Ninth Circuit Takes Broad View of What Is Required for a Licensee to Be “Independent”

On July, 23, 2018 a three-judge panel in the Ninth Circuit issued a decision in Obidi v. Wal-Mart Stores, Inc. (Case No. 17-55539), holding that a class-action suit against Wal-Mart and FirstSight Vision Services, Inc., a vision-only health care plan, can proceed on the theory that the defendants violated various California consumer protection laws by advertising “Independent Doctors of Optometry” that were, in fact, controlled by Wal-Mart and FirstSight. Though the decision is a narrow one (addressing only whether the plaintiffs have standing to sue), its reasoning could be relevant for how retail clinics and other corporate entities structure their relationships with physicians and other licensees to comply with state corporate practice of medicine (“CPOM”) rules.

Background of the Case

Wal-Mart stores across the country include on-site “Vision Centers” that offer basic eye exams, contacts, and prescription glasses. In California, Wal-Mart is registered as an optician and leases space in its stores to FirstSight, a licensed vision health plan. FirstSight, in turn, subleases this space to individual optometrists who charge patients directly. Wal-Mart and FirstSight advertised that the Vision Centers were staffed by “Independent Doctors of Optometry.” A former patient filed a putative class-action suit alleging Wal-Mart and FirstSight violated California’s Unfair Competition Law because (a) the defendants falsely advertised that the optometrists were “independent” and (b) the business arrangement between Wal-Mart and FirstSight was an unlawful relationship between an optometrist and an eyeglass retailer.

The plaintiff alleged that she would not have purchased an eye exam if she had known that the optometrist was not “independent.” The Ninth Circuit considered the key question to be whether the plaintiff had “adequately alleged that her optometrist lacked independence.” The court answered in the affirmative, relying on various provisions in the leasing arrangement that, as a whole, indicated that “Wal-Mart and FirstSight were able to exercise undue influence over all their resident optometrists.” Evidence of such “undue” influence included Wal-Mart “setting rent as a percentage of revenue, prescribing minimum operating hours, and permitting the lessor to terminate leases at will.” The court also noted that there was anecdotal evidence that optometrists at other Wal-Mart locations were constrained in the rates they could charge and the therapies they could recommend.

However, the Ninth Circuit affirmed the dismissal of the claims based on violations of California laws that prohibited, among other things, retailers from directly or indirectly employing or maintaining an optometrist in stores that sell eyewear. The court reasoned that the plaintiff “fail[ed] to establish how her injury was fairly traceable to the purported statutory violations.” Continue Reading

Health Care Consolidation: Keeping Patients in Mind

According to a recent report from the Health Research Institute at PricewaterhouseCoopers, there were 255 health care merger and acquisition deals in Q2 of 2018. Though this number represents an overall reduction in health care deals over Q1, as evidenced by CVS’s proposed $69 billion merger with Aetna and Cigna’s merger with Express Scripts, the broader trend toward consolidation in health care continues.

Given the potential benefits of consolidation, it is no surprise that merger and acquisition activity is on the rise. A study by Charles River Associates (involving interviews with executives from 20 different hospital systems) indicated that hospital mergers result in reduced costs of capital and clinical standardization, leading to a 2.5 percent reduction in annual operating expenses per admission at acquired hospitals. According to the study, the average annual operating expense of the merging hospitals in the study, approximately $235 million, implied a merger-related annual savings of $5.8 million at each hospital.

Though consolidation offers many benefits, questions remain about whether consolidation, at least in its current form, will lead to lower-cost care for patients. A study analyzing consolidation in California found that consumers in health care markets in Northern California, which are “considerably more concentrated” than Southern California, pay 20 to 30 percent more for medical procedures than residents in Southern California. Even after cost-of-living adjustments, the study found that residents are paying 32 percent more for inpatient care, 28 percent more for outpatient care, and nearly 10 percent more in premiums. Some wonder whether increasing patient costs in these concentrated markets are a sign of what is to come if consolidation continues; as large medical groups become the norm, will it become more difficult for insurance companies to negotiate lower rates? Continue Reading

Proposed Medicare E/M Payment Overhaul Draws Mixed Reviews

Touted as a major step in its efforts toward Medicare modernization, CMS issued a proposed Physician Fee Schedule rule on July 12, 2018 that would, in part, gut the current five-tier structure for Evaluation and Management (“E/M”) codes and collapse levels 2 through 5 down to one payment rate. The proposed payment overhaul, coupled with changes in the documentation required to support certain claims for reimbursement, is geared toward simplifying the Medicare billing rules and reducing the administrative burden for physicians so that they can focus on patient care.

E/M services comprise about 40% of the charges approved by Medicare under the physician fee schedule, with office visits representing half of that amount. Currently, documentation for these visits must comply with rigorous Documentation Guidelines that require a record of all clinically relevant information, as well as justification for medical necessity and appropriateness. There are five visit levels in each new patient and established patient E/M code family, and documentation must justify the code level being billed. Each visit level is tied to a different reimbursement rate reflecting different levels of service complexity and time spent.

The proposed rule would retain the existing CPT coding structure, but provide for a single, blended reimbursement rate for both new and established patients for outpatient E/M level 2 through 5 office visits. Add-on codes will be available to reflect additional resources involved in providing complex primary care and non-procedural services. The documentation standards for more complex office visits would be reduced to the amount required for a level 2 visit. While many providers would continue to document justification for higher levels of care, in part because of non-Medicare payers, CMS asserts that the change would provide immediate relief from the need to “audit against the visit levels.” The single work RVU for the collapsed office visit category would fall somewhere between the current level 2 and level 5 amounts. The following example is provided in the proposed rule:

Preliminary Comparison of Payment Rates for Office Visits, New Patients

HCPCS Code CY 2018 Non-facility
Payment Rate
CY 2018 Non-facility
Payment Rate under the
proposed methodology
99201 $45 $44
99202 $76 $135
99203 $110
99204 $167
99205 $211

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ACA Debate Intensifies Ahead of Midterm Elections

Ten Republican Senators have introduced a bill that they say will require health insurers to cover pre-existing conditions if the Affordable Care Act (“ACA”) is invalidated. Critics counter that the bill offers little actual protection. Like the ACA, it would prohibit insurers from denying enrollment based on pre-existing conditions, but unlike the ACA, it would not require insurers to cover the conditions themselves.

The bill is the latest volley in an ongoing battle over the fate of the ACA. Here are some key steps that set the stage:

  • The 2017 tax bill eliminated the ACA tax penalty on individuals who do not have health insurance, effective as of 2019. This is one of two elements that has brought more healthy people into the individual market; the other is subsidized plans for those in lower income brackets.
  • In April 2018, CMS and HHS issued a rule permitting states to establish the levels of coverage insurers must offer in their health plans. Federal law no longer requires insurers to cover all of the ACA’s “essential health benefits.”
  • This month, hearings in Texas v. United States begin. A group of 20 states will argue that the tax penalty is a constitutional linchpin of the ACA, without which the law is invalid. The states also are asking for a preliminary injunction to halt operation of the ACA while the case is litigated. Seventeen states have filed an opposing motion.
  • The Justice Department is not defending the ACA in the Texas case. It has suggested that without the tax penalty, some parts of the ACA may still be valid, but the individual mandate, the pre-existing condition coverage requirement, and the prohibition on charging higher premiums based on medical history are not.

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