Three Key Things in Health Care

• Beyond the CARES Act: Property insurance policies present a potential avenue for hospitals and other healthcare providers to recoup lost revenues resulting from the COVID-19 pandemic.
  • As the COVID-19 pandemic surges once again, hospitals and healthcare providers continue to face historic challenges, including unprecedented financial pressures. The considerable cost of securing medical equipment, supplies, and staff to care for the wave of COVID-19 patients, a growing number of whom are uninsured, has been magnified by lost revenues from government-mandated cancellation of elective procedures and a slump in preventative care. While CARES Act funds may alleviate some of the shortfall, they do not stand as a substitute for insurance and, in any event, will likely address only a fraction of the losses experienced by most providers.
  • Commercial property policies present a potential avenue for providers to recoup lost revenues and increased expenses. Many providers have delayed making claims because they were focused on implementing COVID-19 operations; others have been dissuaded by media reports of insurers’ coverage denials and trial court dismissals of COVID-19 insurance lawsuits. However, as the pandemic nears the one-year mark on U.S. soil, providers should review their business interruption insurance policies and consider, or reconsider, making a claim for their resulting financial losses.¹
  • Business interruption insurance claims by healthcare providers should not be susceptible to the two primary defenses insurers are raising in response to claims by non-healthcare policyholders.
    • First, insurers uniformly contend that coverage for business interruption losses is available only where the policyholder has sustained “physical loss or damage.” Courts have, therefore, readily dismissed policyholders’ cases where the policyholders fail to make this “threshold” allegation or where the policyholder makes the allegation but ties it only to the issuance of an order restricting access to or use of the insured property. In these cases, policyholders did not allege COVID-19 was present on their property. However, where policyholders do allege that the presence of COVID-19 and that the presence of COVID-19 caused a tangible alteration of the insured property (or dependent third-party property), courts generally allow policyholders’ claims to move forward. See, e.g., Studio 417, Inc. v. The Cincinnati Ins. Co., No. 20-cv-03127-SRB (W.D. Mo. Aug. 12, 2020). Healthcare providers, especially those treating COVID-19 patients, would easily meet this pleading threshold based on their operations and the documented presence of COVID-19 at their insured facilities.
    • Second, many commercial property policies exclude coverage for losses or expenses related to viruses. Healthcare providers’ policies usually do not contain such exclusions or have more limited contamination exclusions, which may not apply in these circumstances even if they include the word “virus.” This warrants careful consideration of policy language.
    • In addition, healthcare provider policies may include additional coverages for communicable diseases that the average commercial property policy does not.
  • Many providers who are litigating their claims have experienced early successes: Hill & Stout PLLC v. Mut. of Enumclaw Ins. Co., No. 20-2-07925-1 (Wash. Sup. Ct. Nov. 13, 2020) (dental office); Urogynecology Specialist of Florida LLC v Sentinel Ins. Co., Ltd., No. 6:20-cv-01174-ACC-EJK, 2020 WL 5939172 (M.D. Fla. Sep. 24, 2020) (gynecology office); Blue Springs Dental Care LLC v. Owners Ins. Co., No. 4:20-cv-00383-SRB, 2020 WL 5637963 (W.D. Mo. Sep. 21, 2020) (dental office); Optical Servs. USA/JC1, et al. v Franklin Mut. Ins. Co., No. BER-L-3681-20 (N.J. Sup. Ct. Aug. 31, 2020) (optometry office).
  • While the interplay between CARES Act funding and any insurance proceeds is not yet clear, this should not dissuade providers from pursuing all avenues of potential recovery.
  • Key Takeaway: Providers should undertake diligent and timely consideration of their commercial property policies as a potential source of recovery for COVID-19-related revenue losses and expenses.
• The Department of Justice Antitrust Division (“DOJ”) prosecutes first “no-poach” criminal case.
  • On January 7, 2021, the DOJ announced that a federal grand jury indicted a health care company, which operates outpatient surgical centers, for entering and engaging in two bilateral no-poach conspiracies. According to the indictment, the company and two unnamed health care companies agreed not to solicit each other’s senior-level employees. The agreements were allegedly enforced by the companies’ CEOs.
  • This latest criminal action is the DOJ’s first criminal case focused solely on no-poach agreements where competitors agree not to recruit or hire each other’s employees. It is also part of the DOJ’s heightened efforts against labor market collusion.
  • This action comes on the heels of DOJ’s first criminal antitrust action focused solely on wage fixing, as discussed in the December 15, 2020 issue of Three Key Things.
  • DOJ Antitrust Division head Makan Delrahim stated that the “charges demonstrate the Antitrust Division’s continued commitment to criminally prosecute collusion in America’s labor markets.” He further stated that “a freely competitive employment market is essential to the health of our economy and the mobility of American workers. Along with our law enforcement partners, the division will ensure that companies who illegally deprive employees of competitive opportunities are not immune from our antitrust laws.”
  • These recent actions show that the DOJ is serious about lodging criminal charges against those who engage in labor market collusion, especially in the health care industry. Companies that engage in such practices may face a maximum $100 million fine. The individuals involved may face up to 10 years in prison and a maximum $1 million fine. The maximum fines may be increased to twice the gain or twice the loss.
  • Key Takeaway: The DOJ is closely monitoring all allegations of collusion and will not hesitate to launch an investigation. To mitigate risk, any and all non-solicitation and non-compete clauses should be reviewed by counsel. Additionally, employers, staffing agencies and recruiters should review whether any wage information is being shared and continue to draft compliance measures to avoid the sharing of competitively sensitive information.
• In a year-end advisory opinion, the Department of Health and Human Services Office of Inspector General (“OIG”) blessed a pharmaceutical manufacturer’s financial assistance program designed to defray travel, lodging and other expenses incurred by eligible patients prescribed the company’s potentially life-saving drug.
  • Of the OIG’s several recent year-end advisory opinions, one stands out in the wake of the recent Novartis settlements, which we examined last summer,²  and the OIG’s scathing Advisory Opinion No. 20-05, which we examined in September.³ 
  • On December 31, 2020, the OIG posted Advisory Opinion No. 20-09, which favorably reviewed a pharmaceutical manufacturer’s financial assistance program, ultimately concluding that it would not impose administrative sanctions under the federal anti-kickback statute or civil money penalties provisions that prohibit inducements to federal health care program beneficiaries.
    • Under the arrangement, the pharmaceutical company provides financial assistance for travel, lodging and other expenses to eligible patients prescribed the manufacturer’s drug, a personalized medicine made from the patient’s own cells. Although the treatment is potentially curative, it comes with potentially significant life-threatening risks such that the FDA required the manufacturer to implement a Risk Evaluation and Mitigation Strategy (REMS”), including elements to assure safe use (“ETASU”).
    • The manufacturer, through a third-party vendor, provides eligible patients and a caregiver assistance with hotel lodging and certain out-of-pocket expenses for a lengthy period of time -- up to 2 nights for leukapheresis, and from the time of conditioning chemotherapy and drug infusion for up to 4 weeks post-infusion, subject to a physician’s determination that longer monitoring is medically necessary.
    • Eligibility is limited to patients prescribed the drug for an FDA-approved indication. Patients must meet certain income limitations and driving distance requirements, and lack third party insurance coverage for travel and lodging associated with their treatment.
  • While the OIG found the arrangement to implicate the federal anti-kickback statute, it concluded it would not impose sanctions for seven reasons specified in the opinion:
    • Improved access for indigent and rural patients, with the OIG specifically noting increased access to care that complies with the drug’s REMS with ETASU requirements.
    • Despite its general concern for a manufacturer’s provision of significant remuneration for using its drug, the OIG concluded the lodging and support provided post-infusion allow the eligible patient and caregiver to comply with the drug’s prescribing information.
    • The reduced likelihood that the arrangement would be used to reward a limited number of providers due, in part, to the FDA-imposed REMS with ETASU.
    • The drugs status as a potentially curative last resort, administered in a single infusion, coupled with the absence of any advertising, led the OIG to conclude there was a limited likelihood the assistance program would be used as a marketing tool.
    • The driving distance eligibility requirements which the OIG further concluded reduced the risk that the program would be used as a marketing tool for patient referrals.
    • The absence of any existing authority to enable to the Secretary of Health and Human Services to pay for non-medical items and services to facilitate compliance with the need for patients to stay in proximity to an infusion center following the infusion.
    • Characteristics of the manufacturer’s facility qualification process in connection with that portion of the assistance geared to facilitating leukapheresis.
  • The OIG also found the arrangement to implicate the beneficiary inducement provisions of federal law, but to meet the requirements of the promoted access to care exception at 42 C.F.R. §1003.110.
  • Key Takeaway: In contrast to the recent Novartis settlements and September OIG advisory opinion, Advisory Opinion No. 02-09 demonstrates that pharmaceutical company financial assistance programs can be appropriately structured to withstand the OIG’s scrutiny for violations of federal fraud and abuse laws.

¹ Many policies limit the time in which a policyholder can file suit. Since some policies have a one-year limitation from the date of the loss, providers should undertake this consideration as soon as possible.

² See Three Key Things in Healthcare published on August 4, August 11, and August 18, 2020.

³ See Three Key Things in Healthcare published on September 29, 2020.