March 2011 Health Law Update

March 30, 2011

HHS Fines Insurer $4.3 Million for Failing to Provide
Patients Their Records and For Failing to Cooperate with Investigation

Cignet Health denied forty-one (41) patients access to their medical records. The U.S. Department of Health and Human Services’ Office for Civil Rights (OCR) investigated the patients’ complaints and made demands to Cignet to produce the records.   Remarkably, Cignet refused to comply. The U.S District Court compelled production of the records; Cignet complied, but made no informal efforts to resolve the patient’s complaints.   Ultimately, OCR determined that Cignet violated the Health Insurance Portability and Accountability Act (HIPAA); OCR found no evidence of mitigating factors or affirmative defenses that would support a waiver of a civil monetary penalty (CMP); and, for the first time in history, issued a CMP on a covered entity for violating HIPAA.

The OCR found that Cignet’s failure to produce records to each patient constituted a separate violation and that each day the violation continued constituted a separate violation culminating in a shocking CMP totaling $1.3 million.  Further, the OCR found that Cignet’s failure to cooperate was due to its willful neglect to comply with the HIPAA; and, therefore, the OCR levied an additional $3 million.  The $4.3 million CMP imposed is based on the larger penalty amounts authorized by Section 13410(d) of the Health Information Technology for Economic and Clinical Health, or HITECH Act. HHS Secretary Kathleen Sebelius said in a statement. “[HHS] is serious about enforcing individual rights guaranteed by the HIPAA Privacy Rule.”  Covered entities would be wise to acquire evidence to demonstrate HIPAA awareness and compliance moving forward.

Healthcare Reform: The Constitutionality of the PPACA Debate Continues

On February 22, United States District Judge Gladys Kessler for the District of Columbia ruled that the individual mandate to buy health insurance falls within Congressional power under the Commerce Clause of the Constitution because the decision to purchase health insurance is “economic” in nature.   This ruling brings the score 3 to 2, in favor of constitutionality.  Previously, U.S. District Judge Henry Hudson for the Eastern District of Virginia ruled that the individual mandate was unconstitutional, but that it could be struck out to keep the rest of the PPACA intact.  U.S. District Judge Roger Vinson for the Northern District of Florida ruled that the mandate was unconstitutional and could not be severed to preserve the rest of the Act. These latter courts have ruled that the individual mandate seeks to regulate economic “inactivity”, which is the very opposite of economic “activity”, a requirement defined by prior U.S. Supreme Court decisions. Interestingly however, Judge Kessler is the fifth judge to rule that the mandate is not a tax, a finding that could ultimately decide the constitutionality of the PPACA. While the main argument from the Obama administration has been tied to the Commerce Clause, the second argument, and one that is favored by many academics, is that the individual mandate is constitutional since it is an exercise of Congress’s power to tax. Currently, the matter is under appeal in the Fourth & Sixth Circuit Court of Appeals.

U.S. Supreme Court Rules that Federal Law Preempts
Design Defect Claims Against Vaccine Manufacturer

On February 22, 2011, the Supreme Court, by a margin of 6-2, in the case of Bruesewitz v. Wyeth, Inc held that the National Childhood Vaccine Injury Act of 1986 (NCVIA) preempts all design-defect claims against vaccine manufacturers brought by plaintiffs who seek compensation for injury or death caused by vaccine side effects. The NCVIA, designed to encourage vaccine production by limiting patient suits, channels most complaints into a company-financed no-fault system that offers limited but guaranteed payments for injuries shown to be caused by a product. Since 1988, the no-fault process has led to almost $2 billion in compensation to more than 2,500 families. In 1992, Hannah Bruesewitz, an infant, received the D.T.P. vaccine, which protects against diphtheria, tetanus, and pertussis (whooping cough); since that time she has suffered seizures and developmental problems.  Bruesewitz’s parents filed a petition under the NCVIA’s compensation system, which carriers a lower evidentiary threshold required by civil courts. The Bruesewitzs lost on the ground that they had not proved that the vaccine caused their daughter’s injuries. Thereafter, they sued in civil court claiming that Wyeth should have sold a safer formulation of the vaccine.  The issue for the Supreme Court was whether the NCVIA left open the possibility that patients can sue manufacturers when the side effects were avoidable. The Supreme Court citing to the strict language of the Act, held, “These provisions for federal agency improvement of vaccine design, and for federally prescribed compensation, once again suggest that NCVIA’s ‘silence’ regarding design defect liability was not inadvertent. It instead reflects a sensible choice to leave complex epidemiological judgments about vaccine design to the FDA and the National Vaccine Program rather than juries.”  It can  be interpreted that the Supreme Court limits “design defect” claims only; and, that vaccine manufacturers are still liable for manufacturing defects, and/or for failure to include proper directions or warnings.

U.S. Supreme Court Clarifies Proximate Cause
Threshold in “Cat’s Paw” Theory of Liability Cases

On March 1, 2011, the U.S. Supreme Court, in Staub v. Proctor Hospital, held that Proctor Hospital and all other employers can be liable under the Uniformed Services Employment and Reemployment Rights Act (USERRA) for the discriminatory intent of its company officials who may have influenced, but did not make, the ultimate adverse employment decision. Under the USERRA, employers are prohibited from engaging in certain employment actions if an employee’s membership in the uniformed services is a “motivating factor” in the employer’s action. Here, Proctor’s Vice President of Human Resources (VP) had no military bias against Staub; however, some of Staub’s supervisors did; and, this fact was made known to the VP, who terminated Staub without investigating Staub’s discrimination claims. According to the Court, “if an employer’s investigation results in an adverse action for reasons unrelated to the supervisor’s original biased action . . . then the employer will not be liable.”  The Court concluded that there were sufficient facts of records to demonstrate that the VP’s adverse employment decision may have been influenced by the discriminatory animus of Staub’s supervisors.  Employers should be alerted that the Justices compared USERRA to Title VII, raising the likelihood that the cat’s paw theory may also be applicable to discrimination claims based upon race, sex, religion, national origin, age and other protected characteristics.  With the Supreme Court’s guidance, employers can institute measures to decrease it exposure to liability under similar circumstances.

Fired MIT Professor Pleads Guilty to Falsifying Grant Application

Luk Van Parijs, a former associate professor of biology at the Massachusetts Institute of Technology (MIT), pled guilty in U.S. District Court to making a false statement in a federal research grant application.  In 2005, MIT fired Van Parijs for the offense; and, in 2009 the federal Office of Research Integrity found that he had engaged in scientific misconduct over the course of eight (8) years by submitting false data in numerous grant applications and scientific manuscripts. Van Parijs previously agreed not to participate in any work funded by the US government for five years, a severe sanction compared with the one to three years usually imposed in US misconduct cases.  Van Parijs will be sentenced June 14 and could receive up to five years in prison, three years of supervised release, and a $250,000 fine.

Van Parijs was trained in immunology; however, he moved into the field of RNA interference, which uses viruses to inactivate genes and study the effects on cancer cells.  As a junior professor, many believed that Van Parijs may escape prosecution, in part because he was only just starting to raise funding for his own lab; the majority of the subject grant funds had not been spent; and, other grants that included his falsified data had been signed off by senior colleagues. This case is illustrative of the current healthcare climate and prosecutors’ willingness to pursue healthcare fraud cases despite the short term dollar amount at issue.  Prosecutors have apparently recognized the fact that conduct like Van Parijs’ leads other scientists to rely on his work thereby creating a ripple effect of bad science, bad medicine and poor patient outcomes.

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