New York State healthcare policymakers have always had a lukewarm relationship with for-profit providers.  While in some sectors the for-profit provision of care is common (e.g., nursing homes and home care), in others, there are few to no for-profit providers (e.g., hospitals and primary care clinics).  In fact, some in the industry are under the impression that in some areas of healthcare the State has actually prohibited for-profit providers (for the most part it hasn’t, although the scope of state regulation can sometimes create that impression).  At the same time, there is more and more public scrutiny of not-for-profit providers, and as not-for-profit mega-systems continue to grow in New York and elsewhere it is sometimes difficult to distinguish them from for-profit enterprises in many ways.

Certainly, both for-profit and not-for-profit providers can be driven by a real sense of mission, and even the most mission-driven not-for-profit needs to be conscious of the bottom line (the oft-heard refrain being, “no margin, no mission”).  Thus, patients and potential employees in search of a mission-focused entity need to scrutinize both types of providers in some detail when looking for care or employment.  Similarly, new providers selecting the model they want to use need to take into account the unique characteristics of both models.

There is another model which might afford providers, patients and employees exactly the right mix of mission focus and profit-driven efficiency they are looking for.  While it has not received much attention in New York State healthcare to date, the worker cooperative model, in which the employees are the owners, provides an interesting alternative.  Article 5-A of the New York Cooperative Corporation Law (“CCL”) was enacted in 1985 to promote the creation of worker cooperatives and provide a means by which businesses may be democratically controlled and operated by their own workers.  The legislature expected that cooperative ownership would result in increased economic benefits to the worker owners, as well as the creation of new jobs (CCL § 80).

New York permits the formation of for-profit worker cooperatives to conduct any lawful business.  The model has been used in a variety of industries, including child care, cleaning, consulting, education, media, and restaurants (an interesting list can be found here), and it has been actively supported by the administration of New York City Mayor Bill DiBlasio (see here).  However, it is uncommon in the healthcare space – while the model was pioneered by a home health care agency based in the Bronx with more than 2,000 worker owners that says that it is the largest worker cooperative in the nation, it is not in wide use.  Nonetheless, under the right circumstances, it offers some intriguing possibilities.

Any corporation organized under the New York Business Corporation Law (BCL) may elect to become a worker cooperative by so stating in its certificate of incorporation or amending it (CCL § 82).  The election may be revoked by an amendment approved by two-thirds of the cooperative’s members (CCL § 86).  Curiously, a worker cooperative may not be classified as a non-profit or not-for-profit corporation (CCL § 83); thus, a worker cooperative is inherently a for-profit enterprise.

Members are individuals who are employed by the cooperative and own voting stock in the form of one membership share each (CCL §§ 81, 88).  All full- and part-time employees are offered membership after completing a probationary period.  The cooperative issues membership shares for a fee, the amount and payment terms of which are set in the by-laws (CCL § 88).  The certificate of incorporation or by-laws establish the qualifications for acceptance and termination of members (CCL § 88).  Only membership shares have voting power, except that non-member stockholders (apparently stockholders who are not workers and who owned stock at the time of the corporation’s election to become a cooperative) may vote on amendments to the certificate of incorporation that would adversely affect their rights as stockholders (CCL §§ 88, 89).

Members receive wages and profit distributions at the end of the calendar or fiscal year of the cooperative.  Profits are allocated to members on the basis of their “patronage”, a defined term meaning the amount of work performed by a member measured in accordance with the certificate of incorporation and by-laws.  Profits are apportioned based on the ratio of each member’s patronage to the total patronage of all members during the applicable period of time.  Profit distributions may be in cash, credits, written notices of allocation or capital stock issued by the cooperative (CCL § 90).  The cooperative may establish a system of internal capital accounts to reflect the book value and determine the redemption price of membership shares (CCL § 92).

The majority of the board of directors of the worker cooperative must be members, although non-members may serve on the board.  Non-members may serve as president, first vice president and other officers.  The by-laws contain the governance provisions for the worker cooperative, including election, terms, classification and removal of directors and officers consistent with the CCL or the BCL (CCL § 91).

A host of unique legal and practical issues are created by the model in general, and by its use in healthcare, in particular.  For instance, how is the confluence of employment and ownership handled for purposes of licensure and certificate of need?  Thus far, the Department of Health has been willing to limit character and competence review to board members only, but that may change if the model were to proliferate.  Similarly, the termination of a sufficiently large group of employees would presumably trigger certificate of need review if those employees represented 10% or more of the ownership of the provider.  In regard to practical concerns, a worker cooperative needs to be very careful in choosing the right leadership – it is a rare corporate executive who possesses the necessary business acumen, but is still comfortable in a setting where his/her employees are, in a very real sense, his/her bosses.

In spite of these challenges, the worker cooperative model may be attractive in settings with a union workforce, where it would represent the next step in the empowerment of workers.  Or, it might serve as an alternative to unionization for a non-unionized workforce looking to become more active.  But either way, it changes the traditional dynamics of the employer/employee relationship – and requires careful consideration before implementation.

If you have any questions about the worker compensation model in the context of healthcare, please do not hesitate to contact Marty Bunin at 646-329-1982 or mbunin@farrellfritz.com or Mark Ustin at 518-313-1403 or mustin@farrellfritz.com.

 

The Broadest Impact:  2018-19 NYS Managed Care Budget Highlights

This, the last of our posts on the 2018-19 New York State Health Budget (the “Enacted Budget”), focuses on an area of healthcare that has perhaps the broadest impact of the sector as a whole — managed care.  A prior post in the series (here) discussed the central role that hospitals have traditionally played in healthcare reform efforts, but even they have less influence (at least, as a matter of policy) than managed care, which controls the funding that fuels virtually every other part of the healthcare system.  For purposes of this article, “managed care” really means Medicaid managed care in all its various guises, since that is the funding most directly controlled by the State – while the various forms of Medicare managed care (Medicare Advantage, Medicare Part D, etc.) and commercial managed care are important, and even critical, to the healthcare system in New York, they are generally not a focus of State budgeting (at least directly).  So this post will focus on the various forms of Medicaid managed care, including managed long term care (MLTC) that provide long term care services, fiscal intermediaries for consumer-directed consumer assistance, mainstream managed care plans that provide acute and primary care services, health homes that coordinate care for people with chronic illnesses, and others.  Note that one species of Medicaid managed care, Development Disabilities Individual Support and Care Coordination Organizations, are not addressed in this post, but were addressed in a prior one (here).

Just a quick word before examining the key provisions impacting managed care:  this series has not pretended to be a comprehensive analysis of all the healthcare provisions in the 2018-19 New York State Health Budget.  It has merely provided a survey of the highlights of certain key areas in the healthcare space.  Inevitably, some areas have not been directly addressed; particular ones that come to mind include primary care, professional practice, life science research and others.  In part, this was due to the lack of significant reforms in those areas; however, it was also true that the sectors we did address often included references to those other sectors.  Nowhere is this truer than in regard to managed care, which, as noted, touches on every other area of healthcare.  Key provisions in the managed care space are summarized below.

Managed Long Term Care & Fiscal Intermediaries

Managed Long Term Care (MLTC) Eligibility.  Since 2012, adults have been eligible for MLTC enrollment if they require community-based care for more than 120 days.  The Enacted Budget provides that, effective April 1, such individuals are only eligible if that 120 days is a continuous, not aggregate, period.

Changing MLTC Plans.  Effective October 1, 2018, the Enacted Budget allows MLTC enrollees to switch plans without cause anytime within 90 days of notification or the effective date of enrollment (whichever is later), but thereafter, the Department of Health (DOH) is authorized to prohibit changing plans more than once every 12 months, except for good cause.  “Good cause” includes poor quality of care, lack of access to covered services, and lack of access to providers “experienced in dealing with the enrollee’s care needs,” and may include other categories identified by the Commissioner of Health.

Nursing Home Resident Eligibility.  Effective April 1, 2018, the Enacted Budget provides that individuals who are permanently placed in a nursing home for a consecutive period of three months or more will not be eligible for MLTC, but instead will receive services on a fee-for-service basis.  In a side letter, DOH has promised to provide guidance highlighting information about an individual’s rights as a nursing home resident, nursing home and MLTC plan responsibilities, and supports for individuals who wish to return to the community.

Plan Mergers.  Effective April 1, 2018, surviving plans in a plan merger, acquisition or similar arrangement must submit a report to DOH within 12 months providing information about the enrollees transferred, a summary of which DOH will make available to the public.

Licensed Home Care Services Agency (LHCSA) Contracting.  As discussed in a prior post (here), beginning October 1, 2018, the Commissioner of Health may limit the number of LHCSAs with which an MLTC plan may contract, according to a formula tied to region, number of enrollees and timing (before or after October 1, 2019), with some exceptions.  In a side letter, DOH has indicated that it will issue guidance to assist both MLTC programs and LHCSAs in minimizing the disruption of care for Medicaid members and the impacted workforce from this initiative.

Fiscal Intermediary Advertising.  The Enacted Budget includes provisions that limit the advertising practices of fiscal intermediaries under the Consumer Directed Personal Assistance Program (CDPAP).  CDPAP provides chronically ill and/or physically disabled Medicaid enrollees receiving home care services with more flexibility and freedom of choice to obtain such services.  Fiscal intermediaries help consumers facilitate their role as employers 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 (in this regard, they are not truly managed care, although there are some similarities).  The Enacted Budget prohibits false or misleading advertisements by fiscal intermediaries.  Furthermore, fiscal intermediaries are now required to submit proposed advertisements to DOH for review prior to distribution, and are not permitted to disseminate advisements without DOH approval.  The DOH is required to render its decision on proposed advertisements within 30 days.  In the event DOH has determined the fiscal intermediary has disseminated a false or misleading advertisement, or if an advertisement has been distributed without DOH approval, the fiscal intermediary has 30 days to discontinue use and/or remove such advertisement.  If DOH determines a fiscal intermediary has distributed two or more advertisements that are false or misleading or not previously approved by DOH, the entity will be prohibited from providing fiscal intermediary services and its authorization will be revoked, suspended or limited.  Additionally, DOH will maintain a list of these entities and will make this list available to local departments of social service, health maintenance organizations, accountable care organizations and performing provider systems.  These limitations apply to marketing contracts entered into after April 1, 2018.

Fiscal Intermediary Reporting.  The Enacted Budget allows the Commissioner of Health to require fiscal intermediaries to provide additional information regarding the direct care and administrative costs of personal assistance services.  DOH may determine the type and amount of information that will be required, as well as the regularity and design of the reports.  These cost reports must be certified by the owner, administrator, chief administrative officer or public official responsible for the operation of the provider.  The DOH must provide at least 90 days’ notice of this report deadline.  If DOH determines the cost report is not complete or inaccurate, it must notify the provider in writing and specify the correction needed or information required.  The provider will have 30 days to respond to DOH’s request for supplementary information.  In the event a provider cannot meet this filing deadline, DOH may provide an additional 30 day extension if the provider sends written notice prior to the report due date which details acceptable reasons beyond their control which justify their failure to meet the filing deadline.

Mainstream Managed Care and Health Homes

Quarterly Meetings on Medicaid Managed Care Rates.  In a side letter, the Executive has committed to providing quarterly updates to the Legislature regarding Medicaid managed care rates, including the actuarial memorandum which, pursuant to statute, is provided to managed care organizations 30 days in advance of submission to the federal Centers for Medicare and Medicaid Services (CMS).  This is intended to increase the transparency of Medicaid managed care rates.

Separate Rate Cells or Risk Adjustments for Specific Populations.  In a side letter, DOH has committed to exploring separate rate cells or risk adjustments for the nursing home, high cost/high need home and personal care, and Health and Recovery Plan (HARP) populations.  DOH will re-engage CMS regarding this reimbursement methodology with the assistance of health care industry stakeholders impacted by these changes (e.g. advocates, providers and managed care organizations).  This will hopefully lead to a fairer rate structure for plans serving higher-risk patients.

Health Homes Targets.  The Enacted Budget requires the Commissioner of Health to establish reasonable targets for health home participation by enrollees of special needs plans and other high risk enrollees of managed care plans to encourage plans and health homes to work collaboratively to achieve such targets.  The DOH was also empowered to assess penalties for failure to meet such participation targets where they believe such failure is due to absence of good faith and reasonable efforts.

Health Home Criminal History Checks.  The Enacted Budget requires criminal history checks for employees and subcontractors of health homes and any entity that provides community-based services to individuals with developmental disabilities or to individuals under 21 years old.

Health Home Reporting.  Similar to fiscal intermediaries (above) and LHCSAs (here), the Enacted Budget allows the Commissioner of Health to require health homes to report on the costs incurred to deliver health care services to Medicaid beneficiaries.

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So that concludes our series on the 2018-19 New York State Healthcare Budget.  If you have any questions or would like additional information on any of the above referenced issues, or any of the other items covered (or not covered) in the series, please do not hesitate to contact Farrell Fritz’s Regulatory & Government Relations Practice Group at 518.313.1450 or NYSRGR@FarrellFritz.com.

 

 

 

A Renewed Focus: 2018-19 NYS Intellectual and Developmental Disabilities Budget Highlights

Since the beginning of the administration of Governor Andrew Cuomo, there has been a strong emphasis on reform of the acute, primary, and long term care systems, and, particularly with the recent focus on the opioid crisis, that attention has extended to the behavioral care system, as well.  In contrast, reforms in the developmental disabilities system have been slower in coming, attributable to a variety of factors, including historical issues surrounding service mix and reimbursement, and legitimate concerns about client safety and quality of life. In some ways, the developmental disabilities provisions in the 2018-19 Enacted Budget represent a return of focus on the developmental disabilities sector, with several provisions concentrating on how larger reform efforts – including the movement toward managed care, health homes, and telehealth – intersect with the developmental disabilities community. Highlights of key provisions follow.

Managed Care. The Enacted Budget includes language updating existing provisions related to the movement of developmental disabilities clients and services into managed care. First, it expands the list of individuals who may be required to enroll in managed care and revises provisions regarding eligibility to include individuals with developmental or physical disabilities who receive services via a federal 1115 waiver, and authorizes the Commissioner of Health, in consultation with the Commissioner of Developmental Disabilities, to submit an application for such waiver. The Enacted Budget also extends authority of the Office for People with Developmental Disabilities (OPWDD) to require enrollment in managed care from 2019 to 2023, and makes technical corrections to that authority. The OPWDD Commissioner will also assess the quality, outcomes, experience and satisfaction of managed care for individuals with developmental disabilities, and report to the Legislature by December 31, 2022.

Health Homes. The Enacted Budget amends the Public Health Law to require criminal history checks for employees and subcontractors of health homes and any entity that provides community based services to individuals with developmental disabilities or to individuals under 21 years old.

Telehealth. The Enacted Budget amends the Public Health Law to allow the use of telehealth by certified and non-certified day or residential health care facilities operated by OPWDD, residential health care facilities serving special needs populations, credentialed alcoholism and substance abuse counselors, and early intervention providers. Further, the Commissioner of the Department of Health, in consultation with the Commissioners of Office of Mental Health, OPWDD and the Office of Alcoholism and Substance Abuse Services may identify other providers that should be permitted to provide telehealth services. Additionally, DOH, OMH, OPWDD and OASAS will coordinate on a single guidance document that will identify the discrepancies in regulations and policies by state agencies, and assist consumers, providers and health plans to better understand and facilitate the use of telehealth to address barriers to care.

First Responder Training. The Enacted Budget agreement includes language to require the Commissioner of Mental Health, in consultation with the Department of Health, Office of Fire Prevention and Control, Municipal Police Training Council, and the Superintendent of the State Police, to develop a training program and educational materials to provide instruction and information to firefighters, police officers, and emergency medical personnel on appropriate recognition and techniques for handling emergency situations involving individuals with autism spectrum disorder and other developmental disabilities.

Care at Home Waivers. The Enacted Budget extends the Care at Home I and II waivers until March 31, 2023. These waivers provide community-based services to physically disabled children who require hospital or skilled nursing home level of care.

Extension of OMH Inpatient Psychiatry Demonstration. The Enacted Budget extends this demonstration program, which allows for three or more time-limited demonstration programs to test and evaluate new methods or arrangements for organizing, financing, staffing and providing services for individuals with intellectual or developmental disabilities, through March 31, 2021.

Independent Practitioner Services. The Enacted Budget amends Section 367-a of the Social Services Law to include independent practitioner services for individuals with developmental disabilities as covered services for insurance reimbursement.

Residents Use of Funds for Care and Treatment. The Enacted Budget extends Chapter 111 of the Laws of 2010 and Chapter 58 of the Laws of 2015 to extend the authority of state facility directors that act as federally appointed representative payees to use funds for the cost of a resident’s care and treatment in facilities through June 30, 2018.

For 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.

Responding to the Opioid Crisis and More:  2018-19 NYS Behavioral Health Budget Highlights

Several provisions in the recently adopted 2018-19 New York State Budget (the “Enacted Budget”) are intended to address the ongoing opioid crisis.  As discussed in a prior post (here), some were focused on pharmaceutical manufacturers.  Some of the most significant provisions, however, relate to the behavioral health services available to patients, including both mental health and substance use disorder (SUD) services.  Other provisions will affect behavioral health services more generally. Key provisions are summarized below.

Substance Use Disorder and Mental Health Ombudsman.  The Enacted Budget establishes the Office of the Independent Substance Use Disorder and Mental Health Ombudsman, which will be operated or selected by the Office of Alcoholism and Substance Abuse Services (OASAS), in conjunction with the Office of Mental Health (OMH).  The Ombudsman will assist individuals with SUD and/or mental illness to ensure they receive appropriate health insurance coverage.  The Ombudsman will identify, investigate, refer and resolve complaints that are made by or on behalf of consumers and treatment providers regarding health insurance coverage and network adequacy for substance use disorder and mental health care services.  The Enacted Budget appropriated $1.5 million for this program.

Prohibit Prior Authorization for Outpatient Substance Abuse Treatment.  The Enacted Budget amends several provisions of the Insurance Law to prohibit prior authorization for outpatient, intensive outpatient, outpatient rehabilitation and opioid treatment provided by OASAS-certified facilities that are within the insurer’s provider network.  The coverage provided cannot be subject to concurrent review for the first two weeks of treatment if the facility notifies the insurer of the patient’s initial start date of treatment and the treatment plan within 48 hours.  The facility is also required to perform a patient clinical assessment at each visit and consult with the insurer to ensure the facility is using the appropriate evidence-based/peer reviewed clinical tool utilized by the insurer and designated by OASAS to ensure treatment is medically necessary.  Insurers may deny coverage for any portion of the initial two weeks of treatment if the treatment was deemed not medically necessary and contrary to the insurer-designated, OASAS-approved, evidence-based/peer reviewed tool.  If such coverage is denied by the insurer, the patient is liable for the copayment, coinsurance, or deductible required pursuant to the insurance contract.

Children and Recovering Mothers Program.  The Enacted Budget authorizes the Department of Health (DOH), in consultation with OASAS, to establish the Children and Recovering Mothers Program to provide health care providers, hospitals, and midwifery birth centers with guidance, education and assistance when providing care to expectant mothers with SUD.  The program will provide information to health care providers and expectant mothers on medication-assisted treatment, a referral list of SUD providers in the area, and information on other benefits and services they may be eligible for while expecting or after birth.  The program will develop a statewide system for rapid consultation and referral linkage services for obstetricians and primary care providers who treat expectant mothers.  Additionally, the DOH, in consultation with OASAS, will convene a workgroup of stakeholders, including hospitals, local health departments, obstetricians, midwives, pediatricians and substance use disorder providers, to study and evaluate the obstacles in identifying and treating expectant mothers, newborns and new parents with SUD.  The workgroup is required to submit a report of its findings to DOH, OASAS and the Legislature by April 2019.   The Enacted Budget appropriated $1 million for this initiative and $350,000 to establish an infant recovery pilot program to support up to four recovery centers in NYS.

Peer Recovery Advocate Services.  The Enacted Budget establishes the Certified Peer Recovery Advocate Services Program which builds upon the existing NYS Peer Recovery program.

The program provides patient-centered services that emphasize knowledge and wisdom obtained through life experience, where peers share their own personal journey with SUD to support the recovery goals of others.  The program standards, training and certification process will be developed and administered by OMH.  Certified peer recovery advocate services may include: developing recovery plans; raising awareness and linking participants to existing social and formal recovery support services; working with individuals to model coping skills and develop individual strengths; assisting individuals applying for benefits; attending medical appointments and court appearances; educating program individuals about the various modes of recovery; providing non-crisis support; and working with hospital emergency services, law enforcement departments, fire departments and other first responders to assist patients that have been administered an opioid antagonist establish connections to treatment and other support services.   

Opioid Stewardship Act.  As previously discussed, the Enacted Budget establishes an “Opioid Stewardship Fund” which imposes a “stewardship payment” (essentially a tax) on manufacturers and distributors that sell or distribute opioids in New York.  More detail can be found here.

Opioid Treatment Plans. The final budget includes language which prohibits prescribing opioids beyond three months, unless the patient’s medical record contains a written treatment plan that follows generally accepted national professional or governmental guidelines.  Exceptions are provided for patients being treated for cancer or palliative care.  More detail can be found here.

Social Work, Psychology and Mental Health Practitioners Scope of Practice.  The Enacted Budget includes provisions to clarify the activities and services that may be performed by licensed practitioners and those that do not require licensing.  These provisions eliminate the need to continue the licensure exemption which has been in place for persons employed by programs regulated or operated by OMH, OPWDD, OASAS, DOH, the State Office for Aging, the Office of Children and Family Services, the Office of Temporary and Disability Assistance, the Department of Corrections and Community Supervision, and local government or social services districts since 2002.

Behavioral Health/Primary Care Integration.  The Enacted Budget includes provisions building on the State’s prior efforts to integrate the licensure of behavioral health and primary care services. Prior state regulations established standards to determine how a facility offering integrated mental health, SUD and/or primary care services must be licensed.  Unfortunately, the ability to streamline such licensure was restricted in part by applicable statutes.  The Enacted Budget revises those statutes to clarify that primary care services providers licensed by Article 28 of the Public Health Law, mental health service providers licensed by Article 31 of the Mental Hygiene Law, and SUD providers licensed by Article 32 of the Mental Hygiene Law can each provide the other types of services so long as they are authorized to provide integrated services in accordance with DOH, OMH and OASAS regulations, without obtaining additional operating certificates.

Significant Appropriations

School Mental Health Resource and Training Center.  The Enacted Budget includes $1 million to create a Resource Center to help schools provide mental health education as part of their kindergarten through 12th grade curriculum, as required by Chapter 390 of 2016.

Children’s Mental Health.  The Enacted Budget includes $10 million for services and expenses of not-for-profit agencies licensed, certified or approved by OMH to support the preservation, restructuring or expansion of children’s behavioral health services.

Jail-Based SUD Treatment and Transition.  The enacted budget includes $3.75 million for jail-based SUD and transition services.  The Commissioner of Mental Health, in consultation with local government units, county sheriffs and other stakeholders, will implement a jail-based program that supports the initiation, operation and enhancement of SUD services for individuals incarcerated in county jails.

Mental Health Facilities Capital Improvement Fund.  The enacted budget includes $50 million for the acquisition of property, construction, and rehabilitation of new facilities, to develop   residential crisis programs.  Funds may be used for the renovation of existing community mental health facilities under the auspice of municipalities, and other public or not-for-profit agencies, as approved by the Commissioner of Mental Health.

OASAS Treatment Funding.  The enacted budget includes $30 million for the development, expansion, and operation of treatment, recovery, and/or prevention services for persons with heroin and opiate use and addiction disorders. This funding will be distributed by the Commissioner of Office of Substance Abuse Services, subject to the approval of the Budget Director.

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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.

Trypanophobia—the fear of needles—played a significant role in a case brought against Rite Aid Pharmacy under the Americans with Disabilities Act (ADA). In Stevens v. Rite Aid Corp., the Second Circuit overturned a jury verdict awarding substantial damages to a Rite Aid pharmacist who was terminated after he said he could not perform immunization injections because of a needle phobia.

In 2011, Rite Aid and other large pharmacy chains started requiring pharmacists to perform immunizations to fill an unmet need for vaccinations in the healthcare market. Rite Aid revised its pharmacist job description to include immunizations as one of the essential duties and responsibilities for pharmacists and required that each pharmacist hold a valid immunization permit.

Pharmacist Christopher Stevens asserted that his needle phobia was a disability under the ADA and sought a reasonable accommodation so that he would not have to perform immunizations.  Rite Aid responded that the ADA did not apply to trypanophobia, no reasonable accommodation was required, and he would be fired if he did not complete immunization training. When Stevens advised Rite Aid he could not complete the training, he was terminated for refusing to perform customer immunizations, an essential function of his job.

The Second Circuit first noted that, under the ADA, an employee must be qualified to perform the essential functions of his job, with or without reasonable accommodation. Even viewing all evidence in the light most favorable to Stevens, the Court held that immunization injections were an essential job requirement for Rite Aid pharmacists. The company made a business decision to require pharmacists to perform immunizations, revised its job description to require immunization certification and licensure, and included immunizations in the list of “essential duties and responsibilities” for Rite Aid pharmacists. The Court found jury sympathy for Stevens’s phobia to be understandable, but held that “his inability to perform an essential function of his job as a pharmacist is the only conclusion that could be drawn from the evidence.”

The Court next determined that Stevens had not established that Rite Aid could have provided a reasonable accommodation, emphasizing that the issue was whether a reasonable accommodation would have allowed Stevens to perform the essential function of immunization, not whether he could perform his other non-immunization duties as a pharmacist.

The Second Circuit reversed the judgment in favor of Stevens, holding that performing immunization injections was an essential job requirement, and Stevens presented no evidence of a reasonable accommodation that would have allowed him to do them.

The Stevens case highlights two important points under the ADA. An employer’s written job description including the essential duties and responsibilities of a position can be strong evidence to support an ADA argument concerning the essential functions of the job. Moreover, a reasonable accommodation is directed to allowing the employee to perform the essential functions of the job, not simply finding other things that the employee can do.

The Second Circuit recently agreed to accept an interlocutory appeal to decide the question whether a violation of the False Claims Act’s “first-to-file” rule compels dismissal of the complaint or whether it can be cured by the filing of an amended pleading.

In United States ex rel. Wood v. Allergan, Inc., Relator John Wood brought FCA claims against Allergan, a pharmaceutical company that develops and manufactures eye care prescription drugs. Wood alleged that Allergan violated the FCA and the Anti-Kickback Statute by providing free drugs and other goods to physicians in exchange for them providing the company’s brand name drugs to Medicare and Medicaid patients.  SDNY District Judge Jesse Furman denied most of Allergan’s motion to dismiss in an 89-page decision, deciding several FCA first-to-file issues and certifying two for interlocutory appeal to the Second Circuit.

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

The FCA’s “first-to-file” rule states that once a qui tam action has been brought, no person other than the Government may intervene or bring a related action based on the same facts. The primary purpose of the first-to-file rule is to help the Government uncover and fight fraud. The rule encourages prompt disclosure of fraud by creating a race to the courthouse among those with knowledge of the fraud.

Wood was not the first relator to bring FCA claims against Allergan for the alleged conduct. Two prior actions had been brought and were pending when the Wood qui tam complaint was filed. Therefore, at the time Wood’s qui tam complaint was filed, it ran afoul of the first-to-file bar and was subject to dismissal.

The Prior-filed Actions Were Dismissed Before Wood’s Action Was Unsealed and the Third Amended Complaint Was Filed

The Wood complaint, however, was under seal for several years, and Wood amended his complaint twice before the seal was lifted. While the Wood complaint remained under seal, the two prior actions were dismissed.  When the Government declined to intervene in the Wood action and the case was unsealed, there were no longer any prior-filed pending actions. Wood thereafter filed a third amended complaint. Allergan moved to dismiss on several grounds, including the “first-to-file” bar, arguing that when Wood’s initial qui tam complaint was filed, there were two pending actions alleging the same factual allegations.

The “First-to File” Bar Is Not Jurisdictional

Judge Furman first addressed whether the “first-to-file” bar is jurisdictional. Although the majority of circuit courts have held that it is, the district court’s holding in its March 31, 2017 decision that the bar is not jurisdictional foreshadowed the Second Circuit’s similar holding four days later, in United States ex rel. Hayes v. Allstate Insurance Co.  The Circuit in Hayes stated that the first-to-file rule provides that “no person other than the Government” may bring an FCA claim that is “related” to a claim already “pending.” The Court noted that the statutory language did not speak in jurisdictional terms or refer to the jurisdiction of the courts, in contrast to other sections of the FCA. As Congress is presumed to act intentionally when it includes jurisdictional language in one statutory section but omits it in another, the Court held the a court does not lack subject matter jurisdiction over an action barred on the merits by the non-jurisdictional first-to-file rule.

An Amendment After Dismissal of the Prior Action Can “Cure” a First-to-File Violation

The district court next addressed the question of whether the first-to-file bar required dismissal of Wood’s qui tam complaint. In Kellogg Brown & Root Services, Inc. v. United States ex rel. Carter, the Supreme Court had held that “an earlier [FCA] suit bars a later suit while the earlier suit remains undecided but ceases to bar that suit once it is dismissed.”  Wood therefore would be able to bring a new FCA claim as the two prior actions had been dismissed.

However, during the years that the case had been sealed, the statute of limitations had expired on most of Wood’s claims, so a dismissal without prejudice and a re-filing of his complaint would result in a dismissal of the claims on limitations grounds. The district court was therefore faced with a question the Supreme Court did not decide: whether a violation of the first-to-file bar can be “cured” by amending or supplementing the complaint in the later-filed action after dismissal of the earlier actions.

The district court held that first-to file violation can be cured by an amended or supplemented pleading.  The court noted that most courts answering this question in the negative had relied in large part on a conclusion that the first-to-file bar is jurisdictional. The district court in Wood, and later the Second Circuit, held that the bar is non-jurisdictional. The district court noted that courts routinely allow plaintiffs to cure violations of non-jurisdictional rules by amendment under Fed. R. Civ. P. 15. Also, allowing an amendment to cure a violation advances the primary purpose of the FCA, to permit the government to recover for fraud. The court opined that barring a relator in Wood’s position from curing his violation of the rule would undermine, rather than advance, the purposes of the FCA.

The Amendment Relates Back to the Date of the Original Complaint

The parties also disputed whether, for purposes of the statute of limitations, the relevant complaint was the initial complaint, filed when the prior actions were pending, or the third amended complaint, the first one filed after they had been dismissed. The court recognized that the “touchstone” of Rule 15 is whether the original pleading put the defendant on notice of the relevant claims, and that an FCA defendant is often not on notice of a qui tam complaint because it is under seal. Nevertheless, the court concluded that any such delay is beyond the relator’s control, and an otherwise diligent relator should not have claims stripped away when the government and not the relator is to blame for the defendant not receiving notice. The district court therefore held that the third amended complaint related back to the original complaint for limitations purposes.

The Second Circuit Will Address The First-to-File Issues

In August, the Second Circuit accepted the interlocutory appeal of two issues:

  1. Whether a violation of the FCA’s “first-to-file” rule requires dismissal or can be “cured” through the filing of a new pleading after the earlier-filed action has been dismissed; and
  2. If a violation of the first-to-file bar is curable, whether the FCA’s limitations period is measured from the date of the relator’s curative pleading or the original complaint.

Some of our colleagues at Farrell Fritz prepared an advisory with helpful information and links for families, individuals and businesses in need of disaster recovery assistance due to Hurricane Sandy or the subsequent storm.

We hope you weathered the storms safely.  Please do not hesitate to contact us if we can be of assistance in any way.