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.”

Since the advent of the Medicaid managed care program there has been a lingering question as to when a Medicaid dollar stopped being a Medicaid dollar.

With fee-for-service providers that were paid directly by the Medicaid program, the answer was always clear-cut – each dollar received from the Medicaid program was a Medicaid dollar and therefore it and the provider who received it were subject to the audit authority of the New York State Office of the Medicaid Inspector General (“OMIG”).

But what about providers contracted through Medicaid managed care organizations (“MCO”) and not directly enrolled as Medicaid providers? Before Governor Cuomo issued his Executive Budget earlier this month, there was debate as to where the OMIG’s audit authority stopped with arguments on either side of the line.  Many argued that the OMIG’s authority stopped with at the doors of the MCO.  After the money was paid to the MCO it was able to negotiate contracts directly with providers and disburse the funds as it saw fit, with each MCO operating independently of each other.  The other side of the coin was that a dollar spent with the purpose of providing care to a Medicaid recipient established that the dollar was a Medicaid dollar from start to finish, regardless of whether it was passed through a MCO.

With the Executive Budget, however, all confusion and debate will be settled.  Per the proposed language of the Health and Mental Hygiene Article VII Legislation, Social Services Law Section 364-j will be amended to state that “[a]ny payment made pursuant to the state’s managed care program, including payments made by managed long term care plans, shall be deemed a payment by the state’s medical assistance program.”

The Executive Budget goes further, clearly defining the OMIG’s ability to recover overpayments made by a MCO to its contracted providers that were discovered during an OMIG audit or investigation, as well as during an investigation or prosecution by the New York State Office of the Attorney General Medicaid Fraud Control Unit (“MFCU”).  If the OMIG is unable to recover the overpayment, the MCO may be required to act on the OMIG’s behalf to recoup the overpaid funds and repay the State within six months of receiving notice of the overpayment.

The legislation sets January 1, 2018 as the start of the review period and, without any amendments to the budget bill by the Legislature, will go into effect immediately upon the Governor signing the bills into law.  With the OMIG poised to begin these audits, MCO-contracted providers should familiarize themselves with the OMIG’s audit protocols and procedures.

Medicaid providers, both fee-for-service and those contracted with MCO, who are interested in taking a proactive stance in preparing for an OMIG or MFCU audit or investigation, or providers who are already the subject of one are encouraged to contact Farrell Fritz’s Regulatory & Government Relations Practice Group at 518.313.1450 or NYSRGR@FarrellFritz.com to plan your next move.

When a health care business files for bankruptcy, the appointment of an ombudsman to monitor the quality of patient care and represent the interests of the patients is required unless the bankruptcy court finds that an ombudsman “is not necessary for the protection of patients under the specific facts of the case.” Bankruptcy Code §333(a)(1).[1]  Because many health care businesses which file for bankruptcy believe a patient care ombudsman is not necessary to ensure their quality of care and the cost of an ombudsman (which is paid by the debtor) may be material, motions for a determination that a patient care ombudsman is not required are fairly common.

Neither the Bankruptcy Code nor the Bankruptcy Rules provide a guide for the bankruptcy court’s analysis of whether an ombudsman is needed. The bankruptcy courts have developed standards that examine the operation of the health care business using a number of non-exclusive factors. One frequently cited decision listed and analyzed the following factors: (1) the cause of the bankruptcy; (2) the presence and role of licensing or supervising entities; (3) the debtor’s history of patient care; (4) the ability of patients to protect their rights; (5) the level of dependency of the patients on the facility; (6) the likelihood of tension between the interests of the patients and the debtor; (7) the potential injury to the patients if the debtor drastically reduced its level of patient care; (8) the presence and sufficiency of internal safeguards to ensure the appropriate level of care; and (9) the impact of the cost of an ombudsman on the likelihood of a successful reorganization.  In re Alternate Family Care, 377 B.R. 754 (Bankr. S.D. Fla. 2007). The Bankruptcy Court for the Eastern District of New York adopted the Alternate Family Care factors in In re North Shore Hematology-Oncology Associates, P.C., 400 B.R. 7, 11 (2008). The North Shore decision listed an additional four factors found in a 2008 California bankruptcy court decision: (1) the quality of the debtor’s current patient care; (2) the debtor’s financial ability to maintain quality care; (3) whether the debtor has an internal ombudsman program; and (4) the level of oversight of the debtor by governmental and professional association programs which might make the services of an ombudsman duplicative. The weight to be accorded each of the factors, according to the North Shore decision, is left to the sound discretion of the reviewing court.

A leading bankruptcy treatise concludes that, based on the language of the patient care ombudsman provision of the Bankruptcy Code, the court should conduct an evidentiary hearing on the motion. However, the bankruptcy courts in the Eastern District of New York more often decide the motions after argument on the motion papers, including the consideration of evidence through fact declarations, without live testimony. For the motion to succeed, the debtor must overcome the presumption in the statute in favor of appointing ombudsmen in health care bankruptcies, as well as the bankruptcy court’s likely conservative approach that an ombudsman will be appointed unless there is no realistic possibility that the quality of care will be compromised in any way, especially if the debtor provides in-patient services.

 

[1] A health care business is broadly defined in the Bankruptcy Code to mean any entity that provides medical or psychiatric services, or long-term care.

In federal criminal investigations, corporate health care providers have faced a Department of Justice increasingly focused on individuals, one that has limited or foreclosed cooperation credit for corporations not providing complete information on all individual involvement. At a conference in late November, Deputy Attorney General Rod Rosenstein outlined a modification of these stringent guidelines, to some extent for criminal prosecutions cases but more significantly for civil cases.

The 2015 Yates Memorandum established DOJ’s policy on individual accountability for corporate wrongdoing. This policy provided that corporations must provide all relevant facts about individuals to be eligible for any cooperation credit; criminal and civil investigations should focus on individuals from inception; no corporate resolution will provide protection from criminal or civil liability for any individuals; and considerations for civil suits against individuals should go beyond ability to pay, stressing deterrence and accountability.

Rosenstein first highlighted the consistencies of the new approach with the Yates Memorandum, as pursuing individuals responsible for wrongdoing is still a top DOJ priority. Any company seeking cooperation credit must identify all individuals substantially involved in or responsible for the criminal conduct. However, “investigations should not be delayed merely to collect information about individuals whose involvement was not substantial, and who are not likely to be prosecuted.” In criminal cases, this will allow cooperation credit without identifying every person involved, as long as the company discloses individuals who played significant roles or who authorized the misconduct.

Rosenstein said the changes were driven in large part by DOJ’s affirmative civil enforcement cases, where the changes are more substantial. The primary goal of these cases is to recover money, and DOJ found the Yates Memorandum’s “all or nothing” approach to cooperation counterproductive in civil cases. “When criminal liability is not at issue, our attorneys need flexibility to accept settlements that remedy the harm and deter future violations, so they can move on to other cases. … Our civil litigators simply cannot take the time to pursue civil cases against every individual employee who may be liable for misconduct.”

The new policy gives DOJ civil attorneys the discretion to offer some credit even if a company does not qualify for the maximum credit that comes with identifying every individual substantially involved in or responsible for the misconduct, as long as the company meaningfully assists the government’s investigation and does not conceal wrongdoing. DOJ civil lawyers can negotiate civil releases for individuals who do not warrant additional investigation and, importantly, can consider an individual’s ability to pay in deciding whether to pursue a civil judgment. Rosenstein said these “commonsense reforms” would return to DOJ civil attorneys the discretion they previously exercised in civil cases, to “use their resources most efficiently to achieve their enforcement mission.”

The practical implications of this change will play out over time. Rosenstein’s language suggests that a significant dividing line will be whether individual U.S. Attorney’s Offices view the conduct at issue as a joint criminal-civil matter or as a civil matter without a parallel criminal case. In the former, the only change may be an understanding that the company may be able to streamline the number of people that are the focus of investigation and disclosure. In a purely civil investigation or case, however, Rosenstein’s language indicates significant discretion will be given to DOJ civil attorneys to work out practical settlements that aim towards monetary recoveries for the government and victims, as well as an efficient use of resources to maximize recovery across all cases. In at least the purely civil cases, Rosenstein’s comments offer significant arguments to defense counsel to propose and advocate the practical resolution of government investigations and cases.

The Compassionate Care Act has expanded and changed each year since Governor Andrew M. Cuomo signed it into law in 2014 and 2018 was no different.

Among others, one big change that was made to the Medical Marijuana Program was the addition of opioid replacement as a qualifying condition[1] for medical marijuana. As a result of this change, patients with severe pain that doesn’t meet the definition of chronic pain can use medical marijuana as a replacement for opioids. The regulation also added opioid use disorder as an associated condition, allowing patients with opioid use disorder who are enrolled in a certified treatment program to use medical marijuana as an opioid replacement.

In 2019, New Yorkers will continue to see changes and tweaks to the Medical Marijuana Program as the State aims to improve the program. Change may also be on the horizon with respect to recreational marijuana use in New York State.

Medical Marijuana Update

On November 14, 2018, the New York State Department of Health published its Medical Use of Marijuana Under the Compassionate Care Act Two-year Report – 2016-2018. The purpose of the report is to provide an overview of the program’s activities since the last two-year report was published in 2016. You can view the Report for the years 2014-2016 by clicking here.

In the 2018 Report the DOH recommends “expanding the medical marijuana program to reach patients who may be self- medicating with marijuana from sources that are not regulated or held to the same high-quality standards as the medical marijuana products manufactured by registered organizations in New York State.”

In order to expand the program the DOH lists nine steps it will endeavor to undertake, some of which New Yorkers will likely see in 2019.

One of the changes the DOH wishes to make in order to expand and improve the program is to afford practitioners more clinical discretion in determining whether or not to certify patients for medical marijuana, based on an evaluation of the patient’s condition, past treatment and the overall risks versus benefits for each patient.

In addition, the DOH wants to increase the number of practitioners available to certify patients, by permitting all prescribers of controlled substances to humans to participate in the program. This is a change from current regulations that only allow physicians, nurse practitioners and physician assistants to certify patients to use medical marijuana.

In the 2018 Report the DOH also recommends increasing the number of caregivers for each certified patient to five caregivers per patient in hopes that this will allow for increased flexibility for families in providing care to their loved ones. Currently the number of caregivers for each certified patient is capped at two.

Recreational Marijuana Update

Nine states, plus Washington D.C., have all fully legalized marijuana use. As we had noted in New York May Consider Recreational Marijuana Legalization, in his January 2018 budget address Governor Cuomo called for an assessment of the possible impact of regulating marijuana in New York State. The Governor directed certain New York State agencies to evaluate the health, public safety, and economic impact of legalizing marijuana.

In July 2018, the DOH published its findings in the “Assessment of the Potential Impact of Regulated Marijuana in New York State.” Overall, the DOH indicated that it would be in favor of the establishment of a regulated marijuana program.

The positive effects of a regulated marijuana market in NYS outweigh the potential negative impacts. Areas that may be a cause for concern can be mitigated with regulation and proper use of public education that is tailored to address key populations. Incorporating proper metrics and indicators will ensure rigorous and ongoing evaluation.

A full summary of the DOH’s findings can be found in our previous blog post, NYS Department of Health Report Green Lights Legalization of Marijuana.

Following the issuance of the Report Governor Cuomo held Regulated Marijuana Listening Sessions, the purpose of which was to gather input from community members on the possible enactment of a regulated marijuana program in New York State. The Listening Sessions were held across New York State during September and October.

On November 21, 2018, a spokesperson for Governor Cuomo confirmed that creating a framework for legalizing adult marijuana use is among the administration’s 2019 legislative priorities.

The goal of this administration is to create a model program for regulated adult-use marijuana – and we determined the best way to do that was to ensure our final proposal captures the views of everyday New Yorkers,” said Tyrone Stevens, a spokesperson for the Governor. “Now that the listening sessions have concluded, the working group has begun accessing and reviewing the feedback we received and we expect to introduce a formal comprehensive proposal during the 2019 legislative session.

 

[1] Opioid replacement joins the following 12 qualifying conditions under the state’s Medical Marijuana Program: cancer; HIV infection or AIDS; amyotrophic lateral sclerosis (ALS); Parkinson’s disease; multiple sclerosis; spinal cord injury with spasticity; epilepsy; inflammatory bowel disease; neuropathy; Huntington’s disease; post-traumatic stress disorder; and chronic pain.

As New Yorkers are preparing for Thanksgiving and the official start to the holiday season (although some could argue it started a month ago), required Medicaid providers should also be reviewing their Compliance Programs in preparation to submit their Annual Provider Compliance Program Certification to the New York State Office of the Medicaid Inspector General (“OMIG”).  Required providers must submit a certification at the time of their enrollment and each December thereafter.

As defined by Social Services Law Section 363-d (“Section 363-d”) and Part 521 of Title 18 of the New York Code of Rules and Regulations (“Part 521”), required providers are considered any provider that can answer “Yes” to one of the following questions and therefore must implement a comprehensive Compliance Program:

  1. Is the provider organization subject to Article 28 or Article 36 of the NYS Public Health Law?
  2. Is the provider organization subject to Article 16 or Article 31 of the NYS Mental Hygiene Law?
  3. Does the provider organization claim or order, or can be reasonably expected to claim or order, Medicaid services or supplies of at least $500,000 in any consecutive 12-month period?
  4. Does the provider organization receive Medicaid payments, or can be reasonably expected to receive payments, either directly or indirectly, of at least $500,000 in any consecutive 12-month period?
  5. Does the provider organization submit Medicaid claims of at least $500,000 in any consecutive 12-month period on behalf of another person or persons?

There are two important concepts to be aware of when answering these questions.  First, as defined by the OMIG, Indirect Medicaid Reimbursement is any payment that a provider receives for the delivery of Medicaid care, services, or supplies that comes from a source other than the State of New York.  An example of this is when a provider provides covered services to a Medicaid beneficiary who is enrolled in a Medicaid Managed Care Plan, any payment from the Managed Care Organization is considered an indirect payment.

The second important concept is that the OMIG considers any consecutive 12-month period to be exactly that, any twelve consecutive months.  This determination should not be considered solely on a calendar year.  For example, if a provider established her practice on April 1, 2018 and will not reach $500,000 in either claims or payments by December 31, 2018 but can reasonably expect to hit that mark by March 2019, then that provider should have a Compliance Program in place and be prepared to certify to its implementation by December 31, 2018.

To assist providers, the OMIG’s website identifies seven compliance areas that a provider’s Compliance Program must apply to, as well as eight elements that should be included in all Compliance Programs, regardless of provider type.

The Seven Compliance Areas are:

  1. Billings;
  2. Payments;
  3. Medical necessity and quality of care;
  4. Governance;
  5. Mandatory reporting;
  6. Credentialing; and
  7. Other risk areas that are or should with due diligence be identified by the provider.

The Eight Elements required in every Compliance Program are:

Element 1: Establish written policies and procedures that clearly describe and implement compliance expectations, as well as provide guidance to employees and others on dealing with potential compliance issues.  The written policies and procedures must also identify how to communicate compliance issues to appropriate compliance personnel and describe how potential compliance problems are investigated and resolved.

Element 2: Designate a Compliance Officer who is responsible for the day-to-day operation of the Compliance Program.

Element 3: Establish an effective training and education program for all affected employees and persons associated with the provider, including executives and governing body members (“affected persons”).

Element 4: Establish clear lines of communication to the Compliance Officer that allow all affected persons report compliance issues.  Providers must also establish anonymous and confidential reporting systems.

Element 5: Establish disciplinary policies that are fairly and firmly enforced to encourage good faith participation in the Compliance Program by all affected persons.  The policies must include clear expectations for the reporting or and assistance in resolving compliance issues.  The policies must also include defined sanctions for:

  • failing to report suspected problems;
  • participating in non-compliant behavior; or
  • encouraging, directing, facilitating or permitting either actively or passively non-compliant behavior.

Element 6: Conduct routine compliance assessments for those risk areas specific to the individual provider type, including but not limited to self-audits. These self-audits can be conducted internally or a provider may choose to have an external party conduct the audit.

Element 7: Establish a system for responding to and investigating potential compliance problems as the Compliance Officer becomes aware of them, either by a report received from an affected person or as the result of an internal assessment.  Compliance Program must also establish systems for the provider to report compliance issues the OMIG, as well as repay any related overpayments.

Element 8: Establish a policy of non-intimidation and non-retaliation for good faith participation in the Compliance Program, including but not limited to reporting potential issues, investigating issues, self-evaluations, audits and remedial actions, and reporting to appropriate officials as provided in sections 740 and 741 of the New York State Labor Law.

As mentioned above, each December, required providers must submit a Provider Compliance Program Certification, attesting that they have a Compliance Plan in place and that Compliance Plan satisfies each of the OMIG’s Eight Elements.  If a provider is unable to unequivocally state that their plan meets these requirements then a certification should not be submitted and immediate steps must be taken to all necessary modifications to establish a satisfactory Compliance Plan.  Any provider who submits a false certification may be subject to sanctions, including monetary fines or provider enrollment termination.

If you are unsure whether your Compliance Plan would satisfy the OMIG’s Eight Elements, or if you are a provider who believes you are required to implement a Compliance Plan and have not done so, please do not hesitate to contact Farrell Fritz’s Regulatory & Government Relations Practice Group at 518.313.1450 or NYSRGR@FarrellFritz.com.

 

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