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A newsletter on the current legal issues facing today’s health care industry

Staying Well W ithin the Law

Summer Issue 2010

It’s been a busy summer forregulation of electronic healthrecords and health privacy.Proposed and final regulationsprovided guidance on suchhot topics as who is coveredby HIPAA privacy andsecurity rules; who is a

business associate; what will qualify as“meaningful use” of EHR for the HITECHsubsidies; and what documents need to beupdated. The following is a short summary ofthe latest changes in this volatile environment.For current updates, please visit our HIPAA, HITECH and HIT blog.

“Meaningful Use” Final RuleUnder the Health Information Technology forEconomic and Clinical Health Act(HITECH), federal incentive payments will beavailable to doctors and hospitals when theyadopt EHRs and demonstrate use in ways thatcan improve quality, safety and effectiveness ofcare. Eligible professionals can receive as muchas $44,000 over a five-year period through

Medicare. For Medicaid, eligible professionalscan receive as much as $63,750 over six years.Medicaid providers can receive their firstyear’s incentive payment for adopting,implementing and upgrading certified EHRtechnology but must demonstrate meaningfuluse in subsequent years in order to qualify foradditional payments. The amount a hospitalreceives in EHR incentive payments iscalculated based on the hospital's Medicareand Medicaid patient volume, calculated as afraction of the hospital's total patient volume.

On July 13, 2010, the Department of Healthand Human Services (HHS) released a pair offinal regulations (one from CMS, one fromthe Office of National Coordinator for HIT)detailing the “meaningful use” criteria thatwill determine whether users of electronichealth records will qualify for the governmentsubsidies under the HITECH Act during thefirst two years of the program (2011-2012).The final rule modified the agency’s January16, 2010, proposed rule and addressed issuesraised in the more than 2,000 commentssubmitted.

The agency responded to the numerouscomplaints that its earlier, all-or-nothingapproach mandating 25 objectives (23 forhospitals) was unrealistic. Instead, the finalproposal requires 15 “core” objectives and amenu of additional objectives EHR users canchoose from to qualify for the financial help.

Hot Off the Feds’ Press: The Latest HIPAA and HITECH Act Developmentsby William H. Maruca

In This Issue:Hot Off the Feds’ Press: The Latest HIPAA and HITECH Act Developments ....1

What Makes a Hospital “Charitable?”Billing and Collection Issues forCharitable Hospitals Post-PPACA ............4

CMS Proposes Streamlined Approachfor Credentialing of TelemedicineProviders ..................................................7

About the Health Law Practice ................8

OBJECTIVE MEASURE

1. Record patient demographics (sex, race, ethnicity, date of birth, preferredlanguage and, in the case of hospitals, date and preliminary cause of death inthe event of mortality).

More than 50% of patients’ demographic data recorded as structured data.

2. Record vital signs and chart changes (height, weight, blood pressure, body-mass index, growth charts for children).

More than 50% of patients two years of age or older have height, weight andblood pressure recorded as structured data.

3. Maintain up-to-date problem list of current and active diagnoses. More than 80% of patients have at least one entry recorded as structured data.

4. Maintain active medication list. More than 80% of patients have at least one entry recorded as structured data.

5. Maintain active medication allergy. More than 80% of patients have at least one entry recorded as structured data.

6. Record smoking status for patients 13 years of age or older. More than 50% of patients 13 years of age or older have smoking status recorded as structured data.

7. For individual professionals, provide patients with clinical summaries for eachoffice visit. For hospitals, provide an electronic copy of hospital dischargeinstructions on request.

Clinical summaries provided to patients for more than 50% of all office visitswithin three business days. More than 50% of all patients who are dischargedfrom the inpatient department or emergency department of an eligible hospitalor critical access hospital and who request an electronic copy of their dischargeinstructions are provided with it.

The 15 core objectives and the measurements used to determine if they have been met are as follows:

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OBJECTIVE MEASURE

8. On request, provide patients with an electronic copy of their healthinformation (including diagnostic test results, problem list, medication lists,medication allergies and, for hospitals, discharge summary and procedures).

More than 50% of requesting patients receive electronic copy within threebusiness days.

9. Generate and transmit permissible prescriptions electronically (does not apply to hospitals).

More than 40% are transmitted electronically using certified EHR technology.

10.Computer provider order entry (CPOE) for medication orders. More than 30% of patients with at least one medication in their medication listhave at least one medication ordered through CPOE.

11. Implement drug–drug and drug–allergy interaction checks. Functionality is enabled for these checks for the entire reporting period.

12. Implement capability to electronically exchange key clinical information among providers and patient-authorized entities.

Perform at least one test of EHR’s capacity to electronically exchange information.

13. Implement one clinical decision support rule and ability to track compliancewith the rule.

One clinical decision support rule implemented.

14. Implement systems to protect privacy and security of patient data in the EHR.

Conduct or review a security risk analysis, implement security updates as necessary, and correct identified security deficiencies.

15.Report clinical quality measures to CMS or states. For 2011, provide aggregate numerator and denominator through attestation. For 2012, electronically submit measures.

The “menu” from which an additional five objectives may be selected, and the criteria for meeting those objectives, areas follows:

OBJECTIVE MEASURE

1. Implement drug formulary checks. Drug formulary check system is implemented and has access to at least oneinternal or external drug formulary for the entire reporting period.

2. Incorporate clinical laboratory test results into EHRs as structured data. More than 40% of clinical laboratory test results whose results are inpositive/negative or numerical format are incorporated into EHRs asstructured data

3. Generate lists of patients by specific conditions to use for qualityimprovement, reduction of disparities, research or outreach.

Generate at least one listing of patients with a specific condition.

4. Use EHR technology to identify patient-specific education resources andprovide those to the patient as appropriate.

More than 10% of patients are provided patient-specific education resources.

5. Perform medication reconciliation between care settings. Medication reconciliation is performed for more than 50% oftransitions of care.

6. Provide summary of care record for patients referred or transitioned to another provider or setting.

Summary of care record is provided for more than 50% of patient transitionsor referrals.

7. Submit electronic immunization data to immunization registries orimmunization information systems.

Perform at least one test of data submission and follow-up submission(where registries can accept electronic submissions).

8. Submit electronic syndromic surveillance data to public health agencies. Perform at least one test of data submission and follow-up submission(where public health agencies can accept electronic data).

Additional Choices for Hospitals and Critical Access Hospitals:

9. Record advance directives for patients 65 years of age or older. More than 50% of patients 65 years of age or older have an indicationof an advance directive status recorded.

10.Submit electronic data on reportable laboratory results to publichealth agencies.

Perform at least one test of data submission and follow-up submission(where public health agencies can accept electronic data).

Additional Choices for Eligible Professionals:

9. Send reminders to patients (per patient preference) for preventive and follow-up care.

More than 20% or patients 65 years of age or older or 5 years of age or younger are sent appropriate reminders.

10.Provide patients with timely electronic access to their healthinformation (including laboratory results, problem list, medication lists,medication allergies).

More than 10% of patients are provided electronic access to information within four days of its being updated in the EHR.

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A rollout article in the New England Journalof Medicine was written by HHS’s DavidBlumenthal, M.D., M.P.P., nationalcoordinator for HIT, and Marilyn Tavenner,R.N., M.H.A., principal deputyadministrator of CMS, both of whomparticipated in the development of the finalrule. They noted the core objectives includethe tasks essential to creating any medicalrecord, including the entry of basic data:patients’ vital signs and demographics, activemedications and allergies, up-to-dateproblem lists of current and active diagnosesand smoking status, as well as using severalsoftware applications that begin to realize thetrue potential of EHRs to improve the safety,quality and efficiency of care, help cliniciansto make better clinical decisions and avoidpreventable errors.

What To Do Now?Software and EHR systems developers arescrambling to ensure their products will meetthe meaningful use standards by 2011.Practices and facilities that desire to takeadvantage of the federal funding should startshopping early and ask potential vendors toaddress in writing exactly how their productscan satisfy each of the criteria in the newstandards.

Hospitals face an additional issue: They mustbe careful in how they report charity care ontheir Medicare cost reports if they want tomaximize their incentive payments for usingEHR. The amount a hospital receives inEHR incentive payments is calculated basedon the hospital’s Medicare and Medicaidpatient volume, calculated as a fraction of thehospital’s total patient volume. The ruleproposal failed to define key terms that arepart of the calculation of the fractional shareof the hospital’s Medicare and Medicaidpatient volume, including the term “charitycare.” The proposed final rule looks to thecharity care amount reported in the hospital’sMedicare cost report, despite the fact thisreported number likely did not have asignificant impact on the hospital’s Medicarereimbursement in the past. Any hospitalseeking EHR incentive payments mustclosely examine not just the accuracy ofreported charity care and non-Medicare baddebt data included on its Medicare costreport, but must ensure it is actuallyundertaking a review of patients’ ability topay for services. Failure to document theproportion of uncompensated care that

qualifies as “charity care” may result in adecrease in EHR incentive dollars.

Proposed HITECH RuleOn July 8, 2010, HHS announced proposedmodifications to the HIPAA Privacy &Security Rules implementing the HITECHAct. The proposed modifications includenew requirements on business associates withregard to their subcontractors.

The HITECH statute itself imposed directHIPAA compliance obligations and liabilityon business associates. The proposed rulegoes one step further and would include inthe definition of “business associate” in§160.103 subcontractors that create, receive,maintain or transmit protected healthinformation on behalf of a business associate.OCR specifies it does not intend thisproposed modification to mean a coveredentity is required to have a contract with thesubcontractor. Rather, the “obligation is toremain with the business associate thatcontracts with the subcontractor.” OCRproposes “to make clear that it is the businessassociate that must obtain the requiredsatisfactory assurances from the subcontractorto protect the security of electronicprotected health information.”

The proposed rule casts business associatesinto a much more active role, requiring themto enter into business associate agreements(BAAs) with their subcontractors. In effect,business associates would be expected to actas though they are covered entities in termsof identifying when protected healthinformation (PHI) is transmitted to thirdparties and policing the privacy and securityof PHI whenever it flows downstream oroutside the business associate workforce.

Because a covered entity with which abusiness associate has contracted still has anultimate responsibility for the privacy andsecurity of the PHI of its patients or clients,existing BAAs may require further reviewand amendments to protect the coveredentity sufficiently should this rule beadopted.

The proposed rule expands individuals’ rightsto access their information and to restrictcertain types of disclosures of PHI to healthplans. It also sets new limitations on the useand disclosure of PHI for marketing andfund-raising and prohibits the sale of PHIwithout patient authorization.

Final Breach Rule Withdrawn, InterimRule Remains in EffectIn an unexpected development, HHSwithdrew its forthcoming Final BreachNotification Rule, which was pendingreview by the Office of Management andBudget, on July 28, 2010. In a briefannouncement, HHS stated the delay wasintended to allow for further consideration,given the Department’s experience to date inadministering the regulations. They stated,“This is a complex issue and theAdministration is committed to ensuring thatindividuals’ health information is secured tothe extent possible to avoid unauthorizeduses and disclosures, and that individuals areappropriately notified when incidents dooccur. We intend to publish a final rule inthe Federal Register in the coming months.”

Some privacy advocates have been lobbyingHHS over the rule’s “harm standard,” whichstates that health care organizations only haveto report HIPAA privacy and securitybreaches to OCR if the covered entitydetermined the breach caused direct harm tothe affected patients. Such advocatesbelieved this rule gave too much discretionto the covered entities themselves.

In the meantime, the Interim Final Rule forBreach Notification for Unsecured ProtectedHealth Information, effective September 23,2009, remains in effect. This rule requiresHIPAA covered entities to promptly notifyaffected individuals of a breach. Coveredentities that experience a breach affectingmore than 500 residents of a state orjurisdiction are, in addition to notifying theaffected individuals, required to providenotice to prominent media outlets servingthe state or jurisdiction. These notices mustbe made without unreasonable delay and inno case later than 60 days following thediscovery of a breach. If a breach affects 500or more individuals, covered entities mustnotify the Secretary of HHS withoutunreasonable delay and in no case later than60 days following a breach. Breachesaffecting fewer than 500 individuals will bereported to the HHS Secretary on an annualbasis. The regulations also require businessassociates of covered entities to notify thecovered entity of breaches at or by thebusiness associate.

If You Experience a Breach…• First, document when and how the

breach was discovered. This date starts

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the compliance clock ticking.Remember, notice must be given as soon as possible, so do not wait until the59th day.

• Next, determine whose records werecompromised, how the breach occurredand what information was improperlyaccessed or disclosed.

• Determine what notices need to begiven, to whom, in what form andincluding what details.

• Establish a plan for making the requirednotices and implement it. Follow upwith appropriate mitigation efforts.

• Consider providing additional protectionto the affected individuals. Whileoptional, many organizations have chosento offer prepaid identity monitoring,protection and remediation services viathird-party vendors as a goodwill gestureand to soften the public relations fallout.

At each step of the process, consultation withexperienced health care counsel will helpyou understand and meet your obligationsunder the law and minimize theconsequences of the breach.

Thanks to Elizabeth Litten, whose workcontributed to this article.

For more information about this topic, pleasecontact William H. Maruca at 412.394.5575or wmaruca@foxrothschild.com.

What Makes a Hospital “Charitable?”Billing and Collection Issues for Charitable Hospitals Post-PPACAby Elizabeth G. Litten and Steven J. Link*

New Requirements forCharitable Hospitals inthe Patient Protection andAffordable Care Act(PPACA)

Buried in PPACA is asection titled simply,

“Additional Requirements for CharitableHospitals.” This section revokes a charitablehospital’s tax-exempt status under section501(c)(3) of the Internal Revenue Code(IRC) of 1986 if the hospital fails to meetany of four specific requirements.

First, a charitable hospital must conduct acommunity health needs assessmentonce every three years (in the taxable year orin either of the two years preceding thetaxable year) and must adopt an“implementation strategy to meet thecommunity health needs identified” by theassessment. The assessment must take intoaccount input from “persons who representthe broad interests of the community served”by the hospital, including those with aknowledge of or expertise in public health, and it must be made widely available tothe public.

Second, the hospital must have a financialassistance policy that includes: (1)eligibility criteria for financial assistance, andwhether the assistance includes free ordiscounted care; (2) the basis for calculating

amounts charged to patients; (3) the methodfor applying for financial assistance; (4) if thehospital does not have a separate billing andcollections policy, the actions the hospitalmay take in the event of non-payment,including collections actions and reporting tocredit agencies; and (5) measures to widelypublicize the policy within the community to beserved by the hospital.

Third, the hospital must implementlimitations on charges. The amountscharged by hospitals for emergency or othermedically necessary care to patients eligiblefor assistance under the financial assistancepolicy must be limited to amounts that arenot more than those charged to patients whohave insurance, and hospitals are prohibitedfrom “the use of gross charges.” The staff ofthe Joint Committee on Taxation (JCT)explains the “limitation on charge”requirement this way in its March 21, 2010,report (JCT Report):

Each hospital facility is permitted to billfor emergency or other medicallynecessary care provided to individualswho qualify for financial assistance underthe facility’s financial assistance policy nomore than the amounts generally billedto individuals who have insurancecovering such care. A hospital facilitymay not use gross charges (i.e.,“chargemaster” rates) when billingindividuals who qualify for financial

assistance. It is intended that amountsbilled to those who qualify for financialassistance may be based on either thebest, or an average of the three best,negotiated commercial rates, or Medicarerates. [JCT Report, p. 82]1

Fourth, and finally, the hospital must have abilling and collection policy that requiresit to make “reasonable efforts” to determinewhether the patient is eligible for assistanceunder the financial assistance policy beforetaking “extraordinary collection actions.”For example, if an insured patient has a highdeductible or co-insurance amount, thehospital must determine whether the patientqualifies for financial assistance before it billsthe patient, as qualification may impact thedollar amount the hospital is permitted to bill.2

Penalty for noncompliance is high: loss oftax-exempt status, compounded by a penalty(or “excise tax”) of $50,000 per year forfailure to satisfy the community healthneeds assessment requirements. It will beup to the IRS to adopt regulations settingforth the parameters for hospital compliancewith these PPACA mandates. The IRSrecently published Notice 2010-39 –“Request for Comments Regarding AdditionalRequirements for Tax-Exempt Hospitals”(http://www.irs.gov/pub/irs-drop/n-10-39.pdf). Comments were due for submissionto the IRS by July 22, 2010.

1 Note also that Section 2719A of PPACA, “Patient Protections,” provides that emergency services must be covered by insurers in a manner that does not discriminate against a patient using anout-of-network hospital. The patient’s “cost-sharing requirement (expressed as a co-payment amount or co-insurance rate) … [must be] the same requirement that would apply if suchservices were provided in-network.”

2 Hospitals that routinely screen patients for charity care or government-sponsored program eligibility may believe they meet (or may, in fact, actually meet) the requirement that they make“reasonable efforts” to determine whether patients qualify for financial assistance, but a hospital should evaluate its financial assistance policy to see whether patients who do not qualify forgovernment assistance or government-sponsored programs may still be eligible for discounted or free care. If a “reasonable effort” is not made to communicate the parameters of the hospital’sfinancial assistance policy to each and every patient (for example, if “reasonable efforts” are only made for patients thought to be eligible for government assistance or government-sponsoredprograms), the hospital should be wary of sending any patient’s account to a collection agency.

Staying Well Within the Law

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Notably, sections 501(r)(5) and (6), thesections requiring limitations on hospitalcharges and billing and collections policies,respectively, take effect for tax yearsbeginning after March 23, 2010 (the date ofenactment of PPACA).

The Evolution of Tax-Exemption Under§501(c)(3)Hospitals are exempt from federal taxation ifthey are “organized and operated exclusivelyfor . . . charitable . . . purposes.” IRC §501(c)(3). The IRS first interpreted thislanguage in 1956 to require hospitals toprovide free or discounted medical servicesto maintain their tax-exempt status.3 Thisinterpretation lasted for 14 years beforeRevenue Ruling 69-545 came down. Inwhat became known as the “communitybenefit” standard, the IRS ruled that hospitalsmaintain their tax-exempt status not byproviding a required minimum level ofcharity care, but through promotion ofhealth for the benefit of the community.4

Determinations of a hospital’s tax-exemptstatus, therefore, were fact sensitive, requiringa case-by-case analysis. Id. However, itappeared that, under this interpretation ofthe statute, hospitals could maintain theirtax-exempt status without providing anyspecific level or quantity of charitable ordiscounted service.5

This seemingly amorphous language plaguedthe IRS for years. For example, RevenueRuling 83-157 attempted to clarify RevenueRuling 69-545 by determining that having afully operational emergency room was notrequired for tax-exemption, but was merelyone of several factors that could beconsidered.6 However, it remained the IRS’position under the “community benefit”standard that charitable care was not arequisite for tax exemption.

To begin to shift that policy position, inField Service Advice (FSA) 2001100307

the IRS determined that the promotion of

health and mere adoption of a charity carepolicy is not enough to maintain tax-exemptstatus.8 The IRS identified 14 factors toconsider for a hospital to maintain its tax-exempt status; for example, the IRSdetermined that the hospital’s charity carepolicy must be communicated to the public,that a reasonable amount of charity caremust be provided and that charity carepatients cannot be routinely discriminatedagainst. Id. Furthermore, in its 2002Healthcare Update, the IRS reaffirmed thatthe implementation of a charity care policyis a “highly significant factor” to satisfy the“community benefit” standard. Id. Thus,providing free or discounted medical servicesremained very important to attaining ormaintaining tax-exempt status.

The Genesis of the Requirements forCharitable Hospitals in PPACAHospitals’ pricing policies began to bescrutinized in 2004. In June 2004, theHouse Ways and Means Subcommittee onOversight and the Energy and CommerceSubcommittee on Oversight andInvestigations held hearings reviewing thepricing and billing and collectionsprocedures of hospitals.9 Spearheading theeffort to reform the standards for obtainingand maintaining tax-exempt status wasSenator Charles Grassley. Given the IRS’amorphous “community benefit” standard,Grassley’s goal was to encourage hospitals toproffer their own reform proposals soproviders would produce a single definitionof charity care and identify a requisite levelof care necessary for tax exemption.10

Grassley’s efforts began on May 25, 2005, bywriting a letter to 10 nonprofit hospitalsasking them to justify their § 501(c)(3) taxexemptions.11 His several questions relatedto each hospital’s charitable care efforts andthe reasonableness of their discriminatorypricing schemes for medical care. See id.The answers to these questions would assist

Congress in “considering the issues of tax-exempt organizations and particularly theduties and requirements of public charities inrelation to the billions of dollars in taxbenefits that tax-exempt organizationsreceive at the federal, state, and local level.”Id. The IRS initiated its own investigation inApril 2006 by sending questionnaires toalmost 600 hospitals to determine how eachsatisfied the “community benefit” standard.12

In an effort to establish a definable standardfor tax exemption, on March 8, 2006,Grassley wrote a letter to the AHA askinghow Congress should define “care for theneedy.” Quirk, supra, at 91. Concerned forthe financial well-being of hospitals andarguing that hospitals were already incompliance with Revenue Ruling 69-545,Senior Vice President for Federal RegulationsThomas Nickels expressed hesitation aboutany new laws further regulating requirementsunder § 501(c) (3). Id.

In addition to seeking definable standards,Grassley also sought to improve transparencyso the public could evaluate the charitableacts of various hospitals. On May 29, 2007,Grassley wrote a letter to Treasury SecretaryHenry Paulson urging him to update Form990 since it “has not kept up with modernpractices in the charitable sector.”13 Grassleyrecommended that the form include “moredetailed questions tailored to the specifics oftheir fields if transparency and openness areto have real value.” Id.

As a result of these recommendations, inDecember 2007, Form 990 and itsaccompanying schedules were ultimatelyrevised. Schedule H was created and appliedonly to tax-exempt hospitals. Specificallyrelevant, Part I of Schedule H requires tax-exempt hospitals to report the total amountof “Charity Care and Certain OtherCommunity Benefits at Cost.” (Emphasisadded). The Instructions for Part I ofSchedule H reiterate that Part I “requiresreporting of . . . the cost of certain charity care

3 See Rev. Rul. 56-185, 1956-1 C.B. 202.4 Rev. Rul. 69-545, 1969-2 C.B. 117. 5 See Lisa Kinney Helvin, Caring for the Uninsured: Are Not-For-Profit Hospitals Doing Their Share? 8 Yale J. Health Pol’y L. & Ethics 421, 442 (2008).6 Rev. Rul. 83-157, 1983-2 C.B. 94.7 Note that FSAs have no precedential value.8 Leah Snyder Batchis, Comment, Can Lawsuits Help the Uninsured Access Affordable Hospital Care? Potential Theories for Uninsured Patient Plaintiffs, 78 Temp. L. Rev. 493, 511 (2005). 9 See Carol Pryor et al., Access Project & Cmty. Catalyst, Best Kept Secrets: Are Non-Profit Hospitals Informing Patients About Charity Care Programs? 6 (2010). The goal of this project wasto randomly survey 99 hospitals to determine if hospitals were generally complying with the American Hospital Association’s (AHA) voluntary guidelines to make their financial assistancepolicies public, communicate the policies to patients in a meaningful and easily understandable way, and have easily understandable written policies for patients to determine if they qualifyfor financial assistance. See Pryor et al., supra, at 2. It was found that: (1) 85 hospitals mentioned the availability of charity care; (2) 42 hospitals provided application forms; (3) 26 hospitalsprovided information regarding eligibility criteria for charity care; and (4) 34 hospitals provided information in a language other than English. Id. at 3.

10 See John M. Quirk, Turning Back the Clock on the Health Care Organization Standard for Federal Tax Exemption, 43 Willamette L. Rev. 69, 89 (2007) (attempts to quantify charity careunder state law).

11 See Press Release, Senator Chuck Grassley, Grassley Asks Non-Profit Hospitals to Account for Activities Related to Their Tax-Exempt Status (May 27, 2005).12 Marilyn E. Phelan, Nonprofit Organizations: Law and Taxation §21:13 (2010). 13 See Press Release, Senator Chuck Grassley, Sen. Grassley Works to Build Confidence in Nonprofits With Greater Transparency (May 29, 2007).

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and other community benefit programs.”(Emphasis added). These new federalreporting standards reflecting the cost of care,as opposed to the fees charged for medicalservices, “establish … a uniform frameworkfor how hospitals nationwide must reportaggregate community benefit and relatedinformation on billings and collections,including data on charity care, benefits to thecommunity, ‘community building’ activities,Medicare underpayments, bad debt expenses,and emergency department policies andprocedures.” Helvin, supra, at 448.

In 2009, Grassley converted his years ofresearch into drafts of several legislativereforms that attempted to clarify therequirements for tax-exempt status under §501(c)(3).14 Support for Grassley’s legislativereforms transcended party affiliations.15

These same provisions were included in §9007 of the PPACA; ironically, however,Grassley ultimately voted against PPACA.16

Patients’ Attempts To Enforce§501(c)(3) in Federal CourtSeveral complaints have been filed in federalcourt by uninsured, indigent patients formonetary damages against tax-exempthospitals that charge uninsured patientsmedical fees significantly exceeding the feescharged to privately insured patients orpatients covered by Medicare or Medicaid.17

Generally, the complaints alleged:

(1) [T]hird-party breach of contractbetween hospitals and the federalgovernment; (2) third-party beneficiaryclaims for breach of the same allegedcontract; (3) breach of duty of good faithand fair dealing, based on the allegedcontract; (4) breach of charitable trust forfailure to provide affordable medical careto the uninsured in exchange for federal,state and local tax exemption; and (5)

unjust enrichment and constructive trust,also based on the theory that thehospitals owed a duty to provideaffordable medical care to the uninsuredin exchange for federal, state and localtax exemptions.

Helvin, supra, at 435. All federal courts haveheld that plaintiffs fail to establish standing tosue under § 501(c)(3). Id.; see, e.g., Lorens v.Catholic Health Care Partners, 356 F. Supp. 2d827 (N.D. Ohio 2005). After findingplaintiffs failed to establish standing, courtshave uniformly rejected each claim on themerits.18 Therefore, patients have beenunsuccessful in challenging discriminatorypricing schemes in federal court.

It is worth noting that federal courts havealso held that federal law does not prohibit“balance billing” Medicare patients chargesfor medical services after primary Medicareand Medigap coverage has been exhausted.See Vencor, Inc. v. Physicians Mut. Ins. Co., 211F.3d 1323 (D.C. Cir. 2000). The courtconcluded that 42 U.S.C. § 1395cc(a)(1)(A)had “nothing to do with charges for post-Medicare services” and “[s]o radical a schemeas imposition of price controls on medicalservices not covered by Medicare requiresexplicit language, not mere broodingpurposes.” Id. at 1325-26. On the otherhand, at least one New Jersey court has heldthat “state[s] . . . may lawfully enact aregulatory scheme which, in part, limits the‘appropriate standard of payment’ by aMedigap patient to the DRG payment.”Valley Hosp. v. Kroll, 847 A.2d 636, 644 (N.J.Super. Ct. Law Div. 2003).19 Finding thehospital’s balance billing policy constituted acontract of adhesion and therefore wasunenforceable, the court ultimatelydetermined that the amount paid to thehospital by the Medigap insurer wasreasonable under state law. Id. at 652.

States’ Attempts To Quantify“Community Benefit” UnderState LawAs a result of the inherent vagueness of the“community benefit” standard, several stateshave attempted to quantify the level ofcharity care required to qualify for tax-exempt status under state law.20 Recent caselaw in Illinois is illustrative. In ProvenaCovenant Med. Cent. v. Dep’t. of Revenue, 236 Ill. 2d 368 (Ill. 2010), Provena CovenantMedical Center (PCMC) employed a pricingscheme in 2002 that charged uninsuredpatients “established rates, which were morethan double the actual costs of care” whilecharging privately insured patients or patientsenrolled in Medicare or Medicaid discountedrates for the same medical care. Id. at 400.Additionally, only 302 of its approximately110,000 total patients received charitablemedical care at a reduced price. Id. at 382.Furthermore, PCMC only waived $831,724in actual costs (0.723 percent of totalrevenue) for medical services, yet received$1.1 million in property tax exemptions. Id.at 381. Given these facts, among others, theIllinois Supreme Court held that PCMCfailed to qualify as a tax-exempt hospital forpurposes of a state property tax exemption.Id. at 411.

Another example of an attempt to definerequirements related to charity care can befound in Texas, which has, in part, codifiedits quantitative requirements for charitycare.21 Under Tex. Health & Safety CodeAnn. § 311.045 (a) (Vernon 2010), a tax-exempt hospital must meet the standards setforth in subsection (b) to satisfy its charitycare requirements. Subsection (b) states thathospitals can satisfy the charity carerequirement by providing charity care andgovernment-sponsored indigent health carein one of three ways: (1) “at a level which is

14 See Press Release, Senator Chuck Grassley, Grassley’s Provisions for Tax-Exempt Hospital Accountability Included in New Health Care Law (Mar. 24, 2010). 15 Representative Bobby Rush (D-Ill.) and Senator Max Baucus (D-MT) have both publicly supported Grassley’s initiatives. Senator Baucus co-wrote the letter sent to Treasury Secretary

Paulson regarding reforms to Form 990 and accompanying schedules. See Press Release, Senator Chuck Grassley, Sen. Grassley Works to Build Confidence in Nonprofits With GreaterTransparency (May 29, 2007). Rush, initially outraged by the practice of “patient dumping,” has joined Grassley in legislative reforms to keep tax-exempt hospitals accountable under §501(c)(3). See Jay Heflin, Politics Makes Strange Bedfellows in Fight Against Nonprofit Hospitals, http://thehill.com/homenews/house/89541-politics-makes-strange-bedfellows-in-fight-against-nonprofit-hospitals (last visited June 9, 2010). However, both Rush and Baucus voted for PPACA.

16 Prior legislative efforts to reform tax exemption standards for hospitals had failed; for example, the Tax Exempt Hospitals Responsibility Act of 2006 introduced by Representative BillThomas (R-CA). See Helvin, supra, at 449-50.

17 For an in-depth analysis of the cases, see Helvin, supra, at 433-40 (2008).18 Plaintiffs are not foreclosed from bringing claims under various state law statutes more protective of patients’ rights. However, such claims have not been entirely successful. See, e.g., Galvan

v. Nw. Mem’l Hosp., 888 N.E.2d 529 (Ill. App. Ct. 2008). More research would be helpful to (1) examine how different state courts have interpreted their state statutes, and in what statessuch claims are more successful than in others; and (2) whether discriminatory pricing schemes may have a disparate impact on any protected class.

19 This case has never been cited by any federal court.20 Steven T. Miller, Commissioner of the Tax Exempt and Government Entities Division of the IRS, commented in a 2009 speech that “[m]ore than a dozen states have adopted written

standards involving community benefit.” Steven T. Miller, Comm’r, Tax Exempt and Gov’t Entities, Internal Revenue Serv., Charitable Hospitals: Modern Trends, Obligations and Challenges(Jan. 12, 2009).

21 To date, Tex. Health & Safety Code Ann. § 311.045 has not been cited in any state or federal case law.

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reasonable in relation to the communityneeds, as determined through thecommunity needs assessment, the availableresources of the hospital or hospital system,and the tax-exempt benefits received by thehospital or hospital system;”22 (2) “in anamount equal to at least 100 percent of thehospital’s or hospital system’s tax-exemptbenefits, excluding federal income tax;” or(3) by demonstrating that “charity care andcommunity benefits are provided in acombined amount equal to at least fivepercent of the hospital’s or hospital system’snet patient revenue, provided that charitycare and government-sponsored indigenthealth care are provided in an amount equalto at least four percent of net patientrevenue.”23

These examples of statutory provisions andcase law decisions are indicative of the legaltrends at the state level to quantify specificcharity care requirements for local tax-exempt status.

From the Field: Billing andCollections by a For-ProfitHospital SystemHCA is the largest private operator of healthcare facilities in the world and serves as aleader in the health care industry. HCA’spricing, billing and collection practices canserve as an example for the nonprofithospital industry. In June 2004, HCA CEOJack Bovender, Jr. addressed the HouseEnergy and Commerce CommitteeSubcommittee on Oversight and

Investigations to discuss hospital billing andcollection practices. Although HCAemployed a pricing scheme that chargeduninsured patients more than insuredpatients, Bovender criticized the practice,noting “the chargemaster system on whichhospitals rely to set pricing and billing codeshas a forty-year history of changes that hasdistorted the relationship between price andcost.”24 He went on to say that “HCA isnow seeking to develop a pricing structurefor the uninsured that is more reflective ofthe actual cost of providing the care.” Id.(emphasis added).

In 2007, HCA increased the transparency ofits pricing structure by introducing thePatient Financial Resource, a pricingtransparency initiative employed at HCA’sseveral hospitals that provides a “pricingestimate for [its] most frequently usedhealthcare services, payment options andalternatives available to patients withouthealthcare coverage and contact informationto call [HCA] directly for a pricingestimate.”25 This initiative paralleled theefforts of Senator Grassley at the federal levelto increase the transparency of tax-exempthospitals’ pricing schemes.

ConclusionDetermining whether a charitable hospital’sbilling and collection scheme violates federallaw is fact-sensitive and depends upon severalfactors, including the status of the patientunder the financial assistance policy and thetype of medical service rendered. It is clear

from PPACA that patients must be informedof the existence of the hospital’s financialassistance policy and that qualified patientsmay qualify for free or discounted medicalservices. Not only must hospitals complywith PPACA by making “reasonable efforts”to determine if patients qualify for financialassistance before pursuing “extraordinarycollection actions,” the amount hospitals maycharge qualified patients for emergency ormedically necessary care is limited.Discriminatory pricing schemes may alsojeopardize a hospital’s tax-exempt status ifthe government determines that the hospitalhas failed to satisfy its charitable missionunder the “community benefit” standard setforth in Revenue Ruling 69-545.

The trend toward price transparency efforts,led in part by HCA, may help further ensurenot only that uninsured and underinsuredpatients are not unfairly charged by tax-exempt hospitals, but that hospitals receivefair revenue for medical services necessary toallow the hospitals to continue to operate ina manner that benefits the community.

This article first appeared in the summerissue of the NJ-HFMA's news magazine, The Garden State FOCUS.

For more information about this topic, pleasecontact Elizabeth G. Litten at 609.895.3320or elitten@foxrothschild.com.

* Steven Link provided research and writingassistance for this article as a Law Clerkduring the summer of 2010.

22 See Tex. Health & Safety Code Ann. § 311.045 (c) (Vernon 2010) provides “guidelines” for the hospital in determining the amount of care required. Community needs, available hospitalresources, tax-exempt benefits received, and other factors unique to the hospital, are among the factors to be considered.

23 Tex. Health & Safety Code Ann. § 311.045 (b)(1)(A)-(C) (Vernon 2010).24 A Review of Hospital Billing and Collection Practices: Hearing Before the H. Energy & Commerce Comm. Subcomm. on Oversight and Investigations, 108th Cong. 4 (2004) (statement

of Jack Bovender, CEO of HCA).25 HCA, Welcome to the Patient Financial Resource, http://www.hcahealthcare.com/CustomPage.asp?guidCustomContentID={C7403AAF-2EFC-4CC9-BEC9-3D5815D11C45} (last

visited June 16, 2010).

CMS Proposes Streamlined Approach for Credentialingof Telemedicine Providersby Victoria Heller Johnson

On May 26, 2010, theCenters for Medicare andMedicaid Services (CMS)issued a proposed rule thatwould ease the burden forMedicare-participatinghospitals and critical accesshospitals (CAHs) when it

comes to credentialing and privileging off-

site telemedicine providers. The proposedrule would revise the existing Medicareconditions of participation (CoPs) for bothhospitals and CAHs to allow for a newstreamlined credentialing and privilegingprocess for physicians and practitionersproviding telemedicine services.

The current CoPs require Medicare-participating hospitals and CAHs to

credential and privilege each physician andpractitioner providing telemedicine servicesfrom a distant site as if suchphysician/practitioner were onsite. Whilehospitals and CAHs are permitted to usethird-party credentialing verificationorganizations, the ultimate responsibility forprivileging decisions remains with thefacility’s governing body.

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Staying Well Within the Law

About the Health Law PracticeFox Rothschild’s Health Law Group comprises more than 50 attorneys who counsel clients locally, regionally and nationally. Our multioffice,multidisciplinary approach allows us to offer practical, cost-effective solutions to issues faced by longstanding stakeholders, as well asa variety of industry newcomers.

For more information about any of the articles in Staying Well Within the Law, please contact any member of the Fox Rothschild Health Law Practice. Visit us on the web at www.foxrothschild.com.

Practice Co-ChairDavid S. Sokolow215.299.2712 or 609.895.3308dsokolow@foxrothschild.com

Practice Co-ChairTodd A. Rodriguez610.458.4978trodriguez@foxrothschild.com

Newsletter EditorWilliam H. Maruca412.394.5575wmaruca@foxrothschild.com

In the past, hospitals accredited by The JointCommission (TJC) were deemed to meetthe Medicare CoPs under TJC’s statutorydeeming authority. TJC’s medical staffstandards permit privileging by proxywhereby a TJC-accredited originating site(i.e., the site where the patient is located)may accept the credentialing and privilegingdecisions of a TJC-accredited distant site(i.e., the site where the practitioner providingthe telemedicine service is located).Pursuant to Section 125 of the MedicareImprovements for Patients and Providers Actof 2008 (Public Law 110-275, July 15, 2008),the statutory recognition of TJC’s hospitalaccreditation program was terminatedeffective July 15, 2010. As a result, TJC-accredited hospitals that have usedprivileging by proxy to credential andprivilege their telemedicine providers up tothis point may no longer do so.

CMS recognized in the proposed rule thesignificant burden that would be placed onexisting telemedicine programs, particularlythose of small or rural hospitals and CAHsthat are TJC accredited, if privileging byproxy is no longer permitted. Suchinstitutions often lack the resources to carryout the traditional credentialing andprivileging process for the physicians andpractitioners who provide telemedicineservices and rely on the larger academicmedical centers that provide suchpractitioners to fulfill that function.

The proposed revisions affect two Medicarehospital CoPs – 42 C.F.R. § 482.12“Governing Body” and 42 C.F.R. § 482.22

“Medical Staff.” Under the proposed rule,CMS would add new paragraph §482.12(a)(8) that would allow a hospital’sgoverning body to grant telemedicineprivileges based on its medical staffrecommendations, which in turn would relyon information provided by the distant-sitehospital. Under this new provision, theagreement between the hospital and thedistant site must specify it is the responsibilityof the governing body of the distant site tomeet the requirements of paragraphs (a)(1)through (a)(7) of § 482.12 with regard to itsphysicians and practitioners providingtelemedicine services.

The proposed rule would also add §482.22(a)(3), which grants a hospitalreceiving telemedicine services the option torely on the credentialing and privilegingdecisions of the distant site in lieu of thecurrent requirements at §§ 482.22(a)(1) and(a)(2), which require the hospital’s medicalstaff to conduct individual appraisals andexamine the credentials of each candidate inorder to make a privileging recommendationto the governing body. In order to avail itselfof this option, the hospital receiving thetelemedicine services must ensure that:

(1) The distant site hospital is a Medicare-participating hospital.

(2) The individual distant-site physician orpractitioner is privileged at the distant-site hospital providing the telemedicineservices, which provides a current list ofthe distant-site physician's orpractitioner's privileges.

(3) The individual distant-site physician orpractitioner holds a license issued orrecognized by the state in which thehospital, whose patients are receiving thetelemedicine services, is located.

(4) With respect to a distant-site physician orpractitioner granted privileges, thehospital whose patients are receiving thetelemedicine services has evidence of aninternal review of the distant-sitephysician’s or practitioner's performanceof these privileges and sends the distant-site hospital such performanceinformation for use in the periodicappraisal of the distant-site physician orpractitioner. At a minimum, thisinformation must include all adverseevents that result from the telemedicineservices provided by the distant-sitephysician or practitioner to the hospital'spatients and all complaints the hospitalhas received about the distant-sitephysician or practitioner.

The proposed telemedicine privileging andcredentialing requirements for CAHs arevirtually the same with almost no differencesin the regulatory language.

CMS will accept comments on the proposedrule until July 26, 2010.

For more information about this topic, pleasecontact Victoria Heller Johnson at610.458.4980 orvjohnson@foxrothschild.com.

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