Issue Background

Legal

September 2015 Legal Update:

Constitutionality of the Affidavit of Merit Statute

In June MSNJ filed an amicus brief with the New Jersey Supreme Court in opposition to the attempt of the plaintiff to raise the constitutionality of the affidavit of merit statute. The affidavit of merit statute is part of hard fought tort reform legislation; it is an MSNJ priority to protect the affidavit of merit statute’s requirements.

Meehan v. Antonellis is a dental malpractice case and may not even implicate the statute’s requirement for medical malpractice cases. However, the issue of constitutionality was raised for the first time before the state supreme court and was too important to be ignored. MSNJ’s brief objects to the high court’s consideration on procedural grounds. We also defend the constitutionality of the statute’s requirements and the dismissal, with prejudice, of cases that fail to meet those requirements.

Tax Court Finds Non-Profit Hospital Not Exempt from Property Tax

In a case of first impression by the Tax Court of New Jersey, Morristown Memorial Hospital has been found not to be exempt from property tax except for its auditorium, fitness center and garage. After exhaustive fact- finding and historical analysis, the tax court explicitly requested that the Legislature become involved in the issues presented because it could not find justification for property tax exemption based on the evidence presented and the way that modern hospitals operate.

The decision has far reaching financial ramifications for hospitals in that this case found their non-profit and for-profit activities too intertwined to allow for an allocation of exempt and non-exempt property. At its core, the court determined that the hospital had not met its burden of proof that the use of the property was not for profit. In the court’s view, the for-profit activities were not “evident, readily ascertainable, and separately accountable for taxing purposes” but rather entangled. The tax court evaluated executive compensation, affiliations with non-profit and for-profit organizations, and relationships with for-profit physicians.

The tax court analyzed each hospital/physician relationship and found three types: employed; voluntary; and exclusive contract physicians. Each type was found to violate the prohibition against profit test in some way. Employed physician contracts (pediatricians, OB/GYNs, surgeons) with incentives were found to be for “a profit-making purpose.” Voluntary and exclusive contract physicians were found to be with “private, for-profit doctors that are not employed” by the hospital. The non-employed physicians were also found to use the hospital to generate private medical bills to patients with the money going directly to the physicians. Because all three types of physicians had full range of the hospital, the tax court found that it could not identify areas of the hospital that should be exempt from property taxation. In other words, since the physicians operated on a for-profit basis and were subject to taxation, the areas where they practiced in the hospital also must be subject to taxation. Captive hospital owned professional corporations—for profit private physician practices, even though operating at a loss, were also found to benefit from the hospital and promote a for-profit purpose.

The decision is being appealed, may be settled, but will certainly cause legislation to be passed. In the interim, hospitals are left with a high, if not impossible, burden to show how their operations can be delineated to allow some allocation of taxed and untaxed property. Alternatively, hospitals may continue to make peace with their municipalities through negotiated contributions to the property tax coffers.

ERISA Assignment of Benefits Case Still Pending before 3d Circuit Court of Appeals

MSNJ filed an amicus brief in North Jersey Spine & Brain v. Aetna in the 3d Circuit Court of Appeals to support our physician members who were denied standing in a lawsuit to protect their right to collect out of network fees. At issue is whether the assignment of benefits was sufficient to allow the physicians to sue and whether any particular “magic words” must be used to confer standing to sue over fees for medical services rendered to patients with self-insured ERISA governed plans. A decision is long overdue.

While 2d Circuit Court of Appeals cases are not binding on the 3d Circuit, we hope that our federal appellate court will not be influenced by Rojas v. Cigna Health & Life Insurance Co. In that recent case the court found that terminated physicians did not have the right to sue under ERISA for an alleged violation of ERISA’s anti-retaliation provision. The court found that the terminated physicians were not ERISA beneficiaries by virtue of their in-network status and their right to payment. The AMA and our sister society, MSSNY, are seeking reconsideration of the decision. The case is distinguishable from the situation in our pending case, but contains broad language that is troublesome for physicians seeking standing to sue for payments under ERISA health plans.

US Supreme Court Finds Subsidies Available to Consumers who Purchase on Federally Operated Exchanges

In June, the United States Supreme Court ruled in King v. Burwell that subsidies would be available to all who purchased health insurance on exchanges whether or not the exchange was federally operated. The opinion looked at the overarching goals and objectives of the Affordable Care Act in reaching this decision. A contrary decision would have seriously undermined the goal of affordability and the federal mandate for individuals to purchase insurance.

 

July 2015 Legal Update:

Constitutional Challenge to the Affidavit of Merit Statute

The New Jersey Association for Justice (NJAJ) recently filed a motion to appear as amicus in a dental malpractice case pending before the New Jersey Supreme Court. NJAJ asserts that the affidavit of merit statute is unconstitutional, violating the separate of powers doctrine. This was anticipated.  MSNJ opposed the motion and filed a brief in support of the affidavit of merit statute which is an important element of tort reform, advocated by MSNJ, and that has curtailed the filing of claims that are without merit. MSNJ will continue to advocate on this important issue and will keep members apprised of developments.

US Supreme Court to Decide, ACA Subsidies are Available in Federally Run Exchanges

On June 25 the United States Supreme Court held that Affordable Care Act (ACA) subsidies will be available for consumers who purchase healthcare insurance from Exchanges run by the federal government.  The opinion was authored by the Chief Justice; Justices Scalia, Thomas, and Alito dissented. The majority opinion considered the context and structure of the ACA and found that coverage would not occur in a meaningful way if subsidies were not available in federally run Exchanges. In addition, the individual insurance market in these Exchanges would be destabilized, a result that Congress could not have intended.  Read MSNJ's statement on the opinion. Read the SCOTUS blog. Read HHS's statement.

 

June 2015 Legal Update:

New Jersey Supreme Court to Decide Whether Malpractice Carrier Must Provide Statutory Coverage Where the Licensee Made False Statements on the Application

The New Jersey Supreme Court will soon determine whether a medical malpractice carrier must provide some coverage for a podiatrist with patients in New Jersey who made false statements on his application for insurance. In DeMarco v. Stoddard the appellate division required the carrier to provide at least the statutory minimum amount of coverage to protect the injured New Jersey patient. The state's highest court will soon rule on the carrier's appeal from that decision. At issue was whether 51% of the chiropractor’s patients were from Rhode Island when he applied to the Medical Malpractice Joint Underwriting Association of Rhode Island. Read more.

US Supreme Court Protects Physicians from False Claims Suits Filed after Six Years

Physicians will benefit from the recent United Supreme Court decision in KBR v. US of America Ex Relator Benjamin Carter that upheld the six-year limitation on damage claims under the False Claims Act. Physicians who provide services under Medicare and other federal healthcare programs will not face the possibility of civil lawsuits against them for an unlimited period of time, including qui tam suits brought by individuals on behalf of the government. Thanks to the Litigation Center of the AMA and State Medical Societies for successfully pointing out to the high court in an amicus brief that if the statute of limitations were removed, physicians could be "forced to defend against stale, repetitive and frequently meritless claims." Read more.

U.S. Supreme Court Rules that Providers May Not Sue for Increased Medicaid Reimbursement Rates

In March a divided U.S. Supreme Court issued an opinion in Armstrong v. Exceptional Child Center, Inc., which was much-anticipated in the health care world. The Court held that individual healthcare providers cannot sue states under the Medicaid Act to challenge how states set reimbursement rates in their Medicaid programs. A provision of the Act requires states to ensure "that payments are consistent with efficiency, economy, and quality of care and are sufficient to enlist enough providers so that care and services are available" to beneficiaries to the same extent they are available to the general public. The high court found that there is no private right of action to enforce under the Supremacy Clause on the Constitution. The Court noted that the sole legal remedy for a state's failure to comply with Medicaid's requirements is for the Secretary of Health & Human Services to withhold funds. Other avenues to ensure enforcement of the “equal access” provision must be explored in states, like New Jersey, where reimbursement rates are woefully inadequate to ensure Medicaid beneficiaries' access to care.

 

March 5, 2015 Legal Update:

NJ Supreme Court Agrees with MSNJ: Undergoing Methadone Treatment While Pregnant is Not Child Abuse & Neglect

The New Jersey Supreme Court ruled on December 22, 2014 that undergoing methadone treatment in a bona fide treatment program prescribed by a licensed professional during pregnancy does not amount to child abuse and neglect. MSNJ joined in an amicus brief filed with the high court espousing this position. The case was filed by the New Jersey Division of Youth and Family Services against a mother who had received medically supervised methadone treatment during her pregnancy. The New Jersey Supreme Court rejected the appellate division's application of strict liability principles without considering the reasonableness of the mother's conduct. The court remanded for further consideration of whether there were grounds for child abuse including, ironically, the mother's delay in beginning treatment.

MSNJ and other amici argued that methadone treatment is long-established, scientifically, as medically appropriate and that a finding of child abuse based solely on methadone treatment would deter pregnant women from seeking this medically appropriate treatment.

Anti-trust Immunity for State Medical Boards Requires Active State Supervision--

On February 25 the U.S. Supreme Court held in North Carolina State Board of Dental Examiners v. FTC that state boards on which a "controlling number of decision-makers" are "active market participants" in the occupation that they regulate must be actively supervised by the state for the boards to invoke state action antitrust immunity. The decision will have an impact on medical boards across the country and raises more questions than it answers. Justice Alito's dissent predicts a morass and confusion. He and two other dissenting justices believe that the boards are state agencies vested with traditional regulatory authority under the states' sovereign police powers to protect the health, safety and welfare of their citizens.

In New Jersey, the Governor appoints members of the Board of Medical Examiners (BME). Twelve of the 21 members are physicians. However, there are often vacancies on the board and it is not clear if the "controlling number of decision makers" would be based on structure or the number of seats currently occupied or would be evaluated on a case-by-case basis. The decision clearly avoided using a majority of board members as the standard. In addition, "active market participant" is not defined which raises the question of whether a retired or non-practicing physician would be counted. Assuming that a majority would constitute a "controlling number" then the state would have to demonstrate active supervision of the boards. This would require analysis of whether the state's review mechanisms provide a realistic assurance of whether the board's anticompetitive conduct promotes state policy rather than the board's self-interests. New Jersey’s Uniform Enforcement Act may provide the structural requirements to demonstrate state supervision. The state is currently investigating whether there adequate review mechanisms in place to satisfy the "active supervision" requirement. We have reached out to the DAG for the BME to discuss the state’s review mechanisms that are in place.


Hospital Must Divest Merged Physician Practice

An appellate court has affirmed a lower federal court decision that requires St. Luke’s Hospital in Idaho to divest its acquisition of a significant physician practice. The 9th Circuit Court of Appeals in St. Alphonsus Medical Center v. St. Luke’s Health System found that the hospital and physician practice merger might result in better patient care but was satisfied that the merger would result in less competition in the marketplace. The appellate court recognized the laudable goal of better efficiencies, but found that efficiencies alone were not sufficient to overcome the anticompetitive impact of the merger. Of importance was the court’s opinion that the efficiencies might have been achieved without the merger and loss of the competitive practice. Also important was the court’s belief that the merged entity would be able to achieve higher reimbursement from insurers. The case will have a significant impact on hospital and physician practice merger activity.

NJ Committee on Rules of Evidence Unresponsive on Scientific Evidence Rule The New Jersey Committee on the Rules of Evidence has decided not to heed the concerns of stakeholders to improve its rule on the admissibility of scientific evidence. MSNJ, and a number of other stakeholders, urged the NJ Supreme Court and its Committee on the Rules of Evidence to make the state court rule consistent with the federal "Daubert" rule. We believe that the rule is necessary for medical cases to ensure that scientific evidence introduced at trial is reliable. With other stakeholders, we expressed the concern that New Jersey is a destination for mass lawsuits because its rules of evidence are less strict than the federal rule and those of most state courts. This is disappointing; there is more work to do.

Affordable Care Update: Subsidies at Issue--- the Lynchpin of Affordable Care

The United States Supreme Court will hear King v. Burwell a case that addresses subsidies under the Affordable Care Act (ACA). At issue is whether subsidies are available to consumers who procure insurance on exchanges that are run by the federal government rather than by the state. Many states, like New Jersey, have not established their own exchanges. The Administration has taken the position that purchasers of health insurance on exchanges, whether administered by the state or the federal government, are entitled to the subsidies even though the language in the ACA is limited to those enrolled "through an exchange established by the state." If subsidies are not available to those who purchase on the federally administered exchanges many may find that insurance is no longer affordable. The case will be heard in March and a decision is expected in June.

 

December 8, 2014 Legal Update:

New Jersey Courts Dismiss Medical Malpractices Cases based on Tort Reform Legislation
As we seek legislation to close a loop-hole in the Affidavit of Merit statute, it is important to remember that MSNJ already achieved important tort reform that is now being consistently and correctly interpreted by the appellate courts in New Jersey. The last report noted dismissals based on the “same specialty” expert requirement affirmed in Nicholas v. Mynster. (MSNJ filed an amicus brief in that matter.) This report will focus on cases being dismissed for failure to comply with the Affidavit of Merit statute in medical malpractice cases. Of note are two recent per curiam opinions. (Courts often rule per curiam when the decision is obvious.)  In Levental v. Kirschenbaum, the Appellate Division affirmed the trial court’s dismissal of a negligence case against an orthopedic surgeon where the plaintiff failed to comply with the requirements of the affidavit of merit statute, including failure to timely and sufficiently file. In Nunez v. St. Mary’s Hospital, the Appellate Division affirmed the dismissal of an action against a physician and certified nurse midwife, when the plaintiffs’ attorney later named these defendants in the pending hospital suit, but did not timely comply with the affidavit of merit statute as to the new defendants. “Attorney inadvertence” was deemed an insufficient explanation for the failure to strictly comply with the statute.

Scope of Practice & Antitrust—N.C. State Board Dental Examiner Case

The United States Supreme Court heard argument in the case of North Carolina State Board of Dental Examiners v. Federal Trade Commission on October 8, 2014. At issue is a decision by the state dental examiners that teeth whitening is within the dentists' scope of practice (which includes the removal of stains, accretions, and deposits on teeth), and the board's issuance of "cease and desist" orders to non-dentists performing tooth whitening in malls and spas. The Federal Trade Commission has taken the position that the dental board's action was not protected activity from antitrust scrutiny under the "state action" doctrine. The federal court of appeals agreed finding that: the majority of the board was practicing dentists; the board should be considered an organization of private individuals; and, the state dental board could not restrain trade through its cease and desist orders.  While the FTC did not determine whether tooth whitening is the practice of dentistry, this case has significant ramifications for medical boards and their authority to enforce scope of practice determinations. It also demonstrates that the FTC will take a hard look at whether board activity is anti-competitive.  MSNJ and the AMA believe that medical boards have the authority to regulate their professions. The AMA Litigation Center filed briefs in support of the dental board. Read more

MSNJ Urges Federal Appellate Court to Honor Assignment of Benefits in ERISA Plans

The 3d Circuit Court of Appeals heard argument in the matter of North Jersey Brain & Spine Center v. Aetna on November 21 MSNJ joined with the AMA to file a "friends of the court" brief in this case. At issue is whether the medical practice has standing to sue Aetna for payments that were assigned by patients with self-insured ERISA health plans.  Also at issue is whether any particular "magic words" must be part of the assignment language. While most federal district trial courts in New Jersey have found that physicians have derivative standing to pursue an ERISA claim for payment benefits, the lower court in this case did not. A ruling from the 3d Circuit Court of Appeals would settle the split of opinions and establish the rule in New Jersey.  All of the physicians in the North Jersey Brain & Spine Center are members of MSNJ. We appreciate the support of the AMA Litigation Center on this issue that is important to physicians in New Jersey and nationwide. 

Statute of Limitations on False Claims Act Under Review

This winter the United States Supreme Court will decide whether physicians who provide services under Medicare and other federal programs may be sued under the False Claims Act indefinitely. At issue is whether such claims are time-barred by the existing six year statute of limitations. In a "friends of the court" brief, the AMA argues that failing to enforce the existing statute of limitations could result not only in indefinite exposure, but also repeated exposure to lawsuits. Penalties under the False Claims Act are significant, a minimum of $5,000 per claim. Read the AMA Wire article

Affordable Care Act Updates

The United States Supreme Court has decided to hear King v. Burwell a case that addresses subsidies under the Affordable Care Act (ACA). At issue is whether subsidies are available to patients who procure insurance on exchanges that are run by the federal government rather than by the state. Many states, like New Jersey, have not established their own exchanges. The Administration has taken the position that purchasers of health insurance on exchanges, whether administered by the state or the federal government, are entitled to the subsidies even though the language in the ACA is limited to those enrolled “through an exchange established by the state.” If subsidies are not available to those who purchase on the federally administered exchanges, many may find that insurance is no longer affordable.

There is considerable consternation over a loop-hole in the ACA that may allow employers to provide plans that do not include in-patient hospitalization. This occurs based on the calculation of the “minimum value” under the implementing regulations. The federal government plans to close this loop hole as soon as possible by proposing an amendment to the regulations that “a plan will not provide minimum value if it excludes substantial coverage for in-patient hospitalization services or physician services (or both).”

 

September 11, 2014 Legal Update:

MSNJ Legal Team Protects Physicians Rights in Class Action Settlement
On July 9, the New Jersey Federal District Court granted final approval to a settlement agreement reached in the case of McDonough v. Horizon. The case was brought by Horizon subscribers and the New Jersey Psychological Association, who alleged that the Ingenix data-base and Horizon's calculation of fees for out-of-network psychologists were insufficient. The plaintiff class excluded physicians, but was of concern to MSNJ because of the broad release provision. Prior to the fairness hearing, MSNJ counsel negotiated to remove the release provision's revocation of patient assignment rights. This eliminated the concern that the proposed release might extinguish the rights of physicians to collect on out of network benefits assigned by Horizon patient/subscribers to their physicians. The final settlement agreement included the negotiated amendment.
The settlement was controversial because it did not include any monetary award for the patient/subscribers or the non-physician providers, but did provide $2.5 million in attorneys' fees. It did prohibit Horizon from using the Ingenix data-base and require it to develop more transparent information on the calculation of out of network fees. Physicians and medical societies who sought permission to intervene or appear as amici curiae in the case were denied based, in part, on the amended release provision that we were able to negotiate.

MSNJ Urges Federal Appellate Court to Honor Assignment of Benefits in ERISA Plans
On July 7 MSNJ joined with the AMA to file a "friends of the court" brief with the 3rd Circuit Court of Appeals in North Jersey Brain & Spine Center v. Aetna. At issue is whether the medical practice has standing to sue Aetna for payments that were assigned by patients with self-insured ERISA health plans. Also at issue is whether any particular "magic words" must be part of the assignment language. While most federal district trial courts in New Jersey have found that physicians have derivative standing to pursue an ERISA claim for payment benefits, the lower court in this case did not. A ruling from the 3d Circuit Court of Appeals would settle the split of opinions and establish the rule in New Jersey. All of the physicians in the North Jersey Brain & Spine Center are members of MSNJ. We appreciate the support of the AMA Litigation Center on this issue that is important to physicians in New Jersey and nationwide.

Court Rules Modified on Designation of Trial Counsel in Malpractice Cases
On April 17, 2014 MSNJ wrote to the Director of Courts in opposition to a proposed amendment to a New Jersey Court Rule, R. 4:25-4, which would have required courts to automatically waive trial counsel designations in medical malpractice cases after three years. We argued against an automatic waiver of designated counsel after three years and asked that judges have discretion to consider all the reasons for delay to ensure that physician defendants are able to be represented by their choice of counsel. Since even settlements of malpractices cases must be reported to the National Practitioner Data Base and the State Medical Practitioner Review Panel, we argued that the only way for physicians to avoid permanent harm to their reputation is to litigate to a successful conclusion. The amended court rule states that the waiver shall only "presumptively expire" after three years. This will preserve judicial discretion allowing the judge to decide whether the designation of counsel expires after three years and permitting physicians to be represented by their designated counsel if good cause can be shown. The rule becomes effective on January 1, 2015.

New Jersey Courts Continue to Dismiss Medical Malpractices Cases based on Tort Reform Legislation
The New Jersey courts are correctly interpreting a provision of the tort reform law advocated by MSNJ a decade ago. This is resulting in many medical malpractice suits against physicians being dismissed for failure to provide an expert qualified to opine on the defendant’s alleged deviation from the standard of care. The statute requires that a medical malpractice plaintiff’s expert must match the board certification of the defendant. However, the courts did not always interpret the law in that way. MSNJ filed an amicus brief in the New Jersey Supreme Court in the Nicholas v. Mynster case. The high court agreed with our interpretation of the statutory provision. This is an example of MSNJ’s tenacity over the long-haul to achieve and implement tort reform. We are aware of a number of cases being dismissed for failure to match the qualifications of the defendant. We are not aware of any cases being decided incorrectly.

NJ Supreme Court Requires Same Specialty Expert in Medical Liability Lawsuits-

Position Urged by MSNJ

The New Jersey Supreme Court ruled in Nicholas v. Mynster, a medical liability lawsuit, in which MSNJ and AMA filed an amicus--friends of the court-brief. The high court agreed with our position that a challenging expert must be board certified in the same specialty as a board certified defendant. In doing so, the court adopted a " kind-for-kind" specialty requirement. According to Melinda Martinson, General Counsel of MSNJ, "physicians can now be assured that an expert testifying against them in a medical malpractice case will be qualified on the applicable standard of care and whether there was a deviation from the standard resulting in injury." The court recognized that competency to treat a condition is not the same as the qualifications required by statute to testify to the applicable standard of care.

 

The court interpreted the plain language of the statute that specifies the qualifications of a testifying expert necessary to carry out the clear intent of the Legislature when it enacted the "New Jersey Medical Care Access and Responsibility and Patients First Act" in 2004. MSNJ worked hard to pass the legislation that included the standards for experts testifying in medical malpractice cases. Our efforts were necessary to address sky-rocketing professional liability premiums driven by lawsuits that were without merit. Read the court's opinion.

 

MSNJ appreciates the support of the AMA Litigation Center in joining our brief written by John Zen Jackson and Cecylia K. Hahn of McElroy, Deutsch, Mulvaney & Carpenter.