Corporate and Business

As we have discussed in an earlier blog post, the federal administrative agencies have been placing greater emphasis on being more transparent and promoting “interoperability”.

As such, on April 24, 2018, the Centers for Medicare & Medicaid Services (“CMS”) proposed changes to its Inpatient Prospective Payment System and Long-Term Care Hospital Prospective Payment System to promote better access to patient electronic health information and increase pricing transparency. For example, while hospitals are already required to make pricing information publicly available, the proposed rules impose more stringent guidelines, including a requirement that hospitals post pricing information on the internet. Seema Verma, the CMS Administrator, stated “[t]oday’s proposed rule demonstrates our commitment to patient access to high quality care while removing outdated and redundant regulations on providers. We envision a system that rewards value over volume and where patients reap the benefits through more choices and better outcomes.”

Critical to the proposed changes is a complete overhaul of the Medicare and Medicaid Electronic Health Records Incentive Programs, which is commonly known as the “Meaningful Use” program, by executing on the following core principles:

  1. Having a program that is more flexible and less burdensome;
  2. Placing greater emphasis and encouraging the exchange of health information between providers and patients; and
  3. Incentivizing providers to streamline the process for patients to be able to access their medical records electronically.

A rebranding would not be complete without, of course, a name change; in fact, CMS has proposed changing the “Meaningful Use” program to “Promoting Interoperability”. Interoperability, which means “the ability of computer systems or software to exchange and make use of information,” has been missing from the healthcare industry as technology has been advancing at an unprecedented rate. In a system where healthcare is central to our lives, it appears the final goal is to have a system where patients could have access to a virtual portal where all of their health information from various providers would be available, thus promoting patient-centered care where providers have greater insight into their patient’s medical history—invariably resulting in more thoughtful care. It is refreshing to see government, which is commonly known to always be a step behind private industry, taking the initiative to modernize its infrastructure. At this point in history a patient should be able to obtain his health information on a whim via his mobile device or even see a new physician while not having to deal with the administrative nightmares associated therewith.

While it is unclear if the final goal of “interoperability” will be reached, CMS’ proposed changes are definitely an encouraging step forward.

For more information, please see the CMS fact sheet.

 

 

New York’s FY 2019 Executive Budget includes new legislation aimed at combatting sexual harassment in the workplace.  According to the Governor, the legislation purports to be the “most comprehensive anti-sexual harassment protections in the nation….”  Here are the highlights:

  • Effective Immediately:  The new legislation prohibits sexual harassment of “non-employees in the employer’s workplace,” including “contractors, subcontractors, vendors, consultants or other persons providing services pursuant to a contract in the workplace or who is an employee of such contractor, subcontractor, vendor, consultant or other person providing services pursuant to a contract in the workplace. July 11, 2018:  Any settlement, agreement or other resolution directly relating to sexual harassment claims may not include language that prevents the disclosure of the underlying facts unless the plaintiff (1) has been given 21 days to consider the confidentiality/non-disclosure provision and 7 days to revoke the agreement after signing.
  • Effective July 11, 2018:  Mandatory arbitration agreements with respect to sexual harassment claims will no longer be enforceable and shall be deemed null and void.  Worth noting, mandatory arbitration agreements that include sexual harassment disputes remain enforceable with respect to all other claims.
  • Effective October 9, 2018:  Employers must establish a sexual harassment prevention policy and conduct annual interactive sexual harassment training.  The Department of Labor has been charged with consulting with the Division of Human Rights and producing a model training program.  The new rules also mandate written sexual harassment policies that include a standard complaint form, examples of prohibited conduct, and a procedure for timely investigations.

Going Forward . . . Watch for information on the Department of Labor’s model sexual harassment prevention policy and training program as well as Farrell Fritz’s Master Class for those responsible for sexual harassment training initiatives!

If you have questions concerning the development or implementation of these new employer obligations, contact Domenique Camacho Moran, Farrell Fritz’s Labor and Employment Practice Group at 516.227.0626 or dmoran@FarrellFritz.com.

Filefax, Inc. (“Filefax”), an Illinois company that intimately handled sensitive Personal Health Information (“PHI”), paid $100,000 to the Department of Health and Human Services (“HHS”) to settle potential violations of the Health Insurance Portability and Accountability Act (“HIPAA”). The payment stemmed from, when still in business, Filefax allegedly improperly disclosing the PHI of approximately 2,150 people when not properly securing such information in an unlocked truck on Filefax property, as well as granting access to PHI to people who should not have been granted access. Pursuant to the Resolution Agreement, the court appointed receiver for Filefax did not admit liability on behalf of Filefax but, however, did agree to enter into a Corrective Action Plan to help mitigate potential exposure.

On its face, the Filefax case may appear to be just like other settlements with HHS resulting from a HIPAA violation, but this case is different for one critical reason—Filefax is no longer in business!

Yes, Filefax, a company no longer operating and which was involuntarily dissolved on August 11, 2017, settled these potential violations of HIPAA, making it clear that, just because the doors close, HIPAA still applies. Roger Severino, director of the Office of Civil Rights (“OCR”), the HHS enforcement arm of HIPAA, stated “[c]overed entities and business associates need to be aware that OCR is committed to enforcing HIPAA regardless of whether a covered entity is opening its doors or closing them. HIPAA still applies.”

Business owners, especially those that handle PHI on a day-to-day basis, must continue to take seriously the rules and guidelines HHS sets forth with respect to HIPAA and are on notice that penalties may still apply even if you are no longer conducting business. The Filefax case should serve as a stark warning to all business owners that you cannot escape liability and/or penalties under HIPAA by closing your doors.

Spurred in large part by the changing landscape of medicine, more and more medical professionals are seeking to become a part of something bigger. Often, they are under the misassumption that they can set up and run their practice like any other business – until New York State’s strong prohibition of the corporate practice of medicine comes knocking on their door.

 

According to a 1998 report from a meeting of the New York State Board of Regents, “[p]rofessional services can be offered only by a licensed person or an organization otherwise authorized by law.” Under New York State law, this means that professional services can only be offered within a professional service corporation (“PC”) or a professional limited liability company (“PLLC”). Article 15 of the New York Business Corporation Law permits the formation of a professional service corporation only if all shareholders (1) are licensees of one profession (Section 1503) and (2) practice only such profession (Section 1506). The prohibition of the corporate practice of medicine extends beyond medical doctors to include an array of licensed professionals, such as dentists, dental hygienists, optometrists, chiropractors, podiatrists, pharmacy, nursing, ophthalmic dispensing, speech-language pathology, audiology, respiratory therapy (and technology), occupational therapists (and assistants) and physical therapists (and assistants).

One area that is a common pitfall for professionals is the sharing of profits or “fee-splitting.” The prohibition of the corporate practice of medicine, codified in 8 CRR-NY 29.1, prevents professionals from directly or indirectly sharing profits or splitting fees with non-licensed professionals.   Most often this comes up in an arrangement where the PC or PLLC employs a management services organization to run its company in exchange for a percentage of revenue.[1] Such an arrangement runs afoul of the prohibition and, in order to comply, all services that the PC or PLLC receives should be paid at fair market value.

 

A violation of the prohibition on the corporate practice of medicine can result in prosecution, fines and penalties. As articulated by Eric T. Schneiderman, Attorney General of the State of New York, in In the Matter of Aspen Dental Management, Inc. (Assurance No: 15-103), the theory underlying the prohibition is that “medical and dental decisions should be made by licensed providers using their best clinical judgment, and should not be influenced by management companies’ shared interest in potential profits.” In Aspen Dental, the management organization – which was not a professional organization – was required to restructure so that it no longer received percentage of gross profit, no longer employed clinical staff, and no longer had discretion over how the individual offices were run. Moreover, Aspen Dental was required to pay a $450,000 civil penalty and pay an independent monitor to oversee the implementation of the settlement for three years.

 

 

It remains to be seen what, if any, changes are made to the prohibition on the corporate practice of medicine in New York as the world shifts to value based reimbursement; however, for the time being professionals should remain cautious, not only when structuring their corporate entities but also when engaging with outside service providers.

 

[1] Note also that for some providers, fee splitting may result in STARK and anti-kickback violations, among others.

2018 Government Shutdown

Just as everyday Americans were preparing their lives for a second United States government shutdown since the turn of the New Year, President Donald J. Trump signed into law a bipartisan (well, as bipartisan as it gets with this Congress) budget deal, focusing on some of the core issues facing us today and, in particular, those directly impacting healthcare.

While pundits, analysts and deficit hawks will argue back and forth about the excessive spending and items that Congress and the administration missed on this deal, one issue that Congress finally started allocating resources to and which hits home for so many people is the opioid crisis—allocating $6 billion to help combat this tragic public health emergency.  Enough is enough when more than 110 babies have tragically died since 2010 due to either being born dependent on opioids or for lack of care from their parents.

Some other important items, among others, in the budget deal include:

  • Re-authorizing community health centers, which serve over 25 million people, for an additional 2 years with approximately $7 billion in funding;
  • Allocating $4 billion to help Veterans Administration hospitals provide the care that our veterans rightfully deserve; and
  • Extending the Children’s Health Insurance Program (CHIP) for 10 years.

Just after reaching the deal, House Speaker Paul Ryan said “[u]ltimately, neither side got everything it wanted in this agreement, but we reached a bipartisan compromise that puts the safety and well-being of the American people first.” Even though it took a second, but brief, government shutdown and many continuing resolutions to light a fire under Congress to pass a budget, the budget they passed is an important step forward for our Country, especially when it comes to improving our healthcare system.

As discussed in our January 5th blog post, the Cole Memorandum was rescinded by Attorney General Jeff Sessions on January 4th of this year.   The Cole Memorandum had served to formally announce the DOJ’s policy that it would not interfere with medicinal marijuana legalized under state law, despite marijuana’s continued illegality for all purposes under federal law. With the rescission of the Cole Memorandum, federal prosecutors are now free to determine to what extent they will enforce federal law against the state-legalized medical marijuana industry.

However, the effect of the change in policy reaches further than to just the cultivators, manufacturers and distributors of medicinal marijuana products. Pursuant to the Controlled Substances Act, not only is it illegal to manufacture, distribute or dispense marijuana for any purpose – but it is also illegal to aid someone in doing so. Therefore, the DOJ is now free to prosecute anyone “aiding” in a medical marijuana business, for example, giving legal advice.

Probably of greater practical concern to attorneys than criminal prosecution is the tremendous amount of uncertainty as to how the change in policy will impact the ethics surrounding the representation of medical marijuana clients. Most, if not all, states have ethical rules that specifically prohibit a lawyer from assisting a client in illegal conduct. These rules do not distinguish between conduct that is illegal under federal law but expressly permitted under state law.

New York Rule of Professional Conduct 1.2 provides that “[a] lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is illegal or fraudulent, except that the lawyer may discuss the legal consequences of any proposed course of conduct with a client.” While it is generally undisputed that an attorney may advise a client about what state law provides – for example, filing requirements – an attorney arguably would be violating the Rules of Professional Conduct by, for example, assisting a client in negotiating a marijuana distribution contract.

Ethics boards in some states, including New York, have used the Cole Memorandum as the decisive factor to conclude that providing legal advice related to legalized medical marijuana businesses does not violate ethics rules. To a lesser extent, some states, including New York, have also relied on the theory that state ethics rules are intended to promote state policy – and by approval of the state medicinal marijuana law, a state has expressed its state policy on the matter, yielding no ethical violation.

It remains to be seen what impact the rescission of the Cole Memorandum will have on the ethics opinions of various states that are based heavily upon the prior policy of federal non-enforcement. For now, we can still find comfort in the Rohrabacher-Blumenauer amendment to the federal budget, which currently continues in effect until February 8 and maintains that federal funds (including those allocated to the DOJ) cannot be used to prevent states from “implementing their own state laws that authorize the use, distribution, possession or cultivation of medical marijuana.”

Despite numerous states having legalized medical marijuana, and a handful of others having legalized marijuana for recreational use, it still remains impossible to obtain a U.S. federal trademark registration for marijuana products or related goods or services.

The U.S. Patent and Trademark Office (USPTO) is the federal agency charged with granting U.S. patents and registering trademarks. The USPTO registers trademarks based on the commerce clause of the Constitution (Article I, Section 8, Clause 3) and registration is governed under various rules of practice and federal statutes.

The USPTO Trademark Manual of Examining Procedure (TMEP) Section 907 explains that under Trademark Rule of Practice 2.69, “[u]se of a mark in commerce must be lawful use to be the basis for federal registration of the mark. . . . Generally, the USPTO presumes that an applicant’s use of the mark in commerce is lawful and does not inquire whether such use is lawful unless the record or other evidence shows a clear violation of law, such as the sale or transportation of a controlled substance.”

As we’ve discussed in previous blog posts, marijuana, whether used for medicinal or recreational purposes, is classified as a Schedule 1 drug under the Controlled Substances Act (CSA). The CSA prohibits the manufacturing, distributing, dispensing or possession of certain controlled substances, including marijuana and marijuana-based products and services. In addition, the CSA makes it unlawful to sell, offer for sale or use any facility of interstate commerce to transport illegal substances, including marijuana.

As a result of the CSA, U.S. trademark applications related to marijuana or marijuana related goods and services will be refused registration under TMEP Section 907. TMEP Section 907 further provides that “[r]egardless of state law, the federal law provides no exception to the above-referenced provisions for marijuana for ‘medical use.’” Recent decisions issued by the USPTO continue to deny the federal registration of trademarks relating to marijuana and related goods and services despite the legality of such products and services under state law.

Trademarks that reference marijuana but that are used in commerce on lawful products, such as clothing, may be registered with the USPTO. For example, the trademark “MARIJUANAMAN” was registered by the USPTO as the mark will be used in connection with books about cannabis. Similarly, the trademark THE MARIJUANA COMPANY was approved in connection with the mark’s use on clothing.

Since federal registration is not permitted for trademarks that cover the sale or transportation of marijuana, such trademark applicants must rely on state trademark filings for the registration of their trademarks. This has become an important issue since so many states have now enacted legislation legalizing the medical – and in some cases, recreational – use of marijuana.

State trademark registrations are more limited in scope than federal trademark registrations as they don’t offer national protection or afford a registrant a presumption of ownership and validity of the underlying trademark on a national level. They are relatively inexpensive to obtain, however, and can afford the registrant at least certain benefits under state law. States like Washington, Oregon, Nevada and Colorado already allow for the registration of cannabis-related marks.

Nevada, for example, enacted legislation governing the use of names, logos, signs and advertisements by medical marijuana establishments. Pursuant to NAC 453A.402, any such names, logos, signs and advertisements must be approved by the Administrator of the Division of Public and Behavioral Health. In addition, Nevada has established guidelines which provide design guidelines for medical marijuana establishments. The guidelines specify, among other things, that the overall appearance of the mark or advertisement must not be appealing to minors; not contain cartoon-like figures or illustrations; not contain humor and must avoid script, decorative or gimmicky fonts. The use of of marijuana slang in the mark or advertisement, such as pot or weed, is also strictly prohibited.

Most recently, as of January 1st, 2018, customers may also register cannabis-related marks with the California Secretary of State. In order to register the mark California requires that (1) the mark be lawfully in use in commerce within California; and (2) the mark match the classification of goods and services adopted by the USPTO. To be lawfully using the mark in commerce within California requires that the registrant be licensed by California to provide the goods and services for which he or she is seeking protection and that such goods and services have already been sold to the public. Unlike registration of a trademark at a federal level, California does not have an intent-to-use trademark application. As such, the mark must be in use prior to registering the mark with the Secretary of State.

New York has not yet enacted any special legislation or guidelines relating to the registration of marijuana-related trademarks with the New York Secretary of State. That may soon change, however, as more and more states start to allow state registration of marks relating to marijuana and marijuana-related goods and services.

On January 5, 2018, the United States Department of Health and Human Services released for public comment a draft Trusted Exchange Framework, which seeks to accomplish interoperability with respect to patients’ Electronic Health Information (“EHI”) through the creation of Health Information Networks (“HINs”). The 21st Century Cures Act, which Congress enacted in 2016, has the goal of creating a trusted exchange focusing on streamlining patient EHI and establishing a network designed to “achieve a system where individuals are at the center of their care and where providers have the ability to securely access and use health information from different sources.” The Trusted Exchange Framework is the federal government’s attempt to achieve that goal.

The draft Trusted Exchange Framework is broken down into two parts:

Part A—Principles for Trusted Exchange

Part B—Minimum Required Terms and Conditions for Trusted Exchange

Part A sets forth and relies on six principles:

(1) Standardization (adherence to industry standards and best practices);

(2) Transparency (an open free flowing exchange);

(3) Cooperation and Non-Discrimination (collaboration from all stakeholders);

(4) Privacy, Security, and Patient Safety (data protection and integrity);

(5) Access (conveniently obtain EHI); and

(6) Data-driven Accountability (streamlined process for a cohort of patients to help lower cost of care).

These principles are guidelines qualified HINs need to follow to help build a trusting relationship between participants and patients and, without adherence to this foundation, a new modernized system cannot properly flourish.

Part B sets forth the minimum required terms and conditions participants must adopt and follow to ensure a trusted exchange of EHI. This is accomplished through a trusted exchange framework and common agreement (“TEFCA”). The TEFCA seeks to ensure, among other things, that there is “[c]ommon authentication processes of trusted health information network participants, [a] common set of rules for trusted exchange, and [a] minimum core of organizational and operational policies to enable the exchange of EHI among networks.” A sample TEFCA can be found in the draft Trusted Exchange Framework.

In sum, it is clear that the federal government is finally taking a serious look at how our healthcare system can become more efficient and modernized in our ever-changing society. Putting into place a final Trusted Exchange Framework, with input from all stakeholders, is a great step towards reaching that goal.

The deadline for public comment is February 18, 2018.

While marijuana is legal for medical and, in some instances recreational, use under the laws of 29 states plus the District of Columbia, under federal law it remains illegal. Yet, for the last several years, this lingering federal illegality has not seemed to chill entry into the industry – thanks in large part to the Cole Memorandum. On the heels of the January 4 rescission of the Cole Memorandum, as well as two additional memos related to marijuana enforcement policy, all of that might change.

A federal statute, the Controlled Substances Act (the “CSA”) makes it illegal to manufacture, distribute or dispense marijuana for any purpose. Under the CSA, marijuana is a Schedule 1 drug, meaning that under federal law marijuana is believed to have no currently accepted medical use and a high potential for abuse. Moreover, the Schedule 1 classification extends to all elements of the cannabis plant, including extracts and derivatives thereof. No exceptions exist in the CSA for medicinal use or use in states where marijuana has been legalized.

However, in 2013, the U.S. Department of Justice (“DOJ”) issued the Cole Memorandum, which states that its general policy is not to interfere with the medicinal use of marijuana under state law. The Memorandum set forth certain principles underpinning DOJ enforcement of the CSA with respect to marijuana. Although the DOJ said it would continue to prosecute persons or organizations whose conduct interferes with any one or more of these principles, regardless of state law, the memorandum went on to declare that where state law effectively mitigates the concerns of the DOJ, the Department will refrain from prosecution.

Since the change in administration in 2017, there has been an increasing sensitivity to a shift in DOJ policy on enforcing the CSA against “legalized” marijuana businesses. Attorney General Jeff Sessions has publicly discussed his harsh stance on marijuana and the potential for increasing federal enforcement of the federal law regarding marijuana – despite what state law provides. In fact, in May 2017 he sent a letter to certain political leaders advising of his desire to do so.

Sessions has now gone a step further and rescinded the Cole Memorandum, leaving federal prosecutors free to determine to what extent they will enforce the CSA against state-legalized marijuana businesses. A copy of the release can be found here and a copy of the memorandum can be found here.

While likelihood of prosecution will vary from jurisdiction to jurisdiction based upon the position of the particular U.S. Attorney in charge of the district, it is clear that the rescission will have a broader impact than just the potential of prosecution of those involved in the industry. As discussed in our November 27, 2017 post, Cannabis Business? The Impact of Federal Law Might reach Further than You Think, the CSA and federal illegality of marijuana has a far-reaching impact on those setting up or running marijuana businesses that are legal under state law. It is anticipated that the rescission of the Cole Memorandum will, among other things, further impair the ability of those in the marijuana business to obtain leases, financing, and perhaps even legal assistance.

State and federal representatives of several states have already publicized their positions on the January 4 memorandum, with many being unfavorable. It would not be surprising if political leaders mobilized quickly to protect the cannabis industry, which has already injected over $20 billion into the U.S. economy and is expected to increase that number to about $70 billion by 2021. In the short term, those in the industry can continue to find some comfort in the Rohrabacher-Blumenauer amendment to the federal budget, which continues in effect until January 19 and maintains that federal funds cannot be used to prevent states from “implementing their own state laws that authorize the use, distribution, possession or cultivation of medical marijuana.” In the meantime, we will all be waiting with baited breath to see the responses of state and federal leaders.

Stemming from the recent drinking water crisis in Flint, Michigan, which has had life-lasting effects for many of its residents, including children, due to unsafe lead-related toxicity levels in the drinking water, New York State Governor, Andrew M. Cuomo, announced that various New York municipalities were awarded $20 million dollars in the aggregate to replace lead service lines as part of the New York Clean Water Infrastructure Act of 2017 (the “Act”). The Lead Service Line Replacement Program (the “LSLRP”), a critical part of the Act, provides $2,445,452 to Long Island, including $611,363 to the City of Glen Cove and $611,363 to the Town of Hempstead. Other awardees include New York City ($5,323,904), Buffalo ($567,492), as well as many other cities, towns and counties throughout the state.  In his press release, Governor Cuomo stated “[t]hese critical improvements to New York’s drinking water infrastructure are vital to protecting public health and to laying the foundation for future growth and economic prosperity in these communities”.

The LSLRP was introduced in 2017 and is intended to provide funding to municipalities to replace residential lead service lines, especially those that have corroded, from the public water system. The program empowers the New York State Department of Health to award funds to certain municipalities determined by the “percentage of children with elevated blood levels, median household income, and the number of homes built before 1939”. In fact, homes built before 1930 are more likely to contain lead in its pipes because at that time the government neither regulated this area nor the applicable construction practices.

In addition to the Act, New York has increased its attention to this cause, especially focused on children, who are most at risk for lead-related negative health effects, by requiring health providers to test every child for lead in his or her blood when reaching 1 and 2 years old. Further, in 2016, Governor Cuomo took a bold step by requiring all public schools to test their water for lead as well as mandating those results be made public.

It appears that Governor Cuomo and the New York State legislature have learned the very valuable lessons their counterparts in Michigan have taught us, and the important steps our government has since taken will help ensure the better health and quality of life for all of us that live in the Empire State.