In recent months, there has been a lot of attention on decisions made during the height of the COVID-19 pandemic in New York State in regard to nursing homes.  Some of that attention has focused on an order issued in the early days of the pandemic requiring nursing homes to readmit COVID-positive residents previously referred to hospitals, at a time when one of the State’s primary concerns was potential hospital overcrowding.  Even more attention has been paid to the fallout from that order, including not only the consequent outbreaks in impacted nursing homes and resulting deaths, but also on whether or not regulators attempted to hide that information and its potential linkage to the readmission order.

But regulators have not been the only target of this retroactive scrutiny.  Nursing home operators themselves have faced suspicion in regard to such readmissions.  In particular, policymakers have questioned whether they readmitted COVID-positive residents when they knew they could not safely care for them, and whether they provided sufficient staff and equipment to do so even when they could.  The merits of these accusations are arguable – and even if true, are not necessarily true for every provider who accepted a COVID-positive resident.  Notwithstanding, they have resulted in new legislation that fundamentally changes the landscape for nursing home operators.

The 2021-22 New York State Budget includes a change to permanent law limiting nursing home profit margins.  Specifically, effective January 1, 2022, a minimum of 70% of nursing home revenue must be spent on direct resident care, including 40% for resident-facing staffing.  Fifteen percent of costs associated with resident-facing staffing by a registered nurse, licensed practical nurse, or certified nurse aide that is contracted out by a facility shall be deducted from the calculation of the amount spent on resident-facing staffing and direct resident care.  Any nursing home that, on an annual basis, fails to comply with these rules, or whose total operating revenue exceeds expenses by more than 5%, must remit the difference between required spending and actual spending or such excess revenue to the State by November 1 the following year.  Such funds will be used to support the Nursing Home Quality Pool.

Some nursing homes are exempt from these requirements, including continuing care retirement communities and nursing homes primarily serving medically fragile children, people with HIV/AIDS, people requiring behavioral intervention, people requiring neurodegenerative services, and other specialized populations identified by the Commissioner of Health.  The Commissioner is also empowered on a case-by-case basis to waive all these requirements with respect to a nursing home that experienced “unexpected or exceptional circumstances that prevented compliance,” or exclude from revenues and expenses extraordinary revenues and capital expenses incurred due to a natural disaster or other circumstances identified by the Commissioner.  Notice of such waiver must be given to the Long-Term Care Ombudsman and the Chairs of the Senate and Assembly Health Committees and posted on the Department of Health website at least 30 days prior.  The Commissioner of Health is required to issue regulations, seek amendments to the Medicaid State Plan, seek any necessary Medicaid waivers, update applicable forms, and take any other actions necessary to implement these changes.

And this is only the first step.  As of the date of this writing, additional legislation in this area is making its way through the Legislature.  The bill – which is the latest version of legislation that has been debated in Albany for several years – would require the Commissioner of Health to establish minimum staffing levels for nursing homes.  Nursing homes that are out of compliance would be subject to a range of civil penalties reflecting a variety of mitigating factors, including extraordinary circumstances, the frequency and nature of non-compliance, and the existence of an acute labor supply shortage.  At the same time, the Senate Aging Committee chair has announced she is planning a hearing on long term care workforce issues in the near future.  And other legislative activity targeting nursing homes can be expected.

In the months ahead, policymakers will continue to review the State’s response to COVID-19 and enact reforms that are intended to address problems revealed by the pandemic.  These reforms will likely extend far beyond just nursing homes, and have the potential to fundamentally change healthcare delivery in New York State, for better or worse.  The long-term effects of these measures, whether positive or negative, remain to be seen.

As policymakers have responded to the COVID pandemic, they have implemented a variety of changes that create tremendous opportunities in the post-COVID world.  Perhaps the most significant of these is in the area of telehealth.  The remote delivery of healthcare and health-related services has tremendous implications for patient access to care and quality of outcomes, and stakeholders across the country are actively examining how best to leverage telehealth technology to achieve those goals.

Nowhere is this truer than in New York State.  Before COVID, New York, like many states, strictly regulated what services could be delivered via telehealth, which providers and patients could utilize telehealth, and which telehealth modalities were permissible.  While the laws governing telehealth were becoming gradually more permissive, progress was slow.  In contrast, one of the first Executive Orders issued by the Governor in response to the pandemic waived key legislation “to the extent necessary to allow additional telehealth provider categories and modalities, to permit other types of practitioners to deliver services within their scope of practice and to authorize the use of certain technologies for the delivery of health care services to established patients, pursuant to such limitations as the commissioner of [the relevant] agencies may determine appropriate . . . ”  Executive Order 202.1.  At the same time, the Legislature passed and the Governor signed legislation that expanded the list of professionals permitted to utilize telehealth and the list of permissible telehealth modalities, and that provided some additional protections to patients receiving telehealth services.

The general consensus (with some exceptions) seems to be that the expansion of telehealth services was generally effective.  Patients were enabled to access vital services while minimizing risk of COVID exposure, and some of the concerns about remote healthcare delivery (e.g., diminished quality of care, increased opportunity to violate scope of practice or informed consent laws, etc.) seem not to have been a major concern.  Accordingly, the Legislature recently further expanded the permissible uses of telehealth, removing telehealth-specific limitations on the originating and destination sites in telehealth delivery, and further expanding the list of services that can be delivered via telehealth.  In short, New York State policymakers have essentially doubled down on the promise of telehealth.

However, some barriers and concerns remains, particularly including financial barriers.  Inherent here is the recognition that theoretical access to telehealth is meaningless if a patient or provider cannot afford the necessary technology.  Similarly, telehealth will continue to be underused if it is not reimbursed in a manner that makes its use attractive to providers in comparison to in-person interactions.  In order to begin addressing these issues and others, in May 2020, Governor Cuomo appointed members to the Reimagine New York Commission, which is tasked to “focus initially on recommendations to increase opportunity in three essential ways: reducing the digital divide, improving access to healthcare, and creating more and better employment in an increasingly digital economy.”  Included in their work product has been a series of recommendations to further codify and modernize telehealth in New York State.  Based on these recommendations, Governor Cuomo announced the following comprehensive telehealth reform policies, some of which have since been accomplished in whole or in part:

  • Adjust reimbursement incentives to encourage telehealth
  • Eliminate outdated regulatory prohibitions on delivery of telehealth
  • Remove outdated location requirements
  • Address technical unease among both patients and providers through training programs
  • Establish other programs to incentivize innovative uses of telehealth

In addition, to further support telehealth initiatives Governor Cuomo announced a guarantee of affordable internet for low-income families. That legislation requires internet providers to offer $15 per month high speed internet plan for low-income households.

The Legislature is also working to address outstanding issues.  Pending legislation addresses the amount of reimbursement available for telehealth (both by Medicaid and commercial insurers) and permissible modalities (including asynchronous telemedicine).  As more and more providers and entrepreneurs identify more opportunities for the use of telehealth, we can anticipate additional legislative and regulatory measures to authorize such uses.

The full impact of these changes is not yet known.  For instance, if the digital divide between rich and poor persists, it is entirely conceivable that increasing use of telehealth will exacerbate existing disparities in access to care. Similarly, the impact of the use of telehealth on professional malpractice and misconduct will need to be monitored on an ongoing basis.  But in general, COVID has essentially forced policymakers to act on issues that had remained unaddressed for far too long, and has gone a long way toward helping New York State’s regulatory regime catch up to existing technology in the telehealth space.

No matter where you look lately it seems like you can find a store selling CBD-based items or find an article discussing the medical benefits of CBD. In fact a simple Google search of the term “CBD” pulls up an overwhelming 225 million results. This article will cover the basics of CBD so that you can get all of the facts without having to parse through pages and pages of information.

Let’s start right at the beginning. What is CBD? CBD is the abbreviation for cannabidiol. CBD is a nonpsychoactive chemical compound derived from the hemp plant and is the second most prevalent of the active ingredients of marijuana.

CBD is increasing in popularity due to ongoing studies which show that CBD may provide benefits for persons suffering from pain, Alzheimer’s disease, Parkinson’s disease, multiple sclerosis, anxiety, depression, infection, cancer and a multitude of other ailments. The U.S. Food and Drug Administration (FDA), which regulates marijuana products under the Food, Drug, and Cosmetic Act (“FD&C Act”) and Section 351 of the Public Health Service Act, has raised concerns over the usage of CBD products, however, as “there has been no FDA evaluation regarding whether they are safe and effective to treat a particular disease, what the proper dosage is, how they could interact with other drugs or foods, or whether they have dangerous side effects or other safety concerns.” More than 70% of CBD extracts sold online, for instance, were mislabeled regarding potency, according to a Penn Medicine study in 2017.

While CBD is readily obtainable in most parts of the United States, whether CBD is legal is not a simple yes or no answer.

In December 2018, Congress passed the Farm Bill which legalized hemp – defined in the Farm Bill as cannabis and cannabis derivatives with very low concentrations – less than 0.3 percent – of THC. THC is the chemical compound in cannabis responsible for making a person feel “high.” The Farm Bill allows hemp cultivation broadly, and explicitly allows the transfer of hemp-derived products across state lines for commercial or other purposes.

Many people assume that, because CBD is derived from the hemp plant, CBD is likewise automatically legal at the federal level under the Farm Bill. That assumption is inaccurate, however, and that discrepancy is causing much confusion and uncertainty with respect to the production, distribution and use of CBD products.

While the Farm Bill removes hemp-derived products from its Schedule I status under the Controlled Substances Act, the legislation does not legalize CBD generally. As a result, certain uses of CBD, including the addition of CBD in foods and drinks, remain illegal under federal law.

The FDA is struggling to determine how to regulate CBD. The FDA held a hearing at the end of May 2019 “to obtain scientific data and information about the safety, manufacturing, product quality, marketing, labeling, and sale of products containing cannabis or cannabis-derived compounds.” The FDA is also gathering data from the public through the use of a docket that is open for comment until July 16, 2019.

More recently the FDA put out a consumer update entitled “What You Need to Know (And What We’re Working to Find Out) About Products Containing Cannabis or Cannabis-derived Compounds, Including CBD.” In the article the FDA states that it “recognizes the significant public interest in cannabis and cannabis-derived compounds, particularly CBD. However, there are many unanswered questions about the science, safety, and quality of products containing CBD.”

Because the federal government’s regulation of CBD is lagging, many states have laws legalizing CBD with varying degrees of restriction.

New York has maintained that CBD is legal, however adding CBD to food or drinks has recently been banned in New York City. “As of July 1, 2019, the Health Department is embargoing food and drink products that contain CBD — the products will have to be returned to the supplier or discarded,” the city’s health department said. “Starting October 1, 2019, the Health Department will begin issuing violations to food service establishments and retailers for offering food or drink containing CBD. Violations may be subject to fines, and for food service establishments, violation points may count toward the establishment’s letter grade.”

The legal status of CBD is constantly changing and there will likely be further changes over the next few months as the FDA continues to develop and update its regulations concerning the use of CBD. We will continue to provide updates as new information comes to light.

On June 11, the New York Court of Appeals, in Andrew Carothers, M.D., P.C. v. Progressive Insurance Company, 2019 NY Slip Op 04643, decided that an insurer may withhold payment for services provided by a medical services corporation improperly controlled by non-physicians whether or not the medical services corporation acted fraudulently or with fraudulent intent.

The Court of Appeals began its decision with a clear and broad statement that the practice of medicine by corporations controlled by non-physicians is prohibited:

“Only licensed physicians may practice medicine in New York.  The unlicensed are not bound by the ethical rules that govern the quality of care delivered by a physician to a patient.  By statute, regulation, and the common law, the corporate form cannot be used as a device to allow nonphysicians to control the practice of medicine.”

A jury in the lower court found that the plaintiff, Andrew Carothers, M.D., P.C. (“Carothers PC”), which provided MRI services, was controlled and operated by Hillel Sher, a non-physician.  Sher owned and controlled companies that held long-term leases for three MRI centers and equipment.  The evidence at trial showed that Sher’s companies:

  • Leased the MRI equipment, which was 10 to 11 years old, to Carothers PC for $547,000 per month, an “exorbitant” amount. One piece of equipment subleased to Carothers PC for $75,000 per month was leased by Sher’s companies for $5,950.  Carothers PC could have purchased another piece of MRI equipment that it subleased for two months’ subrent.  It could have purchased used MRI equipment to replace all of the subleased equipment for less than $600,000.
  • Carothers PC paid $60,000 per year to rent 9 fax machines, although it  could have purchased “scores of new [fax] machines every year for that price.”
  • The leases for the MRI centers gave Sher the right to terminate them for any reason, even if rent was paid and current, on 30 days’ notice. Carothers PC had no right to terminate the leases without cause.
  • The bank account that Carothers PC opened was controlled by an associate of Sher, who Carothers PC hired as its executive secretary. The executive secretary wrote the checks.  Carothers never issued a check from the account.
  • Carothers provided practically no oversight or supervision of the physicians, and did not evaluate or discipline them. He reviewed, at most, 0.2% of the MRI scans performed for Carothers PC’s patients.
  • The salary of Caruther PC’s executive secretary was higher than Dr. Carothers’ salary.
  • Large sums were transferred from the bank account of Carothers PC to the executive secretary’s personal account to pay her personal expenses and Sher’s.  Larger sums were transferred to Sher.  More than $12 million was funneled through Carothers PC to Sher and the executive secretary.

The New York Court of Appeals found that the facts presented in the Carothers PC case were very similar to those in State Farm Mut. Auto. Ins. Co. v Mallela, 372 F3d 500, 503 (2d Cir. 2004):  Non-physicians paid physicians to use their names to established medical service corporations, the non-physicians operated them and billed the physicians nominally in charge at inflated rates so that the profits from the medical practice were channeled to the non-physicians.  In Mallela, the Second Circuit asked the New York Court of Appeals to answer a certified question:  whether a medical service corporation “fraudulently incorporated” under New York law by non-physicians and operated by the non-physicians was entitled to reimbursement for medical services provided by its physicians.  The New York Court of Appeals answered the question no, ruling that a medical provider not solely owned and controlled by physicians was not entitled to insurance reimbursement.

The New York Court of Appeals, in the Carothers case, clarified that the “fraudulently incorporated” language of the Mallela decision, which was part of the Second Circuit’s certified question, did not mean that common-law fraudulent conduct of the medical services corporation’s business or common-law fraudulent intent was required for an insurance company to deny payment.  In Carothers, the finding by the jury “that [Carothers PC] was in material breach of the foundational rule for professional corporation licensure – namely that it be controlled by licensed professionals – was enough to render [Carothers PC] ineligible for reimbursement. . . .”  The insurer could deny payment if the medical services corporation was improperly established and operated by non-physicians, or was properly established but subsequently operated and controlled by non-physicians.  Although Carothers PC attempted to avoid this result by arguing that the improper control by Sher was merely an instance of improper fee splitting of a professional corporation’s profits with a non-physician and should not result in the denial of reimbursement, the jury determined that Carothers POC was controlled by non-physicians and did not merely split fees with it.

Last week, in Washington v. Barr, the Second Circuit addressed a case seeking to strike down the federal government’s classification of marijuana as a Schedule I drug under the Controlled Substances Act (CSA). The Court held that plaintiffs had failed to exhaust their administrative remedies before the Drug Enforcement Administration (DEA). Rather than dismissing the case, however, the Court took the unusual step of holding the case in abeyance and retaining jurisdiction to take “whatever action might become appropriate if the DEA does not act with adequate dispatch.”

The Court majority determined that the case was unusual because the plaintiffs were individuals plausibly alleging a life-or-death threat to their health. Plaintiffs included a businessman seeking to expand his medical marijuana business into whole-plant cannabis products; two children with dreadful medical problems asserting that they had exhausted traditional medical options and marijuana had saved their lives; an Iraq War veteran who had managed his PTSD through medical marijuana; and the Cannabis Cultural Association, an organization focused on the way marijuana convictions have disproportionately affected people of color and prevented minorities from participating in the new state-legal marijuana industry.

Plaintiffs did not first bring their challenge to the Schedule I classification of marijuana to the DEA, the agency that has the authority to reschedule marijuana. Although the CSA does not mandate exhaustion of administrative remedies, the Second Circuit agreed that exhaustion is appropriate and consistent with Congressional intent. Congress intended to implement scheduling decisions under the CSA through an administrative process, and requiring exhaustion is consistent with that intent. The Court determined that the question raised by plaintiffs’ suit—whether developments in medical research and government practice should lead to a reclassification of marijuana—is precisely the sort of question that calls for the application of an agency’s special knowledge. Also, the Court held that none of the recognized exceptions to exhaustion, such as futility, inability to grant adequate relief, or undue prejudice, applied.

The Second Circuit gave credence, however, to plaintiffs’ argument that the administrative process might delay their ordeal intolerably.

But in light of the allegedly precarious situation of several of the Plaintiffs, which at this stage of the proceedings we must accept as true, and their argument that the administrative process may not move quickly enough to afford them adequate relief, we retain jurisdiction of the case in this panel, for the sole purpose of taking whatever action might become appropriate should the DEA not act with adequate dispatch.

Thus, if the plaintiffs seek agency review, and “the agency fails to act with alacrity,” plaintiffs can return to the Court under its retained jurisdiction.

Judge Dennis Jacobs agreed that plaintiffs had failed to exhaust administrative remedies, but dissented from the majority’s decision to hold the case in abeyance in case the DEA failed to act with “adequate dispatch.” He viewed DEA as unlikely to discern the majority’s view of “adequate dispatch” or “alacrity,” and did not anticipate a swift ruling given the need for an assessment of countervailing risks, the pendency of legislation, and the eliciting of opinions on issues of medicine and public health. Judge Jacobs also dismissed the cases the majority had cited in supporting its abeyance determination: “None of these cases supports the idea that a court is permitted to hold a case in abeyance because the court may on contingency gain jurisdiction to hear it, and can bully the agency in the meantime.”

As the New York legislature and other states address the issue of legalization of marijuana, the DEA’s assessment of the scheduling issue-and the speed with which DEA makes or does not make that decision-may come before the Second Circuit again.

Home health care aides working twenty-four hour shifts can be paid for as little as thirteen hours under certain conditions, according to a March ruling from the New York Court of Appeals in Andryeyeva v. New York Health Care, Inc. The Court of Appeals remanded, however, for lower courts to consider whether employers were adhering to the sleep and meal time requirements of the minimum wage law.

The DOL Minimum Wage Order

New York’s Minimum Wage Act requires that all employees be paid a minimum wage for each hour worked. The Act delegates to the Commissioner of Labor the authority to set the minimum wage by issuing “wage orders.” In March 2010, the Department of Labor issued an opinion letter on the wage order applicable to home health care aides, including the calculation for “live-in employees,” who are assigned to a patient’s home on twenty-four hour shifts. The letter stated that:

  • Live-in employees must be paid at least thirteen hours for each twenty-four hour period, as long as they receive: (a) eight hours for sleep and actually receive five hours of uninterrupted sleep; and (b) three hours for meals.
  • If an aide does not receive five hours of uninterrupted sleep, the sleep period exclusion does not apply and the employee must be paid for all eight hours.
  • If the aide does not receive three work-free hours for meals, the three hour meal period does not apply and the employee must be paid for all three hours.

Plaintiffs’ Class Action Allegations and the Appellate Division Ruling

In two separate cases, plaintiffs sought to certify a class of home health care aides based on the employers’ failure to pay a required minimum wage for each hour of a twenty-four hour shift. In addition to the failure to pay for each hour of the twenty-four hours, plaintiffs alleged that they routinely did not receive five hours of uninterrupted sleep and were not allowed to take meal breaks.

The Appellate Division affirmed the certification of a class, rejecting the DOL interpretation of the wage order as “neither rational nor reasonable.” The Appellate Division reasoned that the employees were required to be present at the patient’s home and to perform services as needed and be available for work for the full twenty four hours.

In October 2017, DOL issued a Notice of Emergency Rulemaking in response, “to preserve the status quo, prevent the collapse of the home care industry, and avoid institutionalizing patients who could be cared for at home.” In a separate action in September 2018, the Supreme Court in New York County invalidated the emergency regulation.

Court of Appeals Sides With DOL and Employers

The Court of Appeals first cited authority that courts must defer to an administrative agency’s rational interpretation of its own regulations. Also, an agency construction that has been followed for a long period of time is entitled to great weight.

As applied to twenty-four hour shift workers, the DOL interpreted the requirement “to be available for work at a place prescribed by the employer” to exclude up to eleven hours for sleep and meal breaks, based on DOL’s understanding that these are regularly scheduled substantial periods of assignment-free personal time. The Court of Appeals concluded that the DOL interpretation was not inconsistent with the plain language of the wage order, and was not an irrational or unreasonable construction as applied to 24-hour shift workers.

The Court observed that the DOL interpretation had been consistent for nearly five decades, and had been set out in the DOL Investigator’s Manual and DOL memoranda and opinion letters. The DOL advanced its conclusion that employees who enjoy genuine sleep and meal breaks are not meaningfully available for work during those periods. The Court found that with respect to home health care aides, this interpretation was supported by DOL’s experience with the particularities of the home health aide occupation. The Court also found DOL’s interest in conforming state and federal guidance on the proper calculation of compensable hours to be reasonable.

Remand for Allegations of Lack of Sleep and Meal Times

Although the Court held for the employers on the DOL twenty-four hour interpretation, it remanded for the lower courts to consider the merits and class certification arguments concerning the plaintiffs’ other allegations. The Court described the DOL interpretation as a “hair trigger” that immediately makes the employer liable for paying every hour of the 24-hour shift if it fails to provide the minimum sleep and meal times required, and on remand the lower courts would have to consider whether the employers had complied with all DOL requirements.

The Court of Appeals stressed that it was not ignoring the “claims that a vulnerable population of workers is being mistreated.”

Plaintiffs’ allegations are disturbing and paint a picture of rampant and unchecked years-long exploitation. Plaintiffs allege, among other things, that they rarely received required sleep and meal time during 24-hour shifts, were expected and required to attend to patients numerous times each night, and that defendants failed to track actual hours worked or make a serious effort to ensure adequate sleep and meal times, as required by law.

This decision avoids the danger expressed by DOL that a ruling requiring twenty-four hour payment for all home health care aides could lead to “the collapse of the home care industry.” Nevertheless, it does signal that DOL and the Courts are likely to look very closely to whether home health care employers are rigorously adhering to the “hair trigger” minimum wage requirements for those workers.

The New York State budget, which took effect yesterday to start the new fiscal year on Monday, April 1, does not include a plan for the legalization of adult recreational marijuana use. Instead, Governor Cuomo and the New York Legislature intend to work on developing a more concrete plan for the legalization of recreational marijuana before the close of the session on June 19th.

Probably the biggest single issue that will not be addressed will be the legalization of marijuana,” Cuomo told reporters. “In concept we have an agreement, but…it is complex, and the devil is in the details…if it’s not done after the budget, I believe we get it done after the budget.”

There are currently ten states, including the District of Columbia, that have legalized adult recreational marijuana use: Colorado (2012), Washington (2012), Alaska (2014), Oregon (2014), District of Columbia (2014), California (2016), Maine (2016), Massachusetts (2016), Nevada (2016), Vermont (2018) and Michigan (2018).

Support for legalizing recreational marijuana remains high in New York, but groups such as the Parent Teacher Association, the American Academy of Pediatrics and certain law enforcement unions are becoming more vocal about their opposition to the establishment of a regulated marijuana program. On February 7, 2019, the New York State Sheriffs Association and State Association of Chiefs of Police spoke out against marijuana legalization because, among other reasons, there are no methods in place, or funding, to enforce laws against driving while under the influence of marijuana.

In addition, certain counties in New York, including Nassau, Suffolk, Rockland, Putnam and Chemung counties, have indicated that they would opt out of all cannabis related commercial businesses. As we discussed in one of our earlier posts, the New York Cannabis Regulation and Taxation Act includes a clause allowing counties and cities with populations over 100,000 to opt-out of allowing cannabis business license types within their jurisdictions. If opting out, as long as an individual is 21 years of age or older, they would still be permitted to possess, consume, and purchase cannabis from other counties that opt in.

On March 15, 2019, the Nassau County Task Force on Marijuana Legalization and Regulation issued its Report in which the Task Force “recommends that if the New York State Cannabis Regulation and Taxation Act is passed in its current form, that Nassau County Opt Out of all cannabis related commercial businesses.” Such potential opt outs do not seem to worry Governor Cuomo, however. “I don’t think it’s determinative,” he said back in March 2019. “It does make a difference on the statewide revenues and it will cost those municipalities, localities that opt out because then they would not get the local share of the revenues. But it’s not helpful politically to the passage.”

New York is not the only state hitting a roadblock in trying to get recreational marijuana legalized. Governor Phil Murphy attempted to have New Jersey be the second state to legalize marijuana legislatively (Vermont was the first), rather than through a public voter referendum. The vote on his bill, that would have legalized recreational marijuana for adults 21 and older in New Jersey, was called off at the last minute however due to a lack of support for the bill in the state Senate.

bankruptcy lawSection 351 of the Bankruptcy Code permits a health care business in bankruptcy to dispose of patient records if it lacks sufficient funds to pay to store the records in accord with applicable state or federal law.  Although section 351 was enacted in 2005, the provision appears to be little used.  That’s because the procedures required before patient records may be destroyed are time consuming, onerous and, in all likelihood, more expensive than storing them.

If the health care business in bankruptcy has insufficient funds to pay for patient records storage under applicable law, section 351 requires that it promptly publish notice in one or more appropriate newspapers that patient records not claimed by patients or insurers within one year will be destroyed.  Within six months after the publication, it must notify each patient by mail at the patient’s most recent known address, or the address of a family member or contact person for the patient, to claim his/her records within the one-year period.   The insurer for each patient must also receive notice by mail to claim the records or suffer their destruction.  For any patient records not claimed within the one-year period, the debtor health care business must send written requests to each “appropriate” federal agency asking permission to deposit the unclaimed records with the agency.  Whatever patient records remain in the possession of the health care business following this procedure must be shredded or burned, if they are written records, or destroyed, if magnetic, optical or electronic.  Bankruptcy Rule 6011 provides further guidance that the notice must be sent to patients and family members or contact persons for patients, and the Attorney General of the state where the health care facility is located.

In addition to being time consuming and somewhat vague, these requirements would be onerous for all with the possible exception of health care businesses with few patients.  A large physician practice group will have thousands or tens of thousands of patient records, many of which may be written.  The administrative effort to review each of them for patient addresses, family members and others such as health care proxies, and prepare and send the notices, will likely be time consuming, expensive and difficult.  A hospital will likely have tens or hundreds of thousands of patient records. The time, effort and expense needed to comply with section 351 for a hospital of any size would be herculean.

A number of hospitals which have filed chapter 11, ceased operations and confirmed plans of liquidation without a going concern sale of their business or assets in which the buyer that acquired the patient records, found an easier, much faster and more inexpensive alternative to section 351.  The buyer paid a records storage company to take all of the patient records.  The records storage company took possession of the records, converted paper records to electronic form, maintained them pursuant to applicable state and federal law, culled out and destroyed old records when state and federal law permitted, and, for a fee, provided access to the records to patients and litigation parties, in actions and proceedings where the records were relevant.  In this writer’s experience, there have often been several records storage companies willing to store and maintain the records and the debtor hospital has been able to obtain competing bids from them.  These hospitals had sufficient funds to pay a records storage company to take and administer the patient records.  Query whether they had sufficient funds to comply with section 351.

Debtor health care businesses that are insolvent on a post-bankruptcy basis, and intend to or are forced to shut down their operations and liquidate without a confirmed plan or in chapter 7, might consider disposing of patient records under section 351.  Except possibly for small businesses, however, the time, effort and expense of following the procedure mandated by section 351 will likely be much greater than the records-storage- company alternative, so long as this alternative is available.  Although it is not clear how such insolvent health care businesses would pay for records disposal under section 351 or, alternatively, pay to transfer the records to a records storage company, the latter will likely be less time consuming, take much less administrative effort and be less expensive.

EDNY Judge Nina Gershon analyzed several False Claims Act issues in United States ex rel. Omni Healthcare Inc. v. McKesson Corp., ruling on first-to-file, Rule 9(b), and statute of limitations issues.

Relator Omni Healthcare alleged that defendants improperly used “overfill” in vials of injectable drugs. “Overfill” is the amount of a drug in excess of the amount indicated on the label, typically included so the provider can withdraw a full dose from the vial. Relator alleged that defendants wrongfully broke into the vials, harvested the overfill, and then sold syringes with the overfill to providers who then billed the government.

Identify of Defendants Drives First-To-File Ruling

The Court initially addressed whether relator’s second amended complaint should be dismissed under the first-to-file rule, based on an earlier-filed case that also addressed alleged fraudulent repackaging of overfill. The Court reviewed Second Circuit law holding that a later-filed action is related and therefore barred if it “incorporate[s] the same material elements of fraud as the earlier action.” The Court concluded that the Omni Healthcare allegations were only related as to the one defendant that was a defendant in the earlier action, and dismissed the complaint only as against that defendant. The Court held that “the first-to-file bar would not reach a subsequent qui tam action otherwise alleging the same material elements of fraud, but alleging those elements concerning different defendants.” A later complaint is related if the earlier complaint equips the Government to investigate the fraud, and the Court determined that to be “‘equipped’ to investigate a fraud, the government must know whom to investigate.”

2017 Chorches Decisions Defeats Rule 9(b) Challenge

Defendants next asserted that the complaint did not satisfy the particularity requirement for pleading fraud under Rule 9(b), because it lacked allegations about the content of the false claims, who submitted them, and when they were submitted. Judge Gershon denied this argument based on the 2017 Second Circuit decision in United States ex rel. Chorches v. Am. Med. Response, Inc., which was discussed here. The Court held that “such information is not required where, as here, the relator’s allegations create a strong inference that specific false claims were submitted.”

Statute of Limitations Bars Claims Against Added Defendants

Omni Healthcare conceded that, to satisfy the False Claims Act six year statute of limitations, the new allegations in its second amended complaint would be timely only if they related back to its earlier-filed first amended complaint. The Court noted that the False Claims Act specifically allows a timely complaint to satisfy the statute of limitations even though the named defendants were deprived of notice while the complaint was sealed. New claims against defendants named by Omni Healthcare in the first amended complaint were therefore timely. The second amended complaint, however, had added five additional defendants, and the Court held that claims against these defendants were untimely. “The statute of limitations, like the first-to-file rule, encourages relators to come forward promptly with information to help the government uncover fraud … This purpose would be undermined if a relator were permitted to add additional defendants years later—and potentially after the government has declined to intervene.”

Judge Gershon’s rulings highlight the importance of naming all False Claims Act defendants as early as possible to avoid procedural dismissals.

On January 15, 2019, Governor Andrew Cuomo delivered his 2019 State of the State Address. Part of his address centered on the legalization of recreational marijuana in New York State.

The Cannabis Regulation and Taxation Act was introduced as part of the Governor’s Executive Budget, which is expected to be acted upon by April 1st. If it is approved, New York will join ten other states – Alaska, California, Colorado, Maine, Massachusetts, Michigan, Nevada, Oregon, Vermont and Washington – and Washington D.C., in adopting laws legalizing marijuana for recreational use.

As you may recall from one of our previous posts, as part of his 2018 State of the State Address Governor Cuomo directed the Department of Health (“DOH”) to conduct a study to determine the potential impact of a recreational marijuana program in New York State.

The Report from the DOH, issued in July 2018, concluded that the positive impacts of a regulated marijuana program in New York State outweigh the potential negative aspects. The Report stated that the regulation of marijuana benefits public health by enabling government oversight of the production, testing, labeling, distribution, and sale of marijuana. The Report further found that the creation of a regulated marijuana program would enable New York State to control licensing, ensure quality control and consumer protection, and set age and quantity restrictions.

Details of the program are still being developed, but the Governor’s proposed bill would create a new Office of Cannabis Management (OCM) which would administer all licensing, production, and distribution of cannabis products in the adult-use, industrial and medical marijuana markets. Governor Cuomo predicts that a recreational marijuana program in New York State will generate approximately $300 million in tax revenue and create jobs. That number could vary slightly, however, as the program would allow counties, as well as cities with a population of more than 100,000, to affirmatively opt out of the program and pass laws blocking one or more types of allowed marijuana operations.

During his 2019 State of the State Address Governor Cuomo also emphasized that the any implementation of a regulated marijuana program will also provide for the implementation of quality control and consumer protections to safeguard public health. His proposal would also automatically seal criminal records for marijuana offenses that are no longer crimes.

As with the other states that have legalized recreational marijuana, recreational marijuana use in New York State will be restricted to adults over the age of 21.

While there is growing support for a recreational marijuana program in New York, not everyone is optimistic that the Legislature will vote to legalize recreational marijuana as part of the state budget, which is due on April 1. At an event on January 31, 2019, Assembly Speaker Carl Heastie indicated that six weeks may not provide enough time to parse out the terms of such a complicated issue. He later tweeted: “Being honest and saying six weeks may not be enough time to come up with regulations, deal with economic impact on communities and the criminal justice aspects, somehow gets reactions of outrage instead of understanding and acknowledgment of the commitment to get this done…And done right.”

In response, Governor Cuomo said on February 1st during an interview with WCNY radio that he remains confident the Legislature can vote to legalize recreational marijuana as part of the state budget. “We’ll work very hard to get it done,” Cuomo said on WCNY radio. “In this business, six weeks is a lot of time. If we can’t do it right, then we’ll do it later.”