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Federal Regulatory Update

Month: February 2023

Federal Regulatory Update

Posted on by Christie Bowness

U.S. Agencies Make First Mental Health Parity and Addiction Equity Act Report to Congress

The U.S. Department of Health and Human Services (“HHS”), Department of Labor (“DOL”), and Department of the Treasury (“USDT”) issued their 2022 Report to Congress on the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (“MHPAEA”) to Congress. Significantly, the report indicates that health plans and health insurance issuers are failing to deliver parity for mental health and substance-use disorder benefits to their beneficiaries. Additionally, the report highlighted the departments' recent emphasis on greater MHPAEA enforcement, guidance to correct those failures, and recommendations for strengthening MHPAEA consumer protections and enhancing the departments’ enforcement abilities.

Significantly, the report outlines the departments' efforts to interpret, implement and enforce the amendments to MHPAEA made by the Consolidated Appropriations Act of 2021. The departments previously issued multiple FAQs and factsheets providing in-depth discussion of the most recent amendments made to the MHPAEA.

The departments expect to focus future enforcement efforts on addressing the following non-quantitative treatment limitations (“NQTLs”):

  1. Prior authorization requirements for in-network and out-of-network inpatient services;
  2. Concurrent review for in-network and out-of-network inpatient and outpatient services;
  3. Standards for provider admission to participate in a network, including reimbursement rates; and
  4. Out-of-network reimbursement rates (plan methods for determining usual, customary, and reasonable charges).

Annual MHPAEA reports to Congress were mandated under the Consolidated Appropriations Act of 2021. The 2022 MHPAEA report to Congress is the first such report generated by the departments.

FDA Permission for Interchangeable Diabetic Drugs Grants Pharmacists Leeway in Diabetic Treatment

The price of insulin has routinely been center stage as both the drug’s price and the number of patients requiring it continue to rise. Most recently, under the Inflation Reduction Act, the price of insulin was capped at $35 for a month’s supply of insulin for Medicare recipients. The insulin price cap for Medicare Part D beneficiaries became effective on January 1, 2023 while the price cap for Medicare Part B beneficiaries takes effect July 1, 2023. The United States Department of Health and Human Services (“HHS”) anticipates these caps will lead to significant costs savings for beneficiaries.

However, rulemaking by the U.S. Food and Drug Administration (“FDA”) should not be overlooked for its impact on improving access to diabetic treatment and reducing costs. Since July 2021, the FDA has permitted pharmacists to substitute “biosimilar” drugs in place of insulin, granting pharmacists the discretion to replace insulin with an FDA-approved drug that provides a similar therapeutic effect, and the FDA continues to add to that list. Under FDA rules, biosimilar drugs meeting FDA criteria for interchangeability may be substituted for the reference drug without the intervention of the prescriber. The FDA permits such substitution decisions to be made by the pharmacist, a practice commonly called “pharmacy-level substitution,” which is similar to how generic drugs are substituted for brand name drugs unless otherwise dictated by the provider.

Pharmacy-level substitutions grant pharmacists additional leeway in helping their diabetic patient population navigate treatment cost issues. As diabetic treatment costs remain a hot button issue among policy makers, diabetic patients and their providers should remain cognizant of the expanded role pharmacists may play in addressing such concerns. Providers and patients may review available interchangeable biosimilar drugs through the FDA’s Purple Book database.

Comments Due on FTC's Non-compete Ban

The public comments due to the FTC’s proposed rule to ban non-compete provisions are due March 10, 2023.  The U.S. Federal Trade Commission (“FTC”) proposed to ban and remove non-compete clauses from U.S. employment contracts. The FTC is basing the proposed rulemaking on Section 5 of the Federal Trade Commission Act, which both declares “unfair methods of competition” to be unlawful and grants the FTC the power to prevent the use of unfair methods of competition from “affecting commerce.”

Under the proposed rule (88 FR 3482), the FTC would add a new chapter to its regulations, broadly defining non-compete clauses as an unfair method of competition and making it unlawful for employers to include them in employment contracts. Moreover, the proposed rule would affirmatively require employers whose employment contracts contain non-compete clauses to rescind such clauses and provide notice to their employees that their contracts’ non-compete clauses have been rescinded and are no longer enforceable. The compliance date by which existing non-compete clauses must be rescinded and after which new non-compete clauses will be unlawful will be 180 days after the publication of the final rule. Additionally, the proposed rule specifically would provide that it supersedes any state law which offers workers less protections.

The proposed rule contains exceptions. Specifically, the proposed rule would permit non-compete clauses that are (i) entered into by a person who is selling a business entity or otherwise disposing of all of the person’s ownership interest in the business entity, and (ii) by a person who is selling all or substantially all of a business entity’s operating assets. Moreover, non-compete clauses would be permitted when the person restricted by the non-compete clause is an owner, member, or partner holding at least a 25 percent ownership interest in the business entity.

A fact sheet and the full text of the proposed rule may be accessed here.

New Jersey Legislative Update

Posted on by Christie Bowness

Below are recent statutes that have been approved and are now law in the State of New Jersey that impact the healthcare industry in New Jersey including new requirements on embryo storage facilities and a reduction in the amount of fees certain providers can charge for copying medical records.

New Jersey Approves Bill Requiring Embryo Storage Facilities to Comply with HIPAA and Federal Health Information Reporting Requirements

Approved Bill A2021 amends N.J.S.A 26:2A-25 to require, as a condition of continued or new licensure, that embryo storage facilities record or report the health information of a patient in a manner that is compliant with the Health Insurance Portability and Accountability Act of 1996 and other requirements adopted by the U.S. Department of Health and Human Services with respect to functions, technological capabilities, and security features within the program.

Bill Amends EMS and Mobile Integrated Health Program Requirements

The New Jersey Legislature approved Bill A4107 amending N.J.S.A 26:2K-7-17. The bill made various changes to emergency medical services (“EMS”), established the position of State Emergency Medical Services Medical Director in the Office of Emergency Medical Services in the Department of Health (“DOH”), and required the DOH to establish a mobile integrated health program.

Under the bill, the Commissioner of Health is required to appoint a State EMS Medical Director to the Office of Emergency Medical Services and the bill further sets forth the requirements for the role. The bill further provides that the existing mobile intensive care advisory council must:

(1) advise the DOH on all matters of advanced life support;

(2) directly provide recommendations to the commissioner for clinical updates;

(3) annually review advanced life support scope of practice;

(4) be chaired by the State Emergency Medical Services Medical Director;

(5) establish new by-laws; and

(6) select a vice-chair from among its members.

Additionally, the bill amends section 2 of N.J.S.A 26:2K-8 to provide that a mobile intensive care paramedic must obtain licensure from the commissioner to provide advanced life support, instead of certification, as is currently required under existing law.

New Jersey Reduces Fees for Medical Record Copies from Hospitals and Health Care Professionals

The New Jersey Legislature approved Bill S2253 amending N.J.S.A. 26:2H-5n. The bill modifies the limits to the fees for copies of medical and billing records chargeable to patients and the legally authorized representatives of patients by hospitals and health care professionals licensed by the Board of Medical Examiners by reducing the current $200 cap on per-page fees down to $50. The bill further provides that the revised cap applies regardless of the method used to store the record (e.g. microfilm or microfiche). The current requirement that no search fee may be charged to a patient who is requesting the patient's own record has not been changed by this bill.

New Jersey Modifies Medicaid Eligibility Redetermination Requirements

The New Jersey Legislature approved Bill S2118 which provides for annual Medicaid eligibility redeterminations. Specifically, the bill requires the following actions:

  1. The Division of Medical Assistance and Health Services in the Department of Human Services or a county welfare agency must conduct eligibility redeterminations for Medicaid and NJ FamilyCare beneficiaries no less than 365 days following the date of a beneficiary’s initial enrollment in, or the date of the beneficiary’s last eligibility redetermination for, Medicaid or NJ FamilyCare.
  2. The Commissioner of Human Services must determine the means and method by which the annual eligibility redetermination is to be conducted.
  3. The Commissioner must provide for 12 months of continuous Medicaid eligibility for adult beneficiary groups, without imposing reporting requirements for changes of income or resources and regardless of the delivery system through which the beneficiary receives benefits.

Prior to this bill, New Jersey law did not provide for how often the Medicaid and NJ FamilyCare eligibility redeterminations must occur.

Maryland Court Illustrates the Unique Challenges of RESPA Class Actions

Posted on by Christie Bowness

In Morgan v. Caliber Home Loans, Inc., 2022 U.S. Dist. LEXIS 208704 (D. Md., Nov. 16, 2022, No. 8:19-cv-02797-PX), the United States District Court for the District of Maryland (“the Court”) issued a November 16, 2022 opinion reaffirming fundamental principles of the Federal Real Estate Settlement Procedures Act (“RESPA”), and further demonstrating that the individualized nature of a servicer’s response to a borrower’s qualified written request (“QWR”) under RESPA is often fatal to class claims.

This matter concerned two Plaintiffs, Rogers Morgan (“Morgan”) and Patrice Johnson (“Johnson”).  Morgan had sent a letter to Defendant Caliber Home Loans, Inc. (“Defendant”), alleging that it had erroneously listed various debts on his credit report and requesting that it cease doing so.  Upon receiving this letter, Defendant continued to report these same debts unchanged for at least two months.  Johnson also sent Defendant a letter, challenging Defendant’s denial of her request for a loan modification and asking that Defendant cease reporting what she alleged to be negative credit information for sixty days.  Upon receipt, Defendant declined to consider the loan denial and continued reporting her credit information unchanged.

Based on these events, Morgan and Johnson (collectively “Plaintiffs”) brought suit against Defendant, alleging it had violated RESPA’s sections 12 U.S.C § 2605(e)(3) and (e)(1)(B), which requires loan servicers who receive a QWR disputing an issue with the servicing of a borrower’s loan to halt communicating any adverse credit information related to that payment for sixty days.  To qualify as a QWR, correspondence must allow the loan servicer to identify the name and account of the borrower and: (1) provide a statement of the reasons the borrower believes their account is in error; or (2) provide sufficient detail to the servicer regarding any other information sought by the borrower.  Servicers are also barred from reporting, for sixty days, any adverse information regarding payments in which a QWR asserts there has been an error.  12 CFR §§ 1024.35(a), 1024.35(i)(1).

Plaintiffs contended that their letters to Defendant constituted QWRs and that Defendant had violated the law by continuing to report adverse credit information after receiving the QWRs.  Plaintiffs also claimed they represented a putative class that was challenging Defendant’s “policy and practice” of continuing to report negative credit information after having received QWRs.  Defendant moved to dismiss the suit, arguing that Plaintiffs’ correspondence did not qualify as a QWR and that all claims, including the class claims, thus necessitated dismissal.  The Court agreed and dismissed Plaintiffs’ suit.

Plaintiffs appealed the Court’s dismissal to the Fourth Circuit, which affirmed the dismissal of Johnson’s claims, holding that she had never submitted a valid QWR because “correspondence limited to the dispute of contractual issues that do not relate to the servicing of the loan, such as loan modification applications, do not qualify as QWRs.”  However, the Fourth Circuit held that Morgan’s letter did constitute a QWR, as it “provided sufficient detail regarding the alleged payment servicing error.”  The matter was then remanded back to the Court for further proceedings.

On remand, Defendant moved to strike any remaining class allegations related to Morgan’s claims, contending that a proposed class was no longer ascertainable.  The Court agreed, noting that Plaintiffs’ Complaint identified the relevant class as “all residential loan borrowers for whom [Defendant] received a QWR . . . in the three years immediately preceding” the action.  The Court held that as determining “whether any particular correspondence qualifies as a QWR rests on the information included within it,” using this class definition would impermissibly require “individual examination of each correspondence”–in effect, “mini-trials” on each correspondence–and thus the class certification must fail, as Morgan had failed to provide an “administratively feasible way to proceed without a fact-intensive inquiry that would defeat the purpose of class certification.”

Morgan attempted to oppose this by seeking to “narrow the class definition to include only [] borrowers” whom Defendant had sent a letter “in a form substantially similar” to one Morgan had received from Defendant acknowledging receipt of his original correspondence.  However, the Court reviewed the letter Morgan had received, noting that it did not indicate it was only provided to parties who had sent a valid QWR, failed to indicate the purpose of the correspondence that had been received, and consisted only of a generic message that it was being sent “in accordance” with RESPA.  Thus, due to its “generic nature . . . it alone d[id] not make the class ascertainable.”  Indeed, the Court held that to “define the class as all customers who received [this] letter . . . [would] render[] the class definition too broad for class-wide treatment.”

Finally, the Court also held that Morgan’s class allegations had failed to demonstrate the existence of a singular unifying class-wide legal question, as while he had alleged that Defendant “maintained a practice and ‘policy’ of continued reporting of adverse and disputed credit information after receiving a QWR,” such allegation could not, alone, provide a “‘resolution of the litigation’ as to the class.”  Instead, for each purported class member, the Court will still be required to conduct an individual analysis to determine whether Defendant had “continued reporting information about a payment that was disputed in a QWR,” noting that this added “layer of transaction-specific inquiry–examining the content of the credit report and comparing it with the qualified written request–would dominate the litigation.”  Therefore, because “individual factual determinations” would still constitute the predominant portion of the action under this question, Morgan had failed to demonstrate that “a predominant legal question favors class-wide treatment.”

The Court thus granted Defendant’s motion to strike the class allegations, but did so without prejudice in order to allow Morgan an opportunity to “seek leave to amend the Complaint . . . if possible.”

Takeaways

This decision mainly serves to highlight the unique difficulties inherent in certifying a potential RESPA class action, as each potential member’s QWR correspondence is itself the primary form of evidence justifying their inclusion in the suit, yet a court is constrained from examining or relying on that correspondence.  It also reaffirms the prior settled holding that a valid QWR cannot consist of anything unrelated to the actual servicing of a loan itself, as even inquiries regarding loan-specific issues such as modifications, requests, or denials will not fall within the ambit of a QWR.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Kevin Hakansson at khakansson@riker.com, James Mazewski at jmazewski@riker.com or Kori Pruett at kpruett@riker.com.

11th Circuit Holds No Modification for Principal Residence Mortgage in Bankruptcy

Posted on by Jessica Civetta

In the United States Court of Appeals for the Eleventh Circuit’s (“the Court”) recently issued decision In re Bozeman, 2023 U.S. App. LEXIS 545 (11th Cir., Jan. 10, 2023, No. 21-10987), the Court struck a decisive victory in favor of Mortgage lenders’ rights, holding that in a battle for supremacy between anti-modification protections and a court-confirmed bankruptcy plan, a lender’s rights will always prevail as the victor.

This matter begins in 2015, when Defendant Judith Bozeman (“Defendant”) mortgaged her home to Plaintiff Mortgage Corporation of the South (“MCS”) in exchange for a $14,000 loan, granting MCS a security interest in her home as collateral.  In 2016, Defendant filed for Chapter 13 bankruptcy, with MCS filing a proof of claim for $6,817.42 in arrearages–importantly, this proof of claim explicitly stated “arrearage only” and did “not include the amount outstanding on [Defendant]’s loan after payment of the arrearages.”

Defendant later submitted a proposed bankruptcy payment plan (“the Plan”) that listed MCS’s debt under a section which provided that creditors’ claims were to be paid pursuant to “the terms and conditions . . . required [by] [11 U.S.C.] § 1325(a)(5).”  The Bankruptcy Court reviewed the Plan and held it to be a “full-payment plan,” as it “provided for payment of the full balance of [all] identified debts within the life of the Chapter 13 plan.”  This meant that Defendant’s entire debt to MCS would be considered fully paid when all payments owed under the Plan were completed.  MCS never objected to this categorization of the Plan nor filed an amended proof of claim.

In May 2019, the appointed bankruptcy trustee filed a notice that Defendant had completed her payments owed under the Plan, indicating that Defendant had paid $6,817.42, which constituted the “entire mortgage debt” owed to MCS.  After receiving this notice MCS objected, advising that Defendant had paid “nothing” towards the actual balance due on the mortgage, and thus seeking to lift the bankruptcy stay and foreclose on Defendant’s home.  Defendant contested MCS’s sought-after relief, asserting that she had “paid MCS everything it had asked for in its original proof of claim” and had thus “satisfied the lien MCS held against her property.”  The Bankruptcy Court agreed with Defendant’s contentions and held MCS’s lien satisfied.  MCS appealed this holding, with the District Court affirming the Bankruptcy Court, and the matter then proceeding upwards to the Court for a higher-level appellate review.

On appeal before the Court was only one question–“whether [Defendant]’s payoff of [the] Plan entitled her to satisfaction of MCS’s lien on her home.”  This ultimate determination consisted of two component parts, the first being an assessment of whether the anti-modification provision present in the Plan barred satisfaction.  The Court reviewed the subject provision, which stated in relevant part that the:

[P]lan may—(2) modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence.

Thus, by its plain language, the provision prohibited the modification of “rights like MCS’s,” as the mortgage loan fell squarely within its scope.  However, the Court observed that the application of this provision also necessitated consideration of 11 U.S.C. § 1322–which protects “from modification the rights of homestead-mortgage lenders as they concern those lenders’ secured interests in [a] debtor’s principal residence, when the final original payment schedule does not expire before the [payment] plan period ends.”  More specifically, the Court recognized the nuance that, as provided in 11 U.S.C. § 1322(b)(2), the Bankruptcy Code “protects ‘the rights’ of homestead-mortgagees, as opposed to ‘claims.’”

The Court identified that MCS’s “rights” were reflected in the language of the mortgage instruments, which were indisputably valid and enforceable, as Defendant had executed a promissory note and accompanying mortgage which gave MCS “the right to foreclose” on her home if she defaulted on her obligation to “pay MCS the $14,000 she borrowed” plus interest.  The Court held that these were “rights”–not claims–“that were ‘bargained for by the mortgagor and the mortgagee,’ and [were] [thus] rights protected from modification by § 1322(b)(2).”  The Court explained that in the event MCS’s lien were to be released, as had been done below, MCS “would have no mechanism to collect the remaining balance” it was owed, an outcome which the Code’s “protections for the rights of primary-residential mortgage holders forbid[s].”

The anti-modification provision accordingly barred the lower courts’ holdings, as while the Plan stated that Defendant’s payment “of the full balance owed to MCS”–which was the arrearage value only–would “satisfy the full scope of [Defendant’s] obligation,” this language did “not square with controlling legal authority” as the “critical inquiry for [] anti-modification provision[s] involves the ‘rights of holders.’”  Thus, while it was true “that the sole timely proof of claim that MCS filed during the bankruptcy proceeding sought only $6,817.42 in arrears, nothing about that claim (or the absence of any additional claim) changed the fact that MCS was entitled under the terms of the mortgage . . . to receive full payment on the balance of its loan”–i.e., receipt of full payment was MCS’s un-voidable right

The Court thus overturned both the Bankruptcy and District Courts’ holdings, as it was “not persuaded that MCS’s arrearages-only claim changed the nature of its rights,” as even though Defendant had “paid MCS’s full arrearages claim through the Plan, MCS retain[ed] the right to receive the entire balance” as the Code “preclude[d] the Plan from modifying the amount that MCS was entitled to under the primary residential mortgage”–i.e., it precluded the modification of MCS’s rights.

The Court also considered the secondary question of whether the Bankruptcy Court’s confirmation of the Plan overrode the anti-modification provision and required the release of MCS’s lien.  While the Court acknowledged the general “importance of [the] finality of confirmed [payment] plans,” that the Plan was “valid and enforceable” by virtue of its confirmation, and that “MCS had ample opportunity to participate in the underlying proceeding and file a timely amended claim with the full balance it was owed” or object to the proposed Plan, these considerations and errors did “not change the fact that the [Code] still affords special protections to homestead-mortgage holders’ rights.”

Accordingly, the Court was required to “hold that MCS’s lien survived [Defendant]’s bankruptcy,” as based on the “terms of the mortgage . . . MCS had the substantive right to collect the full balance it lent to [Defendant] as well as the right to hold its lien on the property as collateral until the debt had been paid.”  Further, “under the anti-modification provision, [the] Plan could not legally modify those rights.”  The Court thus held that “because releasing MCS’s lien before MCS receives full payment would impermissibly modify MCS’s rights, MCS’s lien must survive the bankruptcy proceeding,” and while “it [was] too late to alter the Plan, it [was] not too late for MCS to invoke the Code’s special protection for homestead mortgagees.”

Based on the above reasoning, the Court ruled that the “release of MCS’s lien before its loan had been repaid in full violate[d] § 1322(b)(2)’s anti-modification clause” and “[u]ntil MCS is paid in full, its lien remains intact.”

Takeaways

This Opinion reaffirms the significant strength of a mortgage lender’s right to receive the full value of its mortgage loan on a debtor’s principal residence, providing that this right will survive even where the lender failed to protect its rights by submitting incorrect proofs of claim and failing to object to proposed payment plans in a timely manner, and will still prevail even over a court’s approval of a contrary payment plan.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Kevin Hakansson at khakansson@riker.com, James Mazewski at jmazewski@riker.com or Kori Pruett at kpruett@riker.com.

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