As recounted in our recent analysis of the 2018-19 New York State Budget (“Enacted Budget”), the Enacted Budget included new restrictions on fiscal intermediaries participating in the Consumer Directed Personal Assistance Program (“CDPAP”) designed to prevent the dissemination of “false or misleading” advertisements.  Effective April 1, 2018, the newly enacted § 365-f(4-c) of the New York Social Services Law requires fiscal intermediaries to seek pre-approval for advertisements directed at Medicaid program recipients before they are released, and imposes escalating penalties for non-compliance – including revocation of the fiscal intermediary’s license to provide services after two or more false or misleading advertisements are distributed.

By way of background, the CDPAP program is a Medicaid program that allows chronically ill or physically disabled individuals to exercise a greater degree of control and choice with respect to the provision of essential services ranging from assistance with activities of daily living (ADLs) to skilled nursing services.  The program – which allows recipients to hire almost anyone other than their spouse, child or parent to provide these services – provides a marked level of independence over traditional home care models where recipients must accept whatever provider is sent by the program’s vendor.  In addition to freedom of choice, CDPAP aides are able to perform a host of services that ordinarily can only be performed by nurses or certified home health aides.

Unlike traditional home care models, CDPAP aides are employed by the consumer.  Fiscal intermediaries help consumers facilitate their role as employer by: providing wage and benefit processing for consumer directed personal assistants; processing income tax and other required wage withholdings; complying with workers’ compensation, disability and unemployment requirements; maintaining personnel records; ensuring health status of assistants prior to service delivery; maintaining records of service authorizations or reauthorizations; and monitoring the consumer’s/designated representative’s ability to fulfill the consumer’s responsibilities under the program.

On June 26, 2018, the Consumer Directed Personal Assistance Association of New York State, Inc. and various  fiscal intermediary members (collectively plaintiffs) filed a complaint against the New York State Department of Health (DOH) and its Commissioner Howard Zucker (Commissioner) (collectively defendants) in the Northern District of New York, alleging in sum and substance that § 365-f(4-c) violates their right to commercial free speech as protected by the New York and United States Constitutions.  Plaintiffs sought a temporary and permanent injunction enjoining defendants from implementing the new restrictions and a declaration that § 365-f(4-c) is unconstitutional.  See Consumer Directed Personal Assistance Association of New York State, Inc. et al v. Zucker et al, Index. No. 1:18-cv-00746.

More specifically, the plaintiffs allege that the advertisements regarding CDPAP are protected commercial speech because they concern a lawful activity and express the plaintiffs’ support for self-direction and consumer choice provided by the program and the requirement that they submit their advertisements for approval burdens, restricts and otherwise infringes upon those rights.  plaintiffs also claim that the DOH lacks a substantial interest in reviewing the advertisements and that prior approval of advertisements does not advance any legitimate governmental interest – particularly in light of the fact that the state already has laws governing false and deceptive advertising (i.e., General Business Law § 349).  Furthermore, the plaintiffs maintain that even if the DOH had a legitimate interest in preventing false and misleading advertisements, requiring prior approval is not sufficiently narrowly tailored to serve that interest.

As explained below, because plaintiffs moved for, and were denied, a preliminary injunction – prohibiting the DOH from implementing § 365-f(4-c)  until the legality of the new law can be fully decided – we now more or less know how this case will ultimately be decided.  In this case, as in all cases where preliminary relief is sought, it does not bode well for plaintiffs that the court denied the preliminary injunction, given that such relief is only withheld where the movant fails to establish a clear or substantial likelihood that they will ultimately be able to succeed on the merits.

In concluding that plaintiffs failed to establish a sufficient likelihood of success, the court applied the four-part inquiry laid out by the Supreme Court in Central Hudson Gas & Elec. Corp. v. Pub. Serv. Comm’n of N.Y., 447 U.S. 557 (1980)), to determine whether § 365-f(4-c) is an impermissible regulation of commercial free speech in violation the First Amendment: “[1] whether the expression is protected by the First Amendment. For commercial speech to come within that provision, it at least must concern lawful activity and not be misleading. Next, we ask [2] whether the asserted governmental interest is substantial. If both inquiries yield positive answers, we must determine [3] whether the regulation directly advances the governmental interest asserted, and [4] whether it is not more extensive than is necessary to serve that interest.”

The parties did not dispute the first element.  With respect to the second element, the plaintiffs argued that had the State’s true purpose been to regulate false or misleading advertisement, such a purpose would be substantial, but here the true purpose for instituting the new restrictions was to decrease awareness of the CDPAP program in order to limit the State’s own expenditures on the program.  According to the plaintiffs, the evidence of the DOH’s ulterior motive was evident from the fact that the restrictions were passed as part of the Enacted Budget.  The court was not distracted by this argument, finding instead that where, as here, the statute’s intentions are facially obvious they need not consider such “extra-textual ‘evidence.’”  Even if the court had considered the issue, the fact that the restrictions were passed as part of the 2018-19 Executive Budget is hardly evidence that the restrictions are fiscally motivated.  Indeed, the Governor traditionally uses the budget process to advance his policy agenda, and the inclusion of § 365-f(4-c) appears to be no exception to that rule.  It is also worth noting that requiring vendors of Medicaid services to submit advertisements for approval is not a new phenomenon in New York.  Indeed, Managed Long Term Care plans have long been subject to such requirements – both as part of their contracts with the State and in regulation.  We are unaware of any claim that such a program was intended to, or has resulted in a decrease in enrollment in these plans.

The court also gave short shrift to the plaintiffs’ arguments regarding the fourth element – whether the restrictions were more extensive than necessary.  Although the plaintiffs and the court would agree that less restrictive means are available, the standard does not require that the Legislature implore the least restrictive means conceivable, only one that is reasonable and in proportion to the interest to be served.

Ultimately, the resolution of this case will likely turn on the evidence marshaled by both sides in support of the third element – whether the regulation directly advances the State’s interest in preventing false and misleading advertising by CDPAP fiscal intermediaries.  As noted by the court, for purposes of this element, “a governmental body seeking to sustain a restriction on commercial speech must demonstrate that the harms it recites are real and that its restriction will in fact alleviate them to a material degree.”  The State need not “produce empirical data . . . accompanied by a surfeit of background information” in order to meet its burden in this respect, and can rely instead on “reference to studies and anecdotes pertaining to different locales altogether.”

Here, the DOH tendered an affidavit of Donna Frescatore, the Medicaid Director of New York State and Deputy Commissioner of DOH to meet its burden.  Deputy Commissioner Frescatore noted, inter alia, that CDPAP recipients must be able to rely on the materials they receive to evaluate and choose the best available options and that false and misleading advertising not only complicates this process, it often leads ineligible individuals to request services, burdening local authorities.  Mrs. Frescatore also identified a host of “[e]xamples of advertisements that misstate, misrepresent, or overstate what the [Fiscal Intermediaries] and CDPAP provide have: [1] failed to explain that Medicaid eligibility is required to receive services; [2] suggested that CDPAP pays people to stay at home; [3] stressed that no training is required, without explaining that the consumer is responsible for training their assistants through CDPAP; [4] failed to explain that the service has to be a Medicaid covered service to be obtained through CDPAP; and [5] included services like dog walking and escort services when in actuality, such services are rarely, if ever,. . . covered by Medicaid.”

At oral argument, the DOH confirmed to the court that these were examples of advertisements that the DOH had actually seen – a contention they will now have to prove.  Should the DOH be unable to substantiate these claims, they may well find themselves unable to meet their burden on this issue.  Indeed, the court noted that while these representations are sufficient standing alone at this early point in the litigation, a different result may be warranted upon a more fully developed record.  For now, we will have to await the completion of discovery and the likely filing of a summary judgment motion(s) to know how this case will ultimately come down, a process that generally takes eight months to a year to complete in the Northern District of New York.

Having failed to secure the desired preliminary injunction, § 365-f(4-c) remains the law of the land.  In September of 2018, the DOH issued specific guidance on the program for all advertising by fiscal intermediaries on or after November 1, 2018.  According to the guidance, “inaccurate descriptions of the CDPAP program or the roles and responsibilities of CDPAP participants, designated representatives, fiscal intermediaries, and/or aides will be considered false or misleading.”  The guidance further prohibits cold-calling and door-to-door solicitation.

Advertisements may be submitted by email, however if the advertisement is a website, a hard-copy must also be submitted.  The DOH will have thirty days to review the advertisements, the advertisements may not be utilized by the provider until approved by the DOH or thirty days has passed without response from the DOH.  In the event an adverse decision is issued, the fiscal intermediary will have thirty days to appeal the decision, if the decision is upheld, however, the fiscal intermediary will be required to pay a penalty.

Advertising materials that were used prior to November 1, 2018 are not required to be submitted for review.  That being said, however, providers have the option of submitting such materials by December 31, 2018 for review and inclusion in the DOH’s “amnesty” program.  In the event that voluntarily submitted advertisement is found to be false or misleading the fiscal intermediary will be required to discontinue use of the advertisement within thirty days, but the advertisement will not count for purposes of determining whether to revoke the fiscal intermediary’s license for distributing two or more false or misleading advertisements.

If you have any questions or would like additional information on any of the above referenced issues, please do not hesitate to contact Farrell Fritz’s Regulatory & Government Relations Practice Group at 518.313.1450 or NYSRGR@FarrellFritz.com.

 

 

As pundits continue to argue about the nature and extent of the “Blue Wave” that did or did not wash across the country this past Election Day, its impact in New York State was undeniable.  What happened in New York on Tuesday was notable for several reasons.  First, according to the New York State Board of Elections (BOE), the state had the highest voter turnout for a midterm election since 1994.  BOE data illustrates over 45% of active NYS voters cast ballots in congressional, state legislative and gubernatorial races, before any absentee ballots are even considered.  Second, the election results represent a historic shift in the balance of power for the NYS Legislature, returning control of the State Senate to the Democrats for the first time since 2010, and for only the third time in the last half century.

While the Senate Democrats only needed one additional seat to achieve majority control of the Senate, it appears they secured a total of eight additional seats, bringing the conference majority to 39 of the 63 seats in the chamber, excluding Senator Simcha Felder, who while nominally a Democrat has until now conferenced with the Republicans.  However, results for two of these races are very close and the final outcome will be determined following the tabulation of all the absentee ballots and potential recounts.  According to BOE results available at this juncture, the eight seats that shifted to the Democrats include:

Senate Counties Republican Incumbent Elected Democrat
3rd Long Island Tom Croci (retired) Monica R. Martinez
5th Long Island Carl Marcellino James Gaughran
6th Long Island Kemp Hannon Kevin Thomas (close)
7th Long Island Elaine Phillips Anna Kaplan
22nd Brooklyn Marty Golden Andrew Gounardes (close)
39th Orange, Rockland and Ulster Bill Larkin (retired) James Skoufis
40th Westchester, Putnam and Dutchess Terrance Murphy Peter Harckham
42nd Delaware , Sullivan, Orange and Ulster John Bonacic Jen Metzger

 

Another seat, the 41st District held by Republican Susan Serino, appears at this point to remain in her hands, although an absentee ballot count is pending.

Similarly significant changes occurred at the Congressional level, where former Assembly Majority Leader Joseph Morelle was elected to fill Louise Slaughter’s seat in Rochester, and three other seats shifted from the Republicans to the Democrats.  However, other races generally ended predictably.  The Governor, Comptroller and Attorney General all remain Democratic, and the Democrats in the State Assembly continue to have a super-majority with 107 of the 150 seats.

A more detailed chart containing  a more comprehensive recap of all of the election results is available here.  Significant party changes are noted in yellow, new members are highlighted in blue, and members who ran unopposed are noted with an asterisk.

 

Implications — What This Means for Healthcare Policy

 

Senator Andrea Stewart-Cousins, (35th Senate District, Yonkers) will become New York’s first female Majority Leader and the Senate will announce additional leadership posts, committee chairs, committee assignments and staff changes/additions.  While many anticipate that former ranking committee members may be named as the chairs of their committees, it is uncertain how this may be addressed given the seniority of the various members, the former alignment of some members with the now-defunct Independent Democratic Conference or the Republicans more generally, and the potential needs of the newly elected members.  There has even been some talk of Republican senators switching parties.

However, one thing is clear:  the return to one-party rule and the displacement of certain key senators, including Kemp Hannon, former long-time Chair of the Senate Health Committee, will no doubt cause reverberations in the healthcare space.  For one, there will be the inevitable challenges faced by any new leadership – namely, the loss of institutional knowledge (keeping in mind, e.g., that Senator Hannon served as Health Chair for most of the last quarter-century) and the need to staff up, and the jockeying for position and profile among new members, where it remains to be seen which of the new majority senators will become the most prominent advocates for each of the various sectors of the healthcare industry.

Moreover, one can expect the issues that will be considered during the 2019-20 Legislative Session to be far more progressive than in years past.  There will likely be serious consideration of such issues as single-payer healthcare, codifying reproductive rights and comprehensive contraception coverage, and the legalization of marijuana.  Notwithstanding that the Executive, Senate and Assembly are all under one party-rule, there will also likely be intraparty differences that will come into play and will need to be balanced out, such as the needs of the New York City liberals and the needs of more moderate members from upstate and the suburbs.

Governor Cuomo has made it clear his first priority will be to pass the Reproductive Health Act, to make good on his campaign promise to codify Roe v. Wade in New York within the first 30 days of the new Session.  Additionally, the Governor has also signaled that the Comprehensive Contraception Coverage Act, which would codify a current Executive order and statutorily require insurers to cover all FDA-approved contraceptive drugs and devices at no cost to consumers, and legislation to address New York’s maternal mortality rates, are also among his top priorities.  Other key legislative initiatives identified by the Governor include the Dream Act, which would provide financial aid to students who came to the country illegally; the Child Victims Act, which would extend the statute of limitations for survivors of sexual abuse; ethics reform, including the closing of the LLC loophole; legalization of recreational marijuana; congestion-pricing to bring additional funding to the ailing Metropolitan Transportation Authority; and, increased gun control measures.  Some of these are more clearly connected to healthcare policy than others, but in the ebb and flow of legislative negotiations, any of them could impact the advancement of otherwise unrelated health policy goals.

Senator Stewart-Cousins and Senator Gustavo Rivera, the current ranking member of the Health Committee, are also both on record stating that their top legislative priorities would include enacting the New York Health Act, which would create a single-payer healthcare system. This legislation has been a long-time priority for Assemblymember Gottfried, chair of the Assembly Health Committee, and it has been passed by the Assembly in each of the past four sessions. Additionally, Senator Rivera has stated that passing Dakota’s Law, which addresses ongoing lead poisoning and remediation issues, is another of his top legislative priorities.

One of the dynamics to watch in the year ahead is the extent to which policymakers are able and willing to maintain their prior commitments in the healthcare space.  To some extent, the Republican majority in the Senate provided some cover to the Governor and the Assembly, allowing them to advance politically useful but otherwise problematic legislation that they knew would never be approved by the Senate.  Now, that check no longer exists.  This may create a particular challenge for the Executive branch, which is ultimately responsible for implementing enacted legislation, and which therefore has an institutional interest in preserving the public fisc.

We will continue to monitor events and report back on key developments.  If you have any questions or would like additional information on any of the above-referenced issues, please do not hesitate to contact Farrell Fritz’s Regulatory & Government Relations Practice Group at 518.313.1450 or NYSRGR@FarrellFritz.com.

 

 

Last week, in LeadingAge New York, Inc. v. Shah, the New York Court of Appeals addressed Department of Health regulations limiting executive compensation and administrative expenditures by healthcare providers receiving state funds. The Court upheld limits related to state funding, but struck down a limit that applied regardless of the source of funding.

In 2012, Governor Cuomo directed agencies providing state funding to service providers to regulate provider use of state funds for executive compensation and administrative costs. DOH responded with regulations restricting state-funded expenditures on administrative expenses and executive compensation for certain defined “covered providers.”

The regulations had two “hard caps,” one limiting administrative expenses to 15% of covered operating expenses paid with State funds, and one limiting the use of State funds for executive compensation to $199,000, absent a waiver. The regulations also had one “soft cap,” providing for penalties to a covered provider if executive compensation exceeded $199,000 from any source of funding, with specified exceptions concerning comparable provider compensation and board approval. Covered executives included those for whom salary and benefits were administrative expenses, and excluded clinical and program personnel.

Several petitioners challenged the regulations, including nursing homes, assisted-living programs, home-care agencies and trade associations.

The Court of Appeals grounded its decision in the separation of powers doctrine, which requires that “the Legislature make the critical policy decisions, while the executive branch’s responsibility is to implement those policies.” Chief Judge DiFiore looked to the Court’s prior decision in Boreali v. Axelrod for guidance in finding “the difficult-to-define line between administrative rule-making and legislative policy-making.”

The Court first reviewed the function of DOH, which manages state funds earmarked for public health, oversees the Medicaid program, and contracts with private entities. The Court said that DOH carries out these functions with the goal of ensuring that the limited public funding available be directed as efficiently as possible toward high-quality services.

The Court concluded that the hard cap regulations on both administrative expenses and executive compensation did not exceed DOH’s authority. The Legislature directed that DOH oversee the efficient expenditure of state health care funds. The hard caps are tied to the specific goal of efficiently directing state funds toward quality medical care for the public by limiting the extent to which state funds may be used for non-service-related salaries and disproportionately high administrative budgets. The Court found the hard cap regulations to be directly tied to the Legislative policy goal without subverting it in favor of unrelated public policy interests.

In contrast, the Court struck down the soft cap regulation, which restricted executive compensation over $199,000 regardless of funding source, because it represented “an unauthorized excursion by DOH beyond the parameters set by the Legislature.” The Court found that while the hard cap regulations capped the use of public funding, the soft cap imposed an overall cap on executive compensation, regardless of the funding source. “The soft cap thus pursues a policy consideration – limited executive compensation – that is not clearly connected to the objectives outlined by the Legislature but represents a distinct ‘value judgment.’” The soft cap restriction on executive compensation was not “sufficiently tethered” to the enabling legislation which largely concerned state funding. The Court concluded that the soft cap regulation exceeded DOH’s administrative authority as it envisioned the additional goal of limiting executive compensation as a matter of public policy.

All members of the Court of Appeals agreed that the hard cap on administrative expenditures was permissible, but the dissenting Judges differed on executive compensation.  Judge Garcia would have stricken both hard and soft caps on executive compensation, because they represented a “policy choice about reasonable compensation aimed at influencing corporate behavior,” which is “law-making beyond DOH’s regulatory authority.”  In contrast, Judge Wilson would had found both limits to be permissible.  He criticized the majority’s reliance on Boreali, and saw the proper analysis to be whether the regulation exceeded the executive power.  He would have used that rationale to uphold the hard cap on executive compensation, and also would have found the soft cap permissible because it advance the statutory goals of preventing providers from circumventing the hard cap and advising providers the State may allocate taxpayer funds away from undesireable or inefficient vendors and toward competitors who provide superior value.

At least where State funds are at issue, LeadingAge provides the Governor and executive agencies with broad authority to police and restrict the use of State funding.

 

            New York State does not require hospitals to insure medical malpractice claims, either through the purchase of commercial medical malpractice insurance or the establishment of an adequately funded self-insurance program.  New York has never required such insurance.  There are many hospitals which did not insure medical malpractice claims in the past, and a number that currently do not.

            Historically, the lack of insurance was often a matter of choice.  A number of community hospitals in the New York City area did not insure medical practice claims because they believed they would always be able to pay claims out of operations.  Others chose not to insure because they believed the lack of insurance improved their negotiating position with medical malpractice plaintiffs.  The hospitals would warn plaintiffs to settle their claims for what the hospitals considered reasonable amounts. If they did not, the hospitals would tell them that they would not be able to pay their claims and might have to resort to chapter 11 bankruptcy, where their malpractice claims would be general unsecured claims and receive pennies on the dollar.

            Attending physicians typically have malpractice insurance that covers claims against them individually for services they perform at the hospitals where they practice.  But physicians who are full-time employees of hospitals often do not have any individual malpractice insurance coverage; rather, they are dependent on their employers for it.

            Some hospitals, after “going bare” for a period of time and experiencing a large number of malpractice claims, are unable to purchase commercial medical malpractice insurance.  It is unclear whether they could have taken advantage of state programs established to enable them to purchase insurance for themselves and/or their physicians.  Although some of these hospitals set up self-insured programs, the programs were often inadequately funded.  When the hospitals experienced financial difficulties, the self-insurance reserves would often be used, in whole or in substantial part, to fund operating expenses.

            The lack of medical malpractice insurance or adequate self-insurance, needless to say, can be tragic for patients.  Patients may well be uninformed when admitted to a hospital that it is without medical malpractice insurance coverage or a sufficiently funded self-insurance program to fully compensate them if they are negligently injured during treatment or surgery.  Narratives of serious injuries caused by medical malpractice make for difficult reading, and an even worse ending if they cannot recover the damages to which they are entitled.

            Lack of malpractice insurance further raises issues for trade creditors, service providers and other unsecured creditors of the hospitals if the hospitals experience financial difficulties and file chapter 11.  Serious uninsured medical malpractice claims and large numbers of such claims, when added to the claims of other creditors, can greatly reduce the recovery of both malpractice claimants and business creditors in the chapter 11 cases of these hospitals.

            For more information, please contact Marty Bunin at 646-329-1982 or MBunin@FarrellFritz.com

New York State Court of Appeals, Albany, New York

Earlier this Summer, the Court of Appeals overturned the Appellate Division Third Department’s (the “Third Department”) unanimous decision in The Matter of Anonymous v. Molik, where it ruled that the New York State Justice Center for the Protection of People with Special Needs (“Justice Center”) exceeded its authority by substantiating a report against a facility or provider agency based upon a “concurrent finding” of neglect.[i]  With its decision, the Court of Appeals has not only clarified the Justice Center’s scope of authority, but also reopened the floodgates to a large number of investigations and appeals that have been existing in a state of limbo since the Third Department’s June 2, 2016 decision.[ii]

Pursuant to Executive Law §§ 551-562 and Social Services Law §§ 488-497, the Justice Center was established in 2013 to protect “vulnerable persons who receive care from New York State’s human services agencies.”[iii] It was created to protect all vulnerable persons, or those “who, due to physical or cognitive disabilities, or the need for services or placement, [are] receiving services from a facility or provider agency.”[iv]

All reportable incidents, including any allegation of neglect,[v] must be reported by a facility to the Statewide Vulnerable Persons’ Central Register (“VPCR”)[vi], whereby the Justice Center is mandated to investigate the allegation(s) and submit its findings to the VPCR.[vii]  The Justice Center’s findings are “based on a preponderance of the evidence and indicate whether the alleged abuse or neglect is substantiated in that it is determined the incident occurred and the subject of the report, facility or provider agency are responsible; or the allegation is found to be unsubstantiated because the event did not occur, or the subject of the report was found not responsible.”[viii] Additionally, the Justice Center may make “a concurrent finding . . . that a systemic problem [at the provider agency or facility] caused or contributed to the occurrence of the incident.”[ix]

In Molik, a male resident engaged in inappropriate sexual conduct with a female resident after two staff members momentarily left a common room at the Petitioner’s facility.[x] This assault was the third incident in a six month period, with the previous two assaults being known to the Petitioner.[xi]  The Justice Center investigated the incident, but did not substantiate a report of neglect against the two individuals because “there were no policies or requirements in place prohibiting staff from leaving the room unattended while residents were gathered there.”[xii] However, since the male resident had previously engaged in similar conduct, the Justice Center substantiated a concurrent finding of neglect against the Petitioner, the operator of the residential facility, “for failing to implement clear staff supervision protocols and for failing to modify [the male resident’s] care plan to increase his level of supervision after the first two attacks.”[xiii]

The Petitioner requested that the Justice Center amend its finding to unsubstantiated, which was denied, leading to the Petitioner’s Article 78 action where it received unanimous support from the Third Department.[xiv]  In its decision, the Third Department overturned the Justice Center’s concurrent finding, stating that it did not have to “defer to the Justice Center’s interpretation of the statutory provisions in question . . . [but rather defer to the] pure statutory interpretation dependent only on accurate apprehension of legislative intent.”[xv] “[T]he only circumstance under which the Justice Center could substantiate a report of neglect against a facility or provider agency is where an incident of neglect has occurred but the subject cannot be identified — a situation that is plainly not present here.”[xvi] The Third Department continued by saying, while the Justice Center does, in fact, have the authority to make a concurrent finding, “the only concurrent finding that may be made is that a systemic problem caused or contributed to the occurrence of the incident.”[xvii] Accordingly, since the controlling statute did not provide the Justice Center with the clear ability to categorize a concurrent finding it necessarily followed that such a finding could not constitute neglect on the part of a provider agency.[xviii]

The Court of Appeals, however, did not share in the Third Department’s view, stating that courts may look beyond the literal text of a statute when “the plain intent and purpose of the statute would otherwise be defeated.”[xix] Consequently, the Court viewed the Petitioner’s, and the Third Department’s, narrow interpretation of the law as “leav[ing] the Justice Center powerless to address many systemic issues, defeating the purpose of the Act and preventing the Justice Center from protecting vulnerable persons where it is most critical to do so.”[xx]  The Court, in light of the particular underlying events in Molik, ruled that to uphold this construction “would perversely allow this dangerous cycle to continue: employee conduct could not be substantiated because it does not violate facility policies, but facility policies would remain ineffective because the Justice Center lacks authority to implement change.”[xxi]

In her dissenting opinion, Judge Rivera stated that she agreed with the majority that “[i]t would lead to absurd results if [N.Y. Soc. Serv. Law § 493(3)(a) were interpreted] to permit a facility or provider agency to be found responsible in those situations where an incident occurs and no subject can be identified, but not where an identified subject is found not responsible for a confirmed incident of abuse or neglect.”[xxii]  However, Judge Rivera points out that a ‘concurrent’ finding should be viewed as an ‘adjunct’, requiring that an initial finding of neglect must be made before a provider agency could be found to have concurrently committed neglect, even if the initial subject is ultimately found not responsible.[xxiii]  In Molik, as reasoned by Judge Rivera, the initial step of establishing a finding of abuse or neglect was never reached because the allegation of neglect against the two identified subjects was declared unsubstantiated; therefore, a ‘concurrent’ finding could not be made.[xxiv]

In a post-Molik world, it is imperative that all provider agencies subject to Justice Center oversight review their internal policies, procedures, and processes, understanding that they too are now clearly within the Justice Center’s reach.  Provider agencies should evaluate previous incidents that occurred within the facility to determine whether the necessary corrective actions have been taken or if further steps are needed.  Furthermore, staff training curriculum should be reevaluated to determine whether opportunities for improvement exist.

If you have any questions or would like additional information regarding the Justice Center, or would be interested in assistance reviewing, developing or revising your policies, processes, and training programs, please do not hesitate to contact Farrell Fritz’s Regulatory & Government Relations Practice Group at 518.313.1450 or NYSRGR@FarrellFritz.com

————————————————————————————————————————

[i] Anonymous v. Molik, 2018 WL 3147607 (N.Y. Jun. 28, 2018).

[ii] Matter of Anonymous v. Molik, 141 A.D.3d 162, (App. Div. 3 Dep’t, June 2, 2016)

[iii] 14 N.Y.C.R.R. § 700.1(a).

[iv] N.Y. Soc. Servs. Law § 488(14).

[v] 14 N.Y.C.R.R § 624.3(b)(8).

[vi] N.Y. Soc. Serv. Law § 492(1)(a).

[vii] Id. at (3)(c)(i); Id. at (3)(c)(viii); N.Y. Soc. Serv. Law § 493(1).

[viii] N.Y. Soc. Serv. Law § 492(3)(a).

[ix] Id. at (3)(b).

[x] Molik, 2018 WL 3147607 at *1.

[xi] Id.

[xii] Id.

[xiii] Id.

[xiv] Id. at *2.

[xv] Molik, 141 A.D.3d. at 166 (internal citations omitted).

[xvi] Id. at 167 (citing N.Y. Soc. Serv. Law § 492(3)(a)).

[xvii] Id. at 167–168 (internal citations and quotations omitted).

[xviii] Id.

[xix] Id. at *4.

[xx] Molik, 2018 WL 3147607 at *5.

[xxi] Id.

[xxii] Id. at 8

[xxiii] Id. at 9.

[xxiv] Id. at 10.

In United States ex rel. Wood v. Allergan, Inc., the Second Circuit addressed the issue of whether a violation of the False Claims Act’s “first-to-file” rule compels dismissal of an action or whether it can be cured by the filing of an amended or supplemental pleading. The Court’s acceptance of the interlocutory appeal was addressed here in a post last year. In August, the Second Circuit reversed the District Court, holding that a violation of the first-to-file bar cannot be remedied by amending or supplementing the complaint.

Relator John Wood brought FCA claims against Allegan, a pharmaceutical company that develops and manufactures eye care prescription drugs. Wood alleged that Allergan violated the FCA and the Anti-Kickback Statute by providing large quantities of free medical products to physicians to entice them to prescribe Allergan drugs. When Wood brought his action, two other actions alleging similar FCA violations were pending.

The Initial Qui Tam Complaint Violated the “First-to-File” Bar

The FCA’s “first-to-file” rule states that once a qui tam action has been brought, no person other than the Government may intervene or bring a related action based on the same facts. The first-to-file rule ensures that only one relator shares in the Government’s recovery and encourages potential relators to file their claims promptly. Because two prior actions were pending when Wood filed his qui tam complaint, it ran afoul of the first-to-file bar.

The Wood complaint, however, was under seal, and while it remained under seal, the two prior actions were dismissed. When the government declined to intervene in the Wood action and the case was unsealed, there were no longer any prior-filed pending actions. Wood thereafter filed a third amended complaint. Allergan moved to dismiss on several grounds, including the “first-to-file” bar, because when the Wood qui tam complaint was commenced, there were two pending actions alleging the same factual allegations.

The Second Circuit first held that the first-to-file rule applied, rejecting Wood’s argument that the earlier actions failed to adequately allege an FCA claim. Even if Wood’s allegations were broader than the prior complaints, the claims were related, as the alleged schemes were sufficiently similar, and the Government would have been equipped to investigate them. In addition, the Court rejected as unworkable the argument that the Judge in a later-filed case could address the sufficiency of an earlier-filed case pending before a different Judge, potentially even before the first Judge had done so.

An Amended Pleading Cannot “Cure” a First-to-File Violation

In Kellogg Brown & Root Services, Inc. v. United States ex rel. Carter, the Supreme Court had held that “an earlier suit bars a later suit while the earlier suit remains undecided but ceases to bar that suit once it is dismissed,” dismissing the later filed action without prejudice. Wood therefore would have been able to commence a new action once the two prior actions had been dismissed. However, due to the passage of time, statutes of limitation would have barred a new action.  Wood argued that the first-to-file bar could be “cured” by amending or supplementing the complaint after dismissal of the earlier actions. Other Circuits have split on this question.

The Second Circuit followed a D.C. Circuit decision to hold that Wood’s “action was incurably flawed from the moment he filed it.” The Court found that the plain language of the FCA provides that no individual may bring a related action when an FCA action is pending, and that the plain language required dismissal. The Court determined that Wood’s position—a first-to-file violation can be cured by a later amendment—is inconsistent with the language of the statute. The Court reasoned that the statute bars a person from bringing a related action when a prior FCA action is pending; it does not provide for the second action to be stayed until the first-filed action is no longer pending. An amended or supplemented pleading could not change the fact that Wood brought the action when another related action was pending.

The Court also posited several inefficiencies from Wood’s suggested approach: inequities among Relators with later-filed complaints depending on the happenstance of when their complaint was dismissed or whether their case was stayed; questions as to which later-filed case would proceed; and a potential lineup of later-filed cases waiting to take the place of a dismissed earlier action. Finally, the Court found support in legislative history, indicating that the primary, if not sole, purpose of the first-to-file rule is to help the Government uncover and fight fraud. The Court found it unlikely that Congress would have invited an inefficient process prone to anomalous outcomes, dependent on the chance considerations of one Court’s backlog and another Court’s timeliness of dismissal.

This Second Circuit decision, following the D.C. Circuit, now conflicts with a First Circuit decision finding the argument that amendment cannot cure a first-to-file violation to be “untenable.”  The Supreme Court may be called on to decide this Circuit split.

 

Just over one year ago, I wrote about the Department of Health and Human Service’s (“HHS”) $105 million award to support 1,333 federally qualified health centers (“Health Centers”) across the United States improve the quality of comprehensive care provided to patients. It seems like déjà vu, as it was announced last month that HHS set aside $125 million in quality improvement grants to be allocated among 1,352 Health Centers. A list of recipients can be found here.

Health Centers receive funding through the Health Resources and Services Administration (“HRSA”), a branch of the federal government with a primary purpose of delivering comprehensive healthcare to patients who cannot otherwise afford such care. Treatments offered at Health Centers, include, without limitation, physician services, homebound visits by nurses in geographic locations where home health agencies are sparse, and clinical psychology services. The overarching goals set by HRSA with respect to Health Centers are to:

  • Make available high quality healthcare treatments and ancillary services, including education and transportation to facilities;
  • Offer care at affordable rates and charge patients in accordance with a practical scale;
  • Have community stakeholders serve on the governing boards to communicate the specific needs of the locality; and
  • Create a patient-centered foundation to address the diverse needs of the medically underserved.

In accordance with those goals, the grants are designed to improve Health Centers. Specifically, the funds will be used for “[e]xpanding access to comprehensive care, improving care quality and outcomes, increasing comprehensive care delivery in a cost-effective way, addressing health disparities, advancing the use of health information technology, and delivering patient-centered care.”

Speaking on the new grants and reflecting on the preceding year, HRSA Administrator George Sigounas, MS, Ph.D., said “[n]early all HRSA-funded health centers demonstrated improvement in one or more clinical quality measures from the year prior, and these funds will support health centers’ work to improve the quality of care they deliver in their communities around the country.”

As healthcare costs continue to rise in many parts of the country, eligible patients have an alternative route to obtain affordable healthcare without the burdens associated with visiting the local hospital. Health Centers are a bright spot in an otherwise gloomy healthcare system.

 

 

 

 

 

 

As the battle over the future of the Affordable Care Act (the “ACA”) continues, New York State scored a big victory earlier this month with the federal court decision of UnitedHealthcare of New York, Inc., et al. v. Vullo.

The controversy centered on New York State’s risk adjustment program, which is designed to prevent insurers from competing for only the healthiest enrollees. The program requires insurers with enrollees of above-average health for any given plan year to make payments into a common fund.   Those funds are, in turn, used to subsidize insurers who incurred higher claim costs due to having enrollees of below-average health.

 

From 1993 through 2013, New York State had its own risk adjustment program. When the ACA was enacted in 2010, it called for the development of a federal risk adjustment program (the “FRAP”), which the Department of Health and Human Services (“HHS”) was authorized to develop. Although states meeting certain requirements are permitted to administer the FRAP themselves, New York State opted to have HHS implement the FRAP on its behalf.

 

In 2016, HHS published an interim final rule addressing the implementation of the FRAP, wherein HHS acknowledged that certain issuers, including some new and smaller issuers, owed substantial risk adjustment charges that they did not anticipate and encouraged states to examine local approaches to ease these growing pains in the new health insurance market landscape. In response, the New York State Superintendent of Financial Services promulgated an emergency regulation allowing the Superintendent to collect up to 30% of the funds received by carriers in New York State from the FRAP and to redistribute such funds to other carriers in the State pursuant to a State-specific risk adjustment methodology.

The plaintiffs in the action were health insurance companies who offer insurance policies in New York State and who have been, and expect to continue to be, the recipients of risk adjustment payments under the FRAP. The plaintiffs objected to New York State’s emergency regulation, which in part required insurers to turn over funds they had received from the FRAP to the Superintendent so the Superintendent could redistribute such funds to other insurers in New York. The insurers’ primary argument was that the New York State regulation is preempted by the ACA.

 

The District Court for the Southern District of New York found that, under the plain language of the ACA, state regulations are not preempted unless they “prevent the application” of the ACA, which the New York State regulation does not do. The Court further found that there was nothing in the ACA requiring New York State to obtain HHS approval of its emergency regulation. Moreover, statements made by HHS and the Centers for Medicare and Medicaid Services made clear that states are intended to have an ongoing role in risk adjustment policies. All of this, according to the Court, was evidence that the ACA does not preempt the New York State regulation. Accordingly, the Court dismissed the action, allowing the Superintendent to redistribute the FRAP funds paid to New York insurers as the Superintendent deems appropriate.

This post is written in connection with my colleague Vanessa Bongiorno’s recent post, where she eloquently summarized the New York Department of Health’s (“DOH”) findings of the multi-agency study on the impact of regulated adult-use marijuana in New York.

In the report, DOH found that even though marijuana use does contain risks, there are benefits associated with implementing a regulated adult-use marijuana program, including positive impacts on New York’s criminal justice system and an alternative to opioid use, which has long impacted so many New Yorkers and their families. The DOH report concluded with, among other things, a recommendation that New York establishes a workgroup of subject matter professionals with relevant public health experience to debate the details of a regulated marijuana program and offer solutions consistent with reducing harm and educating the public.

Governor Andrew M. Cuomo accepted the recommendation and recently announced the creation of a workgroup to help draft legislation for regulated adult-use marijuana, which will be overseen by Alphonso David, an advisor to the Governor. The workgroup consists of professors of major New York educational institutions, law enforcement representatives, governmental stakeholders, and mental health experts, to name a few. A full list of workgroup members can be found here.

Speaking on the development, Governor Cuomo stated “[t]he next steps must be taken thoughtfully and deliberately. As we work to implement the report’s recommendation through legislation, we must thoroughly consider all aspects of a regulated marijuana program, including its impact on public health, criminal justice and State revenue, and mitigate any potential risks associated with it.”

It is abundantly clear that New York is serious about adopting a regulated marijuana program. While the details of such program are beginning to be hashed out, New York’s long anticipated debate over regulated adult-use marijuana appears to be coming to a resolution.

 

As we previously reported, the 2018-19 New York State Budget passed in March includes significant provisions intended to reduce the number of Licensed Home Care Services Agencies (LHCSAs) around the state. Among these provisions are a two-year moratorium on the establishment of new entities, a limit on the number of LHCSAs with which Managed Long Term Care Plans can contract, and a new requirement that in the future LHCSA applicants will need to demonstrate public need and financial feasibility for a post-moratorium certificate of need. Additional information was provided by the Department of Health (DOH) in early May, when it released a new guidance document, as well as a new Certificate of Need (CON) application and instructions. These documents provide a fairly clear road map to assist LHCSAs in navigating the CON process during the moratorium, which is set to expire on March 31, 2020.

DOH has recently taken the next step in implementing the 2018-19 Budget provisions, and given the long term care community an opportunity to impact what the LHCSA landscape will look like after the expiration of the moratorium. In July, DOH issued a Request for Information (RFI) to gather input for the new need methodology that will apply when the moratorium ends.

An RFI is a mechanism commonly used by state agencies to obtain stakeholder feedback on pending state actions. It is not a Request for Proposals or Request for Applications – no award is made in connection with an RFI, and it would be highly unusual for the state to declare a “winning” methodology. Rather, responses to the RFI will allow stakeholders to outline their positions on what the new methodology should look like. Proposals received from stakeholders and/or portions of those proposals can be accepted or rejected at DOH’s discretion. The presumption is that DOH will use the information obtained from stakeholder submissions to craft a methodology that will implement the applicable statutory mandates as effectively as possible.

This does not mean that DOH is looking for a methodology that is agreeable to the LHCSA community. However, this does provide an excellent opportunity for LHCSAs to point out potential pitfalls to be avoided in the development of the new methodology. Specifically, DOH will likely be most interested in avoiding actions that would undermine the goals of the CON process and/or DOH’s more general goal to ensure that patients have a robust selection of quality providers.

It should be noted that the information sought by the RFI goes beyond what is normally considered to be part of a need methodology. Traditionally, CON review is intended to ensure four things: (1) public need for the services in question, (2) the character and competence of the proposed provider(s), (3) the fiscal feasibility of the proposed project, and (4) compliance with architectural and other regulatory standards. A “need methodology” generally relates primarily to the first item – whether or not there is a public need for the services. This is often presented as a mathematical function, based on the typical number of patients in the service area and the number of services already present in that area. In practice, there is almost always a significant discretionary element that allows DOH and the Public Health and Health Planning Council (which must approve all new establishments) substantial leeway in determining whether a particular provider is necessary.

The RFI seeks information not only on how to assess public need for LHCSA services, but also on character and competence and other potential elements of a CON application. Until now, LHCSAs were not subject to formal public need or fiscal feasibility analysis, which is part of what makes the new legislation so significant – and which makes this opportunity to impact the new rules so important. It is therefore a good thing that DOH has written the RFI so expansively.

In regard to traditional need analysis, DOH is seeking information on all the elements of a typical need methodology, including:

  1. Planning Area: This is part of the denominator of the need methodology equation – should need be determined by county (as is often the case), multiple counties, regions, etc. DOH references issues impacting this analysis, including driving time, availability of public transportation and availability of existing service providers.
  2. Need Factors: This is the other part of the denominator – within the planning area, should need be weighed against total population, population based on demographics (e.g., age), disease and disability prevalence, capacity of existing providers, etc.
  3. Timing: How often should need be recalculated? This is potentially significant. Traditionally, the CON process has been a snapshot in time – applications are judged based on need at the time of application, and that is all. Conceivably, DOH could opt instead to reevaluate overall need at periodic intervals, which could place even existing providers at risk. Other open questions specifically asked by DOH include whether the need methodology should apply in regard to potential service expansions or change of ownership. And while all the foregoing relates to the question when the need methodology should be applied, DOH also asks the related question of how frequently the need methodology itself should be reviewed, and if necessary revised.
  4. Exceptions: As noted, there are almost always exceptions to any formulaic need methodology. These exceptions can go both ways. On the one hand, should there be an arbitrary cap on the number of LHCSAs in a particular planning area? On the other hand, should the provision of specialized services (DOH mentions Traumatic Brain Injury and Nursing Home Transition and Diversion waiver services, pediatrics, IV infusion, and flu shot services in particular) be exempt from the general rule and/or be subject to a special rule? Similarly, DOH asks whether applicants proposing to provide only personal care services be treated differently from other applicant – suggesting that this is an option under consideration.

In regard to character and competence, DOH asks a few questions, as well:

  1. Experience: DOH seeks input on what type of experience should be required of a LHCSA operator. This reflects an issue that has plagued the CON process for a long time – namely, the fact that an applicant with absolutely no experience, who therefore has a pristine record, may have a better chance of being approved that a competent provider of long standing, who inevitably has had some compliance issues. This can be ameliorated by requiring some baseline experience in applicants.
  2. Performance: In addition to evaluating what an applicant has done, DOH asks for input concerning the extent to which it ought to review how successful the applicant has been. In particular, DOH asks whether any quality measures should be considered when reviewing an application for licensure or change of ownership, and whether applications for service area expansions should consider character and competence (which also implicates the timing issue mentioned above).

Finally, the RFI includes a more general catch-all question, giving responders the opportunity to opine on any other factors that might be appropriate to include in the CON process. DOH even goes so far as to suggest a couple:

  1. Staffing: LHCSA staffing can be cyclical (given the nature of the work, more staff tends to be available when the economy as a whole is worse), but in some places staffing shortages are persistent. DOH asks whether the availability of staff should be considered when determining public need. It also asks the inverse question – whether an applicant proposing to provide training programs for personal care aides and home health aides should be prioritized.
  2. Medicare/Medicaid: DOH also asks whether the extent to which an applicant intends to serve Medicare or Medicaid beneficiaries should be taken into account. In general, the CON process has historically favored the provision of care to Medicaid beneficiaries and individuals who otherwise cannot pay for such care, even going so far as to require applicants to promise to provide a particular amount of such services in some instances. Presumably, DOH would be more inclined to approve a LHCSA applicant offering a high percentage of its services to such individuals.

While the question of services for Medicaid beneficiaries certainly carries implications for the fiscal feasibility of applicants, it is interesting that fiscal feasibility by itself is not a strong focus of the RFI. This may simply be a function of the fact that, unlike some other DOH licensees, LHCSAs do not require an extensive bricks and mortar presence – so the ability of an applicant to make significant capital investments is less important. But DOH still has an interest in not approving LHCSAs that cannot sustain their business model – and so fiscal feasibility should be important.

The other surprising absence from the RFI is any specific discussion of cultural competency. The RFI refers to services for “special populations”, and presumably this would include racial, ethnic and national groups as well as individuals with particular disabilities or illnesses and other distinct populations (as opposed to distinct services), but that is not stated explicitly. It remains an open question whether a particular demographic group constitutes a “special population” sufficient to define the target population for a needs analysis, to justify an exception to the general needs analysis, or to otherwise be considered during the CON process.

In general, LHCSA providers who are considering responding to the RFI would be well-advised to consider all the factors that make their services unique, honestly evaluate whether those factors are appropriate for inclusion in the CON process, and respond accordingly. They might also consider additional outreach to state policymakers, either alone or in collaboration with other similarly-situated providers, and either through any of the several excellent trade associations that serve the LHCSA sector, or, where their interests diverge from their competitors, via separately retained counsel. Responses to the RFI are due no later than October 12, 2018.

If you have any questions or would like additional information on any of the above-referenced issues, or would be interested in assistance in responding to the RFI, please do not hesitate to contact Farrell Fritz’s Regulatory & Government Relations Practice Group at 518.313.1450 or NYSRGR@FarrellFritz.com