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June 2011 Health Law Update


June 17, 2011

Eleventh Circuit Sees Constitutional
Problems with Mandated Health Insurance

On June 8, a panel of three federal judges heard an oral argument in Atlanta on a constitutional challenge to the Obama administration's mandated health insurance program. The challenge was brought by 26 state Attorneys General.

The central issue involves the law's mandate that nearly everyone buy health insurance by 2014. To date, a handful of federal district judges have upheld the law, while two others have ruled that the law is unconstitutional. The Eleventh Circuit is the first federal appellate court to have an opportunity to pass upon the constitutional questions.

It was reported in the popular press that Chief Judge Joel Dubina asked, "If we uphold this, are there any limits" on the power of the federal government. His colleague, Judge Marcus, noted that he could not find any case in the past where the courts have upheld "telling a private person that they are compelled to purchase a product in the open market."

Counsel for the administration suggested that Congress could reasonably decide that everyone likely will require medical care at some point in their lives and that those who could afford it should pay part of the costs. He argued that Congress's broad power to regulate commerce is sufficient to sustain constitutionality of the legislation. The "commerce clause" of the United States Constitution gives Congress broad power to regulate commerce among the states.

However, counsel for the attorneys general argued that, in 220 years, Congress never has seen fit to use this power to compel a person to engage in commerce.

It is anticipated that the Eleventh Circuit opinion may be announced in the early Fall. Because the version ultimately passed by Congress did not include a severability provision, any portion of the law that is declared unconstitutional by the Circuit would effectively negate the legislation. We would anticipate that a ruling either way will be appealable to the U.S. Supreme Court by the losing party.

Senators Seek Investigation of
Physician-Owned Distributorships

The Inspector General of the Department of Health and Human Services has been asked to open an investigation into physician - owned distributorships that allegedly allow surgeons to profit from the medical devices they use on their patients. The Senators have asked HHS to determine whether such arrangements are legal.

Distributors, which act as links between the medical device makers and hospitals, historically have been paid for their marketing efforts and for the stocking of such devices. They receive a percentage of the profit on each sale made to a hospital. Where physicians are involved in owning distributorships, the Senators have suggested that there is a violation of the Anti-Kickback Statute and other federal fraud and abuse laws.

Because surgeons often precisely identify for hospitals the devices required for their particular surgeries, the existence of distributorships owned by physicians for those same devices arguably creates financial incentives that may be illegal kickbacks. The Senators specifically mentioned orthopedic physicians and neurosurgeons as groups that are most likely to perform procedures requiring those devices, and allege that these specialists may utilize such devices with a higher frequency than medically necessary.

Physicians who were approached to become involved in distributorships must be wary of running afoul of Anti-Kickback and fraud and abuse regulations.

Discovery of Social Media in Civil Litigation

Facebook and MySpace pages and Twitter accounts have been recognized by defense lawyers as fertile ground for discovery in personal injury cases across the Commonwealth of Pennsylvania. Many defense lawyers have enjoyed great success in defending personal injury claims where the plaintiff claims severe and debilitating injuries, but where the individual's own social media outlets suggest a robust and vigorous lifestyle.

Pennsylvania's Common Pleas courts currently are split on the question of whether those who control their own personal social media outlets have an expectation of privacy. Typically, the defense seeks discovery of the plaintiff's passwords, usernames or login information in an effort to undercut the plaintiff's damage claims. Plaintiffs typically contend that their privacy interests outweigh the need to obtain this discovery information from social networking sites. They also contend that the court should conduct an "in camera" review of the plaintiff sites to determine what, if any, information should be produced in discovery.

Where the plaintiff has been willing to share with "friends", a valid argument can be made that there is not a sufficient expectation of privacy to preclude discovery of important information that would call into question the validity of the plaintiff's personal injury claim.

Public Hospitals Seek to Recover
Underpayment by Private Insurers

A San Francisco City Attorney has sued three private medical insurers who he claims have systematically underpaid San Francisco General Hospital and other public hospitals for emergency services provided to the private insurance company subscribers. The City Attorney alleges that the same insurers pay private hospitals a higher rate for identical services. In addition to seeking an injunction to halt the claimed unfair business practices, the City is seeking restitution for the alleged underpayments and civil penalties of up to $2,500 for each violation of the state's business code.

The claims were brought against Blue Cross of California, Anthem Blue Cross Life & Health Insurance Company, among others. Essentially, the claim is that the insurers were underpaying the public hospitals resulting in an increase in the burden on the taxpayers, whose financial support in the form of tax dollars was required to make up the revenue difference.

Private insurers and health care providers need to be mindful of contractual relationships that implicate potential underpayment to public entities or disparate treatment of public entities in relation to similar services often in the private arena.

MCARE Coverage Denial Upheld on Notice grounds

MCARE has been remarkably successful in denying coverage to healthcare providers in the Commonwealth of Pennsylvania on notice grounds. Despite the fact that they have received payment of significant surcharges over the years from physicians and hospitals in order to receive coverage above the primary limits mandated by statute up to the current $1 million limit of coverage mandated by the MCARE Act, MCARE continues to assert every available late notice argument. Under the statute, very specific reporting deadlines exist.

The failure of a healthcare provider to provide MCARE with the timely report of a claim results in the loss of $500,000 of coverage above the provider's primary coverage. Recently, the Commonwealth Court affirmed the insurance department's determination that no coverage was available for physician who failed to report receipt of a writ of summons signaling a civil lawsuit. Because the healthcare provider did not know the specific allegations but only had been served by Writ, notice was not provided to MCARE until the Complaint was served. MCARE denied coverage on late notice grounds and its position was sustained by the Commonwealth Court.

This case points up the need for healthcare providers to notify MCARE at the first sign of a medical negligence claim, even if the specifics of the claim cannot be known in the circumstance where the claimants instituted suit by Writ of Summons only.