield in­formation from the general public and other third parties, Section 204(a) shields information from the Board only until the Board commences formal proceedings under G.L. c. 30A, whereas raw materials protected under Section 205(b) may be inspected, maintained, and utilized by the Board upon request.

The SJC found this distinction to be consistent with the overarching ob­jectives of the medical peer review privilege because only the Board, and not the general public, would gain access to the materials and they would remain confidential. The Board, the court reasoned, is part of the regulatory scheme intended to protect the public in­terest by promoting the highest quality medical services through conducting disciplinary proceed­ings. In its analysis, the Hallmark court also explained that the prop­er inquiry for determining what protective status the Notes would receive involved analyzing “the way in which a document was created and the purpose for which it was used, not…its content.”5

The court rejected Sturdy’s conten­tion that the Notes were created by, for, or otherwise as a result of a medical peer review committee, noting that, at best, the materials were created “for” a peer review committee. Even if created “for” such a committee, the court never­theless found the Notes to be only raw materials protected by Section 205(b). In making this finding, the court placed particular emphasis on the fact that the Notes were not made in response to a specific request by a medical peer review committee, but instead were made in anticipation of potential con­sideration by such a committee. The court reasoned that, because there was no evidence on record that a peer review committee ever convened, generated any record, or rendered any decision concern­ing Dr. Doe, the Notes were not pro­tected under Section 204(a).6

This case takes a very narrow view of the materials protected by Sec­tion 204(a) from disclosure to the Board during the investigatory stage. While Hallmark and Beth Israel both held that raw materials obtained from other sources were subject to production to the Board during this stage, neither required the production of the work product of the hospital’s Medical Director in the course of his duties as the coordinator and chairman of the hospital’s designated peer review committees. In analyzing contest­ed materials regarding privilege, the Sturdy court seemed to em­phasize form over substance in a way that favors Board access. The Court gave little credence to the Medical Director’s affidavit explain­ing the purpose for which the Notes were created. Instead, it focused on timing and the fact that a peer review committee had not yet con­vened. Indeed, the court observed that the “Notes may, at some point be necessary work product of a medical peer review committee” and presumably then would be pro­tected from Board review.7

This ruling, if followed by other courts, could have practical im­plications for health care provid­ers. The Notes were not specifi­cally designated as privileged peer medical review materials and the Medical Director was not careful about specifying in what capac­ity he was creating the Notes. At­torneys should consider advising healthcare clients to be mindful of the timing and process for pro­tecting materials under the medi­cal peer review privilege. Further­more, early on, clients may want to consider convening a formal review committee meeting to preserve the confidentiality of materials made in connection with incident reports or investigations of professional mis­conduct. Finally, there is a concern that a more restrictive definition of the core peer review protection of Section 204(a) and the heightened possibility of early-stage disclosure of materials to the Board of Reg­istration disciplinary unit, particu­larly notes created by the Medical Director or another physician peer review committee, could under­mine the candor and openness that is necessary for an effective peer review process.

Leda Tabaie is a graduate of Northeastern University School of Law, class of 2012. Through­out her law school career, Leda has interned with the Honorable Judge William G. Young of the United States District Court for the District of Massachusetts, the Reproductive Freedom Proj­ect at the American Civil Liber­ties Union, and Oxfam America. With this strong background in public interest, Leda aspires to advocate for reproductive justice in Boston.


(Endnotes)

1 Board of Registration in Medicine v. Sturdy Memorial Hospital, No. MICV2011-04006-C, 2011 WL 7102574, *4 (Mass. Super. Dec. 12, 2011).

2 Board of Registration in Medicine v. Hallmark Health Corporation, 454 Mass. 498 (2009).

3 G.L. c. 111, §§204(a), 205(b).

4 Beth Israel Hosp. Ass’n. v. Board of Registration in Medicine, 401 Mass. 172, 183 (1987).

5 Sturdy, 2011 WL at *2, citing Hallmark, 454 Mass. at 509.

6 See Beth Israel Hospital Association v. Board of Registration in Medicine, 401 Mass. 172, 183 (1987) (“Section 204 does not protect information generated by other components of the QPCAP system or the ‘raw materials’ relied on by a [peer review committee] if obtained from other sources.”); Carr v. Howard, 426 Mass. 514, 522 n.7 (1998) (holding that protection under Section 204(a) only applies to documents which are themselves a product of the proceedings, reports, and records of a peer review committee, and not merely materials made to be presented to such a committee).

7 Sturdy Memorial Hospital, 2011 WL at *4

Health Law Brief: Gauthier v. Director of the Office of Medicaid, 80 Mass. App. Ct. 777 (2011)

By Matthew S. Buehler

The Massachusetts Medicaid plan, MassHealth, pays for nurs­ing home care received by individ­uals who have less than $2,000 in assets and meet certain other criteria.1 This creates an incen­tive, however, for individuals to give away their assets to friends and families in order to qualify for nursing home benefits. To mini­mize this incentive, MassHealth reviews asset transfers made by an applicant. 2 The Appeals Court in Gauthier v. Director of the Of­fice of Medicaid, 80 Mass. App. Ct. 777 (2011), reviewed such an asset transfer in the form of a care agreement.

Specifically, the plaintiff in Gauth­ier entered into a care agree­ment with her son whereby she transferred all of her assets to him. The plaintiff applied to MassHealth roughly two years later for nursing home benefits. MassHealth, however, found that the care agreement was a dis­qualifying asset transfer.

MassHealth reviews all asset transfers made an applicant for nursing home benefits within the five years preceding the applica­tion. If MassHealth determines that an applicant has made a “disqualifying transfer” of assets during that period, it imposes a period of ineligibility before the applicant can receive benefits.3

A contract for future care (such as the agreement between the plain­tiff and her son) is “a disqualify­ing transfer of assets to the ex­tent that the transaction does not have an ascertainable fair-market value or if the transaction is not embodied in a valid contract that is legally and reasonably enforce­able by the applicant.”4 However, even if a disqualifying transfer has occurred, no ineligibility peri­od will be imposed if the applicant “demonstrates to the MassHealth agency’s satisfaction that (1) the resources were transferred exclu­sively for a purpose other than to qualify for MassHealth; or (2) the [applicant] intended to dispose of the resource at either fair-market value or for other valuable con­sideration. Valuable consider­ation is a tangible benefit equal to at least the fair-market value of the transferred resource.”5

The ineligibility period (in months) imposed for a disqualifying trans­fer of assets is “equal to the to­tal, cumulative, uncompensated value … of all resources trans­ferred … divided by the average monthly cost to a private patient receiving nursing-facility services in … Massachusetts at the time of application, as determined by the MassHealth agency.”6 The “uncompensated value” of a re­source is defined as “the differ­ence between the fair-market value of the resource ,,, at the time of transfer … and the actual amount the individual received.”7 Fair market value is “an esti­mate of the value of a resource if sold at the prevailing price.” 8

The plaintiff suffered from Al­zheimer’s disease. By Septem­ber 2004, when the plaintiff was 79 years old, her condition had reached the point where she could no longer live alone and she moved in with her son and his wife (the plaintiff’s daughter-in-law). The son and daughter-in-law subsequently renovated their home and built a living area for the plaintiff. In March 2006, the plaintiff entered into a Care Agreement (“the Agreement”) with her son. Under the Agree­ment, the son agreed to provide the plaintiff with lodging, 3 meals a day and weekly houseclean­ing and laundry services. In re­turn, the plaintiff agreed to pay $225,000 up-front to her son.

After 90 days, the son had the right to terminate the Agreement for “good and sufficient cause” and keep any payments. “Good and sufficient cause” was de­fined to include if the plaintiff could no longer care for her per­sonal needs, including bathing or dressing herself. The Agreement remained in effect over 2 years until the son terminated it in May 2008 after he had back surgery and could no longer lift the plain­tiff. At that time, the plaintiff had paid $182,000 to her son and did not have any further assets.

Upon termination of the Agree­ment, the plaintiff moved into a nursing home and applied for MassHealth benefits. MassHealth though denied her application on the ground that the Agreement was a disqualifying transfer. The plaintiff appealed the denial of MassHealth benefits with the Of­fice of Medicaid Board of Hear­ings. After a hearing, the agency Hearing Officer upheld the denial of benefits.

In particular, the Hearing Officer found that the plaintiff’s payment of $182,000 to her son was a dis­qualifying transfer as the Agree­ment had no fair-market value. The Hearing Officer further found the payment was made at least in part to qualify for MassHealth. As a result, the plaintiff was in­eligible for nursing home benefits for 682 days ($182,000 divided by a $267 average daily cost of a private nursing home in Massa­chusetts).

In reviewing the Hearing Officer’s decision, the Appeals Court first upheld the finding that the Agree­ment was a disqualifying trans­fer.9 Fair-market value is deter­mined by reviewing the value of what the applicant received at the time of transfer.10 At the time of its execution, however, the Agreement was ambiguous as to how long the son would care for the plaintiff and what care she would receive. The Agreement did not have a set duration and lacked benchmarks for care pro­vided. The Agreement instead only required the son to care for the plaintiff as much he could for as long as he could.11

Moreover, the plaintiff was al­ready in failing health in March 2006 due to Alzheimer’s and needed one-on-one supervision. As a result, the son literally could have terminated the Agreement at any time. The son did provide a newly built living area to the plaintiff but he retained title to it. The son further controlled how long the plaintiff could live there as he could cancel the Agreement without having to make a refund. These factors provided sub­stantial evidence to support the Hearing Officer’s finding that the Agreement did not, at the time of its execution, have an ascertain­able fair market and hence was a disqualifying transfer.12

The Appeals Court next reviewed the Hearing Officer’s finding that the plaintiff entered into the Agreement at least in part in or­der to qualify for MassHealth. MassHealth provides an excep­tion for transfers made solely for another purpose than qualifying for benefits. 13 To qualify for this exception, an applicant must provide more than verbal assur­ances as to his or her intent. An applicant must instead prove his or her intent through convincing evidence.14 The Appeals Court found that substantial evidence supported the finding that the plaintiff did not meet this burden.

The plaintiff was already in fail­ing health when she executed the Agreement. The Agreement thus contemplated a possible future where the plaintiff would need more care than the son and his wife could provide. At that time, the plaintiff would have no al­ternative but to go to a nursing home, and would have to apply for MassHealth. This supported the conclusion that one purpose of the Agreement was to enable the plaintiff to qualify for MassHealth if and when her son could no lon­ger care for her.15

The Appeals Court found, how­ever, that these facts were in­sufficient to end the inquiry into the intent of the Agreement. MassHealth regulations also pro­vide an exception for transfers where the applicant intended to receive valuable consideration.16 The Appeals Court noted that it was possible that the son intend­ed to give the plaintiff fair consid­eration, even if he believed that she would ultimately have to re­ceive nursing home care. In fact, the son did build a living area for the plaintiff and cared for her un­der the Agreement for nearly two years. The Appeals Court stated that these facts could support a finding that the plaintiff did in­tend to receive fair consideration, although the Hearing Officer did not make any separate findings on this issue. The Appeals Court thus remanded the case for fur­ther findings.17

In addition, the Appeals Court addressed the calculation of the plaintiff’s ineligibility period. The Hearing Officer based the ineligibility period on the entire $182,000 transfer by the plain­tiff. This period is supposed to be based on uncompensated value, i.e., the difference between what the plaintiff paid under the Agree­ment and what it was worth.18 The plaintiff paid $182,000 un­der the Agreement, although, as discussed above, it is difficult to determine the fair market value for what the plaintiff received. The Hearing Officer appears to have treated the Agreement as worthless based on its lack of val­ue when executed. The Hearing Officer also noted, though, that the plaintiff received 22 months of care under the Agreement – and that the average monthly cost of nursing home care was $8,010. The plaintiff thus likely would have paid nearly $182,000 if she spent those 22 months in a nursing home instead.

The Appeals Court noted that MassHealth regulations are un­clear whether uncompensated value is measured at the time of execution or by the services sub­sequently provided under a con­tract. The Court indicated that it preferred calculating the value of the contract based on the value of services actually provided but it declined to make a definitive ruling without more guidance from the agency. Instead, the case was remanded for further findings as to the intent and un­compensated value of the Agree­ment.19 Until then, the value of future care contracts will remain uncertain.

Matthew S. Buehler is a contract Staff Attorney at DentaQuest, LLC. Mr. Buehler’s practice focusses on regulatory compliance and filings and representing the company in administrative proceedings. Mr. Buehler graduated from Suffolk Uni­versity Law School in 1995. Prior to joining DentaQuest, Mr. Buehler worked primarily in the public sector, including the Office of Medicaid and the Office of the Attorney General, Insurance Division. While at the Of­fice of Medicaid, Mr. Buehler brought enforcement actions under the ‘pay­er-of-last-resort’ of the state and fed­eral Medicaid acts and represented the MassHealth program in court proceeding. Mr. Buehler further de­fended administrative appeals of MassHealth audits. While at the At­torney General’s Insurance Division, Mr. Buehler brought enforcement ac­tions under the consumer protection, healthcare and insurance statutes. In addition, Mr. Buehler has worked as an attorney for the Attorney Gen­eral’s Civil Rights Division and the Massachusetts Commission Against Discrimination.

(Endnotes)

1 130 C.M.R. § 519.006.

2 130 C.M.R. §§ 520.018 & 520.019.

3 130 C.M.R. § 520.019.

4 130 C.M.R. § 520.007(J)(4).

5 130 C.M.R. § 520.019(F).

6 130 C.M.R. § 520.019(G)(1).

7 130 C.M.R. § 515.001.

8 130 C.M.R. § 515.001.

9 The plaintiff initially sought judicial review under G.L. c. 30A, § 14(7) of MassHealth’s decision. The Superior Court (Donovan, J.) upheld the denial of benefits and the plaintiff appealed this decision to the state Appeals Court.

10 Forman v. Director of Office of Medicaid, 79 Mass. App. Ct. 218, 224-25.

11 Gauthier, 80 Mass. App. Ct. at 784-85.

12 Gauthier, 80 Mass. App. Ct. at 784-85.

13 130 C.M.R. § 520.019(F)(1).

14 Gauthier, 80 Mass. App. Ct. at 785 (citing State Medicaid Manual).

15 Gauthier, 80 Mass. App. Ct. at 785-86.

16 130 C.M.R. § 520.019(F)(2).

17 Gauthier, 80 Mass. App. Ct. at 786-87.

18 130 C.M.R. § 520.019(G)(1).

19 Gauthier, 80 Mass. App. Ct. at 787-90.

Health Law Brief: Guardianship of Mary Moe, 81 Mass. App. Ct. 136 (2012)

By Margaretta Homsey Kroeger

In January 2012, the Massachu­setts Appeals Court reviewed an order of the Probate and Family Court appointing the parents of a mentally ill pregnant woman as her guardians for the purpose of consenting to an abortion and to a sterilization procedure. The Appeals Court determined that the order violated the woman’s right to due process and did not comply with the requirements of the state’s substituted judgment statute.1 Accordingly, the Appeals Court reversed in part, vacated in part, and remanded the matter for further proceedings.

At the time of the appeal, Mary Moe2 was a 32-year-old pregnant woman diagnosed with schizo­phrenia and/or schizoaffective disorder and bipolar disorder. She had suffered a psychotic break when she was in college and had been hospitalized numerous times due to her mental illness. Moe had also been pregnant on two previous occasions. The first time she became pregnant she had an abortion, and the second time she gave birth to a son who was placed in the custody of her parents. Moe’s psychotic break occurred at some point after she had the abortion and before the birth of her son.

In October 2011, Moe had visited a hospital emergency room where it was determined that she was two or three months pregnant. The Department of Mental Health then filed a petition requesting that Moe’s parents be appointed as her guardians for the purpose of consenting to an abortion. A hearing on the petition was held before a judge of the Probate and Family Court in December 2011. At the hearing, Moe stated that she would not have an abortion. She also made several inaccurate assertions, including that she was not pregnant, that she had met the judge before, and that she had previously given birth to a girl named Nancy, when she had in fact given birth to a boy. Based on these “substantial delusional beliefs,” the judge found that Moe was incompetent to decide whether to have an abortion.3

The judge appointed a guardian ad litem (“GAL”) to investigate wheth­er, under a substituted judgment analysis,4 Moe would consent to an abortion if she were com­petent. In Massachusetts, court authorization is required before a guardian may consent to cer­tain extraordinary medical proce­dures on behalf of a person who has been found incompetent.5 In determining whether to authorize a procedure, the court will apply the doctrine of substituted judg­ment, whereby it “substitutes it­self as nearly as possible for the individual in the decision making process.”6 In doing so, the court “seeks to maintain the integrity of the incompetent person” by pro­viding an opportunity to exercise his or her fundamental right to de­cide whether to consent to such a procedure.7 The court must de­termine not “what is necessarily the best decision but rather what decision would be made by the incompetent person if he or she were competent.”8

The GAL submitted a report concluding that Moe would not choose to have an abortion if she were competent. The record revealed that Moe became “agi­tated and emotional” discussing her first pregnancy that ended in an abortion.9 Moe had also stated that she was “very Catholic” and would never have an abortion.10 However, her parents stated that Moe was not an “active” Catholic and they believed it was in her best interest to have an abor­tion.11

After considering the facts con­tained in the GAL report, the judge reached the opposite conclusion than the GAL. Without holding a hearing, the judge found that Moe would choose to have an abortion if she were competent and or­dered that Moe’s parents be ap­pointed as guardians to consent to the abortion. The judge further ordered, sua sponte, that Moe be sterilized by the medical facility that performed the abortion pro­cedure. Moe then appealed the order.

In reviewing the order, the Appeals Court first observed that the deci­sion to bear or beget a child is a fundamental right of all people, including those who are incom­petent. As a result, the court will apply the doctrine of substitut­ed judgment when determining whether a guardian can consent to an abortion or sterilization on behalf of an incompetent person.

Turning to the portion of the order requiring sterilization, the court stated that, “[b]ecause steriliza­tion is the deprivation of the right to procreate, it is axiomatic that an incompetent person must be given adequate notice of the pro­ceedings,” along with an opportu­nity to be heard on the issue of the ability to give informed con­sent and, if unable to consent, a substituted judgment determina­tion.12 The court noted that none of these procedural requirements were met when the judge ordered Moe’s sterilization sua sponte and without notice. It held that the required level of due process had not been provided, and it re­versed that part of the order.13

The Appeals Court then consid­ered the portion of the order re­quiring an abortion. It first deter­mined that the judge’s decision that Moe was incompetent to de­cide whether to have an abortion was supported by evidence in the record, namely that Moe denied that she was pregnant.14 Howev­er, the court noted that the other evidence on which the judge re­lied, that Moe believed that she had met the judge before and had given birth to a girl, did not support a determination that she was incompetent with respect to the abortion issue, given that “[a] person may be adjudicated le­gally incompetent to make some decisions but competent to make other decisions.”15

The court next determined that the order requiring Moe to have an abortion did not comply with the state’s substituted judgment law. The court stated that, after Moe was found incompetent, the judge was legally required to hold an evidentiary hearing to deter­mine whether she would have an abortion if she were compe­tent, unless the judge found “ex­traordinary circumstances” that required her to be absent from the hearing.16 Alternatively, the judge could have based the sub­stituted judgment determination exclusively on affidavits and doc­umentary evidence if the judge had made “an additional finding, based on representation of coun­sel,” that there were no contested issues of fact.17 Because the judge did not hold a hearing or make the required additional findings, the court vacated the portion of the order requiring the abortion, and remanded the case for “a proper evidentiary inquiry and de­cision on the issue of substituted judgment.”18 Finally, the court vacated the portion of the order appointing Moe’s parents as her guardians to the extent that it was conditioned on the need for them to consent to the abortion, and the court directed that the order be modified to appoint her parents as guardians for general purposes related to routine medi­cal care.19

Margaretta Homsey Kroeger is a Skadden Fellow at Greater Bos­ton Legal Services in the Elder, Health and Disability Unit, where she focuses on advocating for youth with physical and mental disabilities who are aging out of the foster care system. She provides outreach, community education, and direct legal rep­resentation to youth who need assistance accessing disabil­ity benefits, health care, and related services. Prior to her fellowship, Ms. Kroeger clerked for Justice William P. Robinson III of the Rhode Island Supreme Court. She received her law de­gree from Boston College Law School, where she was a Public Service Scholar and served as an articles editor of the Boston College Law Review and as vice president of the Public Interest Law Foundation. She received her undergraduate degree from Harvard University with a con­centration in History.

(Endnotes)

1 Guardianship of Mary Moe, 81 Mass. App. Ct. 136, 139-42 (2012).

2 “Mary Moe” is a pseudonym used to maintain the confidentiality of the lower court proceedings. See G.L. c. 112 § 12S.

3 Guardianship of Moe, 81 Mass. App. Ct. at 137.

4 See G.L. c. 190B, § 5-306A.

5 See id.; see also Matter of Moe, 385 Mass. 555, 559 (1982).

6 Matter of Moe, 385 Mass. at 565.

7 Id.

8 Id.

9 Guardianship of Moe, 81 Mass. App. Ct. at 138.

10 Id.

11 Id.

12 Id. at 139.

13 Id. at 140 (citing U.S. Const. amend. XIV, § 1).

14 Id.

15 Id. (quoting Matter of Moe, 385 Mass. at 567-68).

16 Id. at 141 (quoting G.L. c. 190B, § 5- 306A(d)).

17 Id.

18 Id.

19 Id. at 141-42.

Health Law Brief: U.S. ex. rel. Christopher Drennen v. Fresenius Medical Care Holdings, Inc.

By Meghan M. Cosgrove

On March 6th, the District Court in Massachusetts denied a motion by Fresenius Medical Care Holdings, Inc. d/b/a Fresenius Medical Care North America (“Fresenius”) to dismiss a qui tam complaint un-der the False Claims Act, 31 U.S.C. §3730, filed by former employee Christopher Drennen (“Drennen”). In reaching its decision, the Court not only found that Drennen’s al-legations of fraud were specific enough to meet the pleading requirements under Rule 9(b) of the Federal Rules of Civil Procedure (“Rule 9(b)”), but also held that the public disclosure bar did not preclude Drennen from filing his action as the Court found him to be an “original source” of the information alleged.

Drennen, a former area manager of Fresenius, the nation’s largest dialysis provider, alleged that the company billed Medicare over a ten (10) year period for certain hepatitis B and ferritin tests that were not medically necessary. Specifically, he claimed that Fresenius billed hepatitis B tests more frequently than Medicare’s National Coverage Decision allowed and without the required supporting documentation, including the physician orders. Drennen made similar claims regarding Fresenius’ billing for ferritin tests although provided less detail with respect to these tests.

The False Claims Act (“FCA”) prohibits the submission of false or fraudulent claims to the federal government and allows private individuals to sue on behalf of the federal government under its “qui tam” provisions.1 It is well-settled case law that qui tam fraud actions brought under the False Claims Act are subject to the heightened pleading requirements of Rule 9(b).2 This rule requires that a plaintiff plead claims of fraud with sufficient particularity such as “the dates of the claims, the content of the forms or bills submitted, their identification numbers, the amount of money charged to the government, the particular goods or services for which the government was billed, the individuals involved in the billing, and the length of time between the alleged fraudulent practices and the submission of claims based on those practices . . .”3 While the “time, place, and content” factors are not used as a checklist, a relator must plead specific information with respect to the claims for payment that are submitted to the government in or-der to meet the Rule 9(b) pleading requirements.4

In this case, Fresenius argued that the information provided by Drennen did not meet the specificity requirement of Rule 9(b) because he did not identify the names of the Fresenius employees who sub-mitted the claims for the tests, the physicians who ordered the tests, or the details about when the tests were billed to Medicare. In rejecting Fresenius’ argument, the Court noted that Drennen identified the location where the unnecessary tests were performed, the type of test performed, the time period during which the tests were per-formed, and the cost billed. In addition, Drennen provided the initials of six (6) patients who received sixty-four (64) unnecessary hepatitis B or ferritin tests. The Court found the information provided by Drennen sufficient to meet the Rule 9(b) pleading requirements.

Beyond the heightened pleading requirement of Rule 9(b), qui tam actions under the False Claims Act are also subject to a dismissal if the activity alleged has already been publicly disclosed (the “public disclosure bar”).5 A relator can still overcome the public disclosure bar, however, if the relator is considered an “original source” of the information.6 To be considered an original source, the relator either must have voluntarily disclosed the information on which the claims are based to the government prior to public disclosure, or have direct and independent knowledge of the publicly disclosed claims and voluntarily provide this information to the government prior to filing an action.7 With respect to the latter category, a relator’s knowledge is considered direct and independent if it has been acquired through the relator’s own efforts and is not dependent upon the public disclo-sure.8 If the information in the relator’s possession is not considered direct and independent, the relator is not considered an “original source” and the public disclosure bar prevents the relator’s action from going forward.

The Court found that all of the elements of the public disclosure bar were met but that Drennen was an “original source” of the information he alleged in his complaint. In reaching its decision, the Court rejected Fresenius’ argument that Drennen needed to have direct and independent knowledge of the billing practices of every Fresenius clinic, the medical history of all patients, and every hepatitis B and ferritin test given from 2001 to the present. Even though Drennen’s personal knowledge of Fresenius’ alleged false and improper billings was limited to just the ten dialysis clinics that Drennen supervised, the Court found the information that Drennen provided with respect to these ten clinics in addition to his knowledge of Fresenius’ nation-wide computer system and Medicare billing system was sufficient to establish Drennen’s direct and independent knowledge for all of the alleged medically unnecessary tests done on a nationwide level, including those occurring in clinics that Drennen did not supervise.

This case serves as a reminder to practitioners that the time, place, and content factors used to establish specificity under Rule 9(b) are not a rigid checklist. A relator may still meet the pleading requirements of Rule 9(b) as long as the information alleged is sufficiently specific with respect to the sub-mission of fraudulent claims to the government. In addition, this case suggests that a relator’s personal knowledge of a limited number of improper billings can be extrapolated in certain circumstances such that the relator can be considered the “original source” for allegations of a nationwide practice of improper billing, even though the relator does not have personal knowledge of every possible alleged violation. In short, it demonstrates that whistleblowers can come from any level within an organization and need only limited knowledge of a company’s business practices to be considered an “original source” for allegations of FCA violations on a nationwide level.

 

Meghan M. Cosgrove is an associate in the Health Care Department at Donoghue Barrett & Singal, P.C.. Pri­or to joining the firm, Ms. Cosgrove served at the Centers for Medicare and Medicaid Services (CMS) in Boston and in Baltimore, Maryland as a Health Insurance Specialist in the Division of Medicare Financial Management and the Division of Technical Payment Policy, respec­tively. During her tenure at CMS, she worked on the Stark Law Phase III regulations, the Specialty Hospital Report to Congress, the EMTALA Technical Advisory Group Report, the Compliance Effectiveness Pilot project, as well as Medicare reim­bursement and coverage issues. Prior to law school, Ms. Cosgrove was the Director of Project Develop­ment at the Federated Ambulatory Surgery Association in Alexandria, VA. Ms. Cosgrove received a Juris Doctorate with a concentration in Health and Biomedical Law with Distinction from Suffolk University Law School, where she was one of the Founding Editors of the Suffolk Journal of Health & Biomedical Law. She received her undergraduate degree in English from the College of the Holy Cross, and is licensed to practice law in the Commonwealth of Massachusetts.

 

(Endnotes)

 

 1 31 U.S.C. §3729 et seq.; These private individuals are often referred to as “whistleblowers” or “relators.”

2 U.S. ex rel. Karvelas v. Melrose-Wakefield Hosp., 360 F.3d 220, 227 (1st Cir. 2004).

3 Id at 233.

4 Id at 226.

5 31 U.S.C. §3730(e)(4)(A); The First Circuit has applied the following analysis in determining whether the public disclosure serves as a bar: (1) whether there has been public disclosure of the allegations or transactions in the relator’s complaint; (2) if so, whether the public disclosure occurred in the manner specified in the statute; (3) if so, whether the relator’s suit is “based upon” those publicly disclosed allegations or transactions; and (4) if the answers to these questions are in the affirmative, whether the relator falls within the “original source” exception as defined in 31 U.S.C. §3730(e) (4)(B). U.S. ex rel. Rost v. Pfizer, Inc., 507 F.3d 720, 728 (1st Cir. 2007). It is important to note that the Patient Protection and Affordable Care Act, Pub. L 111-148 (March 23, 2010) (“PPACA”) significantly narrowed the use of the public disclosure bar as a defense in FCA cases. First, the bar is no longer jurisdictional in nature, rather it provides that a court “shall dismiss an action or claim under this section, unless opposed by the Government . . . “ In addition, the categories of public disclosures have been significantly narrowed post- PPACA as reflected in the italicized terms below. Information is considered “publicly disclosed” and thus a qui tam action is barred if the allegations or transactions are contained in (i) a federal criminal, civil, or administrative hearing in which the government or its agentis a party; (ii) a congressional, Government Accountability Office, or other federal report, hearing, audit, or investigation; or (iii) in the news media.

6 31 U.S.C. §3730(e)(4)(B).

7 31 U.S.C. §3730(e)(4)(B); PPACA also amended the definition of “original source” to remove the requirement that a relator have “direct” knowledge of the allegations or transactions and instead allows a relator who simply has knowledge, whether direct or in-direct, that “is independent of and materially adds to the publicly disclosed allegations or transactions” to be considered an “original source.”

8 U.S. ex rel. O’Keefee v. Sverdup Corp., 131 F. Supp. 2d 87, 93 (D. Mass. 2001); U.S. ex rel. Ondis v. City of Woonsocket, 587 F.3d 49, 59 (1st Cir. 2009).