Senator Grassley Renews Probe into Non-Profit, Tax Exempt Hospitals – Senate Finance Committee Chairman Chuck Grassley (R-IA) renewed his focus on charitable hospitals by asking the IRS on February 19, 2019, for data on hospital compliance with § 501(r) of the Internal Revenue Code. Section 501(r) imposed additional requirements on charitable hospitals as a condition of their tax-exempt status, such as assessing the health needs of their communities, implementing a financial assistance policy, limiting charges to patients who qualify for financial assistance and undertaking reasonable efforts before engaging in extraordinary collection efforts. Citing media reports from 2017, Senator Grassley expressed concern that at least some charitable hospitals had cut charity care, despite increased revenue, and had failed to satisfy the standards § 501(r) imposed.

Senator Grassley previously sent a letter to the IRS in February 2018 inquiring about charitable hospital compliance with § 501(r). In April 2018, the IRS informed Senator Grassley that it annually reviews approximately one-third, or 1,000, of the 3,000 tax-exempt hospitals per year. These examinations included a review of the hospitals’ Forms 990, including the information they report with respect to § 501(r) on Schedule H, as well as the hospitals’ websites and other information. The IRS then assigns either a compliance check or examination to those hospitals that appear to be most at risk for noncompliance.

In his February 19, 2019 letter, Senator Grassley asks for seven categories of information from the IRS in an effort “to ensure the Internal Revenue Code is enforced vigilantly.” He seeks information regarding how many additional charitable hospitals the IRS has reviewed since its April 2018 response to Senator Grassley’s prior letter, as well how the IRS determines if a charitable hospital has widely publicized its financial assistance policy. Senator Grassley notes that a charitable hospital must make a reasonable effort to determine if a patient is qualified to participate in financial assistance programs before taking extraordinary collection action against the patient, and he wants to know what efforts the IRS has taken to enforce this regulation.

Senator Grassley has asked the IRS to respond to this letter by April 1, 2019. The full text of Senator Grassley’s letter can be found here.

CMS Seeks Public Comments on Proposed Changes to Hospital Quality Star Ratings – On February 28, 2019, CMS issued a 48-page request for public comment (the Request) on several potential updates to and future considerations for the methodology used in the Overall Hospital Quality Star Rating. As explained in the Request, the “goal of the Overall Hospital Quality Star Rating is to improve the usability, accessibility, and interpretability of CMS’s hospital quality website, Hospital Compare, for patients and consumers. Hospital Compare is a website that includes information on over 100 quality measures from more than 4,000 hospitals.” In the Request, CMS seeks feedback on several updates to the Overall Hospital Quality Star Rating methodology that could be implemented in the near term, as well as additional topics for future exploration. Public comments are due by the close of business on March 29, 2019.

The potential updates and future considerations are intended to address select stakeholder concerns about sensitivity of the Overall Hospital Quality Star Rating methodology to changes in the measures and underlying data. Specific areas for feedback include, for example: (i) the value of calculating the Overall Hospital Quality Star Rating based on peer groups of hospitals (grouping together, for example, teaching hospitals and small/rural/Critical Access Hospitals) and whether there should be two star ratings generated — one overall rating based on all hospitals and a separate rating based on peer groupings — or just one star rating based on peer grouping; (ii) the benefits and drawbacks of refreshing the Overall Hospital Quality Star Rating only once a year, rather than twice a year; (iii) the advantages and disadvantages of an explicit approach to calculating overall Hospital Quality Star Ratings, instead of using a statistical model to determine a hospital’s measure group score; and (iv) the way CMS groups individual measure specifications and defines measure groups, as individual measure specifications are updated or measures are added or removed.

A full summary of the topics for public comment and the instructions for providing feedback are in the Request, available here.

Vanguard Healthcare Agrees to Pay More Than $18 million to Resolve FCA Lawsuit – On February 27, 2019, the Department of Justice announced that Vanguard Healthcare, LLC and related Vanguard companies agreed to pay more than $18 million to resolve claims made by the United States and the State of Tennessee that Vanguard illegally billed for services provided by Vanguard-owned skilled nursing facilities that were either grossly substandard or so far below the standard of care that they were deemed to be worthless. The United States brought its claims under the False Claims Act, and the State of Tennessee proceeded under Tennessee Medicaid False Claims Act.

Among the allegations were claims that the Vanguard-owned skilled nursing facilities:

  • Failed to administer medications as prescribed;
  • Failed to provide appropriate wound care;
  • Failed to implement standard infection control, leading to urinary tract and wound infections;
  • Failed to take measures, such as turning and repositioning, to prevent pressure ulcers; and
  • Used unnecessary physical restraints on residents.

The United States and the State of Tennessee filed the suit in United States v. Vanguard Healthcare, LLC, et al., No. 3:16-cv-02380 (M.D. Tenn.) against a number of Vanguard companies, Vanguard’s majority owner and CEO, William Orand, and Vanguard’s former director of operations, Mark Miller. Orand and Miller agreed to pay $250,000 as part of the settlement.

Along with the settlement, the Vanguard corporate defendants and Orand further agreed to enter into a chain-wide, quality of care Corporate Integrity Agreement with the United States Department of Health and Human Services, Office of Inspector General, which will be in effect for five years. The agreement requires Vanguard to retain a government-selected quality of care monitor in addition to other compliance obligations.

Plaintiffs Seek Leave to File Amended Complaint in Case Against Anthem for Paying Patients Directly for Rehabilitation Services – Four years after filing a complaint against Anthem Blue Cross and various employee welfare benefit plans (collectively, Defendants) for paying insurance benefits directly to insured patients instead of the Plaintiff assignees, on January 31, 2019, Plaintiffs Dual Diagnosis Treatment Center, Inc., Satya Health of California, Inc., Adeona Healthcare Inc, Sovereign Health of Phoenix, Inc, and Medical Concierge, Inc. (collectively, Plaintiffs) filed a motion in federal court seeking leave to amend Plaintiffs’ complaint in order to “clean up” and clarify Plaintiffs’ allegations. Defendants contend that Plaintiffs’ amended complaint would “fundamentally alter the nature of the case and would require the parties to litigate a discrete universe of issues not embraced by the litigation at any point in the previous four years.” Defendants ask the court to deny Plaintiffs’ motion. The case received national attention due to Anthems’ alleged payment to patients being treated for addiction and mental health problems of more than $1.3 million instead of the facilities providing treatment and is a noteworthy example of patients being placed in the middle of a payment and billing dispute between payors and providers.

Plaintiffs are providers of residential treatment and related services to individuals suffering from substance abuse disorders. Plaintiffs filed an initial complaint on May 8, 2015, alleging Defendants had wrongfully issued payment to beneficiaries rather than to Plaintiffs pursuant to assignments of benefits. Plaintiffs allege this practice ignored assignment of benefits with Blue Cross and employee welfare benefit plan beneficiaries. Plaintiffs were allegedly forced to “attempt to discover what had been paid, and to collect payments from their patients” and, as a result, were unable to collect millions of dollars they were owed. As part of their complaint, Plaintiffs initially named 159 employee welfare benefit plans and 49 Blue Cross entities in effort to recover benefits and damages related to 274 different patients from whom Plaintiffs received assignments.

Since filing their complaint and over the past three years, Defendants have challenged Plaintiffs’ allegations, with Plaintiffs subsequently filing amended complaints to address Defendants’ challenges and/or the court’s rulings. On May 1, 2018, the court issued an order concerning Plaintiffs’ Third Amended Complaint dismissing Plaintiffs’ claim for relief under California Business and Professions Code § 17200, et seq., and allowing Plaintiffs to bring claims against many of the Defendants for ERISA benefits under 29 U.S.C § 1132(a)(1)(B).

Plaintiffs now seek to file a fourth amended complaint that contends that in addition to improperly issued payment to beneficiaries instead of Plaintiffs, Defendants also underpaid several claims to Plaintiffs. Defendants, in their opposition to Plaintiffs’ motion, assert that Plaintiffs are attempting to add claims for breach of contract against certain Defendants, which would involve new state law issues in a case otherwise governed by ERISA. Defendants also note that the parties have engaged in nearly four years’ worth of briefing, discovery, and mediation and that allowing Plaintiffs to file a fourth amended complaint would prejudice Defendants. Plaintiffs’ position is that the fourth amended complaint would not place any undue prejudice on Defendants because these patient claims are already at issue in litigation since the beginning and recovery would “now simply based on a different legal theory.”

The case, Dual Diagnosis Treatment Center, Inc., et al. v. Blue Cross of California, dba Anthem Blue Cross, et al., Case No. 8:15-cv-00736, is currently before the Central District of California. Trial is set for April 7, 2020. Plaintiffs’ Memorandum of Points and Authorities in Support of Motion for Leave to File Fourth Amended Complaint can be found here. Defendants’ opposition to Plaintiffs motion can be found here.