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Federal Update, Including a New HIPAA Safe Harbor

Month: January 2021

Federal Update, Including a New HIPAA Safe Harbor

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For more information about this blog post, please contact Khaled J. Klele, Ryan M. Magee, Labinot Alexander Berlajolli, or Daniel J. Parziale.

HIPAA Safe Harbor Bill Becomes Law, Providing Protections to Entities That Have Taken Appropriate Safeguards 

On January 5, 2021, H.R. 7898 became law. The law benefits covered entities and business associates that are subject to the Health and Human Services ("HHS") investigations as a result of a security incident but have taken steps to document their compliance with the HIPAA Security Rule and other standardized security practices. For example, the law amends the Health Information Technology for Economic and Clinical Health (“HITECH”) Act to require the Secretary of HHS to consider certain “recognized security practices” of covered entities and business associates when making determinations to issue fines or penalties under the HIPAA Security Rule. The law directs HHS to take into account a covered entity’s or business associate’s use of industry-standard security practices within the course of 12 months when investigating and undertaking HIPAA enforcement actions. It is anticipated that HHS will go through the notice and rulemaking process to develop regulations to implement the law.

CMS Issues Final Rule Speeding Up Coverage for “Breakthrough” Medical Devices

The Centers for Medicare & Medicaid Services (“CMS”) recently issued its final rule, 86 FR 2987, known as The Medicare Coverage of Innovative Technology (“MCIT”), which shortens the time period that Medicare beneficiaries will have access to a device that the Food and Drug Administration (“FDA”) deems a “breakthrough” medical device. Under previous regulations, after comprehensive and lengthy testing from the FDA, CMS would then proceed with its own lengthy and costly process prior to approving the medical device for Medicare coverage. Now, under MCIT, CMS will create an accelerated Medicare coverage pathway for innovative products that the FDA deems to be a “breakthrough” and for which the FDA has approved on an expedited basis. Moreover, CMS will provide national coverage for such “breakthrough” medical devices simultaneously with FDA approval for up to four years. After the four-year period has elapsed, CMS will then reevaluate the medical device based on clinical and real-world evidence of health outcome improvements among Medicare beneficiaries.

CMS Issues Final Rule Expanding Privatization of Health Insurance Exchanges and Expanding States’ Abilities to Develop Their Own Programs to Support Local Needs

CMS recently issued its final rule, 86 FR 6138, known as Notice of Benefit and Payment Parameters for 2022. As part of the final rule, CMS will reduce the user fee for qualified health plans (“QHPs”) sold through a federally-facilitated Exchange from 3.0% to 2.25% of premium. The final rule also provides options for states to develop next generation Exchanges that leverage web-brokers and insurance issuers for the direct purchase of QHPs. The Exchanges, however, would retain responsibility for ensuring that participating web brokers and insurers meet all applicable consumer protections, as well as remain responsible for making all eligibility determinations, performing required verifications of consumer application information, and meeting all statutory and regulatory requirements for operating an Exchange. In addition, implemented through 1332 waivers, the final rule solidifies an important opportunity for states to waive certain statutory requirements to create health programs tailored to their own citizens, subject to federal approval.

DEA Issues Proposed Rule Regarding Online Applications

This notice of proposed rule would amend the Drug Enforcement Administration (“DEA”) regulations to require all initial and renewal applications for DEA registration to be submitted online. Currently, DEA regulations permit DEA Registration Forms (224/224a, 225/225a, 363/363a, and 510/510a) to be submitted either through the secure online database, or by paper forms delivered to DEA Headquarters. This proposed rule will amend DEA regulations to require that all registration and renewal applications be submitted through the secure online database, and that paper forms will no longer be accepted. Comments are due by March 8, 2021.

Final Rule on Transparency in Civil Enforcement Actions

On January 14, 2021, HHS issued a final rule, 86 FR 3010, promulgating regulations to promote transparency and fairness in civil enforcement actions. The final rule is intended to ensure that regulated parties receive fair notice of laws and regulations they are subject to, and have an opportunity to contest an agency determination prior to the agency taking an action that has a legal consequence.

FDA Releases Artificial Intelligence/Machine Learning (AI/ML)-Based Software as a Medical Device (SaMD) Action Plan

The FDA issued an AI/ML-Based Software as a Medical Device Action Plan (“Action Plan”) intended to embrace AI/ML-driven software changes to medical devices. Medical device manufacturers have increasingly employed the use of AI/ML technologies to innovate their products. However, the FDA’s traditional paradigm of medical device regulation was not designed for adaptive AI and ML technologies. Under the FDA’s current approach to software modifications, the FDA anticipates that many of these AI/ML-driven software changes to devices may necessitate premarket review. On April 2, 2019, the FDA published a discussion paper describing the FDA’s foundation for a potential approach to premarket review for AI/ML-driven software modifications.

The FDA’s most recent Action Plan seeks to update the framework of that discussion paper and outlines a five-part Action Plan. Specifically, the Action Plan proposes (1) a tailored regulatory framework for AI/ML-based SaMD, (2) good ML practices through FDA participation, (3) a patient-centered approach emphasizing transparency to users, (4) regulatory science methods related to algorithm bias and robustness, and (5) real-world performance pilots.

New Resources for Health IT Developers

On January 4, 2021, the HHS Office of the National Coordinator for Health IT released new resources to help health IT developers understand ONC Cures Act final rule requirements. The new resources include an overview of key compliance dates, a criterion-by-criterion resource for the 2015 Edition Cures Update, and an application programming interface (API) Resource Guide intended for health IT developers seeking ONC certification.

California Court Holds Agents Not Entitled to Agent Fees on PPP Loans

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The United States District Court for the Central District of California recently held that plaintiffs, who assisted clients in obtaining PPP loans from the defendant lenders, did not have a private right of action against the defendants for agent fees.  See Am. Video Duplicating Inc. v. Citigroup Inc., 2020 WL 6712232 (C.D. Cal. Nov. 16, 2020).  In the case, plaintiffs, who included accountants and other consultants, assisted their clients in obtaining PPP loans from defendants.  Plaintiffs then claimed that the defendant lenders who issued the loans to their clients were required to pay plaintiffs agent fees for these loans.  Defendants refused to pay, and plaintiffs brought this action.   Defendants then filed a motion to dismiss, arguing that plaintiffs lacked standing and that they failed to state a claim.

The Court granted the motion to dismiss.  First, the Court dismissed the complaint based on a lack of standing.  The Court found that plaintiffs only provided generalized allegations that they acted as agents, and did not identify a single PPP application through defendants with which they assisted.  Although plaintiffs provided a certification with their opposition papers that provided more detail on their claims, that information was not in the complaint, and the Court dismissed under Rule 12(b)(1).  Second, the Court found that, even if plaintiffs had standing, their claims fail as a matter of law because “the CARES Act does not create an entitlement or private right of action to collect agent fees.”  Instead, the Court found that an agent fee is only required if the lender agreed to pay one, noting that there have been “over fifty similar lawsuits across the country with plaintiffs alleging unpaid agent fees under the PPP” and that “[i]t appears every court that has decided this issue has held that the CARES Act does not require lenders to pay agent fees absent an agreement to do so, nor does it create a corresponding private right of action.”  Accordingly, the Court granted defendants’ motion to dismiss.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Andrew Raimondi at araimondi@riker.com.

NJ Proposes Changes to Office-Based Surgery and Other Regulations

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For more information about this blog post, please contact Khaled J. Klele, Ryan M. Magee, Labinot Alexander Berlajolli, or Daniel J. Parziale.

NJ Board of Medical Examiners Proposes to Substantially Change Regulation Governing Surgery in the Office Setting

The New Jersey Board of Medical Examiners (“BME”) has proposed a new rule that replaces the phrase “minor surgery” with “minor procedure” and further expands the definition of “special procedure.”  The purpose of these changes is to remove restrictions relating to where and by whom abortion care may be provided, and regulates abortions like other office-based surgical and special procedures.   By making these changes, however, the proposed rule expands who and where minor procedures may be performed.

The BME is proposing the following changes:

  • Repealing N.J.A.C. 13:35-4.2, which permits only physicians to perform abortions, and requires abortions after fourteen weeks to be performed in a licensed hospital or ambulatory surgery center (“ASC”).
  • Amending N.J.A.C. 13:35-4A-1 to replace “minor surgery” with the phrase “minor procedures” throughout to reflect that minor procedures are low-risk services that do not require compliance with the heightened regulatory requirements of Rule 4.
  • Amending N.J.A.C. 13:35-4A-1 to clarify that “special procedures” do not include “minor procedures.”
  • Amending N.J.A.C. 13:35-4A-3 to identify an “early aspiration abortion” as a “minor procedure.”
  • Amending N.J.A.C. 13:35-4A.1 and 4A.2(a) by deleting the word "setting" following "office" and, therefore, allowing for the expansion of the definition of "office" to include licensed one-room ambulatory surgery centers, registered surgical practices, and other sites where surgery and special procedures may be performed.
  • Amending N.J.A.C. 13:35-4A.3 to define “advanced practice clinicians” to include advanced practice nurses, physicians assistants, certified nurse midwives, and certified midwives; and
  • Adding N.J.A.C. 13:35-4A.19 to allow “advanced practice clinicians to perform minor procedures in an office setting.

Comments are due by March 5, 2021.

Changes to the Pharmaceutical Assistance to the NJ Aged and Disabled Eligibility Manual

The New Jersey Department of Human Services (the “Department”) has adopted a rule changing the Pharmaceutical Assistance to the Aged and Disabled (“PAAD”) Eligibility Manual to reflect an increase of the maximum annual income limits for PAAD eligibility by 1.3 percent.  Each year the PAAD annual income eligibility limits are to increase by the amount of maximum Social Security benefit cost‑of‑living increase for each year for single and married persons, respectively.  Persons who are eligible for PAAD are also eligible for Lifeline Credit, Tenants Lifeline Assistance, and Hearing Aid Assistance to the Aged and Disabled (“HAAAD”).  Therefore, the Department is also increasing the annual income eligibility standards by 1.3 percent for those programs to correspond with the PAAD increase.  Finally, the Department is changing the Senior Gold income limits for the Senior Gold Prescription Program Manual to reflect the 1.3 percent change to the PAAD annual income limits.  These changes were effective January 1, 2021.

Degrees Earned Outside the United States

The New Jersey State Board of Psychological Examiners (the “Board”) has adopted a rule requiring an applicant for licensure having earned a degree outside of the United States to provide the Board with a comprehensive evaluation of their degree performed by the National Register of Health Service Psychologists or a foreign credential evaluation service that is member of the National Association of Credential Evaluation Services (“NACES”) and acceptable to the Board, and any other documentation the Board deems necessary.

U.S. Supreme Court Rules on Property Seized Pre-Bankruptcy Petition

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Automatic Stay Not Violated by Retention of Property Seized Before Filing

The United States Supreme Court recently held that 11 U.S.C. § 362(a)(3), a provision of the automatic stay of the U.S. Bankruptcy Code, does not require creditors to take affirmative steps to return property that was seized before the filing of a debtor’s bankruptcy petition. City of Chicago, Illinois v. Fulton, 2021 WL 125106, ____ U.S. ____ (Jan. 14, 2021).

In Fulton, “the city of Chicago (City) impounded each respondent’s vehicle for failure to pay fines for motor vehicle infractions.” (Slip Op. at 2). Each respondent later filed a Chapter 13 bankruptcy petition and, in some form or fashion, requested that the City return their vehicle. The City refused, and the relevant bankruptcy courts held that such refusals were improper and violated §362(a) as that the filing of a bankruptcy petition “operates as a stay, applicable to all entities,” on “any act to obtain possession of property of the estate or of property from the estate or to exercise control over the estate.” The Seventh Circuit, in an Opinion consolidating the cases of the vehicle owners, affirmed the findings of the bankruptcy courts, finding that the continued possession of the vehicles by the City constituted the “exercise [of] control over” property in a matter prohibited by the stay provision.

The Supreme Court unanimously (with Justice Barrett not participating) reversed the Seventh Circuit, holding that “the mere retention of estate property after the filing of a bankruptcy petition” does not violate the stay provision of the Bankruptcy Code. (Slip Op. at 4). In so doing, the Court’s majority opinion, authored by Justice Alito, examined the plain language of the stay provision and found that the automatic stay “halts any affirmative act that would alter the status quo as of the time of the filing of a bankruptcy petition[,]” and that the language of the provision “implies that something more than merely retaining power is required to violate” the automatic stay. Id. (emphases added). The Court also found that this reading of §362(a)(3) was further supported in the context of §542 of the Bankruptcy Code (“the turnover provision”), which governs the turnover of estate property to the bankruptcy trustee, along with certain exceptions to its obligations. Were the stay provision interpreted to require the return of certain property to the debtor after the filing of the bankruptcy, the turnover provision would be superfluous and operate in conflict with the requirements of the stay provision.

It should be noted, however, that the Supreme Court concluded its decision by stating that the Court “need not decide how the turnover obligation in §542 operates[, nor] settle the meaning of other subsections of §362(a)”. (Slip Op. at 7). Furthermore, Justice Sotomayor’s concurring opinion in this matter suggests that there are additional questions that must be resolved in this area, such as “when [a creditor] may sell impounded cars” after a bankruptcy filing, and that “any gap left by the Court’s ruling today is best addressed by rule drafters and policymakers.” (Concurring Opinion of Sotomayor, J. at 5.)

As such, under the holding of Fulton, creditors can have some comfort that they need not immediately return property seized pre-petition to debtors pursuant to the stay provision of the U.S. Bankruptcy Code. A debtor may nevertheless seek turnover of estate property held by a creditor pursuant to 11 U.S.C. § 542, requiring commencement of an adversary proceeding. Creditors should continue to exercise care with seized property, and should stay attuned to the potential requirements of other Bankruptcy Code provisions and additional possible further developments in this area.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Andrew Raimondi at araimondi@riker.com.

Five Recent OIG and HHS Advisory Opinions

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For more information about this blog post, please contact Khaled J. Klele, Ryan M. Magee, Labinot Alexander Berlajolli, or Daniel J. Parziale.

The Office of Inspector General (“OIG”) issued four advisory opinions at the end of 2020 addressing gift cards and paying for expenses, among other issues. With regard to all of these requests, the OIG analyzed whether the proposed arrangements in these requests would constitute grounds for the imposition of sanctions under the Social Security Act (the “Act”) and the federal anti‑kickback statute (the “Anti-Kickback Statute”).

In addition, the Department of Health and Human Services (“HHS”) Office of the General Counsel (“OGC”) released an advisory opinion clarifying who is covered under the 340B program.

Medicare Enrollment Application Assistant Services for Nursing Homes and Home Health Agencies

On December 23, 2020, the OIG issued Advisory Opinion 20-06 regarding a management company’s provision of below fair market value Medicaid enrollment application assistance services to certain individuals and affiliated skilled nursing facilities’ payments for those services in particular circumstances (the “Proposed Arrangement”).  Under the Proposed Arrangement, a management company provides financial, marketing, and other administrative services to skilled nursing facilities (“SNFs”) and home health agencies (“HHAs”). The SNFs and HHA would refer current patients to the Management Company for its provision of Medicaid enrollment application assistance services.

The OIG found that the Proposed Arrangement would not violate the Act because it falls within the Promotes Access to Care Exception. In terms of the federal Anti-Kickback Statute, the OIG found that the Arrangement would present no more than a minimal risk of fraud and abuse and, therefore, it would not be subject to sanctions.

Web-Based Platforms Where Providers Can Offer Remittances to Patients Who Select Them

On December 28, 2020, the OIG posted Advisory Opinion No. 20‑07 regarding a web‑based platform’s (the “Requestor”) plan to establish a user platform exclusively for patients who have Medicare as a secondary payor through which: (i) Providers could offer potential remittances to such patients and their third‑party payors for diagnostic, procedural, and surgical care that is both elective and episodic and potentially payable by Medicare as a secondary payor; and (ii) patients could enter into agreements with Providers, where the patients and their third‑party payors could receive a portion of the remittances from Providers, after the Requestor deducts the portion of the remittances it would keep as a fee (the “Proposed Arrangement”).

The OIG found that the Proposed Arrangement could potentially generate prohibited remuneration under the federal Anti‑Kickback Statute and that no safe harbor existed to protect the Arrangement. Nevertheless, the OIG found that the Proposed Arrangement presented a very low risk of fraud and, therefore, it would not constitute grounds for the imposition of sanctions under the Act or the federal Anti-Kickback Statute.

Gift Cards for Rescheduling Preventive and Early Intervention Care

On December 30, 2020, the OIG posted Advisory Opinion No. 20-08 regarding a federally qualified health center’s (the “Requestor”) proposal to offer gift cards to incentivize certain pediatric patients to attend rescheduled preventative and early intervention care appointments (the “Proposed Arrangement”). Under the Proposed Arrangement, the Requestor would contact the eligible patients (or their parents or guardians, as applicable) and notify them of the opportunity to receive a $20 gift card from Requestor upon rescheduling and attending appointments, which would be furnished at checkout after the appointment and a Requestor staff member has verified the patient’s eligibility.

The OIG concluded that although there was no safe harbor to protect the Proposed Arrangement, the OIG found very little risk of fraud and, therefore, the OIG would not sanction the Arrangement.

Offering Free Travel and Lodging Expenses to Patients

On December 31, 2020, the OIG posted Advisory Opinion No. 20‑09 regarding a program where a pharmaceutical manufacturer (the “Requestor”) provides financial assistance for travel, lodging, and other expenses to certain patients prescribed the manufacturer’s drug (the “Proposed Arrangement”). The Requestor certified that the financial assistance under the Proposed Arrangement is to ensure patient safety and promote quality‑of‑care, particularly for indigent and rural patients.

The OIG concluded that although no safe harbor existed under the federal Anti-Kickback Statute, there was little concern for fraud and abuse. In addition, the OIG found that the Proposed Arrangement satisfied the Promotes Access to Care Exception under the Act.

HHS Concludes That Discounts Under 340B Drug Pricing Program Apply to Contract Pharmacies

On December 30, 2020, the HHS OGC released Advisory Opinion 20­‑06 concluding that drug manufacturers, in exchange for coverage of drugs under Medicaid, are required to deliver discounts under the 340B Drug Pricing Program on covered outpatient drugs when contract pharmacies are acting as agents of 340B covered entities. “Covered entities” include safety net hospitals, community health centers, and other institutions serving vulnerable populations, and discounts can range between 25 and 50 percent. Many covered entities enter into written agreements with pharmacies (“contract pharmacies”) to distribute their covered outpatient drugs to the entities’ patients. The OGC clarified that to the extent contract pharmacies are acting as agents for a covered entity, a drug manufacturer in the 340B Program is obligated to deliver its covered outpatient drugs to those contract pharmacies and to charge the covered entity no more than the 340B ceiling price for those drugs.

Maryland Supreme Court Affirms No Statute of Limitations for Foreclosures

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The Maryland Court of Special Appeals recently affirmed a lower court and held that there is no statute of limitations for foreclosure actions in Maryland.  See Daughtry v. Nadel, 2020 WL 7392787 (Md. Ct. Spec. App. Dec. 16, 2020).  The borrowers purchased a property in 2007 and executed a mortgage to the lender.  In 2012, the borrowers defaulted.  In March 2019, the lender brought this foreclosure action.  The borrowers filed a motion to dismiss, arguing that the action was untimely.  The borrowers argued that a 2014 amendment exempted mortgage foreclosure actions from the 12-year statute of limitations set in § 5-102, and therefore subjected such actions to the blanket three-year statute of limitations in § 5-101.  The trial court denied the motion.

On appeal, the Court affirmed.  First, the Court held that it had issued a decision in 1947 in which it found that  “[t]here is no Statute of Limitations in Maryland applicable to foreclosure of mortgages.”  Cunningham v. Davidoff, 188 Md. 437 (1947).  Second, the Court found that the enactment of § 5-101 in 1973 did not change that holding, in part because “§ 5-101 has been expressly limited in application to a ‘civil action at law’” and that “[f]oreclosure proceedings are not actions at law because they are ‘equitable in nature.’”  Likewise, the legislative history of § 5-102 indicated that there was no intention for it to cover foreclosure actions.  Third, the Court found that the 1984 merger of law and equity in Maryland by the adoption of Rule 2-301, which provides, “[t]here shall be one form of action known as ‘civil action,’” did not affect Cunningham, because “the merger of law and equity did not erase distinctions between defenses to actions sounding at law and those sounding in equity.”  Finally, the Court found that the 2014 amendment to these statutes did not “carve[] mortgage foreclosure actions out of the 12-year statute of limitations in § 5-102, thereby necessarily subjecting them to the three-year blanket statute of limitations in § 5-101” because “the 12-year statute of limitations never applied to mortgage foreclosure actions in the first place.”

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Andrew Raimondi at araimondi@riker.com.

Considerations for Selling Contaminated Property in NJ

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Reducing Long-Term Risk and Exposure to Environmental Liabilities

Despite the impact of COVID-19 on other areas of commercial real estate, the industrial sector continues to thrive as the e-commerce industry seeks properties for warehousing and logistics centers, especially in close proximity to New Jersey’s advantageously-placed ports and arterial highways that provide “last mile” delivery capabilities.  The fact that many of these properties are located within industrial or former industrial areas has not stopped purchasers who have become increasingly more comfortable with sites that are environmentally impacted, even in some instances taking on long-term, ongoing environmental obligations.  Although opportunities abound to offload these properties and their environmental burdens, sellers should be mindful of limiting their exposure to liabilities that may manifest after the sale.  Though most owners of contaminated property can never completely eliminate the threat of future liability, below are a number of practical tips and considerations for addressing and reducing long-term environmental risks, many of which are applicable to the sale of any type of contaminated property.

  • Indemnities and Releases – The most common contractual tools that sellers use to protect themselves from post-closing liabilities are indemnities and releases.  In brief, an indemnity requires one party (e.g., the buyer) to defend and reimburse another (e.g., the seller) for specified  claims, liabilities, damages, cost, expenses, etc., while a release prohibits one party (e.g., the buyer) from making certain claims against another party (e.g., the seller).  Sellers offloading contaminated properties should pay careful attention to the scope of any indemnities and releases.  If a seller wants to transfer all environmental responsibility and liability to its buyer, seller may want to ensure that the indemnities and releases are drafted as broadly as possible and include any environmental cleanup obligations that might fall on seller in the future as well as any third-party claims, whether by a governmental entity for, say, natural resource damages or by a neighboring property owner or future occupant of the property for personal injury.  Alternatively, if a seller intends to retain certain liabilities, then those liabilities should be specifically excluded from any indemnities and releases, and, in fact, seller may indemnify buyer for such liabilities.  In any event, the scope of the indemnities and releases is a crucial tool for allocating environmental responsibility and should match the intent of the parties.
  • Financial Protections – Although indemnities and releases may provide useful protection, sellers sometimes also rely on additional financial protections, especially given that an indemnity is only valuable if the entity providing the indemnity has the resources to satisfy potential claims.  In fact, because many developers purchase properties through a single purpose entity and the only asset it owns is the property itself (which may be encumbered by financing or diminished in value as a result of environmental contamination), the indemnity may not be sufficient.  When this is an issue, sellers often consider requiring a parent company or personal guaranty or some other financial protection like an appropriate escrow.  These protections endeavor to guarantee that resources will be available to satisfy a purchaser’s responsibilities.
  • Post-Remedial Obligations/Financial Assurance – Where contamination remains on-site underneath  an engineering control (e.g., a cap), the control  must be monitored and maintained over time in accordance with required permits.  If seller will retain responsibility for these obligations, it should insist on an express right to access the property after the sale.  In fact, seller may want to create a stand-alone access agreement that is recorded on the land so that if the property is subsequently sold, seller’s right to access runs with the land and is binding on subsequent owners.  Alternatively, if it will be the buyer that assumes these obligations – (which is the more common scenario, as buyer will be in the best position to perform the necessary monitoring and maintenance of the cap after the property is sold) – seller should ensure that buyer affirmatively assumes all of the obligations, including posting appropriate financial assurance.
  • Extending Seller Protections to Future Owners – Often a purchaser will develop a property and then sell it to an end user, and inevitably the property may change owners over time.  This can leave the original seller exposed if its direct purchaser either does not continue to comply with its long-term environmental obligations or if it does not appropriately transfer those obligations to a subsequent purchaser.  While there is no silver bullet to protect from this risk and each approach has its shortcomings, one way to attempt to address this concern is including indemnities, releases and other affirmative environmental obligations in the recorded deed of sale.  Another way is to use a rollover provision in the sales contract that would expressly require purchaser to include language in any future sales agreement that obligates the new purchaser to indemnify and release original seller and to assume the ongoing environmental obligations. 
  • Reopeners and Changes in Controls and Property Use – Another risk to sellers is that the remediation of the property may be subject to what we commonly refer to as a “reopener.”  For example, if unknown contamination is found, remediation standards change, or the property is put to a new use that requires additional remediation, seller, as the original responsible party, may have a legal responsibility to address the reopener.  Given this risk, the parties should consider explicitly identifying which party will be responsible for these obligations via the contract of sale.  Also, since the property may not be in its final form to accommodate warehousing or another ultimate end use at the time of the sale, the contract should specify which party is responsible for any changes to the institutional and engineering controls and modifications to any permits that may be necessary to accommodate the redevelopment.  While these may seem like small details, specifically addressing these items adds clarity to the parties’ responsibilities, which can limit future disputes.
  • Self-Help Provisions – While sellers regularly endeavor to put themselves in the best position to avoid unknown liabilities that may arise in the future, it is important to plan for the worst-case scenario.  Thus, in the event that the purchaser does not live up to its contractual obligations, seller should consider including in its sales agreement a “self-help” provision that would allow it to return to the property to address any environmental situation.  Sometimes, when a purchaser defaults, it is better to take affirmative steps and limit any additional damage than to wait for the purchaser to address it. 
  • Insurance – In addition, or as a supplement, to the protections mentioned above, environmental insurance can be a good way to fill some of the risk gaps in specific transactions, especially for remediation of unknown environmental conditions and third-party bodily injury and property damages claims that may arise after the sale, and which are often difficult to investigate during acquisition.  Seller may want to purchase, or obligate its buyer to purchase, an environmental insurance policy to cover certain environmental liabilities related to the property.  While an insurance policy can be a good way to transfer risk (especially to a party outside the transaction), a note of caution – environmental policies have many exclusions and should be carefully negotiated and tailored to fit the specific needs of the property and transaction.  Experienced insurance brokers and environmental legal counsel can guide sellers through this process.

While sellers would love to sell a property and never look back, the reality is that long-term environmental risks and future liabilities cannot be completely eliminated.  As such, sellers should consider taking appropriate steps to limit their exposure and the potential for future disputes.  Each transaction is different and individual properties have their unique sets of issues and considerations, so it is important to engage experienced counsel to assist in addressing and mitigating these risks.

For more information, please contact the author Jaan M. Haus at jhaus@riker.com or any attorney in our Environmental Practice Group.

 

NJ Passes Statute Similar to the 2018 Federal EKRA

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For more information about this blog post, please contact Khaled J. Klele, Ryan M. Magee, Labinot Alexander Berlajolli, or Daniel J. Parziale.

The New Jersey Senate and Assembly recently passed A2280, which operates similar to the federal statute, Eliminating Kickbacks in Recovery Act (“EKRA”). Similar to EKRA, A2280 criminalizes certain payments for referral of patients to substance use disorder treatment facilities. Specifically, the bill makes it a crime of the fourth degree for a person to knowingly make or receive a payment or otherwise furnish or receive any fee, commission, or rebate to any person in connection with the referral of patients to substance use treatment disorder facilities regulated by the Division of Mental Health and Addiction Services in the Department of Human Services. The bill also provides that a person is guilty of a crime of the fourth degree if the person knowingly assists, conspires with, or urges any person to violate a provision of this bill.  In New Jersey, a crime of the fourth degree is generally punishable by a term of imprisonment up to 18 months, a fine of $10,000, or both.

Importantly, however, the bill does not make it a crime to make or receive a payment or otherwise furnish or receive any fee, commission, or rebate that does not vary based on: (1) the number of patients referred to a substance use disorder treatment facility; (2) the duration, level, volume, or nature of the substance use disorder treatment services provided to a patient; or (3) the amount of benefits provided by a carrier to a substance use disorder treatment facility for treatment or services provided to a patient.

Michigan Court Holds No Title Insurance Coverage for Reduced Easement

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The Michigan Court of Appeals recently found that a title insurance company was not required to reimburse its insured after the company negotiated a settlement that reduced the size of an easement used by the insured.  See Horwood v. N. Am. Title Ins. Co., 2020 WL 7635765 (Mich. Ct. App. Dec. 22, 2020).  Plaintiffs purchased the real property at issue in this action and obtained a title insurance policy from defendant.  A portion of the property was accessible only through an easement across a neighboring property owned by the Roses, and the legal description to plaintiffs’ property noted that it was “subject to an easement for a 33-foot roadway to be used in common with others.”  After plaintiffs purchased the property, however, the Roses denied that plaintiffs had an easement, and the parties began having a dispute.  The Roses claimed plaintiffs “illegally trespassed on their property, spun the tires of a pickup truck while holding a middle finger up, caused damage to the Roses’ septic field and trees, removed portions of the Roses’ fence, planted vegetation, and placed cameras on the property line facing the Roses’ house.”  The Roses then brought an action alleging quiet title, trespass, malicious destruction of property, conversion, negligence, invasion of privacy, intentional infliction of emotional distress, and injunctive relief.  Plaintiffs sought indemnification from defendant, but defendant determined it could only defend the quiet title and injunctive relief counts.  Defendant then negotiated a settlement with the Roses where the easement would remain but be reduced by 50%.  Plaintiffs signed the agreement, then brought this action against defendant alleging that (i) defendant was obligated to defend the other counts of the Roses’ complaint; and (ii) defendant was required to reimburse them for the reduced value of the easement.  The trial court granted defendant’s motion for summary judgment.

On appeal, the Court affirmed.  First, it found that only one of the policy’s covered risks applied to the dispute over the easement:  the risk that the insured does not have access to the property. In doing so, it rejected plaintiffs’ argument that other covered risks pertaining to land or title applied, holding that “[b]ecause the easement is not plaintiffs’ ‘land’ or ‘title’ for purposes of the title insurance policy . . . the covered risks identified by plaintiffs are inapplicable.”  Second, the Court found that the policy did not cover the causes of action other than quiet title and injunctive relief.  “Defendant did not assume the risk that plaintiffs would purposefully enter onto Rose property, spin the tires of their truck, stake off the easement, remove portions of the Roses’ fence, destroy portions of the Roses’ septic field and tree roots, and place trail cameras on the property line. Further, plaintiffs’ actions occurred after the policy date, which was also specifically exempted under the insurance policy.”  Third, the Court found that the policy did not insure the size of the easement, just the access to the property, and therefore that defendant did not have to reimburse plaintiffs for the reduced size.  Finally, the Court found that defendant did not force plaintiffs to enter the settlement agreement. “Under the terms of the insurance policy, defendant had the option to negotiate a settlement and withdraw representation if plaintiffs chose not to cooperate with the negotiated settlement agreement.”

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Andrew Raimondi at araimondi@riker.com.

Nursing Home and Pharmacy Litigation Update

Posted on by rd_admin

For more information about this blog post, please contact Khaled J. Klele, Ryan M. Magee, Labinot Alexander Berlajolli, or Daniel J. Parziale.

Nursing Homes May Seek Payment Based on Agreement to Apply for Medicaid

On November 23, 2020, the Appellate Division held that a law preventing a nursing home from requiring a third‑party guarantee of payment as a condition of admission does not bar a claim by a nursing home against the children of a resident who signed an admission agreement pledging to apply for Medicaid on the resident’s behalf. Pine Brook Care Ctr. v. D'Alessandro, A‑3197‑18T1, 2020 WL 6852609 (N.J. Super. Ct. App. Div. Nov. 23, 2020).

In this case, Pine Brook Care Center brought a collections matter against the daughters of resident Michael D’Alessandro, claiming Michael’s daughters were personally liable for sums related to his nursing home care. At the time of his admission, Michael’s daughters advised the nursing home that that they would not use a third-party service to apply for Medicaid benefits for Michael, but instead, agreed to file the application themselves. The daughters signed Michael’s admission agreement with the nursing home, but Michael was not approved for Medicaid benefits until two years after entering the nursing home. The nursing home sued for sums predating Michael’s Medicaid coverage, but the trial court granted the daughters’ motion for summary judgment, finding that a state law prohibiting the nursing home from requiring a third‑party guarantee of payment as a condition of admission precluded the nursing home’s claims.

The nursing home appealed to the Appellate Division. The Appellate Division reversed the trial court’s ruling. The Appellate Division held that the state law relied on by the trial court does not prohibit a nursing home from requiring that an individual enter into an agreement other than a guarantee of payment, and that the statute does not immunize individuals from personal liability based on contractual obligations undertaken that are not proscribed by law or that are founded on alleged tortious conduct.

The Appellate Division’s opinion can be found here.

SCOTUS Says That States May Regulate Pharmacy Benefit Managers

The Supreme Court of the United States unanimously ruled that states can regulate pharmacy benefit managers (“PBMs”). The Court upheld an Arkansas state law that governed reimbursement rates that PBMs must pay to pharmacies.

Specifically, the Arkansas state law requires PBMs to reimburse the pharmacies at or above their wholesale costs paid for generic drugs, and also prevents them from paying their own drug stores more than what is paid to other pharmacies. Arkansas (with 45 other states) argued that the PBMs have been unduly profiting from the spread between what they pay pharmacies and what they charge health plans for drugs. The Pharmaceutical Care Management Association – the trade group for PBMs such as CVS/Caremark, OptumRX, and Express Scripts – argued that the federal Employee Retirement Income Security Act of 1974 preempted state laws such as the one Arkansas passed in 2015.

The Supreme Court, however, found that the Arkansas state law did not preempt federal law, because it did not regulate benefits, drug prices, and plan administration, or discriminate among those covered.

Most Favored Nation Rule Blocked

On November 27, 2020, the Center for Medicare & Medicare Services (“CMS”) published its Most Favored Nation (“MFN”) Model Interim Final Rule that sought to lower the amount paid for 50 high‑cost Medicare Part B drugs to the lowest price that drug manufacturers receive in similar countries. The MFN Model was supposed to operate beginning January 1, 2021 and continue for seven years until December 31, 2027. The rule, however, was blocked by a federal court in Maryland, holding that CMS did not follow the Administrative Procedure Act in issuing the rule. The federal court’s ruling is only a temporary restraint, so the new Biden Administration will have to try to uphold the rule or revoke it. The case is Association of Community Cancer Centers, et al. v. Alex M. Azar II, et al., Case No. 8:20‑cv‑03531, in the U.S. District Court for the District of Maryland, and the Federal Court’s Order and Memorandum can be found here.

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