By Joseph Laska, Charles Weir and Ji Won Kim

Law360 (June 5, 2020, 6:13 PM EDT )

Joseph Laska

Charles Weir

This article explores what we see as some key health care litigation trends and issues. Without a doubt, COVID-19 will have both immediate and long-term effects on the way we live and work. Health care litigation, like all litigation, will be altered.

Given the direct impact the crisis has had on the health care system, the COVID-19 crisis is likely to present unique challenges and increased litigation for health care entities. This article touches on a few of those issues. And since there will be a time when COVID-19 no longer dominates the news cycle and how we work, the article also looks at some key topics beyond COVID-19.

COVID-19: Immediate Challenges

In the immediate term, we face the realities of working and litigating remotely. Access to the court system has been limited — courts were estimated to be working at about 25% of their capacity, and many cases have been continued. Generally, courts have been holding only essential hearings telephonically, if hearings are held at all. In addition to restrictions placed by courts, limitations on traveling and in-person events are leading parties to postpone depositions, which in turn affects briefing schedules. Parties are also forced to reconsider mediation and arbitration options.

A workforce that is mostly remote poses additional challenges for parties' standard document preservation and collection processes. Litigants must be mindful that documents created or stored off-premises (e.g., by relevant employees working at home) are still subject to any litigation holds.

A host of data security issues follow various changes stemming from COVID-19. Given the wide use of remote communications including video conferences, questions about the security of those remote communication programs have caused concern. It is important for litigants to recognize that various privacy laws and regulations under the Health Insurance Portability and Accountability Act continue to apply in many contexts.

Although government agencies have announced a number of temporary changes to HIPAA enforcement, those are generally not designed to address challenges arising from litigation-related disclosures.[1]

For example, the April 2 announcement of the U.S. Department of Health and Human Services limits application of its enforcement discretion to permit business associates to use and disclose protected health information to the use and disclosure outside the scope of the applicable business associate agreements only for purposes of public health or health oversight activities.[2] This means any protective orders or applicable business associate agreements should be reviewed to ensure coverage of all vendors or third parties.

Apart from the immediate-term issues presented to many types of litigants, COVID-19 has also created new areas of potential liability for those in the health care sector.

COVID-19: Potential Provider Liability Areas

Providers can expect to see their liability risks rise in a number of areas.

First, the Provider Relief Fund involves the distribution of billions of dollars in aid to health care providers. To get the aid, providers have to certify that they have met certain conditions. As discussed later in this article, the health care industry is most sought after in False Claims Act cases and recoveries. The Provider Relief Fund program may play a role in continuing this trend.

Special attention will need to be paid to the compliance and certification requirements. Those efforts could prove all the more challenging given the manner in which funds were distributed and certification of compliance is being submitted. Since, in many cases, payment will precede certification, potential reverse false claims liability could come into play.

Second, the potential for data breaches resulting from cyberattacks targeting providers may eventually give rise to class actions.

Third, we are already seeing movement in the employment realm, where providers' employees allege claims regarding employment protections.[3]

Fourth, providers will be facing claims related to the Emergency Medical Treatment and Labor Act.

Last, standard-of-care issues will remain a key risk area for providers as COVID-19 continues to put pressure on providers.

COVID-19: Potential Payer Liability Areas

The wave of laws, regulations, orders and guidance issued in reaction to the COVID-19 crisis will give rise to increased risk for payers. The new directives cover a wide range of topics, including cost-sharing for COVID-19 testing and care, telehealth coverage, preauthorization and utilization review, network adequacy, prescription drug access, surprise medical bills protection, and communication to consumers and providers, among others.

Each new directive gives rise to potential disputes over enforceability, interpretation and compliance. These disputes are likely to lead to litigation, which could be brought by agencies or private litigants.

COVID-19: Immunity and Waivers

States have already begun providing varying levels of immunity. For example, states like New York, New Jersey and Massachusetts led the way with legislation, to be followed by many others. States including Michigan, Illinois and Connecticut quickly put executive orders in effect, also to be followed by many others.

In addition, federal agencies have announced a number of regulatory waivers, such as administrative waivers to increase medical service access during a national emergency (known as 1135 waivers) and waivers pertaining to the physician self-referral laws (known as the Stark Law), Emergency Medical Treatment and Labor Act and HIPAA requirements.

Litigation Trends Involving Providers — Focus on the False Claims Act

While COVID-19 will continue to dominate the healthcare landscape in the near term, FCA liability in the health care space is not going away during or after the crisis. For years now, actions under the FCA involving health care have constituted a significant part of the U.S. Department of Justice's activities. In 2019, the DOJ's False Claims Act recoveries exceeded $3 billion, $2.6 billion of which came from the healthcare industry.[4] A significant amount of the recoveries came from whistleblowers, also known as relators.[5]

Materiality

Following the Supreme Court's assessment of materiality in Escobar,[6] the concept continues to evolve. In Escobar, the U.S. Supreme Court explained that "[a] misrepresentation about compliance with a statutory, regulatory, or contractual requirement must be material to the Government's payment decision in order to be actionable under the FCA."[7]

The Supreme Court also made clear that the materiality standard is rigorous[8] and demanding.[9] No materiality is established "where noncompliance is minor or insubstantial."[10]

Since Escobar, many lower courts have struggled to consistently apply the materiality test. For instance, in Godecke v. Kinetic Concepts Inc., the U.S. Court of Appeals for the Ninth Circuit explained that alleging incompliance with extensively negotiated local coverage determinations governing Medicare reimbursement rules was sufficient to establish materiality regardless of the government's treatment of similar violations.[11]

On the other hand, the U.S. Court of Appeals for the Tenth Circuit in Janssen v. Lawrence Memorial Hospital held that "Escobar focuses the materiality inquiry on the likely reaction of the recipient."[12] Thus, allegedly false statements such as administrative procedures or certification of compliance that did not affect the government's decision to pay Medicare claims failed to establish materiality.

Despite the apparent circuit splits on the application of Escobar, the Supreme Court repeatedly passed on the opportunity to further clarify the discrepancies. This battle over the scope and meaning of Escobar will undoubtedly continue in the lower courts.

Local Coverage Determinations

Another area that we believe will continue to be contested in many cases is the impact of local coverage determinations on FCA liability. After the Supreme Court's ruling in Azar v. Allina Health Services,[13] the HHS issued a memorandum in October 2019 regarding Allina's impact (known as the Cleary Memorandum).[14]

There, the HHS asserted that local coverage determinations alone cannot form the basis of an FCA claim. However, as noted above, local coverage determinations have come into play in analyzing aspects of an FCA claim.[15]

Medical Necessity

In addition, there has been an increase in cases examining medical necessity. While the FCA is not intended to address disagreements in treatment opinions and medical malpractice, courts have grappled with the concept of falsity regarding medical necessity. Recently, the Ninth Circuit in Winter v. Gardens Regional Hospital, for example, determined that false certification of medical necessity can give rise to FCA liability.[16] Winter indicates that there is a relatively relaxed standard for alleging falsity in medical necessity cases.

On the other hand, in U.S. v. AseraCare Inc., the Eleventh Circuit held that to give rise to FCA liability, the underlying clinical judgment must reflect an objective falsehood.[17]

Stark Law and Anti-Kickback Statute

Stark Law and Anti-Kickback Statute violations also continue to be an essential part of government enforcement and civil actions. This trend is likely to continue.

The latest case of note is Bookwalter v. U. Pittsburgh Medical Center in the U.S. Court of Appeals for the Third Circuit.[18] The Third Circuit held that (1) the relators plausibly allege that the surgeons' pay is so high that it must take their referrals into account; and (2) "[t]he Stark Act's exceptions work like affirmative defenses in litigation" where "[t]he burden of pleading these affirmative defenses lies with the defendant ... even under the False Claims Act."[19] This remains the law in the Third Circuit as the petition for Supreme Court review was recently denied.[20]

On the regulatory front, in October 2019 the HHS proposed rule changes to the regulations that interpret the Stark Law and the Federal Anti-Kickback Statute.[21] Most notably, the proposed changes included creating value-based exceptions under the Stark Law, acknowledging that "incentives are different in a healthcare system that pays for value, rather than the volume, of services provided." The proposed changes also attempted to clarify coordination-of-care issues.

Government's Power to Dismiss

Recent cases have created further confusion over the government's power to dismiss FCA cases. A January 2018 internal memorandum from the DOJ Director of Commercial Litigation Branch, Fraud Section, Michael D. Granston (now known as the Granston memo) laid out the factors for evaluating dismissal of qui tam actions. Among the factors were interests of curbing meritless suits, preventing interference with agency policy, and safeguarding classified information and national interests.[22]

Meanwhile, appellate courts over the years have split over the DOJ's power to dismiss FCA suits filed by whistleblowers. On one hand, the U.S. Court of Appeals for the District of Columbia Circuit held that the FCA "give[s] the government an unfettered right to dismiss [a qui tam] action."[23] On the other hand, the Ninth Circuit held that the government must initially show that dismissal is rationally related to a valid purpose, after which the relator bears the burden to show the decision to dismiss is fraudulent, illegal, or arbitrary and capricious.[24]

Despite the long-standing confusion, the Supreme Court has continued to decline to resolve the discrepancy, as recently as April 2020.[25]

Investor Liability

Another interesting FCA-related trend is that relators are increasingly seeking to extend civil liability to owners and investors of corporate defendants. For instance, in Martino-Fleming v. South Bay Mental Health Center, the U.S. District Court for the District of Massachusetts is considering what it means to cause the submission of a false claim in a proceeding against the private equity ownership of several mental health centers.

Earlier in September 2019, the DOJ also settled United States ex rel. Medrano and Lopez v. Diabetic Care Rx LLC, d/b/a Patient Care America, et al., which involved a private equity firm that managed Patient Care America on behalf of investors.[26]

Litigation Trends Involving Payers — Mental Health Parity Litigation Continues to Expand

In the past five years there have been seemingly hundreds of lawsuits involving the Mental Health Parity and Addiction Equity Act. These cases have been concentrated in California, Utah, Illinois, New York, Pennsylvania and New Jersey. Many of these cases arise under the Employee Retirement Income Security Act.

Most of the cases concern coverage for residential treatment and other facilities, and the claims focus on the MHPAEA's requirements for nonquantitative treatment limitations. In particular, the disputes involve coverage exclusions and medical necessity criteria and guidelines. The medical necessity criteria and guidelines are often challenged as being inconsistent with generally accepted standards[27] or not comparable to analogous medical/surgical criteria and guidelines.

Recently, MHPAEA disputes are expanding into new areas such as rates paid to providers. Despite the growing trend, there is still no significant appellate guidance. In fact, no federal appellate court has addressed a pleading standard for MHPAEA claims specifically.

Notable Recent Decisions

Recent cases of note include Julie L. v. Excellus Health Plan Inc.[28] The U.S. District Court for the Western District of New York granted the defendant's motion for summary judgment, including on a MHPAEA claim, because the plaintiff had not shown that the health plan "applied more rigorous medical necessity criteria when evaluating claims for mental health benefits."[29]

Citing to the examples in the MHPAEA regulations, the court held that "there is no ERISA violation simply because the application of the same evidentiary standards results in different benefits or coverage between mental health, substance abuse, medical or surgical conditions."[30]

Another notable recent decision was in Christine S. v. Blue Cross Blue Shield of N.M.[31] The U.S. District Court for the District of Utah concluded that plaintiffs may proceed simultaneously under ERISA Sections 1132(a)(1)(b) and 1132(a)(3) as long as there is no double recovery. The holding in this case was reinforced in Johnathan Z. v. Oxford Health Plans.[32] Although there is no relevant authority from the Tenth Circuit, these district court rulings follow the trend of relaxed pleading standards for MHPAEA claims from the Eighth and Ninth Circuits.[33]

Courts are also starting to diverge on the issue of plaintiffs' pleading obligations. In Kurt W. v. United Healthcare Ins. Co., the plaintiff alleged that the defendant's mental health guidelines were narrower than the analogous medical/surgical guidelines, and also that the defendant had failed to provide copies of the guidelines during the appeal process.

The plaintiff brought a claim under ERISA Section 1132(a)(3) for violation of MHPAEA, as well as a separate claim under ERISA Section 1132(c) seeking statutory penalties for failures to disclose records. The defendant moved to dismiss the MHPAEA claim for lack of specificity, and the plaintiff responded that, among other things, he could not provide more details because they would be found in the records that the defendant had allegedly failed to provide.

The Utah district court granted the defendant's motion to dismiss, but with leave to amend. The judge also invited the plaintiffs to list all documents that the plaintiffs contended had been wrongly withheld in the appeals process and indicated that he would order the defendants to produce the records within one week.[34]

Shortly after Kurt W., another judge in the Utah district court decided a motion to dismiss in Laurel R. v. United Healthcare Ins. Co., distinguishing Kurt W. and finding that the plaintiff should have used information available online (including the allegedly deficient coverage criteria) to include more specific allegations.[35]

The court granted the defendant's motion to dismiss the MHPAEA claim as insufficiently detailed.[36] Laurel R. shows that plaintiffs have an affirmative obligation to review publicly available information such as clinical criteria and to use it to craft specific factual allegations.

Finally, in Emch v. Community Insurance Company d/b/a Anthem Blue Cross and Blue Shield,[37] the U.S. District Court for the Southern District of Ohio held that the plaintiff had stated plausible ERISA claims based on the Ohio State Parity Act, because the ERISA plan incorporated the requirement that plans cover the "diagnosis and treatment of biologically based mental illnesses on the same terms and conditions as, and ... provide benefits no less extensive than those provided under the policy of sickness and accident insurance for the treatment and diagnosis of all other physical diseases and disorders ...."[38]

The court explained that the plaintiff had constitutional and statutory standing under ERISA to enforce provisions of state statutes incorporated into his plan.

Cases to Watch

Of the many pending MHPAEA cases that have the potential to be significant, we are watching two particularly closely — both ERISA class actions filed by the attorneys behind the much-publicized Wit v. United Behavioral Health case.

In the U.S. District Court for the Northern District of California, an action filed in October 2018, Smith v. UBH, challenges UBH's payment rates for out-of-network psychotherapists.[39] The plaintiffs allege that a plan provision reducing certain rates for certain out-of-network therapists is a discriminatory reimbursement penalty under ERISA and MHPAEA.

The court denied UBH's motion to dismiss, permitting three alternate theories—that the rate provision is a discriminatory Quantitative Treatment Limitation (QTL), a discriminatory nonquantitative treatment limitation or a discriminatory financial requirement.[40] The parties stipulated to a 90-day stay to explore settlement.[41]

And in the U.S. District Court for the Northern District of Illinois, the Wit attorneys brought an action against Health Care Service Corporation in October 2019 — Smith v. HCSC and MCG Health LLC.[42] The plaintiffs challenge the level-of-care criteria for residential treatment for mental health and substance use disorder treatment — in this case, the 23rd edition of the Milliman Care Guidelines.

The complaint originally named MCG Health LLC, which publishes the guidelines, but the parties voluntarily dismissed MCG Health on March 3.[43] Nonetheless, the remaining claims against HCSC still allege that the MCGs are more restrictive than generally accepted standards of medical practice. This claim is significant because many payers nationwide use the MCGs to administer claims, not just for mental health but also for medical and surgical services. HCSC's motion to dismiss the March 2020 second amended complaint is pending.[44]

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Joseph Laska and Charles Weir are partners, and Ji Won Kim is an associate, at Manatt Phelps & Phillips LLP.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] COVID-19 & HIPAA Bulletin Limited Waiver of HIPAA Sanctions and Penalties During a Nationwide Public Health Emergency (Mar. 2020), available at https://www.hhs.gov/sites/default/files/hipaa-and-covid-19-limited-hipaa-waiver-bulletin-508.pdf.

[2] Notification of Enforcement Discretion under HIPAA to Allow Uses and Disclosures of Protected Health Information by Business Associates for Public Health and Health Oversight Activities in Response to COVID-19 (Apr. 2020), available at https://www.hhs.gov/sites/default/files/notification-enforcement-discretion-hipaa.pdf.

[3] The class action brought by the Nurses Union in New York for inadequate protection amid COVID-19 was recently dismissed, as reported in https://www.law360.com/employment/articles/1270018/ny-hospital-escapes-nurses-union-s-covid-19-safety-suit.

[4] DOJ Press Release, "Justice Department Recovers over $3 Billion from False Claims Act Cases in Fiscal Year 2019" (Jan. 2020), available at https://www.justice.gov/opa/pr/justice-department-recovers-over-3-billion-false-claims-act-cases-fiscal-year-2019.

[5] Id.

[6] 136 S. Ct. 1989 (2016).

[7] Id. at 1994.

[8] Id. at 1996.

[9] Id. at 2003.

[10] Id. at 2003.

[11] 937 F.3d 1201 (9th Cir. 2019).

[12] 949 F.3d 533, 541 (10th Cir. 2020).

[13] 139 S. Ct. 1804 (2019).

[14] Available at https://www.law360.com/articles/1222453/attachments/0.

[15] See Godecke, 937 F.3d 1201 (9th Cir. 2019).

[16] 953 F.3d 1108 (9th Cir. 2020).

[17] 938 F.3d 1278 (2019).

[18] 938 F.3d 397 (2019), as amended 946 F.3d 162 (2019).

[19] 946 F.3d at 166.

[20] UPMC, et al. v. U.S. ex rel. Bookwalter , No. 19-1149, 2020 WL 1978958 (U.S. Apr. 27, 2020) (denying certiorari).

[21] HHS Press Release, "HHS Proposes Stark Law and Anti-Kickback Statute Reforms to Support Value-Based and Coordinated Care" (Oct. 2019), available at https://www.hhs.gov/about/news/2019/10/09/hhs-proposes-stark-law-anti-kickback-statute-reforms.html.

[22] Available at https://assets.documentcloud.org/documents/4358602/Memo-for-Evaluating-Dismissal-Pursuant-to-31-U-S.pdf.

[23] Swift v. United States , 318 F.3d 250, 252 (D.C. Cir. 2003).

[24] United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp. , 151 F.3d 1139, 1145 (9th Cir. 1998).

[25] Schneider v. JPMorgan Chase , No. 19-678, 2020 WL 1668623 (U.S. Apr. 6, 2020) (denying certiorari).

[26] DOJ Press Release, "Compounding Pharmacy, Two of Its Executives, and Private Equity Firm Agree to Pay $21.36 Million to Resolve False Claims Act Allegations" (Sept. 2019), available at https://www.justice.gov/opa/pr/compounding-pharmacy-two-its-executives-and-private-equity-firm-agree-pay-2136-million.

[27] Wit v. United Behavioral Health , Case No. 14-cv-02346-JCS, Related Case No. 14-cv-05337 JCS, 2019 WL 1033730 (N.D. Cal. Mar. 5, 2019) (finding that UBH had breached its fiduciary duty and wrongfully denied benefits to class members).

[28] Case No. 6:18-CV-06753 EAW, 2020 WL 1307868 (W.D.N.Y. Mar. 19, 2020).

[29] Id. at *16.

[30] Id. at *15.

[31] --- F. Supp. 3d ---, 2019 WL 6974772 (D. Utah Dec. 19, 2019).

[32] 2020 WL 607896 (D. Utah Feb. 7, 2020).

[33] Moyle v. Liberty Mut. Retirement Ben. Plan , 823 F.3d 948 (9th Cir. 2016) and Silva v. Metro. Life Ins. Co., 762 F.3d 711 (8th Cir. 2014).

[34] 2019 WL 6790823 (D. Utah Dec. 12, 2019).

[35] 2020 WL 570257 (D. Utah Feb. 5, 2020).

[36] Id.

[37] 2019 WL 5538196 (S.D. Ohio Oct. 25, 2019).

[38] Ohio Rev. Code § 3923.281(B).

[39] No. 4:18-cv-06336-HSG (N.D. Cal.).

[40] No. 4:18-cv-06336-HSG, Dkt 50 Order re Motion to Dismiss.

[41] No. 4:18-cv-06336-HSG, Dkt 93 Order Granting Stipulation.

[42] No. 1:19-cv-07162 (N.D. Ill.).

[43] No. 1:19-cv-07162, Dkt 58 Minute Order re Motion to Dismiss.

[44] No. 1:19-cv-07162, Dkt 68 Order giving plaintiff until 6/15/2020 to respond and HCSC until 7/3/2020 to reply [subject to change per Dkt 70 Order Directing defendant to respond to plaintiff's motion to alter briefing schedule].

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